10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2019

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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.001 par value	DZSI	The Nasdaq Stock Market LLC

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  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).     Yes  ☒    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 an 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.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		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 ☒

As of November 12, 2019, there were 21,388,445 shares outstanding of the registrant’s common stock, $0.001 par value.

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Unaudited Condensed Consolidated Balance Sheets	3
	Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)	4
	Unaudited Condensed Consolidated Statements of Stockholders' Equity and Non-Controlling Interest	5
	Unaudited Condensed Consolidated Statements of Cash Flows	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	38
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 5.	Other Information	40
Item 6.	Exhibits	40
	Signatures	42

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

DASAN ZHONE SOLUTIONS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except par value)

	September 30, 2019			December 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	47,851		$	27,709
Restricted cash		4,448			7,003
Accounts receivable, net
Third parties		100,613			71,034
Related parties		252			583
Other receivables
Suppliers and others		8,002			12,923
Related parties		1			65
Contract assets		9,351			11,381
Inventories		43,046			33,868
Prepaid expenses and other current assets		6,253			4,185
Total current assets		219,817			168,751
Property, plant and equipment, net		6,575			5,518
Right-of-use assets from operating leases		18,349			—
Goodwill		3,977			3,977
Intangible assets, net		14,539			5,649
Deferred tax assets		1,691			2,752
Long-term restricted cash		501			936
Other assets		2,784			2,424
Total assets	$	268,233		$	190,007
Liabilities, Stockholders’ Equity and Non-controlling Interest
Current liabilities:
Accounts payable - trade
Third parties	$	43,320		$	36,865
Related parties		96			1,743
Short-term debt - bank and trade facilities		34,606			31,762
Other payables
Third parties		1,652			1,792
Related parties		2,711			1,281
Contract liabilities - current		3,609			8,511
Operating lease liabilities - current		3,496			—
Accrued and other liabilities		10,389			11,517
Total current liabilities		99,879			93,471
Long-term debt
Bank and trade facilities		10,407			—
Related party		9,049			14,142
Contract liabilities - non-current		2,597			1,801
Deferred tax liabilities		1,021			—
Operating lease liabilities - non-current		15,957			—
Pension liabilities		13,269			—
Other long-term liabilities		1,658			2,739
Total liabilities		153,837			112,153
Commitments and contingencies (Note 15)
Stockholders’ equity and non-controlling interest:
Common stock, authorized 36,000 shares, 21,388 and 16,587 shares outstanding as    of September 30, 2019 and December 31, 2018, respectively, at $0.001 par value		21			16
Additional paid-in capital		138,860			93,192
Accumulated other comprehensive loss		(5,445	)		(192	)
Accumulated deficit		(19,040	)		(15,777	)
Total stockholders’ equity		114,396			77,239
Non-controlling interest		—			615
Total stockholders’ equity and non-controlling interest		114,396			77,854
Total liabilities, stockholders’ equity and non-controlling interest	$	268,233		$	190,007

See accompanying notes to unaudited condensed consolidated financial statements.

3

DASAN ZHONE SOLUTIONS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands, except per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Net revenue:
Third parties	$	71,292		$	70,227		$	227,407		$	203,317
Related parties		232			1,687			1,870			4,358
Total net revenue		71,524			71,914			229,277			207,675
Cost of revenue:
Products and services - third parties		48,755			46,852			151,805			135,208
Products and services - related parties		190			1,478			1,427			3,677
Amortization of intangible assets		402			153			1,216			459
Total cost of revenue		49,347			48,483			154,448			139,344
Gross profit		22,177			23,431			74,829			68,331
Operating expenses:
Research and product development		9,898			8,655			29,512			26,346
Selling, marketing, general and administrative		15,716			11,106			45,684			35,212
Amortization of intangible assets		464			131			1,406			393
Total operating expenses		26,078			19,892			76,602			61,951
Operating income (loss)		(3,901	)		3,539			(1,773	)		6,380
Interest income		374			42			524			203
Interest expense		(1,124	)		(447	)		(3,239	)		(1,330	)
Other income (loss), net		944			(572	)		2,517			(859	)
Income (loss) before income taxes		(3,707	)		2,562			(1,971	)		4,394
Income tax provision		289			735			1,098			1,071
Net income (loss)		(3,996	)		1,827			(3,069	)		3,323
Net income attributable to non-controlling    interest		37			29			194			2
Net income (loss) attributable to DASAN    Zhone Solutions, Inc.		(4,033	)		1,798			(3,263	)		3,321
Foreign currency translation adjustments		(2,426	)		391			(4,123	)		(1,839	)
Actuarial gain (loss)		38			—			(1,115	)		—
Comprehensive income (loss)		(6,384	)		2,218			(8,307	)		1,484
Comprehensive income (loss) attributable to non-    controlling interest		31			16			209			(3	)
Comprehensive income (loss) attributable to DASAN    Zhone Solutions, Inc.	$	(6,415	)	$	2,202		$	(8,516	)	$	1,487
Net income (loss) per share attributable to DASAN    Zhone Solutions, Inc.
Basic	$	(0.19	)	$	0.11		$	(0.17	)	$	0.20
Diluted	$	(0.19	)	$	0.11		$	(0.17	)	$	0.20
Weighted average shares outstanding used to compute    basic net income (loss) per share		21,384			16,683			18,732			16,425
Weighted average shares outstanding used to compute    diluted net income (loss) per share		21,384			16,891			18,732			16,640

See accompanying notes to unaudited condensed consolidated financial statements.

4

DASAN ZHONE SOLUTIONS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Stockholders' Equity and Non-Controlling Interest

(In thousands, except per share data)

	Common stock				Additional paid-in			Accumulated other comprehensive			Accumulated			Total stockholders'			Non- controlling			Total stockholders' equity and non- controlling
	Shares		Amount		capital			income (loss)			deficit			equity			interest			interest
For the Nine-Month Period    Ended September 30, 2019:
Balance as of December 31,    2018		16,587	$	16	$	93,192		$	(192	)	$	(15,777	)	$	77,239		$	615		$	77,854
Stock-based compensation		9		—		825			—			—			825			—			825
Net income (loss)		—		—		—			—			(1,638	)		(1,638	)		181			(1,457	)
Other comprehensive loss		—		—		—			(1,124	)		—			(1,124	)		(1	)		(1,125	)
Balance as of March 31, 2019		16,596		16		94,017			(1,316	)		(17,415	)		75,302			795			76,097
Issuance of common stock in    public offering, net of issuance costs		4,718		5		42,504			—			—			42,509			—			42,509
Exercise of stock options and    restricted stock grant		55		—		473			—			—			473			—			473
Stock-based compensation		11		—		811			—			—			811			—			811
Net income (loss)		—		—		—			—			2,408			2,408			(24	)		2,384
Other comprehensive income (loss)		—		—		—			(1,748	)		—			(1,748	)		23			(1,725	)
Balance as of June 30, 2019		21,380		21		137,805			(3,064	)		(15,007	)		119,755			794			120,549
Purchase of non-controlling interest     in subsidiary		—		—		(127	)		—			—			(127	)		(823	)		(950	)
Stock-based compensation		8		—		1,182			—			—			1,182			—			1,182
Net income (loss)		—		—		—			—			(4,033	)		(4,033	)		37			(3,996	)
Other comprehensive loss		—		—		—			(2,381	)		—			(2,381	)		(8	)		(2,389	)
Balance as of September 30, 2019		21,388	$	21	$	138,860		$	(5,445	)	$	(19,040	)	$	114,396		$	—		$	114,396
For the Nine-Month Period    Ended September 30, 2018:
Balance as of December 31,    2017		16,410	$	16	$	90,198		$	1,871		$	(18,852	)	$	73,233		$	534		$	73,767
ASC 606 opening balance    adjustment		—		—		—			—			342			342			—			342
Exercise of stock options and    restricted stock grant		21		—		111			—			—			111			—			111
Stock-based compensation		—		—		363			—			—			363			—			363
Net income		—		—		—			—			107			107			34			141
Other comprehensive income		—		—		—			257			—			257			30			287
Balance as of March 31, 2018		16,431		16		90,672			2,128			(18,403	)		74,413			598			75,011
ASC 606 opening balance    adjustment		—		—		—			—			(1	)		(1	)		—			(1	)
Exercise of stock options and    restricted stock grant		19		—		77			—			—			77			—			77
Stock-based compensation		—		—		377			—			—			377			—			377
Net income		—		—		—			—			1,416			1,416			(61	)		1,355
Other comprehensive loss		—		—		—			(2,527	)		—			(2,527	)		(22	)		(2,549	)
Balance as of June 30, 2018		16,450		16		91,126			(399	)		(16,988	)		73,755			515			74,270
Exercise of stock options and    restricted stock grant		116		—		665			—			—			665			—			665
Stock-based compensation		—		—		617			—			—			617						617
Net income (loss)		—		—		—			—			1,798			1,798			29			1,827
Other comprehensive income (loss)		—		—		—			404			—			404			(13	)		391
Balance as of September 30, 2018		16,566	$	16	$	92,408		$	5		$	(15,190	)	$	77,239		$	531		$	77,770

See accompanying notes to unaudited condensed consolidated financial statements.

5

DASAN ZHONE SOLUTIONS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)

	Nine Months Ended
	September 30,
	2019			2018
Cash flows from operating activities:
Net income (loss)	$	(3,069	)	$	3,323
Adjustments to reconcile net income (loss) to net cash    used in operating activities:
Depreciation and amortization		4,110			2,033
Amortization of deferred financing costs		453			—
Bargain purchase gain on acquisition		(334	)		—
Stock-based compensation		2,818			1,357
Provision for inventory write-down		2,289			753
Allowance for doubtful accounts		148			2
Provision for sales returns		413			839
Unrealized loss (gain) on foreign currency transactions		(2,080	)		226
Deferred taxes		884			(56	)
Changes in operating assets and liabilities:
Accounts receivable		(29,724	)		(15,377	)
Contract assets		819			(5,984	)
Inventories		(3,454	)		(21,967	)
Prepaid expenses and other assets		3,859			(1,958	)
Accounts payable		9,275			24,790
Contract liabilities		(4,246	)		—
Accrued and other liabilities		(4,049	)		(3,695	)
Net cash used in operating activities		(21,888	)		(15,714	)
Cash flows from investing activities:
Purchases of property, plant and equipment		(1,461	)		(753	)
Proceeds from disposal of property and equipment and other assets		—			1
Acquisition of business, net of cash acquired		(4,697	)		—
Net cash used in investing activities		(6,158	)		(752	)
Cash flows from financing activities:
Proceeds from issuance of common stock in public offering, net of issuance costs		42,509			—
Proceeds from short-term borrowings and line of credit		25,884			61,419
Repayments of short-term borrowings and line of credit		(38,486	)		(48,739	)
Proceeds from long-term borrowings		25,000			—
Repayments of long-term borrowings		(1,250	)		—
Proceeds from related party term loan		—			6,098
Repayments of related party term loan		(5,000	)		(4,460	)
Deferred financing costs		(1,998	)		—
Purchase of non-controlling interest		(950	)		—
Proceeds from exercise of stock options		473			853
Net cash provided by financing activities		46,182			15,171
Effect of exchange rate changes on cash, cash equivalents, and restricted cash		(984	)		(1,417	)
Net increase in cash, cash equivalents and restricted cash		17,152			(2,712	)
Cash, cash equivalents and restricted cash at beginning of period		35,648			31,412
Cash, cash equivalents and restricted cash at end of period	$	52,800		$	28,700
Reconciliation of cash, cash equivalents and restricted cash to statement of    financial position
Cash and cash equivalents	$	47,851		$	20,028
Restricted cash		4,448			7,825
Long-term restricted cash		501			847
	$	52,800		$	28,700

See accompanying notes to unaudited condensed consolidated financial statements.

6

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 ultra-broadband network access solutions and communications platforms deployed by advanced Tier 1, 2 and 3 service providers and enterprise customers. 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 900 customers in more than 80 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., a California corporation (“DNS”), 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 58% 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 with flexible in-house production facilities in Seminole, Florida and Hanover, Germany (acquired as part of the Keymile Acquisition (defined below) in January 2019), and contract manufacturers located in China, India, Korea and Vietnam. The Company also maintains offices to provide sales and customer support at global locations.          

(b) DNI Ownership

As of September 30, 2019, DNI owned approximately 44.4% of the outstanding shares of the Company's common stock.  As a result, DNI is able to significantly influence corporate and management policies and the outcome of any corporate transaction or other matter submitted to the Company’s stockholders for approval. Such transactions may include mergers and acquisitions, sales of all or some of the Company’s assets or purchases of assets, and other significant corporate transactions.  The interests of DNI may not coincide with the interests of the Company's other stockholders or with holders of the Company's indebtedness. See Note 11 and Note 15 to the unaudited condensed consolidated financial statements for additional information.

(c) Basis of Presentation

For a complete description of what the Company believes to be the critical accounting policies and estimates used in the preparation of its unaudited condensed consolidated financial statements, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do 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 presentation 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, 2018 filed with the Securities and Exchange Commission (“SEC”) on March 12, 2019.

(d) Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.

7

(e) Reclassifications

For the three and nine months ended September 30, 2018, certain previously reported statement of comprehensive income (loss) and statement of cash flows amounts have been adjusted for certain immaterial reclassifications to correctly reflect: (i) cost of products and services to related parties; and (ii) changes in accounts receivable and contract assets.  

(f) Revenue

The following table presents the revenues by source (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Revenue by source:
Products	$	66,447	$	68,787	$	214,890	$	198,830
Services		5,077		3,127		14,387		8,845
Total	$	71,524	$	71,914	$	229,277	$	207,675

The following summarizes required disclosures about geographical concentrations (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Revenue by geography:
United States	$	9,662	$	11,125	$	28,993	$	41,373
Canada		1,062		1,131		2,950		3,344
Total North America		10,724		12,256		31,943		44,717
Latin America		6,273		6,841		18,829		21,713
Europe, Middle East, Africa		15,838		10,425		59,429		27,264
Korea		20,877		19,609		55,682		50,844
Other Asia Pacific		17,812		22,783		63,394		63,137
Total International		60,800		59,658		197,334		162,958
Total	$	71,524	$	71,914	$	229,277	$	207,675

Contract Balances

The Company records contract assets when it has a right to consideration and records accounts receivable when it has an “unconditional” right to consideration. Contract liabilities consist of cash payments received (or unconditional rights to receive cash) in advance of fulfilling performance obligations.

The opening and closing balances of contract assets and contract liabilities related to contracts with customers are as follows:

	Contract Assets			Contract Liabilities
Opening, January 1, 2019	$	12,175		$	10,312
Closing, September 30, 2019		10,328			6,206
Decrease	$	(1,847	)	$	(4,106	)

The amount of revenue recognized in the three months ended September 30, 2019 that was included in the prior period contract liability balance was $1.7 million. The amount of revenue recognized in the nine months ended September 30, 2019 that was included in the January 1, 2019 contract liability balance was $7.3 million. This revenue consists of services provided to customers who had prepaid for those services prior to the current year.

8

(g) Concentration of Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents which totaled $47.9 million at September 30, 2019, including $7.4 million held by its international subsidiaries.  Cash and cash equivalents consist of financial deposits and money market accounts that are principally held with various domestic and international financial institutions with high credit standing.

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 months ended September 30, 2019, one customer accounted for 11% of net revenue. For the nine months ended September 30, 2019, no single customer accounted for 10% or more of net revenue.  For the three and nine months ended September 30, 2018, one customer accounted for 11% of net revenue.

As of September 30, 2019, two customers represented 17% and 12% of net accounts receivable, respectively. As of December 31, 2018, two customers represented 11% and 10% of net accounts receivable, respectively.

As of September 30, 2019 and December 31, 2018, receivables from customers in countries other than the United States represented 94% and 88%, respectively, of net accounts receivable.

(h) Business Combinations

The Company allocates the fair value of purchase consideration to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets and certain tangible assets such as inventory.

Critical estimates in valuing certain tangible and intangible assets include but are not limited to future expected cash flows from the underlying assets and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

(i) Defined Benefit Plans and Plan Assumptions

The Company provides certain defined benefit pension plans to employees in Germany. Pension accounting is intended to reflect the recognition of future benefit costs over the employees' average expected future service to the Company based on the terms of the plans and investment and funding decisions. To estimate the impact of these future payments and the Company’s decisions concerning funding of these obligations, the Company is required to make assumptions using actuarial concepts within the framework of U.S. GAAP. Two critical assumptions are the discount rate and the expected long-term return on plan assets. Other important assumptions include expected future salary increases, expected future increases to benefit payments, expected retirement dates, employee turnover, retiree mortality rates and portfolio composition. The Company evaluates these assumptions at least annually.

(j) Recent Accounting Pronouncements

Recent Accounting Pronouncements Adopted

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases as modified subsequently by ASUs 2018-01, 2018-10, 2018-11, 2018-20 and 2019-01 (“ASC 842”), which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. ASC 842 requires that lease arrangements longer than 12 months’ result in an entity recognizing an asset and liability, with respect to such lease arrangement, among other changes.

9

The Company adopted the new standard on January 1, 2019, the first day of fiscal 2019,using the modified retrospective approach whereby the cumulative effect of adoption was recognized on the adoption date and prior periods were not restated. There was no net cumulative effect adjustment to retained earnings as of January 1, 2019 as a result of this adoption. ASC 842 sets out the principles for the recognition, measurement, presentation and disclosure of leases.

The Company has elected to use a certain package of practical expedients permitted under the transition guidance within ASC 842. Those practical expedients are as follows:

• The Company did not reassess (i) whether expired or existing contracts contain leases under the new definition of a lease; (ii) lease classification for expired or existing leases; and (iii) whether previously capitalized initial direct costs would qualify for capitalization under ASC 842.

• The Company did not reassess a lease whose term is 12 months or less and does not include a purchase option that the lessee is reasonably certain to exercise.

• The Company did not elect to use hindsight for transition when considering judgments and estimates such as assessments of lessee options to extend or terminate a lease or purchase the underlying asset.

• For all asset classes, the Company elected to not recognize a right-of-use asset and lease liability for leases with a term of 12 months or less.

• For all asset classes, the Company elected to not separate non-lease components from lease components to which they relate and has accounted for the combined lease and non-lease components as a single lease component.

The Company applies significant judgment in considering all relevant factors that create an economic benefit (e.g., contract-based, asset-based, entity-based, and market-based, among others) as of the commencement date in determining the initial lease term and future lease payments. For example, the Company exercises judgment in determining whether renewal periods will be exercised during the initial measurement process. If the Company believes it will exercise the renewal option, and the lease payments associated with the renewal periods are known or calculable, such renewal lease payments would be included in the initial measurement of the lease liability. Otherwise, even if the Company believes that it will exercise the renewal period, if the renewal payments are unknown or not calculable, they would not be included until they become known or calculable at which time the Company would remeasure the remaining lease payments similar to a lease modification.

Adoption of ASC 842 resulted in the balance sheet recognition of right of use assets and lease liabilities of approximately $22.5 million as of January 1, 2019. Adoption of ASC 842 did not materially impact the Company’s unaudited condensed consolidated statements of comprehensive income (loss) and cash flows. See Note 14 in the notes to unaudited condensed consolidated financial statements.

Income Tax Effects within Accumulated Other Comprehensive Income

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”). The adoption of this standard on January 1, 2019 did not have a material impact on the Company’s condensed consolidated financial statements, since the Company did not elect to reclassify the income tax effects of the Tax Act from accumulated other comprehensive income to retained earnings.  

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-Retirement Benefit Cost

In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-Retirement Benefit Cost. The ASU requires the Company to disaggregate the service cost component from the other components of net periodic benefit costs and requires the Company to present the other components of net periodic benefit cost in other income, net. The standard is effective for annual and interim periods beginning after December 31, 2017, and retrospective application is required. The Company adopted this guidance during the first quarter of 2019 without any retrospective adjustments since the underlying pension obligations were acquired through the Keymile Acquisition in 2019. The interest cost, which is the only component of net periodic post-retirement cost, is recognized in Other income (loss), net in the condensed consolidated statement of comprehensive income (loss).

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Other Recent Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other Internal-Use Software - Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement. The update reduces complexity for the accounting for costs of implementing a cloud computing service arrangement and aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for annual and interim periods beginning after December 15, 2019, and retrospective or prospective application is permitted. We are currently evaluating the impact of adoption of this ASU, but it is not expected to have a material effect on our condensed consolidated financial statements.

In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the Company to measure and recognize expected credit losses for financial assets held and not accounted for at fair value through net income. In November 2018, April 2019 and May 2019, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, and ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief, which provided additional implementation guidance on the previously issued ASU. The updated guidance is effective for the Company on January 1, 2020, and requires a modified retrospective adoption method.  Early adoption is permitted.  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.

On August 28, 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), which removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC 820. The updated guidance is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently assessing the potential impact of adopting this new guidance on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans, which amends ASC 715 to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The updated guidance is effective for the Company on January 1, 2021, with early adoption permitted. The Company is currently assessing the potential impact of adopting this new guidance on its consolidated financial statements.

(2) Business Combinations

Keymile Acquisition

On January 3, 2019, ZTI Merger Subsidiary III Inc., a Delaware corporation and a wholly owned subsidiary of the Company (“ZTI”), acquired all of the outstanding shares of Keymile GmbH (“Keymile”), a limited liability company organized under the laws of Germany, from Riverside KM Beteiligung GmbH (“Riverside”), a limited liability company organized under the laws of Germany, pursuant to a share purchase agreement (the “Keymile Acquisition”).

The allocation of the purchase price was based upon a preliminary valuation, and the Company’s estimates and assumptions are subject to refinement, within the measurement period (up to one year from the Acquisition Date). Measurement period adjustments, with the corresponding adjustment to the bargain purchase gain or goodwill, will be recorded in the reporting period in which the adjustment to the provisional amounts are determined based upon the final valuation.  

The aggregate cash purchase price paid for all of the shares of Keymile and certain of its subsidiaries, was €10,250,000 (approximately $11.8 million), subject to adjustment for the lockbox mechanism described below. The Company also assumed pension obligations of approximately $12.7 million, net of pension assets of $3.5 million. Following the closing of the Keymile Acquisition, Keymile became the Company’s wholly owned subsidiary. The Keymile Acquisition agreement also provided for a lockbox mechanism such that normal operations were observed by Keymile management and any excess cash flows generated from operating activities for the period from October 1, 2018 to December 31, 2018 remained with Keymile following the closing, with the Company as the beneficiary, as the purchaser of Keymile. At December 31, 2018, cash received from the lockbox mechanism amounted to $2.5 million.

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On October 1, 2018, as a condition for the Keymile Acquisition, Riverside extended a €4.0 million ($4.4 million, which represents the cash and cash equivalents and short-term debt, in the “Allocation of Purchase Consideration” table below) working capital loan to Keymile. The working capital loan bears interest at a rate of 3.5% per annum and is scheduled for repayment in two equal installments in April and November 2019.The first payment of €2.0 million ($2.2 million) was made in April 2019 and the balance is due in November 2019.  As of September 30, 2019, the outstanding balance under this working capital loan was €2.0 million ($2.2 million). Subsequently in November 2019, the Company fully repaid all the outstanding borrowings under this working capital loan.

Keymile is a leading solution provider and manufacturer of telecommunication systems for broadband access. The Company believes Keymile strengthens its portfolio of broadband access solutions, which now includes a series of multi-service access platforms for FTTx network architectures, including ultra-fast broadband copper access based on VDSL/Vectoring and G. Fast technology.

A summary of the preliminary estimated purchase price allocation to the fair value of assets acquired and liabilities assumed is as follows (in thousands):

Purchase consideration
Cash consideration	$	11,776
Working capital adjustment: cash received from lockbox mechanism		(2,497	)
Adjusted purchase consideration	$	9,279

The following summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for the Keymile Acquisition (in thousands):

Allocation of purchase consideration
Current assets
Cash and cash equivalents	$	4,582
Accounts receivable - trade, net		6,820
Other receivables		798
Inventories		9,943
Property, plant and equipment		983
Other assets		163
Intangible assets		12,030
Accounts payable - trade		(3,303	)
Short-term debt		(4,582	)
Contract liabilities		(364	)
Accrued liabilities		(3,614	)
Deferred tax liabilities		(1,071	)
Pension obligations		(12,656	)
Other long term liabilities		(116	)
Bargain purchase gain		(334	)
Total purchase consideration	$	9,279

The purchase price allocation resulted in the recognition of a gain on bargain purchase of approximately $0.3 million, which was included in the unaudited condensed consolidated statements of comprehensive income (loss) for the nine months ended September 30, 2019. The gain on bargain purchase was the result of the preliminary fair value of the identifiable net assets acquired exceeding the purchase price paid for the Keymile Acquisition which was reduced by the lockbox mechanism.

The estimated weighted average useful lives of the acquired property, plant and equipment is 5 years. Depreciation is calculated using the straight-line method.

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The following table represents the preliminary estimated fair value and useful lives of identifiable intangible assets acquired:

	Estimated Fair Value (in thousands)		Estimated Useful Life
Intangible assets acquired
Customer relationships	$	3,667	5 years
Trade name		3,208	5 years
Technology - developed core		5,155	5 years
Total intangible assets	$	12,030

As of the valuation date, there was value attributable to Keymile’s existing customer relationships. Keymile’s key customer base is made up of independent telecommunication service providers and network operators, a base of customers that have seen growth since 2012. Keymile is seen as a market leader and historically has had low customer attrition. In addition, switching costs are considered to be high due to the disruption of switching platforms as well as the additional training necessary. The Company valued the customer relationships using the Income Approach, specifically the Multi-Period Excess Earnings Method (“MPEEM”).

The Company utilized the Relief from Royalty Method (“RFRM”) to value the tradename and developed technology. The RFRM assumes that the value of the asset equals the amount a third party would pay to use the asset and capitalize on the related benefits of the asset. Therefore, a revenue stream for the asset is estimated, and then an appropriate royalty rate is applied to the forecasted revenue to estimate the pre-tax income associated with the asset. The pre-tax income is then tax-effected to estimate the after-tax net income associated with the asset. Finally, the after tax net income is discounted to the present value using an appropriate rate of return that considers both the risk of the asset and the associated cash flow estimates.

Pro Forma Financial Information

The unaudited pro forma information for the periods set forth below gives effect to the Keymile Acquisition as if it had occurred as of January 1, 2018.  The unaudited pro forma financial information has been prepared by management for illustrative purposes only and does not purport to represent what the results of operations, financial condition or other financial information of the Company would have been if the Keymile Acquisition had occurred on January 1, 2018 or what such results or financial condition will be for any future periods. The unaudited pro forma financial information is based on estimates and assumptions and on the information available at the time of the preparation thereof. These estimates and assumptions may change, be revised or prove to be materially different, and the estimates and assumptions may not be representative of facts existing at the time of the Keymile Acquisition. The pro forma adjustments primarily relate to acquisition related costs, amortization of acquired intangibles and interest expense related to financing arrangements. Below is the pro forma financial information (in thousands):

	Three Months Ended		Nine Months Ended
	September 30, 2018		September 30, 2018
Pro forma net revenues	$	84,870	$	242,086
Pro forma net income attributable to DASAN Zhone Solutions, Inc.		726		2,885

Acquisition of the Non-controlling Interest in DZS Japan

On July 31, 2019, the Company acquired the remaining 30.94% non-controlling interest of DZS Japan, Inc. (“DZS Japan”), and DZS Japan became a wholly owned subsidiary of the Company. The Company acquired the remaining interest in DZS Japan for total cash consideration of $950,000, consisting entirely of payments to the former shareholder (Handysoft). This transaction resulted in a decrease to “Additional paid-in capital” of $127,000, a decrease to “Non- controlling interest” of $823,000, and a total impact of $950,000 in the unaudited condensed consolidated balance sheet as of September 30, 2019.

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(3) 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 September 30, 2019 and the consolidated balance sheet as of December 31, 2018, but require disclosure of their fair values: cash and cash equivalents, restricted cash, accounts and other receivables, accounts payable, accrued liabilities, lease liabilities and debt.  The carrying values of financial instruments such as cash and cash equivalents, restricted cash, accounts and other receivables, accounts payable and accrued liabilities approximate their fair values based on their short-term nature. The carrying value of the Company's lease liabilities and debt approximates their fair values based on the current rates available to the Company for debt of similar terms and maturities.

(4) Cash, Cash Equivalents and Restricted Cash

As of September 30, 2019 and December 31, 2018, the Company's cash and cash equivalents consisted of financial deposits and money market accounts that are principally held with various domestic and international financial institutions with high credit standing. Restricted cash consisted primarily of cash restricted for performance bonds, warranty bonds and collateral for borrowings.

(5) Balance Sheet Details

Accounts receivable, net consisted of the following (in thousands):

	September 30, 2019			December 31, 2018
Gross accounts receivable	$	101,253		$	71,945
Less: allowance for doubtful accounts		(388	)		(328	)
Total accounts receivable, net	$	100,865		$	71,617

Inventories consisted of the following (in thousands):

	September 30, 2019		December 31, 2018
Raw materials	$	16,630	$	15,688
Work in process		3,582		2,429
Finished goods		22,834		15,751
Total inventories	$	43,046	$	33,868

Inventories provided as collateral for borrowings from Export-Import Bank of Korea amounted to $6.5 million and $9.5 million as of September 30, 2019 and December 31, 2018, respectively.

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(6) Property, Plant and Equipment

Property, plant and equipment consisted of the following (in thousands):

	September 30, 2019			December 31, 2018
Furniture and fixtures	$	10,139		$	8,029
Machinery and equipment		2,341			3,553
Leasehold improvements		4,063			3,715
Computers and software		1,856			922
Other		745			982
		19,144			17,201
Less: accumulated depreciation and amortization		(12,228	)		(11,271	)
Less: government grants		(341	)		(412	)
Total property and equipment, net	$	6,575		$	5,518

Depreciation expense associated with property and equipment for the three and nine months ended September 30, 2019 was $0.5 million and $1.5 million, respectively. Depreciation expense for the three and nine months ended September 30, 2018 was $0.4 million and $1.2 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.

(7) Goodwill and Intangible Assets

Goodwill was as follows (in thousands):

	September 30, 2019		December 31, 2018
Gross carrying amount	$	3,977	$	3,977
Less: accumulated impairment		—		—
Net	$	3,977	$	3,977

The Company did not recognize impairment loss on goodwill during the nine months ended September 30, 2019 or 2018.

Intangible assets consisted of the following (in thousands):

	September 30, 2019
	Gross Carrying Amount		Accumulated Amortization			Net
Developed technology	$	7,972	$	(2,624	)	$	5,348
Customer relationships		8,733		(2,140	)		6,593
Trade name		3,056		(458	)		2,598
Total intangible assets, net	$	19,761	$	(5,222	)	$	14,539

	December 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Net
Developed technology	$	3,060	$	(1,428	)	$	1,632
Customer relationships		5,240		(1,223	)		4,017
Total intangible assets, net	$	8,300	$	(2,651	)	$	5,649

Intangible assets as of September 30, 2019 include the customer relationships, trade name and developed technology acquired through the Keymile Acquisition (see Note 2) as well as previously acquired intangible assets.

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Amortization expense associated with intangible assets for the three and nine months ended September 30, 2019 was $0.9 million and $2.6 million, respectively. Amortization expense for the three and nine months ended September 30, 2018 was $0.3 million and $0.9 million, respectively.

The following table presents the future amortization expense of the Company’s intangible assets as of September 30, 2019 (in thousands):

Remainder of 2019	$	857
2020		3,429
2021		3,225
2022		2,816
2023		2,816
Thereafter		1,396
Total	$	14,539
Weighted average remaining life:
Developed technology	3.74 years
Customer relationships	5.72 years
Trade name	4.25 years

(8) Debt

The following tables summarize the Company’s debt (in thousands):

	As of September 30, 2019
	Short-term			Long-term			Total
PNC Bank Facility	$	12,500		$	11,250		$	23,750
Working Capital Loan		2,183			—			2,183
Bank and Trade Facilities - Foreign Operations		20,625			—			20,625
Related Party		—			9,049			9,049
	$	35,308		$	20,299		$	55,607
Less: unamortized deferred financing costs on the PNC Bank Facility		(702	)		(843	)		(1,545	)
	$	34,606		$	19,456		$	54,062

	As of December 31, 2018
	Short-term		Long-term		Total
Wells Fargo Bank Facility	$	7,000		—	$	7,000
Bank and Trade Facilities - Foreign Operations		24,762		—		24,762
Related Party		—		14,142		14,142
	$	31,762	$	14,142	$	45,904

PNC Bank Facility

On February 27, 2019, the Company and ZTI (collectively, the “Borrowers”), and certain direct and indirect subsidiaries of the Borrowers, as guarantors, entered into a Revolving Credit, Term Loan, Guaranty and Security Agreement (the “Domestic Credit Agreement”) and an Export-Import Revolving Credit, Guaranty and Security Agreement (the “Ex-Im Credit Agreement,” and together with the Domestic Credit Agreement, the “Credit Agreements”), in each case with PNC Bank, National Association (“PNC”) and Citibank, N.A. as lenders, and PNC as agent for the lenders (the “PNC Facility”), which replaced the Company’s former senior secured credit facilities with Wells Fargo Bank (the “Former WFB Facility”).

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The Credit Agreements provide for a $25.0 million term loan and a $15.0 million revolving line of credit (including sub-facilities for export-import transactions, letters of credit and swing loans).The amount the Company is able to borrow on the revolving line of credit at any time is based on eligible accounts receivable and other conditions, less certain reserves.Borrowings under the PNC Facility bear interest at the Company’s option, at either (i) a base rate equal to the highest of the federal funds rate plus 0.50%, PNC’s prime rate, or the daily LIBOR rate plus 1.00%, or (ii) the LIBOR rate for the applicable interest period, subject to a floor of 1.00% (with respect to the term loans only), plus in each case, an applicable margin.  The applicable margin for term loans is 5.00% for base rate loans and 6.00% for LIBOR rate loans, and the applicable margin for borrowings under the revolving line of credit is 1.50% for base rate loans and 2.50% for LIBOR rate loans.

The Company used a portion of the funds borrowed from the term loan under the Credit Agreements to (i) repay $5.0 million in principal amount of existing related-party indebtedness with DNI plus accrued interest, (ii) repay $1.5 million in outstanding borrowings under the Company’s former revolving line of credit plus accrued interest and fees and cash collateralize $3.6 million in outstanding letters of credit under the Former WFB Facility, and (iii) repay $5.6 million short-term debt in Korea and Japan. The Company intends to use the remaining funds for ongoing working capital needs. Obligations under the Credit Agreements are secured by substantially all of the personal property assets of the Borrowers and the subsidiaries that guarantee the Credit Agreements, including their intellectual property.

The maturity date under the Credit Agreements is February 27, 2022. The term loan under the Credit Agreements is repayable in eight quarterly installments of $625,000 beginning June 30, 2019, followed by quarterly installments of $937,500 beginning on June 30, 2021, with all remaining unpaid principal and accrued interest due on the maturity date.

The Credit Agreements contain certain covenants, limitations, and conditions with respect to the Borrowers and their subsidiaries, including a maximum leverage ratio, a minimum fixed charge coverage ratio, and a minimum liquidity covenant, as well as financial reporting obligations, and customary events of default. If an event of default occurs, the agent and lenders will be entitled to take various actions, including requiring the immediate repayment of all outstanding amounts under the Credit Agreements, terminating commitments to make additional advances and selling the assets of the Borrowers and their subsidiary guarantors to satisfy the obligations under the Credit Agreements. At September 30, 2019, the Company was not in compliance with the maximum leverage ratio financial covenant in the Credit Agreements, which represents an event of default thereunder. On November 8, 2019, the Company obtained a waiver of the foregoing event of default from the lenders under the Credit Agreements. As a condition for the issuance of the waiver, the Company voluntarily prepaid $10.0 million of the outstanding term loan and paid a one-time fee of $150,000. Uncertainty exists as to the Company’s ability to meet these financial covenants at the respective reporting dates during the next twelve months. As a result, the Company is in the process of renegotiating these financial covenants with the banks; however, there is no assurance that the Company will be able to successfully complete such renegotiations. If the Company violates covenants in the Credit Agreements or the contemplated amended covenants, the Company could be required to repay the amounts then outstanding under the Credit Agreements.

As of September 30, 2019, the Company had $23.8 million in outstanding term loan borrowings under its PNC Facility, and no outstanding borrowings under the revolving line of credit. The interest rate on the term loan was 8.12%at September 30, 2019. Deferred financing costs of $1.5 million has been netted against the aggregate principal amount of the PNC term loan in the unaudited condensed consolidated balance sheet as of September 30, 2019. On July 2, 2019, $4.4 million in outstanding borrowings under the revolving line of credit (which represented all outstanding borrowings under the revolving line of credit) was repaid in full.  

Former Wells Fargo Bank Facility

On February 27, 2019, in connection with the entry into the PNC Facility, the Company repaid $1.5 million in principal amount of outstanding borrowings plus accrued interest and fees under the Former WFB Facility and cash collateralized $3.6 million in outstanding letters of credit under the Former WFB Facility and terminated the Former WFB Facility.

Working Capital Loan

On October 1, 2018, as a condition for the Keymile Acquisition, Riverside, the former stockholder of Keymile, extended a €4.0 million ($4.4 million) working capital loan to Keymile. The working capital loan bears interest at a rate of 3.5% per annum and is scheduled for repayment in two equal installments.  The first payment of €2.0 million ($2.2 million) was made in April 2019 and the balance is due in November 2019.  As of September 30, 2019, the outstanding balance under this working capital loan was €2.0 million ($2.2 million). Subsequently in November 2019, the Company fully repaid all the outstanding borrowings under this working capital loan.

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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 September 30, 2019 and December 31, 2018, the Company had an aggregate outstanding balance of $20.6 million and $24.8 million, respectively, under such financing arrangements. The maturity dates and interest rates per annum applicable to outstanding borrowings under these financing arrangements are listed in the tables below (amount in thousands).

		As of September 30, 2019
		Maturity Date	Denomination	Interest rate (%)		Amount (in U.S. dollars)
Industrial Bank of Korea	Credit facility	10/02/2019 - 11/12/2019	USD	5.34 - 5.49		$	512
NongHyup Bank	Credit facility	10/07/2019 - 02/24/2020	USD	3.69 - 4.49			3,097
The Export-Import Bank of Korea	Export development loan	7/1/2020	KRW	2.75			4,995
Korea Development Bank	General loan	8/8/2020	KRW		3.0		4,162
Korea Development Bank	Credit facility	10/07/2019 - 02/18/2020	USD	3.11 - 3.47			6,194
LGUPlus	General loan	6/17/2020	KRW	0			1,665
						$	20,625

As of September 30, 2019, the Company had $10.8 million in outstanding borrowings and $9.8 million committed as security for letters of credit under the Company's $20.6 million credit facilities with certain foreign banks.

		As of December 31, 2018
		Maturity Date	Denomination	Interest rate (%)	Amount (in U.S. dollars)
Industrial Bank of Korea	Credit facility	01/02/2019 - 05/15/2019	USD	3.96 - 4.36	$	1,982
Industrial Bank of Korea	Trade finance	02/18/2019 - 02/25/2019	USD	5.31 - 6.08		1,920
Shinhan Bank	General loan	3/30/2019	KRW	6.06		2,862
NongHyup Bank	Credit facility	01/07/2019 - 04/29/2019	USD	3.71 - 4.50		2,053
The Export-Import Bank of Korea	Export development loan	07/01/2019	KRW	3.44		6,439
The Export-Import Bank of Korea	Import development loan	02/14/2019	USD	4.31		850
Korea Development Bank	General loan	08/08/2019	KRW	3.48		4,472
Korea Development Bank	Credit facility	02/07/2019 - 03/06/2019	USD	3.64 - 3.91		1,489
LGUPlus	General loan	06/17/2019	KRW	0		1,789
Shoko Chukin Bank	General loan	06/28/2019	JPY	1.33		906
					$	24,762

As of December 31, 2018, the Company had $5.5 million in outstanding borrowings and $2.6 million committed as security for letters of credit under the Company's $19.0 million credit facilities with certain foreign banks.

See Note 11 Related-Party Transactions for a discussion of related-party debt.

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(9) Defined Benefit Plans

The Company provides certain defined benefit pension plans in Germany for active and former employees of Keymile and their surviving dependents. These benefits were promised upon an employee either reaching retirement age or becoming disabled. Benefits paid depend on an employee’s years of service and annual earnings. These plans were frozen as of September 30, 2003 and have not been offered to new employees after that date. Employees who were already covered by such plans ceased earning benefits under such plans from the freeze date forward. The benefit obligations are determined separately for each plan by estimating the present value of future benefits that employees have earned in prior periods. Given that all plans are frozen; the Company does not have any current service costs to recognize within its defined benefit obligation or pension expense.

The only component of pension expense relates to $0.1 million of interest expense on the defined benefit pension plans, which is recognized in Other income (loss), net in the condensed consolidated statement of comprehensive income (loss). The interest expense is determined by multiplying the defined benefit obligation by the discount rate used to determine the defined benefit obligation. Actuarial gains and losses from changes in assumptions are included in Other comprehensive loss in the condensed consolidated statement of comprehensive income (loss).

The following key actuarial assumptions were made in determining the benefit obligation:

	September 30, 2019
Discount rate	1.20%
Rate of pension increase	1.70%
Retirement age	63-67 years

As of September 30, 2019, the Company’s employee benefit obligations under the defined benefit plans is approximately $13.3 million, net of pension assets of $3.4 million which is under a reinsurance contract policy.  During the three and nine months ended September 30, 2019, the Company made no cash contributions to the defined benefit plans.

(10) Non-Controlling Interests

Non-controlling interests were as follows (in thousands):

	Nine Months Ended September 30,
	2019			2018
Beginning non-controlling interests	$	615		$	534
Net income (loss) attributable to non-controlling interests		194			2
Purchase of noncontrolling interest in subsidiary		(823	)		—
Foreign currency translation adjustments (OCI)		14			(5	)
Ending non-controlling interests	$	—		$	531

(11) Related-Party Transactions

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. The term loan was scheduled to mature in September 2021 and was pre-payable at any time by the Company without premium or penalty. The interest rate under this facility was 4.6% per annum.  In February 2019, the Company repaid the term loan in full plus accrued interest in connection with the entry into the PNC Facility, thereby terminating the loan agreement.

In February 2016, DNS borrowed $1.8 million from DNI for capital investment with an interest rate of 4.6% per annum. On February 27, 2019, in connection with the entry into the PNC Facility, the Company amended the terms of this loan to extend the repayment date to May 27, 2022. As of September 30, 2019, the $1.8 million balance of the loan remained outstanding.

On December 27, 2018, the Company entered into a loan agreement with DNI, for a $6.0 million term loan with an interest rate of 4.6% per annum.  On February 27, 2019, in connection with the entry into the PNC Facility, the Company amended the terms of the term loan to extend the repayment date to May 27, 2022 and to terminate any security granted to DNI with respect to such term loan. As of September 30, 2019, the $6.0 million balance of the loan remained outstanding.

19

In March 2018, Dasan Network Solutions, Inc., a subsidiary of the Company incorporated under the laws of Korea (“DNS Korea”) borrowed KRW6.5 billion ($5.8 million) from DNI, of which KRW5.0 billion ($4.5 million) was repaid on August 8, 2018.The loan bears interest at a rate of 4.6%, and is secured by certain accounts receivable of DNS Korea.On February 27, 2019, in connection with the entry into the PNC Facility,the Company amended the terms of this loan to extend the repayment date toMay 27, 2022.As of September 30, 2019, KRW 1.5 billion ($1.3 million) remained outstanding.

The modifications resulting from the amendments described above were limited to the extension of the maturity dates and removal of the collateral on the outstanding term loans with DNI.  There were no fees paid to DNI or external costs otherwise incurred in connection with these modifications.  Interest expense on these related-party borrowings for the three and nine months ended September 30, 2019 was $0.1 million and $0.3 million, respectively. Interest expense for the three and nine months ended September 30, 2018 was $0.1 million and $0.3 million, respectively.  

Other Related-Party Transactions

Sales, cost of revenue, purchases (included in manufacturing (cost of revenue)), research and product development, selling, marketing, general and administrative, interest expense and other expenses to and from related parties were as follows (in thousands) for the three and nine months ended September 30, 2019 and September 30, 2018:

		Three Months Ended September 30, 2019
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	N/A	$	232	$	190	$	—	$	—	$	966	$	104	$	84
Tomato Soft Ltd.	100%		—		—		29		—		—		—		—
Tomato Soft (Xi'an) Ltd.	100%		—		—		—		137		—		—		—
Chasan Networks Co., Ltd.	100%		—		—		279		16		—		—		—
		$	232	$	190	$	308	$	153	$	966	$	104	$	84
		Three Months Ended September 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	N/A	$	1,472	$	1,270	$	—	$	—	$	784	$	112	$	89
Tomato Soft Ltd.	100%		—		—		27		—		—		—		—
Tomato Soft (Xi'an) Ltd.	100%		—		—		—		119		—		—		—
Chasan Networks Co., Ltd.	100%		—		—		260		21		—		—		—
HANDYSOFT, Inc.	17.63%		215		208		—		—		2		—		—
		$	1,687	$	1,478	$	287	$	140	$	786	$	112	$	89

20

		Nine Months Ended September 30, 2019
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	N/A	$	1,828	$	1,346	$	—	$	—	$	2,984	$	349	$	255
Tomato Soft Ltd.	100%		—		—		88		—		—		—		—
Tomato Soft (Xi'an) Ltd.	100%		—		—		—		392		—		—		—
Chasan Networks Co.,    Ltd.	100%		—		—		837		55		—		—		—
J-Mobile Corporation	90.47%		42		81		—		—		—		—		—
		$	1,870	$	1,427	$	925	$	447	$	2,984	$	349	$	255
		Nine Months Ended September 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	N/A	$	3,683	$	3,143	$	—	$	—	$	2,950	$	338	$	234
Tomato Soft Ltd.	100%		—		—		84		—		—		—		—
Tomato Soft (Xi'an) Ltd.	100%		—		—		10		396		—		—		—
Chasan Networks Co.,    Ltd.	100%		—		—		880		57		—		—		—
Dasan France	100%		202		177		—		—		—		—		—
HANDYSOFT, Inc.	17.63%		473		357		—		—		4		—		—
		$	4,358	$	3,677	$	974	$	453	$	2,954	$	338	$	234

The Company has entered into sales agreements with DNI and certain of its subsidiaries.  Sales and cost of revenue to DNI and Dasan France, a wholly-owned subsidiary of DNI, represent finished goods produced by the Company that are sold to these related parties who sell the Company's products in Korea and France, 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 sourcing and inspection services for the Company.  Under the agreement with Tomato Soft Ltd., the Company is charged a cost plus 7% fee for sourcing and inspection services.  

The Company has entered into an agreement with Tomato Soft (Xi'an) Ltd., a wholly owned subsidiary of DNI, 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 pursuant to 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 and certain administrative functions 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.  The Company entered into certain service sharing agreements with DNI and certain of its subsidiaries for continued use of the shared office space and shared administrative services.  Expenses related to rent and administrative services are allocated to the Company based on square footage occupied and headcount, respectively.

Other expenses to related parties represent expenses to DNI for its payment guarantees relating to the Company's borrowings.  See Note 15 for more information regarding such guarantees.  The Company pays DNI a guarantee fee which is calculated as 0.9% of the guaranteed amount.

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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 were as follows (in thousands) as of September 30, 2019 and December 31, 2018:

		As of September 30, 2019
Counterparty	DNI ownership interest	Account receivables		Other receivables		Deposits for lease *		Long- term debt		Accounts payable		Other payables		Accrued and other liabilities**
DNI	N/A	$	252		1	$	683	$	9,049	$	—	$	2,656	$	90
Tomato Soft Ltd.	100%		—		—		—		—		—		10		—
Tomato Soft (Xi'an) Ltd.	100%		—		—		—		—		—		45		—
Chasan Networks Co.,    Ltd.	100%		—		—		—		—		96		—		—
		$	252	$	1	$	683	$	9,049	$	96	$	2,711	$	90

		As of December 31, 2018
Counterparty	DNI ownership interest	Account receivables		Other receivables		Deposits for lease*		Loan Payable		Accounts payable		Other payables		Accrued and other liabilities**
DNI	N/A	$	—	$	—	$	735	$	14,142	$	1,000	$	1,231	$	169
Tomato Soft Ltd.	100%		—		—		—		—		—		9		—
Tomato Soft (Xi'an)    Ltd.	100%		—		—		—		—		—		41		—
Dasan France	100%		280		65		—		—		—		—		—
HANDYSOFT, Inc.	14.77%		303		—		—		—		654		—		—
Chasan Networks Co.,    Ltd.	100%		—		—		—		—		89		—		—
		$	583	$	65	$	735	$	14,142	$	1,743	$	1,281	$	169

* Included in other assets related to deposits for lease in the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018.

** Included in accrued and other liabilities in the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018.

(12) Common Stock

On May 20, 2019, the Company completed a public offering of 4,717,949 shares of its common stock, inclusive of 615,384 shares sold upon full exercise of the underwriters’ option to purchase additional shares of common stock, at a price to the public of $9.75 per share.  All shares of common stock were sold by the Company. The total gross proceeds from the offering, before deducting underwriting discounts, commissions and offering expenses, were approximately $46.0 million.  After deducting the underwriters’ discount, commissions and other offering expenses, the net proceeds were approximately $42.5 million.  

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

Basic net income per share attributable to DASAN Zhone Solutions, Inc. is computed by dividing the net income 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 per share attributable to DASAN Zhone Solutions, Inc. gives effect to common stock equivalents; however, potential common stock equivalents are excluded if their effect is antidilutive. Potential common stock equivalents are composed of incremental shares of common stock issuable upon the exercise of stock options and the vesting of restricted stock units. In periods when a net loss is reported, all common stock equivalents are excluded from the calculation because they would have an anti-dilutive effect, meaning the loss per share would be reduced. Therefore, in periods when a loss is reported, basic and dilutive loss per share are the same.

22

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) for the three and nine months ended September 30, 2019 and September 30, 2018:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019			2018		2019			2018
Net income (loss) attributable to DASAN    Zhone Solutions, Inc.	$	(4,033	)	$	1,798	$	(3,263	)	$	3,321
Weighted average number of shares    outstanding:
Basic		21,384			16,683		18,732			16,425
Effect of dilutive securities:
Stock options, restricted stock units    and share awards		—			208		—			215
Diluted		21,384			16,891		18,732			16,640
Net income (loss) per share attributable to    DASAN Zhone Solutions, Inc.:
Basic	$	(0.19	)	$	0.11	$	(0.17	)	$	0.20
Diluted	$	(0.19	)	$	0.11	$	(0.17	)	$	0.20

(14) Leases

The Company leases certain properties and buildings (including manufacturing facilities, warehouses, and office spaces) and equipment under various arrangements which provide the right to use the underlying asset and require lease payments for the lease term. The Company’s lease portfolio consists of operating leases which expire at various dates through 2027. At September 30, 2019, the Company had one outstanding finance lease.

The Company determines if an arrangement contains a lease at inception. The Company evaluates each service contract upon inception to determine whether it is, or contains, a lease. Such determination is made by applying judgment in evaluating each service contract within the context of the 5-step decision making process under ASC 842. The key concepts of the 5-step decision making process that the Company evaluated can be summarized as: (1) is there an identified physical asset; (2) does the Company have the right to substantially all the economic benefits from the asset throughout the contract period; (3) does the Company control how and for what purpose the asset is used; (4) does the Company operate the asset; and (5) did the Company design the asset in a way that predetermines how it will be used.

Assets and liabilities related to operating leases are included in the condensed consolidated balance sheet as right-of-use assets from operating leases, operating lease liabilities - current and operating lease liabilities - non-current.

Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Many of the Company’s lease agreements contain renewal options; however, the Company does not recognize right-of-use assets or lease liabilities for renewal periods unless it is determined that the Company is reasonably certain of renewing the lease at inception or when a triggering event occurs. Some of the Company’s lease agreements contain rent escalation clauses, rent holidays, capital improvement funding or other lease concessions.

The Company recognizes minimum rental expense on a straight-line basis based on the fixed components of a lease arrangement. The Company amortizes this expense over the term of the lease beginning with the date of initial possession, which is the date lessor makes an underlying asset available for use. Variable lease components represent amounts that are not fixed in nature, are not tied to an index or rate, and are recognized as incurred.

In determining its right-of-use assets and lease liabilities, the Company applies a discount rate to the minimum lease payments within each lease agreement. ASC 842 requires the Company to use the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The Company determines the incremental borrowing rate for each lease based primarily on its lease term and the economic environment of the applicable country or region. When the Company cannot readily determine the discount rate implicit in the lease agreement, the Company utilizes an incremental borrowing rate based on the most recent debt facilities interest rates and applicable to the local geography and with similar term to lease.

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For the measurement and classification of its lease agreements, the Company groups lease and non-lease components into a single lease component for all underlying asset classes. Variable lease payments include payments for non-lease components of maintenance costs.The components of lease expense were as follows for the three and nine months ended September 30, 2019:

	Three Months Ended September 30, 2019 (in thousands)		Nine Months Ended September 30, 2019 (in thousands)
Operating lease cost	$	1,064	$	3,327
Variable lease cost		194		520
Total net lease cost	$	1,258	$	3,847

Supplemental cash flow information related to the Company’s operating leases was as follows for the three and nine months ended September 30, 2019:

	Three Months Ended September 30, 2019 (in thousands)		Nine Months Ended September 30, 2019 (in thousands)
Cash paid for amounts included in the measurement of operating lease    liabilities	$	1,265	$	3,888
ROU assets obtained in exchange for operating lease obligations	$	35	$	35

The following table presents the lease balances within the Company’s condensed consolidated balance sheet, weighted average remaining lease term, and weighted average discount rates related to the Company’s operating leases as of September 30, 2019 (in thousands):

Lease Assets and Liabilities
Assets:
Right-of-use assets from operating leases	$	18,349
Liabilities:
Operating lease liabilities - current	$	3,496
Operating lease liabilities - non-current		15,957
Total operating lease liabilities	$	19,453
Weighted average remaining lease term	4.77 years
Weighted average discount rate		6.6	%

The following table presents the maturity of the Company’s operating lease liabilities as of September 30, 2019 (in thousands):

Remainder of 2019	$	1,259
2020		4,197
2021		3,890
2022		3,609
2023		3,460
Thereafter		6,373
Total operating lease payments		22,788
Less: imputed interest		(3,335	)
Total operating lease liabilities	$	19,453

24

As of December 31, 2018, the estimated future lease payments under non-cancelable operating leases as defined under the previous lease accounting guidance of ASC Topic 840, for the following fivefiscal years and thereafter are as follows (in thousands):

	Operating Leases
Year ending December 31:
2019	$	4,100
2020		3,005
2021		2,590
2022		2,664
2023		2,494
Thereafter		5,929
Total minimum lease payments	$	20,782

On August 29, 2019, the Company cancelled a warehouse lease in Germany and recorded $0.2 million of lease cancellation expense to cover early termination costs and renovation obligations. The Company recognized the non-recurring lease cancellation expense in Selling, marketing, general and administrative in the condensed consolidated statement of comprehensive income (loss). In connection with the lease cancellation, balance sheet recognition of approximately $0.6 million right-of-use assets and operating lease liabilities are removed from the condensed consolidated balance sheets as of September 30, 2019.  

New Office Lease

On July 9, 2019, the Company entered into a lease agreement (the “Lease”) with Family Stations, Inc., a California corporation (“Lessor”).  The Lease covers approximately 16,500 square feet of space located at 1350 South Loop Road, Alameda, California (the “Premises”).  The Lease provides for a term of 63 months, commencing on November 1, 2019, with a basic monthly rent ranging from $41,273 to $47,846 per month. The Company recognized approximately $2.1 million right-of-use assets and operating lease liabilities as of the commencement date of November 1, 2019.

(15) Commitments and Contingencies

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 included in accrued and other liabilities (in thousands) for the nine months ended September 30, 2019 and September 30, 2018:

	Nine Months Ended September 30,
	2019			2018
Beginning balance	$	1,319		$	931
Assumed balance from Keymile		230			—
Charged to cost of revenue		732			1,022
Claims and settlements		(782	)		(598	)
Foreign exchange impact		(27	)		6
Ending balance	$	1,472		$	1,361

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 September 30, 2019, the Company had $13.8 million of surety bonds guaranteed by third parties.

25

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 $3.2 million as of September 30, 2019.

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.

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 September 30, 2019 (in thousands) that have been provided by third parties and DNI. DNI owns approximately 44.4% of the outstanding shares of the Company's common stock:  

Guarantor	Amount Guaranteed (in thousands)		Description of Obligations Guaranteed
DNI	$	8,400	Credit facility from Industrial Bank of Korea
DNI		1,998	Purchasing Card from Industrial Bank of Korea
DNI		8,400	Credit facility from Korea Development Bank
DNI		4,995	Borrowings from Korea Development Bank
DNI		6,000	Credit facility from NongHyup Bank
DNI		3,566	Borrowings from Export-Import Bank of Korea
DNI		3,000	Payment Guarantee from Shinhan Bank
DNI		1,598	Backed Loan from Shinhan Bank
PNC Bank, N.A.		4,550	Letter of Credit
Seoul Guarantee Insurance Co.		5,516	Performance Bond, Warranty Bond, etc. (*)
Industrial Bank of Korea		1,096	Letter of Credit
Industrial Bank of Korea		1,010	Bank Guarantee
Korea Development Bank		6,908	Letter of Credit
NongHyup Bank		3,596	Letter of Credit
Woori Bank		1,932	Bank Guarantee
Shinhan Bank		573	Purchasing Card
Shinhan Bank		683	Payment Guarantee
AXA Insurance Company		175	Guarantee for flexible retirement program
Polska Agencja Zeglugi Powietrznej		112	Performance Bond, Warranty Bond, etc. (*)
DDE 64 Ltd.		64	Guarantee Bond
	$	64,172

* The Company is generally responsible for warranty liabilities for a period of two years with respect to major product sales and has, therefore, contracted for surety insurance for a portion of the warranty liabilities.

Legal Proceedings

From time to time, 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 that 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, results of operations or cash flows. 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.

26

(16) Income Taxes

Income tax expense for the three and nine months ended September 30, 2019 was approximately $0.3 million and $1.1 million, respectively, on pre-tax loss of $3.7 million and $2.0 million, respectively.  Income tax expense for the three and nine months ended September 30, 2018 was $0.7 million and $1.1 million, respectively, on pre-tax income of $2.6 million and $4.4 million, respectively.

For the three and nine months ended September 30, 2019 and 2018, the effective income tax rate varied from the United States statutory income tax rate primarily due to valuation allowances in the United States and the mix of earnings generated by the Company’s wholly owned foreign subsidiaries.

The total amount of unrecognized tax benefits, including interest and penalties, at September 30, 2019 was $0.8 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 three and nine months ended September 30, 2019 and 2018. The Company does not anticipate any significant changes with respect to unrecognized tax benefits within the next 12 months.

(17) Enterprise-Wide Information  

The Company is a global provider of ultra-broadband network access solutions and communications platforms deployed by advanced Tier 1, 2 and 3 service providers and enterprise customers. 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 property, plant and equipment, net of accumulated depreciation, were located in the following geographical areas (in thousands) as of September 30, 2019 and December 31, 2018:

	September 30, 2019		December 31, 2018
United States	$	2,872	$	3,036
Korea		1,976		1,543
Japan and Vietnam		874		910
Taiwan and India		25		29
Germany		828		—
	$	6,575	$	5,518

(18) Subsequent Events

On November 8, 2019, the Company received a waiver from the Lenders under the Credit Agreements with respect to the Company’s violation at September 30, 2019 of the maximum leverage ratio financial covenant set forth in the Credit Agreements. As a condition for the issuance of the waiver, the Company voluntarily prepaid $10.0 million of the outstanding term loan and paid a one-time fee of $150,000.

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

As used in this Quarterly Report on Form 10-Q, unless the context suggests otherwise, the terms “DZS,” “we,” “our” and “us” refer to DASAN Zhone Solutions, Inc. and its subsidiaries.

Forward-Looking Statements

This Quarterly Report on Form 10-Q, 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 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate, and reflect the beliefs and assumptions of our management as of the date hereof. We use words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “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, margins or other financial items in future periods; anticipated growth and trends in our business or key markets; cost synergies, growth opportunities and other potential financial and operating benefits of our acquisitions, including our acquisition of Keymile GmbH (the “Keymile Acquisition”); future growth and revenues from our products; our ability to refinance or repay our existing indebtedness prior to the applicable maturity dates; future economic conditions and performance; anticipated performance of products or services; plans, objectives and strategies for future operations; market and foreign currency exchange rate risks associated with financial instruments; the impact of interest rate changes; anticipated obligations under our non-U.S. defined benefit pension plans; future obligations under contracts and leases and other characterizations of future events or circumstances, and all other statements that are not statements of historical fact are forward-looking statements within the meaning of the Securities Act and the Exchange Act. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict, including those identified under the heading “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A of our Annual Report on Form 10-K filed with the SEC on March 12, 2019 and in our other filings with the Securities and Exchange Commission (the SEC). Our 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 acquisitions, including the Keymile Acquisition and any integration risks relating to acquisitions, including the Keymile Acquisition; the ability to generate sufficient revenue to achieve or sustain profitability; material weaknesses or other deficiencies in our internal control over financial reporting; our 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 or delays the purchase of products by our customers; the loss of any of our large customers, further significant reductions or delays in their spending, or a material change in their networking or procurement strategies; 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; fluctuations in foreign currency exchange rates; our ability to enforce our intellectual property rights; 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 Quarterly Report on Form 10-Q and in our most recent reports on Forms 10-K  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 ultra-broadband network access solutions and communications platforms deployed by advanced Tier 1, 2 and 3 service providers and enterprise customers. We provide a wide array of reliable, cost-effective networking technologies to a diverse customer base that includes more than 900 customers in more than 80 countries worldwide. We research, develop, test, sell, manufacture and support platforms in five major areas: broadband access, mobile backhaul, Ethernet switching with Software Defined Networking (“SDN”) capabilities, new enterprise solutions based on Passive Optical LAN (“POL”), and new generation of SDN/Network Function Virtualization (“NFV”) solutions for unified wired and wireless networks.

As of September 30, 2019, we employed over 830 personnel worldwide, of which approximately half are engineers or engaged in research and development.  

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RECENT DEVELOPMENTS

On July 9, 2019, the Company entered into a lease agreement (the “Lease”) with Family Stations, Inc., a California corporation (“Lessor”).  The Lease covers approximately 16,500 square feet of space located at 1350 South Loop Road, Alameda, California (the “Premises”).  The Lease provides for a term of 63 months, commencing on November 1, 2019 (or such later date as contemplated by the Lease in the event Lessor is unable to tender possession of the Premises by such date), with a basic monthly rent ranging from $41,273 to $47,846 per month.

On July 31, 2019, the Company acquired the remaining 30.94% non-controlling interest of DZS Japan, Inc. (“DZS Japan”), and DZS Japan became a wholly owned subsidiary of the Company. The Company acquired the remaining interest in DZS Japan for total cash consideration of $950,000, consisting entirely of payments to the former shareholder (Handysoft).

On August 26, 2019, Michael Golomb, our Chief Financial Officer, resigned from such position. We have initiated a search for his replacement and Mr. Golomb has agreed to consult with us to provide advice regarding the transition of responsibilities. While the Company is pursuing a permanent replacement for Mr. Golomb, Il Yung Kim, the Company’s President and Chief Executive Officer will serve as interim Chief Financial Officer.

On November 8, 2019, the Company received a waiver from the lenders under the Credit Agreements with respect to the Company’s violation at September 30, 2019 of the maximum leverage ratio financial covenant of the Credit Agreements. As a condition for the issuance of the waiver, the Company voluntarily prepaid $10.0 million of the outstanding term loan and paid a one-time fee of $150,000.  

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						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Net revenue:
Third parties		100	%		98	%		99	%		98	%
Related parties		0	%		2	%		1	%		2	%
Total net revenue		100	%		100	%		100	%		100	%
Cost of revenue:
Products and services - third parties		68	%		65	%		66	%		65	%
Products and services - related parties		0	%		2	%		1	%		2	%
Amortization of intangible assets		1	%		0	%		1	%		0	%
Total cost of revenue		69	%		67	%		68	%		67	%
Gross profit		31	%		33	%		32	%		33	%
Operating expenses:
Research and product development		14	%		12	%		13	%		13	%
Selling, marketing, general and administrative		22	%		16	%		20	%		17	%
Amortization of intangible assets		1	%		0	%		1	%		0	%
Total operating expenses		37	%		28	%		34	%		30	%
Operating income (loss)		(6	)%		5	%		(2	)%		3	%
Interest income		1	%		0	%		0	%		0	%
Interest expense		(2	)%		0	%		(1	)%		0	%
Other income (loss), net		1	%		(1	)%		1	%		0	%
Income (loss) before income taxes		(6	)%		4	%		(2	)%		3	%
Income tax provision		—			1	%		(1	)%		1	%
Net income (loss)		(6	)%		3	%		(1	)%		2	%
Net income (loss) attributable to non-controlling interest		0	%		0	%		0	%		0	%
Net income (loss) attributable to DASAN Zhone Solutions, Inc.		(6	)%		3	%		(1	)%		2	%

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Net Revenue

Net Revenue for the three months ended September 30, 2019 of $71.5 million was slightly lower as compared to $71.9 million for the same period last year. We believe, the slight decrease in net revenue during the period was primarily attributed to softer spending from wireline carriers. For the nine months ended September 30, 2019, net revenue increased by 10% or $21.6 million to $229.3 million from $207.7 million for the same period last year. The increase in net revenue during the period was partly due to the impact of the Keymile Acquisition and increased product and services sales primarily in the Europe, Middle East and Africa (“EMEA”), and Korea regions.

Information about our net revenue for products and services is summarized below (in millions):

	Three Months Ended September 30,										Nine Months Ended September 30,
	2019		2018		Increase/ (Decrease)			% change			2019		2018		Increase/ (Decrease)		% change
Products	$	66.4	$	68.8	$	(2.4	)		(3	)%	$	214.9	$	198.8	$	16.1		8	%
Services		5.1		3.1		2.0			65	%		14.4		8.9		5.5		62	%
Total	$	71.5	$	71.9	$	(0.4	)		(1	)%	$	229.3	$	207.7	$	21.6		10	%

For the three months ended September 30, 2019, product revenue decreased by 3% or $2.4 million to $66.4 million from $68.8 million in the same period last year. The decrease in product revenue during the period was primarily attributed to softer spending from wireline carriers coupled with delayed purchases from one of our major customers in Japan. For the nine months ended September 30, 2019, product revenue increased by 8% or $16.1 million to $214.9 million from $198.8 million in the same period last year.  The increase in product revenue during the period was primarily due to an increase in product sales, resulting from the impact of the Keymile Acquisition, as well as our broadened geographical base and product offerings, particularly in the EMEA, and Korea regions.

Service revenue represents revenue from maintenance and other services associated with product shipments. For the three months ended September 30, 2019, service revenue increased by 65% or $2.0 million to $5.1 million from $3.1 million in the same period last year. For the nine months ended September 30, 2019, service revenue increased by 62% or $5.5 million to $14.4 million from $8.9 million in the same period last year.  The increase in service revenue was due to the Keymile Acquisition and an increase in the number of products under contract for maintenance and extended warranty.

Information about our net revenue for North America and international markets is summarized below (in millions):

	Three Months Ended September 30,										Nine Months Ended September 30,
	2019		2018		Increase/ (decrease)			% change			2019		2018		Increase/ (decrease)			% change
Revenue by geography:
United States	$	9.7	$	11.2	$	(1.5	)		(13	)%	$	29.0	$	41.4	$	(12.4	)		(30	)%
Canada		1.1		1.1		—			0	%		3.0		3.3		(0.3	)		(9	)%
Total North    America		10.8		12.3		(1.5	)		(12	)%		32.0		44.7		(12.7	)		(28	)%
Latin America		6.3		6.8		(0.5	)		(7	)%		18.8		21.7		(2.9	)		(13	)%
Europe, Middle East,    Africa		15.8		10.4		5.4			52	%		59.4		27.3		32.1			118	%
Korea		20.9		19.6		1.3			7	%		55.7		50.9		4.8			9	%
Other Asia Pacific		17.7		22.8		(5.1	)		(22	)%		63.4		63.1		0.3			0	%
Total International		60.7		59.6		1.1			2	%		197.3		163.0		34.3			21	%
Total	$	71.5	$	71.9	$	(0.4	)		(1	)%	$	229.3	$	207.7	$	21.6			10	%

From a geographical perspective, the decrease in net revenue for the three months ended September 30, 2019 was attributable to declining revenue in North America and Other Asia Pacific regions, partially offset by increased revenues in the EMEA region due to the Keymile Acquisition.  The increase in net revenue for the nine months ended September 30, 2019 was primarily attributable to increased revenues in the EMEA region due to the impact of the Keymile Acquisition, as well as increased revenues in Korea, partially offset by the decline in revenue in North America and Latin America due to changes in the buying patterns of certain customers.

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Across international markets, net revenue for the three months ended September 30, 2019 increased 2% or $1.1 million to $60.7 million from $59.6 million for the same period last year, and represented 85% of total net revenue compared with 83% during the same period of 2018.  The increase in international net revenue was primarily related to the Keymile Acquisition.  International net revenue for the nine months ended September 30, 2019 increased 21% or $34.3 million to $197.3 million from $163.0 million for the same period last year, and represented 86% of total net revenue compared with 78% during the same period of 2018.  The increase in international net revenue was partly related to the Keymile Acquisition and increased product sales in the EMEA, and Korea regions during the period.

For the three months ended September 30, 2019, one customer accounted for 11% of net revenue. For the nine months ended September 30, 2019, no single customer accounted for 10% or more of net revenue.  For the three and nine months ended September 30, 2018, one customer accounted for 11% of net revenue. However, 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.

Cost of Revenue and Gross Profit

Total cost of revenue increased 2% or $0.8 million to $49.3 million for the three months ended September 30, 2019, compared to $48.5 million for the three months ended September 30, 2018. Total cost of revenue was 69% of net revenue for the three months ended September 30, 2019, compared to 67% for the three months ended September 30, 2018. Total cost of revenue increased 11% or $15.1 million to $154.4 million for the nine months ended September 30, 2019, compared to $139.3 million for the nine months ended September 30, 2018. Total cost of revenue was 68% of net revenue for the nine months ended September 30, 2019, compared to 67% for the nine months ended September 30, 2018. Gross profit percentage remained substantially flat at 33% for the nine months ended September 30, 2019 and 2018. Gross profit percentage for the three months ended September 30, 2019 was slightly lower at 31% as compared to 33% for the three months ended September 30, 2018, mainly due to product mix and foreign currency exchange rate fluctuations.  

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 increased 14% or $1.2 million to $9.9 million for the three months ended September 30, 2019 compared to $8.7 million for the three months ended September 30, 2018. As a percentage of sales, research and product development expenses were 14% for the three months ended September 30, 2019, compared to 12% for the three months ended September 30, 2018. Research and product development expenses increased 12% or $3.2 million to $29.5 million for the nine months ended September 30, 2019 compared to $26.3 million for the nine months ended September 30, 2018. As a percentage of sales, research and product development expenses were 13% for the nine months ended September 30, 2019 and 2018. The increase in research and product development expenses was primarily due to the Keymile Acquisition. 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.  We have grown our research and development capabilities, particularly in software development, by using lower cost centers like Vietnam.

Selling, Marketing, General and Administrative Expenses

Selling, marketing, general and administrative expenses increased 42% or $4.6 million to $15.7 million for the three months ended September 30, 2019, compared to $11.1 million for the three months ended September 30, 2018. As a percentage of sales, selling, marketing, general and administrative expenses were 22% for the three months ended September 30, 2019, compared to 16% for the three months ended September 30, 2018. Selling, marketing, general and administrative expenses increased 30% or $10.5 million to $45.7 million for the nine months ended September 30, 2019, compared to $35.2 million for the nine months ended September 30, 2018. As a percentage of sales, selling, marketing, general and administrative expenses were 20% for the nine months ended September 30, 2019, compared to 17% for the nine months ended September 30, 2018. The increase in selling, marketing, general and administrative expenses was primarily due to the impact of the Keymile Acquisition and growth in business as we continue to expand our presence internationally.

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Income Tax Provision

Income tax expense for the three and nine months ended September 30, 2019 was $0.3 million and $1.1 million, respectively, on pre-tax loss of $3.7 million and $2.0 million, respectively.  Income tax expense for the three and nine months ended September 30, 2018 was $0.7 million and $1.1 million, respectively, on pre-tax income of $2.6 million and $4.4 million, respectively. For the three and nine months ended September 30, 2019 and September 30, 2018, the effective income tax rate varied from the United States statutory income tax rate primarily due to valuation allowances in the United States and the mix of earnings generated by our wholly owned foreign subsidiaries.

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 interest, taxes, depreciation and amortization and the impact of certain other charges or transactions, or Adjusted EBITDA, a non-GAAP financial measure. We define Adjusted EBITDA as net income (loss), as defined by GAAP, before (i) interest expense, net, (ii) provision (benefit) for income taxes, (iii) depreciation and amortization expense, (iv) stock-based compensation expenses, and (v) the impact of material transactions or events that we believe are not indicative of our core operating performance, such as merger and acquisition transaction costs, inventory step-up valuation amortization, bargain purchase gain, gain or (loss) on sale of assets or impairment of fixed assets, any of which may or may not be recurring in nature. 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 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.

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;

• Stock-based compensation is and will remain a key element of our overall long-term incentive compensation package, 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, 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 as a supplemental measure.

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

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019			2018		2019			2018
Net income (loss)	$	(3,996	)	$	1,827	$	(3,069	)	$	3,323
Add (less):
Interest expense, net		750			405		2,715			1,127
Income tax expense		289			735		1,098			1,071
Depreciation and amortization		1,343			652		4,110			2,033
Stock-based compensation		1,182			617		2,818			1,357
Acquisition costs		—			139		337			139
Inventory step-up valuation amortization		175			—		577			—
Bargain purchase gain		—			—		(334	)		—
Adjusted EBITDA	$	(257	)	$	4,375	$	8,252		$	9,050

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

For a complete 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 Note 1, Organization and Summary of Significant Accounting Policies, in the notes to our audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2018, as supplemented by Note 1, Organization and Summary of Significant Accounting Policies, in the notes to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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.

The following table summarizes the information regarding our cash and cash equivalents and working capital (in thousands):

	September 30, 2019		December 31, 2018
Cash and cash equivalents	$	47,851	$	27,709
Working capital		119,938		75,280

Operating Activities

Net cash used in operating activities increased by $6.2 million to $21.9 million for the nine months ended September 30, 2019 from $15.7 million for the nine months ended September 30, 2018 primarily due to the decrease in earnings between the two periods and the net effect of changes in operating assets and liabilities during the period.  

Investing Activities

Net cash used in investing activities increased by $5.4 million to $6.2 million for the nine months ended September 30, 2019 from $0.8 million for the nine months ended September 30, 2018. This increase was primarily due to the payment of the purchase price of $11.8 million, net of cash received of $7.1 million, in the Keymile Acquisition.

Financing Activities

Net cash provided by financing activities increased by $31.0 million to $46.2 million for the nine months ended September 30, 2019 from $15.2 million for the nine months ended September 30, 2018. This increase was primarily due to the public stock offering in May 2019 in which we received $42.5 million in net proceeds and the borrowing proceeds received upon entry into the PNC Facility (defined below), partially offset by repayments of short-term and long-term borrowings.

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Cash Management

Our primary source of liquidity comes from our cash and cash equivalents, which totaled $47.9 million at September 30, 2019, as well as our PNC Bank Facility, under which we had aggregate revolving line availability of $12.0 million as of September 30, 2019. Our cash and cash equivalents as of September 30, 2019 included $7.4 million in cash balances held by our international subsidiaries.

PNC Bank Facility

On February 27, 2019, DZS and ZTI (collectively, the “Borrowers”), and certain direct and indirect subsidiaries of the Borrowers, as guarantors, entered into that certain Revolving Credit, Term Loan, Guaranty and Security Agreement (the “Domestic Credit Agreement”) and that certain Export-Import Revolving Credit, Guaranty and Security Agreement (the “Ex-Im Credit Agreement,” and together with the Domestic Credit Agreement, the “Credit Agreements”), in each case with PNC Bank, National Association (“PNC”) and Citibank, N.A. as lenders, and PNC as agent for the lenders (the “PNC Facility”), which replaced our former senior secured credit facilities with Wells Fargo Bank (the “Former WFB Facility”).

The Credit Agreements provide for a $25.0 million term loan and a $15.0 million revolving line of credit (including subfacilities for Ex-Im transactions, letters of credit and swing loans). The amount we are able to borrow on the revolving line of credit at any time is based on eligible accounts receivable and other conditions, less certain reserves. Borrowings under the PNC Facility bear interest at our option, at either (i) a base rate equal to the highest of the federal funds rate plus 0.50%, PNC’s prime rate, or the daily LIBOR rate plus 1.00%, or (ii) the LIBOR rate for the applicable interest period, subject to a floor of 1.00% (with respect to the term loans only), plus in each case, an applicable margin.  The applicable margin for term loans is 5.00% for base rate loans and 6.00% for LIBOR rate loans, and the applicable margin for borrowings under the revolving line of credit is 1.50% for base rate loans and 2.50% for LIBOR rate loans.

We used a portion of the funds borrowed from the term loan under the Credit Agreements to (i) repay $5.0 million in principal amount of existing related-party indebtedness with DNI plus accrued interest, (ii) repay $1.5 million in outstanding borrowings plus accrued interest and fees and cash collateralize $3.6 million in outstanding letters of credit under the Former WFB Facility, and (iii) repay $5.6 million in short-term debt in Korea and Japan. We intend to use the remaining funds for ongoing working capital needs. Obligations under the Credit Agreements are secured by substantially all of the personal property assets of the Borrowers and the subsidiaries that guarantee the Credit Agreements, including their intellectual property.

The maturity date under the Credit Agreements is February 27, 2022. The term loan under the Credit Agreements is repayable in eight quarterly installments of $625,000 beginning June 30, 2019, followed by quarterly installments of $937,500 beginning on June 30, 2021, with all remaining unpaid principal and accrued interest due on the maturity date.

The Credit Agreements contain certain covenants, limitations, and conditions with respect to the Borrowers and their subsidiaries, including a maximum leverage ratio, a minimum fixed charge coverage ratio, and a minimum liquidity covenant, as well as financial reporting obligations, and customary events of default. If an event of default occurs, the agent and lenders will be entitled to take various actions, including requiring the immediate repayment of all outstanding amounts under the Credit Agreements, terminating commitments to make additional advances and selling the assets of the Borrowers and their subsidiary guarantors to satisfy the obligations under the Credit Agreements. At September 30, 2019, the Company was not in compliance with the maximum leverage ratio financial covenant in the Credit Agreements, which represents an event of default thereunder. On November 8, 2019, the Company obtained a waiver of the foregoing event of default from the lenders under the Credit Agreements. As a condition for the issuance of the waiver, the Company voluntarily prepaid $10.0 million of the outstanding term loan and paid a one-time fee of $150,000. Uncertainty exists as to the Company’s ability to meet these financial covenants at the respective reporting dates during the next twelve months. As a result, the Company is in the process of renegotiating these financial covenants with the banks; however, there is no assurance that the Company will be able to successfully complete such renegotiations. If the Company violates covenants in the Credit Agreements or the contemplated amended covenants, the Company could be required to repay the amounts then outstanding under the Credit Agreements.

As of September 30, 2019, we had $23.8 million in outstanding term loan borrowings and no outstanding revolving line of credit borrowings under the Credit Agreements.  On July 2, 2019, $4.4 million in outstanding borrowings under the revolving line of credit (which represented all outstanding borrowings under the revolving line of credit) was paid in full.

As of September 30, 2019, the interest rate on the term loan was 8.12%. Deferred financing cost of $1.5 million as of September 30, 2019 has been netted against the aggregate principal amount of the PNC term loan in the unaudited condensed consolidated balance sheet as of September 30, 2019.

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Former Wells Fargo Bank Facility

On February 27, 2019, in connection with the entry into the PNC Facility, we repaid $1.5 million in principal amount of outstanding borrowings plus accrued interest and fees under the Former WFB Facility, cash collateralized $3.6 million outstanding letters of credit under the Former WFB Facility and terminated the Former WFB Facility.

Working Capital Loan

On October 1, 2018, as a condition for the Keymile Acquisition, the former stockholder of Keymile extended a €4.0 million ($4.4 million) working capital loan to Keymile. The working capital loan bears interest at a rate of 3.5% per annum and is scheduled for repayment in two equal installments.  The first payment of €2 million ($2.2 million) was made in April 2019 and the balance is due in November 2019. As of September 30, 2019, the outstanding balance under this working capital loan was €2.0 million ($2.2 million). Subsequently in November 2019, the Company fully repaid all the outstanding borrowings under this working capital loan.

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 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 September 30, 2019 and December 31, 2018, we had an aggregate outstanding balance of $20.6 million and $24.8 million, respectively, under such financing arrangements, and the interest rate per annum applicable to outstanding borrowings under these financing arrangements ranged from 0% to 5.49% as of September 30, 2019.  

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. The term loan was scheduled to mature in September 2021 and was pre-payable at any time by us without premium or penalty. The interest rate under this facility was 4.6% per annum.  In February 2019, we repaid the term loan in full plus accrued interest in connection with the entry into the PNC Facility, thereby terminating the loan agreement.

In February 2016, DNS borrowed $1.8 million from DNI for capital investment with an interest rate of 4.6% per annum. On February 27, 2019, in connection with the entry into the PNC Facility, the parties amended the terms of this loan to extend the repayment date until May 27, 2022. As of September 30, 2019, the $1.8 million balance of the loan remained outstanding.

On December 27, 2018, we entered into a Loan Agreement with DNI for a $6.0 million term loan with an interest rate of 4.6% per annum. On February 27, 2019, in connection with the entry into the PNC Facility, the parties amended the terms of the term loan to extend the repayment date until May 27, 2022 and to terminate the security interest granted to DNI with respect to such term loan. As of September 30, 2019, the $6.0 million balance of the loan remained outstanding.

On March 27, 2018, Dasan Network Solutions, Inc., a subsidiary of the Company incorporated under the laws of Korea (“DNS Korea”), borrowed KRW6.5 billion ($5.8 million) from DNI. The loan bears interest at a rate of 4.6% and is secured by certain accounts receivable of DNS Korea. On February 27, 2019, in connection with the entry into the PNC Facility, the parties amended the terms of this loan to extend the repayment date until May 27, 2022. As of September 30, 2019, KRW1.5 billion ($1.3 million) remained outstanding.  

Interest expense on these related-party borrowings was $0.1 million for each of the three months ended September 30, 2019 and 2018, and $0.3 million for each of the nine months ended September 30, 2019 and 2018.

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.

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.

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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 September 30, 2019, two customersrepresented 17% and 12% of net accounts receivable, respectively, and receivables from customers in countries other than the United States represented 94%of net accounts receivable. 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

At September 30, 2019, our future contractual commitments by fiscal year were as follows (in thousands):  

			Payments due by period
	Total		2019		2020		2021		2022		2023		Thereafter
Operating lease payments	$	22,788	$	1,259	$	4,197	$	3,890	$	3,609	$	3,460	$	6,373
Other lease payments		406		145		226		35		—		—		—
Purchase commitments		3,188		3,188		—		—		—		—		—
Foreign debts		22,808		10,769		12,039		—		—		—		—
PNC debts		23,750		10,625		2,500		3,437		7,188		—		—
Long-term debt - related party		9,049		—		—		—		9,049		—		—
Royalty obligations		69		69		—		—		—		—		—
Total future contractual    commitments	$	82,058	$	26,055	$	18,962	$	7,362	$	19,846	$	3,460	$	6,373

Operating Leases

The operating lease amounts shown above represent leases for certain properties and buildings (including manufacturing facilities, warehouses, and office spaces) and equipment under various arrangements which provide the right to use the underlying asset and require lease payments for the lease term.  For additional information regarding how leases are reported on our balance sheet, see Note 14 in the notes to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Purchase Commitments

The purchase commitments shown above represent non-cancellable inventory purchase commitments as of September 30, 2019.

Short-term Debt

Our short-term debt obligations have been recorded as liabilities on our balance sheet, and as of September 30, 2019 are comprised of $20.6 million in outstanding borrowings under the credit facilities of our foreign subsidiaries, $12.5 million in outstanding borrowings under the Credit Agreements and $2.2 million in outstanding borrowings under a working capital loan from the former stockholder of Keymile. Such amounts represent scheduled principal repayments, but not the associated interest payments which may vary based on changes in market interest rates. At September 30, 2019, the interest rate per annum applicable to outstanding borrowings under the trade facilities of our foreign subsidiaries ranged from 0% to 5.49%, was 8.12% under the PNC term loan, and was 3.5% for the Keymile working capital loan. See above under "Cash Management" for further information about these facilities.

Related-Party Debt

As of September 30, 2019, we had an aggregate of $9.1 million in outstanding borrowings from DNI, which consisted of a $6.0 million unsecured subordinated term loan facility which matures in May 2022, a $1.8 million loan for capital investment which matures in May 2022, and KRW 1.5 billion ($1.3 million) outstanding under a secured loan from DNS Korea which matures in May 2022. All three loans bear interest at a rate of 4.6% per annum.

See “Cash Management” – “Related-Party Debt” above and Note 11 in the notes to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information about our related-party debt.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Concentration of Credit Risk

We are potentially exposed to concentrations of credit risk, through our cash and cash equivalents, which totaled $47.9 million at September 30, 2019, including $7.4 million held by our international subsidiaries and our accounts and other receivables, net, which totaled $108.9 million at September 30, 2019.  Cash and cash equivalents consist of financial deposit and money market accounts that are principally held with various domestic and international financial institutions with high credit standing. We perform ongoing credit evaluations of our customers and generally do not require collateral to secure our receivables. 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 months ended September 30, 2019, one customer accounted for 11% of net revenue.  For the nine months ended September 30, 2019, no single customer accounted for 10% or more of net revenue.  For the three and nine months ended September 30, 2018, one customer accounted for 11% of net revenue.  

As of September 30, 2019, two customers represented 17% and 12% of net accounts receivable, respectively. As of December 31, 2018, two customers represented 11% and 10% of net accounts receivable, respectively.

As of September 30, 2019 and December 31, 2018, receivables from customers in countries other than the United States represented 94% and 88%, 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 September 30, 2019, our outstanding variable-interest debt balance was $44.4 million, which consisted of principal amount of borrowings under the short-term credit facilities of our foreign subsidiaries and term loan borrowings under the Credit Agreements (all of which bear interest at a variable rate). As of September 30, 2019, amounts borrowed under our short-term credit facilities bore interest ranging from 0% to 5.49%, and amounts borrowed under the PNC term loan bore interest at 8.12%. 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 $0.5 million. In addition, as of September 30, 2019, we had an aggregate of $11.2 million in outstanding borrowings from DNI and Riverside (all of which bear interest at a fixed rate of 4.6% and 3.5%, respectively).

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 September 30, 2019 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 $3.5 million at September 30, 2019. 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 are required to 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 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 principal executive officer and principal financial officer, as appropriate to allow for timely decisions regarding required disclosures. Our disclosure controls and procedures include those components of our internal control over financial reporting intended to provide reasonable assurance that transactions are recorded as necessary to permit preparation of financials in accordance with U.S. GAAP.  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 our disclosure controls and procedures as of September 30, 2019, the end of the period covered by this Quarterly Report on Form 10-Q. The evaluation was done under the supervision and with the participation of management, including our principal executive officer and principal financial officer. In the course of the evaluation of our disclosure controls and procedures, our principal executive officer and principal financial officer concluded that, because of the unresolved material weaknesses in our internal control over financial reporting as described below, our disclosure controls and procedures were not effective as of September 30, 2019.

Material Weakness in Internal Control Over Financial Reporting

In connection with the Company’s annual evaluation of its internal control over financial reporting conducted in accordance with SEC Rule 13a-15(c), the Company’s management, including our Chief Executive Officer and Chief Financial Officer, identified a material weakness in the Company’s internal control over financial reporting, and as a result thereof, determined that the Company’s internal control over financial reporting was not effective as of December 31, 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. Following consummation of the Merger with DNS, management identified material weaknesses in our internal control over financial reporting, which continued to exist at December 31, 2018. Specifically, management determined that 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. Additionally, the Company has failed to maintain effective controls over our financial close process. Further, 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 Merger, 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 ended September 30, 2016.

We continue to evaluate and assess the design and operation of our controls and are taking steps to modify processes related to the accounting for significant and unusual transactions as well as enhancing monitoring and oversight controls in the application of 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 our 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. Integration activities related to the Keymile Acquisition may lead us to modify certain internal controls in future periods.

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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 a 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 Quarterly Report on Form 10-Q, 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, 2018, which could materially affect our business, financial condition or future results. Except as provided below, there have been no material changes to the risk factors described in the "Risk Factors" section in our Annual Report on Form 10-K for the year ended December 31, 2018.  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.

DNI owns a significant amount of our outstanding common stock and has the ability to exert significant influence or control over any matters that require stockholder approval, including the election of directors and the approval of certain transactions, and DNI’s interests may conflict with our interests and the interests of other stockholders

As of September 30, 2019, DNI owned approximately 44.4% of the outstanding shares of our common stock, representing a significant amount of the votes entitled to be cast by the holders of our outstanding common stock at a stockholder meeting. Due to its significant ownership percentage of our common stock DNI has the ability to substantially influence or control the outcome of any matter submitted for the vote of our stockholders, including the election of directors and the approval of certain transaction. The interests of DNI may conflict with the interests of our other stockholders or with holders of our indebtedness and may cause us to take actions that our other stockholders or holders of our indebtedness do not view as beneficial.

In addition, DNI’s large concentration of stock ownership may make it more difficult for a third party to acquire us or discourage a third party from seeking to acquire us. A potential third party acquirer would be required to negotiate any such transaction with DNI, and the interests of DNI with respect to such transaction may be different from the interests of our other stockholders or with holders of our indebtedness.

Prior to May 20, 2019, DNI owned in excess of 50% of the outstanding shares of our common stock, which allowed us to elect to be treated as a “controlled company” under Nasdaq Marketplace Rules. As a “controlled company,” we were exempt from certain corporate governance requirements under Nasdaq Marketplace Rules, including the requirement that we have a majority of independent directors on the Board of Directors and requirements with respect to compensation and nominating and corporate governance committees. Following the loss of “controlled company” status, we are required to phase in compliance with the Nasdaq corporate governance requirements over a one-year period.

Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders (except for causes of action arising under the federal securities laws), which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.

Our amended and restated bylaws (our “Bylaws”) provide that the Court of Chancery of the State of Delaware is the sole and exclusive forum for:

• any derivative action or proceeding brought on behalf of the Company;

• any action asserting a claim of breach of a fiduciary duty owed by any director, officer, employee or agent of the Company to the Company or the Company’s stockholders;

• any action asserting a claim against the Company arising pursuant to any provision of the General Corporation Law of the State of Delaware, the Certificate of Incorporation or the Bylaws; and

• any action asserting a claim against the Corporation governed by the internal affairs doctrine, in each such case subject to said Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein;

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provided, that with respect to any derivative action or proceeding brought on our behalf to enforce any liability or duty created by the Exchange Act or the rules and regulations thereunder, the exclusive forum will be the federal district courts of the United States. The exclusive forum provision in our Bylaws does not apply to resolving any complaint asserting a cause of action arising under the Securities Act.

These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers and other employees. If a court were to find the exclusive forum provision in our Bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could seriously harm our business. For example, the Court of Chancery of the State of Delaware recently determined that the exclusive forum provision of federal district courts of the United States for resolving any complaint asserting a cause of action arising under the Securities Act is not enforceable. However, this decision may be reviewed and ultimately overturned by the Delaware Supreme Court.

Increased tariffs on products and goods that we purchase from off-shore sources (particularly Chinese sources) and changes in international trade policies and relations could have an adverse effect on our customers and operating results.

The United States has recently imposed tariffs on a wide-range of products and goods manufactured in China that are directly or indirectly imported into the United States, and it has announced plans to impose additional tariffs on products and goods manufactured in China. In response, various countries and economic regions have announced plans or intentions to impose retaliatory tariffs on a wide-range of products they import from the United States. These newly imposed, announced and threatened U.S. tariffs and retaliatory tariffs could have the effect of increasing the cost of materials we use to manufacture certain products, which could result in lower margins. The tariffs could also result in disruptions to our supply chain, as suppliers struggle to fill orders from companies trying to purchase goods in bulk ahead of announced tariffs. Although we currently believe that the incremental costs to us of these tariffs will be immaterial, if the amount of these tariffs increases or if the tariffs apply to additional categories of components used in our manufacturing activities, and if we are unable to pass on the costs of tariffs to our customers, our operating results would be harmed. In addition, changes in the political environment, governmental policies, international trade policies and relations, or U.S.-China relations could result in revisions to laws or regulations or their interpretation and enforcement, trade sanctions, or retaliatory actions by China in response to U.S. actions, which could have an adverse effect on our customers, business plans and operating results.

Until the Company hires a permanent Chief Financial Officer, our Chief Executive Officer will also be serving as our interim Chief Financial Officer, which could have an adverse impact on our business.

Following the formerly-announced resignation of our former Chief Financial Officer, Michael Golomb, Mr. Il Yung Kim, the Chief Executive Officer of the Company, was appointed to serve as our interim Chief Financial Officer. As a result of this change, Mr. Il Yung Kim has taken on substantially more responsibility for the management of our business and of our financial reporting, which has resulted in greater workload demands and could divert his attention away from certain key areas of our business. Mr. Kim’s serving in a temporary dual capacity of Chief Executive Officer and interim Chief Financial Officer of the Company may have a disruptive impact on our ability to implement our strategy and could adversely affect our business, internal controls, financial condition and results of operations.  Until we find and integrate a permanent Chief Financial Officer, we may be unable to successfully manage and grow our business, and our results of operations, internal controls and financial condition could suffer as a result. Leadership transitions can be inherently difficult to manage and may cause uncertainty and decreased productivity among our employees and increase the likelihood of turnover, which could result in significant disruptions to our operations. We could be adversely affected if we fail to adequately plan for the succession of members of our senior management team should we have additional departures. Finally, we continue to execute a number of significant business initiatives. Successfully managing these initiatives, including retention of key employees, is critical to our business success.

Item 5. Other Information

As noted above, at September 30, 2019, the Company was not in compliance with the maximum leverage ratio financial covenant in the Credit Agreements, which represents an event of default thereunder. On November 8, 2019, the Company obtained a waiver of the foregoing event of default from the lenders under the Credit Agreements (the “Waiver”). As a condition for the issuance of the Waiver, the Company voluntarily prepaid $10.0 million of the outstanding term loan and paid a one-time fee of $150,000.  The foregoing description of the Waiver is qualified in its entirety by reference to the Waiver, a copy of which is filed as Exhibit 10.3 hereto.

Item 6. Exhibits

The exhibits required to be filed with this quarterly report on Form 10-Q are listed in the Exhibit Index attached hereto and are incorporated herein by reference.

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EXHIBIT INDEX

Exhibit Number	Description
2.1	Share Transfer Agreement dated as of July 31, 2019 by and between Handysoft, Inc. and DASAN Zhone Solutions, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 5, 2019).
10.1+	General Release of Claims and Consulting Agreement dated August 30, 2019 by and between DASAN Zhone Solutions, Inc. and Michael Golomb.
10.2	Office Lease dated July 9, 2019, by and between DASAN Zhone Solutions, Inc. and Family Stations, Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 14, 2019).
10.3	Letter Agreement dated November 8, 2019 by and among PNC Bank, N.A., Citibank, N.A. and DASAN Zhone Solutions, Inc.
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)
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

+ Indicates management contract or compensatory plan, contract or arrangement.

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SIGNATURES

Pursuant to the requirements 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: November 13, 2019
	By:	/s/ IL YUNG KIM
	Name:	Il Yung Kim
	Title:	President and Chief Executive Officer
	By:	/s/ IL YUNG KIM
	Name:	Il Yung Kim
	Title:	Interim Chief Financial Officer

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EX-10.1

Exhibit 10.1

GENERAL RELEASE OF CLAIMS

THIS GENERAL RELEASE OF CLAIMS (this “Release”) is entered into by and between DASAN Zhone Solutions, Inc., a Delaware corporation (the “Company”), and Mikhail Golomb (“Executive”), as of the Effective Date (as defined below).

WHEREAS, the Company and Executive are parties to that certain Employment Agreement dated as of December 1, 2017 (the “Employment Agreement”);

WHEREAS, the Company has agreed to provide Executive with certain benefits, subject to Executive’s execution of this Release; and

WHEREAS, the Company and Executive now wish to fully and finally resolve all matters between them.

NOW, THEREFORE, in consideration of, and subject to, the benefits payable to Executive described in Section 2(d) below, the adequacy of which is hereby acknowledged by Executive, and which Executive acknowledges that he would not otherwise be entitled to receive, Executive and the Company hereby agree as follows:

1.Effective Date; Last Day of Employment.  

(a)Effective Date.  This Release shall become effective upon the occurrence of both of the following events: (i) execution of the Release by the parties; and (ii) expiration of the revocation period applicable under Section 4(d) below without Executive having given notice of revocation.  The date of the last to occur of the foregoing events shall be referred to in this Release as the “Effective Date.”  Until and unless both of the foregoing events occur, this Release shall be null and void.  Executive understands that Executive will not be given any severance benefits under this Release unless the Effective Date occurs on or before the date that is thirty (30) days following the Resignation Date (as defined below).

(b)Last Date of Employment.  Executive formally informed the Company on August 26, 2019 of his resignation from his position as the Chief Financial Officer, Corporate Treasurer, and Corporate Secretary of the Company effective as of August 30, 2019 (the “Resignation Date”) to explore another opportunity. Executive hereby resigns from his employment with the Company (and any officer titles or officer positions he may hold) of the Company (and any of its affiliates and subsidiaries) effective as of the Resignation Date.  Executive shall execute any additional documentation necessary to effectuate such resignations.  Executive’s “separation from service” for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), shall be the Resignation Date.

2.Compensation.  

(a)Compensation Through Resignation Date.  On the Resignation Date, the Company shall issue to Executive his final paycheck, reflecting (i) Executive’s fully earned but unpaid base salary, through the Resignation Date at the rate then in effect, and (ii) all accrued, unused paid time off due Executive through the Resignation Date.  Subject to Sections 2(b) and (d) below, Executive acknowledges and agrees that with his final check, Executive received all monies, bonuses, commissions, expense reimbursements, paid time off, or other compensation he earned or was due during his employment by the Company.  

(b)Expense Reimbursements.  The Company, within thirty (30) days after the Resignation Date, will reimburse Executive for any and all reasonable and necessary business expenses incurred by Executive in connection with the performance of his job duties prior to the Resignation Date, which expenses shall be submitted to the Company with supporting receipts and/or documentation no later than thirty (30) days after the Resignation Date.

(c)Benefits.  Executive’s entitlement to benefits from the Company, and eligibility to participate in the Company’s benefit plans, shall cease on the Resignation Date, except to the extent Executive elects to and is eligible to receive continued healthcare coverage pursuant to the provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), for himself and any covered dependents, in accordance with the provisions of COBRA.

(d)Release Consideration.  In exchange for Executive’s agreement to be bound by the terms of this Release, including, but not limited to, the release of claims in Section 4, Executive shall be entitled to receive the following, which shall be the exclusive benefits to which Executive is entitled, unless Executive has materially breached the provisions of this Release, in which case Section 5(e)(iii) shall apply:

(i)A cash payment in the amount of $150,000, payable in a lump sum within ten (10) days following the Effective Date; plus

(iii)On the Effective Date, the vesting and exercisability of all of Executive’s outstanding stock options to purchase shares of the Company’s common stock granted under the Company’s equity plan (the “Stock Options”) shall accelerate.  His vested Stock Options   may be exercised by Executive (or Executive’s legal guardian or legal representative) until February 28, 2020 (and such exercise period shall not be extended beyond such date as a result of any services provided by Executive during the Consulting Period (as defined below)); provided, however, that in no event shall any Stock Option remain exercisable beyond the original outside expiration date of such Stock Option.  Except as modified above, Executive’s Stock Options shall continue to be governed by the terms and conditions of the Stock Option agreements and the Company’s equity plan pursuant to which such Stock Options were granted.

Executive’s vested Stock Options (after giving effect to such acceleration on the Effective Date) may be exercised by Executive (or Executive’s legal guardian or legal representative) in accordance with the terms and conditions of the Stock Option agreements and the Company's equity plan pursuant to which such Stock Options were granted.  Except as modified above, Executive’s Stock Options shall continue to be governed by the terms and conditions of the Stock Option agreements and the Company’s equity plan pursuant to which such Stock Options were granted.

(e)Return of the Company’s Property.  On the Resignation Date, and prior to the payment of any amounts to Executive under Section 2(d) above, Executive shall immediately surrender to the Company all property, equipment, cell phones, lists, books and records of, or in connection with, the Company’s business, and all other property belonging to the Company, it being distinctly understood that all such lists, books and records, and other documents, are the property of the Company. For the avoidance of the doubt, if any issues arise, the Company is to identify and deliver the missing items list in writing to the Executive.

3.Consulting Services.  

(a)Consulting Period.  During the period (the “Consulting Period”) commencing on the Resignation Date and ending on February 28, 2020 (the “Consulting Termination Date”), Executive shall provide consulting services to the Company.  Executive’s consulting services pursuant to this Section 3(a) shall automatically terminate on the Consulting Termination Date.  Either party may terminate the Consulting Period upon ten (10) days' written notice to the other party.

(b)Scope of Services During Consulting Period.  During the Consulting Period, Executive shall use reasonable efforts to devote such percentage of his business time and effort to the performance of his services hereunder as shall be mutually agreed upon by Executive and the Chief Executive Officer of the Company and shall provide such additional information, advice and assistance concerning matters that are within the scope of Executive’s knowledge and expertise; provided, however, that Executive shall not be required to provide services under this Agreement for more than five (5) days per calendar month. Executive’s advice shall be of an advisory nature and the Company shall not have any obligation to follow such advice.  Executive agrees to perform the consulting services and any other obligations or activities hereunder in accordance with (i) the terms of this Agreement, (ii) all applicable laws, and (iii) all Company policies and procedures as are provided in advance and in writing to Executive in connection with Executive’s performance under this Agreement.  

(c)Availability.  In connection with Executive’s services to the Company, Executive agrees to: (i) be available for consultation by telephone, fax or e-mail on a regular basis on reasonable prior notice during regular business hours; and (ii) be available to attend meetings with the Company’s executive team or persons designated by any of the members of the Company’s management team, at the Company’s headquarters or other offices, on reasonable prior notice.  

(d)Status as Independent Contractor.  Notwithstanding any provision of this Agreement to the contrary, during the Consulting Period, Executive acknowledges that he is and shall at all times be an independent contractor, he is not an agent or employee of the Company and he is not authorized to bind the Company or otherwise act on behalf of the Company.  Nothing herein contained shall be deemed to create an agency, joint venture, partnership or franchise relationship between the parties hereto.  After the Resignation Date, except as set forth in Section 2(c) above, Executive shall have no right under this Agreement, or as a result of his services to the Company, to participate in any employee, retirement, insurance or other benefit program of the Company, nor will the Company make any deductions from Executive’s compensation for taxes, the payment of which shall be solely Executive’s responsibility (other than tax withholding arising as a result of the vesting and/or settlement of Executive’s Equity Awards (as defined below)).  Executive represents and warrants that neither this Agreement nor the performance thereof will conflict with or violate any obligation of Executive or right of any third party.  

(e)Other Work Activities.  During the Consulting Period, Executive may engage in employment, consulting or other work relationships in addition to his work for the Company, provided that such engagements do not violate the provisions of this Agreement.  The Company will not be entitled to any setoff or other reduction in its payments hereunder as a result of such permitted other work activities.

(d)Compensation.  Executive's compensation for any service during the Consulting Period shall be mutually agreed between Executive and the Chief Executive Officer in writing prior to the provision of such services.  

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4.General Release of Claims by Executive.  

(a)Executive, on behalf of himself and his executors, heirs, administrators, representatives and assigns, hereby agrees to release and forever discharge the Company and all predecessors, successors and their respective parent corporations, affiliates, related, and/or subsidiary entities, and all of their past and present investors, directors, shareholders, officers, general or limited partners, employees, attorneys, agents and representatives, and the employee benefit plans in which Executive is or has been a participant by virtue of his employment with or service to the Company (collectively, the “Company Releasees”), from any and all claims, debts, demands, accounts, judgments, rights, causes of action, equitable relief, damages, costs, charges, complaints, obligations, promises, agreements, controversies, suits, expenses, compensation, responsibility and liability of every kind and character whatsoever (including attorneys’ fees and costs), whether in law or equity, known or unknown, asserted or unasserted, suspected or unsuspected (collectively, “Claims”), which Executive has or may have had against such entities based on any events or circumstances arising or occurring on or prior to the date hereof, arising directly or indirectly out of, relating to, or in any other way involving in any manner whatsoever Executive’s employment by or service to the Company or the termination thereof, including any and all claims arising under federal, state, or local laws relating to employment, including without limitation claims of wrongful discharge, breach of express or implied contract, fraud, misrepresentation, defamation, or liability in tort, and claims of any kind that may be brought in any court or administrative agency including, without limitation, claims under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000, et seq.; the Americans with Disabilities Act, as amended, 42 U.S.C. § 12101 et seq.; the Rehabilitation Act of 1973, as amended, 29 U.S.C. § 701 et seq.; the Civil Rights Act of 1866, and the Civil Rights Act of 1991; 42 U.S.C. Section 1981, et seq.; the Age Discrimination in Employment Act, as amended, 29 U.S.C. Section 621, et seq. (the “ADEA”); the Equal Pay Act, as amended, 29 U.S.C. Section 206(d); regulations of the Office of Federal Contract Compliance, 41 C.F.R. Section 60, et seq.; the Family and Medical Leave Act, as amended, 29 U.S.C. § 2601 et seq.; the Fair Labor Standards Act of 1938, as amended, 29 U.S.C. § 201 et seq.; the Employee Retirement Income Security Act, as amended, 29 U.S.C. § 1001 et seq.; and the California Fair Employment and Housing Act, California Government Code Section 12940, et seq.

Notwithstanding the generality of the foregoing, Executive does not release the following claims:

(i)Claims for unemployment compensation or any state disability insurance benefits pursuant to the terms of applicable state law;

(ii)Claims for workers’ compensation insurance benefits under the terms of any worker’s compensation insurance policy or fund of the Company;

(iii)Claims pursuant to the terms and conditions of the federal law known as COBRA;

(iv)Claims for indemnity under the bylaws of the Company, as provided for by California law (including California Labor Code Section 2802) or under any applicable insurance policy with respect to Executive’s liability as an employee, director or officer of the Company;

(v)Claims based on any right Executive may have to enforce the Company’s executory obligations under this Release;

(vi)Executive’s right to bring to the attention of the Equal Employment Opportunity Commission or the California Department of Fair Employment and Housing claims of discrimination; provided, however, that Executive does release his right to secure any damages for alleged discriminatory treatment;

(vii)Executive’s right to communicate or cooperate with any government agency; and

(vii)Any other Claims that cannot be released as a matter of law.

(b)EXECUTIVE ACKNOWLEDGES THAT he HAS BEEN ADVISED OF AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, AND THAT IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.”

BEING AWARE OF SAID CODE SECTION, EXECUTIVE HEREBY EXPRESSLY WAIVES ANY RIGHTS he MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPLES OF SIMILAR EFFECT.

(c)Executive acknowledges that this Release was presented to him on August 26, 2019, and that Executive is entitled to have twenty-one (21) days’ time in which to consider it.  Executive further acknowledges that the Company has advised him that he is waiving his rights under the ADEA, and that Executive should consult with an attorney of his choice before signing this Release, and Executive has had sufficient time to consider the terms of this Release.  Executive represents and acknowledges that if Executive executes this Release before twenty-one (21) days have elapsed, Executive does so knowingly, voluntarily, and upon the advice and with the approval of Executive’s legal counsel (if any), and that Executive voluntarily waives any remaining consideration period.  

(d)Executive understands that after executing this Release, Executive has the right to revoke it within seven (7) days after his execution of it.  Executive understands that this Release will not become effective and enforceable unless the seven (7) day revocation period passes and Executive does not revoke the Release in writing.  Executive understands that this Release may not be revoked after the seven (7) day revocation period has passed.  Executive also understands that any revocation of this Release must be made in writing and delivered to the Chief Executive Officer of the Company, the Company’s principal place of business, within the seven (7) day period.

(e)Executive understands that this Release shall become effective, irrevocable, and binding upon Executive on the eighth (8th) day after his execution of it, so long as Executive has not revoked it within the time period and in the manner specified in clause (d) above.  

5.Confirmation of Continuing Obligations.  

(a)Proprietary Rights Agreement.  Executive hereby expressly reaffirms his obligations under the Company’s standard employee innovations and proprietary rights assignment agreement (the “Proprietary Rights Agreement”), which Executive has previously executed, a copy of which is attached to this Release as Exhibit A and incorporated herein by reference, and agrees that such obligations shall survive the Resignation Date and any end of his services to the Company.  

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(b)Customers and Suppliers.  Executive recognizes that he possesses Proprietary Information (as such term is defined in the Proprietary Rights Agreement) about the customers or suppliers of the Company and its subsidiaries and affiliates. Executive recognizes that the Proprietary Information he possesses about these customers or suppliers may not be generally known, is of substantial value to the Company and its subsidiaries in developing its business and in securing and retaining customers, and was acquired by him because of his business position with the Company and its subsidiaries and affiliates. Executive agrees that, for a period of nine (9) months beyond the ResignationDate, he will not, directly or indirectly, influence or attempt to influence customers or suppliers of the Company or any of its subsidiaries or affiliates to divert their business to any competitor of the Company, and that he will not convey any such Proprietary Information or trade secrets about the customers or suppliers of the Company and its subsidiaries or affiliates to any other person.

(c)Employees.  Executive recognizes that he possesses Proprietary Information about other employees of the Company and its subsidiaries and affiliates relating to their education, experience, skills, abilities, compensation and benefits, and inter-personal relationships with customers of the Company and its subsidiaries and affiliates. Executive recognizes that the Proprietary Information he possesses about these other employees is not generally known, is of substantial value to the Company and its subsidiaries in developing its business and in securing and retaining customers, and will be acquired by him because of his business position with the Company and its subsidiaries and affiliates. Executive agrees that, for a period of nine (9) months beyond the Resignation Date, he will not, directly or indirectly, induce, solicit or recruit any employee of the Company or its subsidiaries or affiliates for the purpose of being employed by him or by any competitor of the Company on whose behalf he is acting as an agent, representative or employee, and that he will not convey any such Proprietary Information or trade secrets about other employees of the Company and its subsidiaries or affiliates to any other person.

(d)Reasonableness of Relief; Blue Penciling.  Executive acknowledges and agrees that the covenants and agreements contained herein are reasonable and valid in geographic and temporal scope and in all other respects and are reasonably necessary to protect the Company. If any court determines that any of the covenants and agreements contained herein, or any part thereof, is unenforceable because of the duration or geographic scope of such provision, such court shall have the power to reduce the duration or scope of such provision, as the case may be, and, in its reduced form, such provision shall then be enforceable to the maximum extent permitted by applicable law.

(e)Rights and Remedies Upon Breach.  In the event Executive breaches, or threatens to commit a breach of, any of the provisions of this Section 5, the Company and its subsidiaries, affiliates, successors or assigns shall have the following rights and remedies, each of which shall be independent of the others and severally enforceable, and each of which shall be in addition to, and not in lieu of, any other rights or remedies available to the Company or its subsidiaries, affiliates, successors or assigns at law or in equity under this Release or otherwise:

(i)Specific Performance. The right and remedy to have each and every one of the covenants in this Release specifically enforced and the right and remedy to obtain injunctive relief, it being agreed that any breach or threatened breach of any of the nonsolicitation or other restrictive covenants and agreements contained herein would cause irreparable injury to the Company and its subsidiaries, affiliates, successors or assigns and that money damages would not provide an adequate remedy at law to the Company and its subsidiaries, affiliates, successors or assigns.

(ii)Accounting. The right and remedy to require Executive to account for and pay over to the Company and its subsidiaries, affiliates, successors or assigns, as the case may be, all compensation, profits, monies, accruals, increments or other benefits derived or received by Executive that result from any transaction or activity constituting a breach of this Release.

(iii)Cessation of Payments. The right to cease all payments to Executive hereunder.

(f)Enforceability in all Jurisdictions.  Executive intends to and hereby confers jurisdiction to enforce each and every one of the covenants and agreements contained herein upon the courts of any jurisdiction within the geographic scope of such covenants and agreements. If the courts of any one or more of such jurisdictions hold any such covenant or agreement unenforceable by reason of the breadth of such scope or otherwise, it is the intention of Executive and the Company that such determination shall not bar or in any way affect the Company’s or any of its subsidiaries’, affiliates’, successors’ or assigns’ right to the relief provided above in the courts of any other jurisdiction within the geographic scope of such covenants and agreements, as to breaches of such covenants and agreements in such other respective jurisdictions, such covenants and agreements as they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants and agreements.

(e)Whistleblower Provision.  Notwithstanding the foregoing, or anything contained in the Proprietary Rights Agreement, Executive acknowledges that he will not be held criminally or civilly liable for (i) the disclosure of confidential or proprietary information that is made in confidence to a government official or to an attorney solely for the purpose of reporting or investigating a suspected violation of law, or (ii) disclosure of confidential or proprietary information in a made in a complaint or other document filed in a lawsuit or other proceeding under seal or pursuant to court order.

6.Company’s General Release. In consideration for and as a condition of Executive’s willingness to enter into this Agreement, the Company hereby agrees to release and forever discharge the Executive from any and all Claims that the Company may have against the Company as the result of his employment or the discontinuance of his employment and that are based upon facts known, or which in the exercise of reasonable diligence should have been known, to the Company's board of directors. Notwithstanding the foregoing, nothing herein shall release or discharge any Claim by the Company against Executive, or the right of the Company to bring any action, legal or otherwise, against Executive as a result of any failure by him to perform his obligations under this Agreement, as a result of any acts of gross negligence or willful misconduct or as a result of any actions or omissions in violation of applicable law.  In addition, the Company does not release any Claims that cannot be released as a matter of law.

THE COMPANY ACKNOWLEDGES THAT IT HAS BEEN ADVISED OF AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, AND THAT IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.”

BEING AWARE OF SAID CODE SECTION, THE COMPANY HEREBY EXPRESSLY WAIVES ANY RIGHTS IT MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPLES OF SIMILAR EFFECT

7.Standing and No Transfer of Claims. Company, on the one hand, and Executive, on the other, each expressly represents and warrants that it/he has standing to dismiss any and all claims it/he has or may have against the other and the Releasees, and that it/he is not a “debtor” within the meaning of the federal or state bankruptcy statutes. Company and Executive each further represents and warrants that it/he has not assigned, transferred or conveyed to any person or entity any claim, demand, liability, obligation or cause of action released by this Agreement. Company and Executive each agrees to indemnify, defend and hold harmless the other and the Releasees from any claims which may be asserted against them based on, or arising out of, any such assignment, transfer, or conveyance.

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8.No Other Claims. Company Releasors, on the one hand, and Executive Releasors, on the other, each further promises and represents that it/he has not filed any other lawsuit against the other and/or its/his Releasees, and that it/he has not filed or submitted any complaint or charge against the other and/or its/his Releasees with any government agency (including but not limited to the Equal Employment Opportunity Commission, the California Department of Fair Employment and Housing, the Department of Labor, the California Labor Commissioner or Department of Labor Standards Enforcement, and/or the California Labor Workforce Development Agency).

9.Non-disparagement; Confidentiality.  Executive agrees that he shall not disparage or otherwise communicate negative statements or opinions about the Company, its board members, officers, employees, shareholders or agents; provided, however, that Executive shall not be prohibited from making such statements or opinions to his immediate family so long as such statements or opinions are not likely to be harmful to the Company, its board members, officers, employees, shareholders or agents or its or their businesses, business reputations, or personal reputations.  The Company agrees that neither its board members, officers nor, Chief Technology Officer, Senior Vice President of Global Sales, Senior Vice President of Global Quality and Support, President of Korea Business Unit, President of APAC Business Unit, President of EMEA, DZS KeyMile, and Vice President of Human Resources shall disparage or otherwise communicate negative statements or opinions about Executive.  Nothing in this Section 9 shall prohibit Executive from (a) testifying in any legal proceeding in which his testimony is compelled by law or court order and no breach of this provision shall occur due to any accurate, legally compelled testimony or (b) communicating or cooperating with any government agency.

10.Binding Arbitration. Except as provided in Section 4 of this Release, any dispute, claim or controversy based on, arising out of or relating to Executive’s employment or this Release shall be settled by final and binding arbitration in Palo Alto, California, before a single neutral arbitrator in accordance with the employment arbitration rules (the “Rules”) of the Judicial Arbitration and Mediation Services/Endispute (“JAMS”), and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction.  The Rules may be found online at www.jamsadr.org. Arbitration may be compelled pursuant to the California Arbitration Act (Code of Civil Procedure §§ 1280 et seq.). If the parties are unable to agree upon an arbitrator, one shall be appointed by JAMS in accordance with its Rules. Subject to Section 11 below, each party shall pay the fees of its own attorneys, the expenses of its witnesses and all other expenses connected with presenting its case. Other costs of the arbitration, including the cost of any record or transcripts of the arbitration, JAMS’s administrative fees, the fee of the arbitrator, and all other fees and costs, shall be borne by the Company. This Section 10 is intended to be the exclusive method for resolving any and all claims by the parties against each other for payment of damages under this Release or relating to Executive’s employment; provided, however, that Executive shall retain the right to file administrative charges with or seek relief through any government agency of competent jurisdiction, and to participate in any government investigation, including but not limited to (a) claims for workers’ compensation, state disability insurance or unemployment insurance; (b) claims for unpaid wages or waiting time penalties brought before the California Division of Labor Standards Enforcement; provided, however, that any appeal from an award or from denial of an award of wages and/or waiting time penalties shall be arbitrated pursuant to the terms of this Release; and (c) claims for administrative relief from the United States Equal Employment Opportunity Commission and/or the California Department of Fair Employment and Housing (or any similar agency in any applicable jurisdiction other than California); provided, further, that Executive shall not be entitled to obtain any monetary relief through such agencies other than workers’ compensation benefits or unemployment insurance benefits. This Release shall not limit either party’s right to obtain any provisional remedy, including, without limitation, injunctive or similar relief, from any court of competent jurisdiction as may be necessary to protect their rights and interests pending the outcome of arbitration, in any court of competent jurisdiction pursuant to California Code of Civil Procedure § 1281.8 or any similar statute of an applicable jurisdiction. Seeking any such relief shall not be deemed to be a waiver of such party’s right to compel arbitration. Both Executive and the Company expressly waive their right to a jury trial.

11.Attorney Fees. In the event that any dispute between the Company and Executive should result in arbitration, the arbitrator may award to one or more of the Prevailing Persons (as defined below) such reasonable attorney fees, costs and expenses, as determined by the arbitrator. Any judgment or order enforcing such arbitration may, in the discretion of the court entering such judgment or order contain, a specific provision providing for the recovery of attorney fees and costs incurred in enforcing such judgment or order and an award of prejudgment interest from the date of the breach at the maximum rate of interest allowed by law. For the purposes of this Section 11: (a) “attorney fees” shall include, without limitation, attorney fees incurred in the following: (i) arbitration; (ii) post-arbitration order or judgment motions; (iii) contempt proceedings; (iv) garnishment, levy, and debtor and third party examinations; (v) discovery; and (vi) bankruptcy litigation; and (b) “Prevailing Person” shall mean any person who is determined by the arbitrator in the proceeding to have prevailed or who prevails by dismissal, default or otherwise.

12.Miscellaneous.

(a)Assignment; Assumption by Successor.  The rights of the Company under this Release may, without the consent of Executive, be assigned by the Company, in its sole and unfettered discretion, to any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly, acquires all or substantially all of the assets or business of the Company.  The Company will require any successor (whether direct or indirect, by purchase, merger or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and to agree to perform this Release in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place; provided, however, that no such assumption shall relieve the Company of its obligations hereunder.  As used in this Release, the “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Release by operation of law or otherwise.

(b)Survival.  The covenants, agreements, representations and warranties contained in or made in Sections 2, 3, 4, 5, 6, 7, 8, 9, 10, 11 and 12 of this Release shall survive the Resignation Date or any termination of Executive's services to the Company or any termination of this Release.

(c)Severability. In the event any provision of this Release is found to be unenforceable by an arbitrator or court of competent jurisdiction, such provision shall be deemed modified to the extent necessary to allow enforceability of the provision as so limited, it being intended that the parties shall receive the benefit contemplated herein to the fullest extent permitted by law.  If a deemed modification is not satisfactory in the judgment of such arbitrator or court, the unenforceable provision shall be deemed deleted, and the validity and enforceability of the remaining provisions shall not be affected thereby.

(d)Interpretation; Construction. The headings set forth in this Release are for convenience only and shall not be used in interpreting this Release.  This Release has been drafted by legal counsel representing the Company, but Executive has participated in the negotiation of its terms.  Furthermore, Executive acknowledges that Executive has had an opportunity to review and revise the Release and have it reviewed by legal counsel, if desired, and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Release.  Either party’s failure to enforce any provision of this Release shall not in any way be construed as a waiver of any such provision, or prevent that party thereafter from enforcing each and every other provision of this Release.

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(e)Governing Law and Venue. This Release shall be governed by the laws of the State of California as they are applied to contracts between California residents to be performed completely within California. The parties irrevocably submit to the non-exclusive jurisdiction of the Superior Court of the State of California, Santa Clara County, and the United States District Court for the Northern District of California, Branch nearest to Palo Alto, California, in any action to enforce an arbitration award or any other suit brought hereunder. Each party hereby agrees that any such court shall have in personam jurisdiction over it and consents to service of process in any manner authorized by California law.

(f)Entire Agreement; Modification.  This Release and the Proprietary Rights Agreement set forth the entire understanding of the parties with respect to the subject matter hereof and thereof and supersedes all existing agreements between them concerning such subject matter.  The Employment Agreement shall be superseded entirely by this Release and the Employment Agreement shall be terminated and be of no further force or effect.  This Release may be amended or modified only with the written consent of Executive and an authorized representative of the Company.  No oral waiver, amendment or modification will be effective under any circumstances whatsoever.

(g)Counterparts.  This Release may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Release.

(h)Withholding and other Deductions.  All compensation payable to Executive hereunder shall be subject to such deductions as the Company is from time to time required to make pursuant to law, governmental regulation or order.

(i)Code Section 409A.  

(i)This Release is not intended to provide for any deferral of compensation subject to Section 409A of the Code, and, accordingly, the amounts payable hereunder shall be paid no later than the later of:  (A) the fifteenth (15th) day of the third month following Executive’s first taxable year in which such amounts are no longer subject to a substantial risk of forfeiture, and (B) the fifteenth (15th) day of the third month following first taxable year of the Company in which such amounts are no longer subject to substantial risk of forfeiture, as determined in accordance with Code Section 409A and any Treasury Regulations and other guidance issued thereunder.   Each series of installment payments made under this Release is hereby designated as a series of “separate payments” within the meaning of Section 409A of the Code.  

(ii)To the extent applicable, this Release shall be interpreted in accordance with the applicable exemptions from Section 409A of the Code.  To the extent that any provision of the Release is ambiguous as to its compliance with Section 409A of the Code, the provision shall be read in such a manner that no payments payable under this Releaseshall be subject to an “additional tax” as defined in Section 409A(a)(1)(B) of the Code.

(iii)Any reimbursement of expenses or in-kind benefits payable under this Release shall be made in accordance with Treasury Regulation Section 1.409A-3(i)(1)(iv) and shall be paid on or before the last day of Executive’s taxable year following the taxable year in which Executive incurred the expenses.  The amount of expenses reimbursed or in-kind benefits payable during any taxable year of Executive’s will not affect the amount eligible for reimbursement or in-kind benefits payable in any other taxable year of Executive’s, and Executive’s right to reimbursement for such amounts shall not be subject to liquidation or exchange for any other benefit.

(j)Right to Advice of Counsel.  EXECUTIVE AcknowledgeS that HE HAS the right, AND IS ENCOURAGED, to consult with HIS lawyer; by hIS signature below, EXECUTIVE acknowledgeS that HE HAS consulted, or has elected not to consult, with HIS lawyer concerning this Release.

(Signature Page Follows)

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IN WITNESS WHEREOF, the parties have executed this Release as of the dates set forth below.

		DASAN Zhone Solutions, Inc.
Date:	August 30, 2019	By:	/s/    IL YUNG KIM
		Name:	Il Yung Kim
		Title:	Chief Executive Officer
		Executive
Date:	August 30, 2019	/s/    MIKHAIL GOLOMB
		Mikhail Golomb

[SIGNATURE PAGE TO GENERAL RELEASE OF CLAIMS]

Exhibit A

Employee innovations and Proprietary rights assignment Agreement

DASAN ZHONE SOLUTIONS, INC.

EMPLOYEE INNOVATIONS AND PROPRIETARY RIGHTS

ASSIGNMENT AGREEMENT

This Agreement is intended to formalize in writing certain understandings and procedures which have been in effect since the time I was initially employed by DASAN Zhone Solutions, Inc.  ("Company").  In return for my new or continued employment by Company and other good and valuable consideration, the receipt and sufficiency of which I hereby acknowledge, I acknowledge and agree that:

1.Duties; At‑Will Employment; No Conflict.  I will perform for Company such duties as may be designated by Company from time to time.  I agree that my employment with Company is for no specified term, and may be terminated by Company at any time, with or without cause, and with or without notice.  Similarly, I may terminate my employment with Company at any time, with or without cause, and with or without notice.  During my period of employment by Company, I will devote my best efforts to the interests of Company and will not engage in other employment or in any activities determined by Company to be detrimental to the best interests of Company without the prior written consent of Company.

2.Prior Work.  All previous work done by me for Company relating in any way to the conception, reduction to practice, creation, derivation, design, development, manufacture, sale or support of products or services for Company is the property of Company, and I hereby assign to Company all of my right, title and interest in and to such previous work.

3.Proprietary Information.  My employment creates a relationship of confidence and trust between Company and me with respect to any information:

(a)Applicable to the business of Company; or

(b)Applicable to the business of any client or customer of Company, which may be made known to me by Company or by any client or customer of Company, or learned by me in such context during the period of my employment.

All such information has commercial value in the business in which Company is engaged and is hereinafter called "Proprietary Information."  By way of illustration, but not limitation, Proprietary Information includes any and all technical and non‑technical information including patent, copyright, trade secret, and proprietary information, techniques, sketches, drawings, models, inventions, know‑how, processes, apparatus, equipment, algorithms, software programs, software source documents, and formulae related to the current, future and proposed products and services of Company, and includes, without limitation, respective information concerning research, experimental work, development, design details and specifications, engineering, financial information, procurement requirements, purchasing manufacturing, customer lists, business forecasts, sales and merchandising and marketing plans and information.  "Proprietary Information" also includes proprietary or confidential information of any third party who may disclose such information to Company or to me in the course of Company's business.

4.Ownership and Nondisclosure of Proprietary Information.  All Proprietary Information is the sole property of Company, Company’s assigns, and Company’s customers, and Company, Company’s assigns and Company’s customers shall be the sole and exclusive owner of all patents, copyrights, mask works, trade secrets and other rights in the Proprietary Information.  I hereby do and will assign to Company all rights, title and interest I may have or acquire in the Proprietary Information.  At all times, both during my employment by Company and after termination of such

employment, I will keep in confidence and trust all Proprietary Information, and I will not use or disclose any Proprietary Information or anything directly relating to Proprietary Information without the written consent of Company, except as may be necessary in the ordinary course of performing my duties as an employee of Company.

I will maintain Proprietary Information in my possession as necessary and shall return to the appropriate person or location or other wise properly dispose of Proprietary Information once that need to know no longer exists.  I will not make copies of or otherwise reproduce Proprietary Information unless there is a legitimate business need for reproduction.

5.Ownership and Return of Materials.  All materials (including, without limitation, documents, drawings, models, apparatus, sketches, designs, lists, and all other tangible media of expression) furnished to me by Company shall remain the property of Company.  Upon termination of my employment, or at any time on the request of Company before termination, I will promptly (but no later than five (5) days after the earlier of my employment’s termination or Company’s request) destroy or deliver to Company, at Company’s option, (a) all materials furnished to me by Company, (b) all tangible media of expression which are in my possession and which incorporate any Proprietary Information or otherwise relate to Company’s business, and (c) written certification of my compliance with my obligations under this sentence.

6.Innovations.  As used in this Agreement, the term "Innovations" means all processes, machines, manufactures, compositions of matter, improvements, inventions (whether or not protectable under patent laws), works of authorship, information fixed in any tangible medium of expression (whether or not protectable under copyright laws), moral rights, mask works, trademarks, trade names, trade dress, trade secrets, know-how, ideas (whether or not protectable under trade secret laws), and all other subject matter protectable under patent, copyright, moral right, mask work, trademark, trade secret or other laws, and includes without limitation all new or useful art, combinations, discoveries, formulae, manufacturing techniques, technical developments, discoveries, artwork, software, and designs.  “Innovations” includes “Inventions,” which is defined to mean any inventions protected under patent laws.

7.Disclosure of Prior Innovations.  I have identified on Exhibit A ("Prior Innovations") attached hereto all Innovations, applicable to the business of Company or relating in any way to Company's business or demonstrably anticipated research and development or business, which were conceived, reduced to practice, created, derived, developed, or made by me prior to my employment with Company (collectively, the "Prior Innovations"), and I represent that such list is complete.  I represent that I have no rights in any such Innovations other than those Prior Innovations specified in Exhibit A ("Prior Innovations").  If there is no such list on Exhibit A ("Prior Innovations"), I represent that I have neither conceived, reduced to practice, created, derived, developed nor made any such Prior Innovations at the time of signing this Agreement.

8.Assignment of Innovations; License of Prior Innovations.  I hereby agree promptly to disclose and describe to Company, and I hereby do and will assign to Company or Company’s designee my entire right, title, and interest in and to, (a) each of the Innovations (including Inventions), and any associated intellectual property rights, which I may solely or jointly conceive, reduce to practice, create, derive, develop or make during the period of my employment with Company, which either (i) relate, at the time of conception, reduction to practice, creation, derivation, development, or making of such Innovation, to Company's business or actual or demonstrably anticipated research or development, or (ii) were developed on any amount of Company's time or with the use of any of Company's equipment, supplies, facilities or trade secret information, or (iii) resulted from any work I performed for Company, and (b) each of the Innovations which is not an Invention (as demonstrated by me by evidence meeting the clear and convincing standard of proof), and any associated intellectual

property rights, which I may solely or jointly conceive, develop, reduce to practice, create, derive, develop, or make during the period of my employment with Company, which are applicable to the business of Company (collectively, the Innovations identified in clauses (a) and (b) are hereinafter the "Company Innovations").  To the extent any of the rights, title and interest in and to Company Innovations cannot be assigned by me to Company, I hereby grant to Company an exclusive, royalty-free, transferable, irrevocable, worldwide license (with rights to sublicense through multiple tiers of sublicensees) to practice such non-assignable rights, title and interest.  To the extent any of the rights, title and interest in and to Company Innovations can be neither assigned nor licensed by me to Company, I hereby irrevocably waive and agree never to assert such non-assignable and non-licensable rights, title and interest against Company or any of Company’s successors in interest to such non-assignable and non-licensable rights.  I hereby grant to Company or Company’s designees a royalty free, irrevocable, worldwide license (with rights to sublicense through multiple tiers of sublicensees) to practice all applicable patent, copyright, moral right, mask work, trade secret and other intellectual property rights relating to any Prior Innovations which I incorporate, or permit to be incorporated, in any Company Innovations.  Notwithstanding the foregoing, I agree that I will not incorporate, or permit to be incorporated, any Prior Innovations in any Company Innovations without Company's prior written consent.

9.Future Innovations.  I recognize that Innovations or Proprietary Information relating to my activities while working for Company and conceived, reduced to practice, created, derived, developed, or made by me, alone or with others, within three (3) months after termination of my employment may have been conceived, reduced to practice, created, derived, developed, or made, as applicable, in significant part while employed by Company.  Accordingly, I agree that such Innovations and Proprietary Information shall be presumed to have been conceived, reduced to practice, created, derived, developed, or made, as applicable, during my employment with Company and are to be promptly assigned to Company unless and until I have established the contrary by written evidence satisfying the clear and convincing standard of proof.

10.Cooperation in Perfecting Rights to Proprietary Information and Innovations.

(a)I agree to perform, during and after my employment, all acts deemed necessary or desirable by Company to permit and assist Company, at Company’s expense, in obtaining and enforcing the full benefits, enjoyment, rights and title throughout the world in the Proprietary Information and Innovations assigned or licensed to, or whose rights are irrevocably waived and shall not be asserted against, Company under this Agreement.  Such acts may include, but are not limited to, execution of documents and assistance or cooperation (i) in the filing, prosecution, registration, and memorialization of assignment of any applicable patents, copyrights, mask work, or other applications, (ii) in the enforcement of any applicable patents, copyrights, mask work, moral rights, trade secrets, or other proprietary rights, and (iii) in other legal proceedings related to the Proprietary Information or Innovations.

(b)In the event that Company is unable for any reason to secure my signature to any document required to file, prosecute, register, or memorialize the assignment of any patent, copyright, mask work or other applications or to enforce any patent, copyright, mask work, moral right, trade secret or other proprietary right under any Proprietary Information (including improvements thereof) or any Innovations (including derivative works, improvements, renewals, extensions, continuations, divisionals, continuations in part, continuing patent applications, reissues, and reexaminations thereof), I hereby irrevocably designate and appoint Company and Company’s duly authorized officers and agents as my agents and attorneys‑in‑fact to act for and on my behalf and instead of me, (i) to execute, file, prosecute, register and memorialize the assignment of any such application, (ii) to execute and file any documentation required for such enforcement, and (iii) to do all other lawfully

permitted acts to further the filing, prosecution, registration, memorialization of assignment, issuance, and enforcement of patents, copyrights, mask works, moral rights, trade secrets or other rights under the Proprietary Information, or Innovations, all with the same legal force and effect as if executed by me.

11.No Violation of Rights of Third Parties.  My performance of all the terms of this Agreement and as an employee of Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by me prior to my employment with Company, and I will not disclose to Company, or induce Company to use, any confidential or proprietary information or material belonging to any previous employer or others.  I am not a party to any other agreement which will interfere with my full compliance with this Agreement.  I agree not to enter into any agreement, whether written or oral, in conflict with the provisions of this Agreement.

12.Survival.  This Agreement (a) shall survive my employment by Company; (b) does not in any way restrict my right or the right of Company to terminate my employment at any time, for any reason or for no reason; (c) inures to the benefit of successors and assigns of Company; and (d) is binding upon my heirs and legal representatives.

13.Nonassignable Inventions.  This Agreement does not apply to an Invention which qualifies fully as a nonassignable invention under the provisions of Section 2870 of the California Labor Code. I acknowledge that a condition for an Invention to qualify fully as a non-assignable invention under the provisions of Section 2870 of the California Labor Code is that the invention must be protected under patent laws.  I have reviewed the notification in Exhibit B ("Limited Exclusion Notification") and agree that my signature acknowledges receipt of the notification.  However, I agree to disclose promptly in writing to Company all Innovations (including Inventions) conceived, reduced to practice, created, derived, developed, or made by me during the term of my employment and for three (3) months thereafter, whether or not I believe such Innovations are subject to this Agreement, to permit a determination by Company as to whether or not the Innovations should be the property of Company.  Any such information will be received in confidence by Company.

14.No Solicitation of Employees.  During the term of my employment with Company and for a period of two (2) years thereafter, I will not directly or indirectly, for myself or on behalf of or in conjunction with any other persons, solicit, encourage, or cause others to solicit or encourage any employees of Company to terminate their employment with Company.

15.Injunctive Relief.  A breach of any of the promises or agreements contained herein will result in irreparable and continuing damage to Company for which there will be no adequate remedy at law, and Company shall be entitled to injunctive relief and/or a decree for specific performance, and such other relief as may be proper (including monetary damages if appropriate).

16.Attorneys’ Fees.  In any legal action or other proceeding brought to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to recover reasonable attorneys’ fees and costs.

            17.Notices.  Any notice required or permitted by this Agreement shall be in writing and shall be delivered as follows, with notice deemed given as indicated:  (a) by personal delivery, when delivered personally; (b) by overnight courier, upon written verification of receipt; (c) by telecopy or facsimile transmission, upon acknowledgment of receipt of electronic transmission; or (d) by certified or registered mail, return receipt requested, upon verification of receipt.  Notices to me shall be sent to any address in Company's records or such other address as I may specify in writing.  Notices to Company shall be sent to Company's Human Resources Department or to such other address as Company may specify in writing.

18.Governing Law.  This Agreement shall be governed in all respects by the laws of the United States of America and by the laws of the State of California, as such laws are applied to agreements entered into and to be performed entirely within California between California residents.  Each of the parties irrevocably consents to the exclusive personal jurisdiction of the federal and state courts located in California, as applicable, for any matter arising out of or relating to this Agreement, except that in actions seeking to enforce any order or any judgment of such federal or state courts located in California, such personal jurisdiction shall be nonexclusive.

19.Severability.  If any provision of this Agreement is held by a court of law to be illegal, invalid or unenforceable, (i) that provision shall be deemed amended to achieve as nearly as possible the same economic effect as the original provision, and (ii) the legality, validity and enforceability of the remaining provisions of this Agreement shall not be affected or impaired thereby.

20.Waiver; Amendment; Modification.  The waiver by Company of a term or provision of this Agreement, or of a breach of any provision of this Agreement by me, shall not be effective unless such waiver is in writing signed by Company.  No waiver by Company of, or consent by Company to, a breach by me, will constitute a waiver of, consent to or excuse of any other or subsequent breach by me.  This Agreement may be amended or modified only with the written consent of both me and Company.  No oral waiver, amendment or modification shall be effective under any circumstances whatsoever.

21.       Entire Agreement.  This Agreement represents my entire understanding with Company with respect to the subject matter of this Agreement and supersedes all previous understandings, written or oral.

22.Interpretation.  This Agreement shall be construed as a whole, according to its fair meaning, and not in favor or against any party.  By way of example and not in limitation, this Agreement shall not be construed in favor of the party receiving a benefit nor against the party responsible for any particular language in this Agreement.  Captions are used for reference purposes only and should be ignored in the interpretation of the Agreement.

I certify and acknowledge that I have carefully read all of the provisions of this Agreement and that I understand and will fully and faithfully comply with such provisions.

"COMPANY"EMPLOYEE:

DASAN Zhone Solutions, Inc.

By: /s/ Laura Larsen-MisunasBy: /s/ Michael Golomb

Title: Director HRPrinted Name: M. Golomb

Dated:11/17/2017Dated: 11/17/2017

EX-10.3

Exhibit 10.3

PNC Bank, National Association

350 S. Grand Ave., (2 Cal Plaza) Suite 3850

Los Angeles, CA 90071

November 8, 2019

DASAN Zhone Solutions, Inc.

7195 Oakport Street

Oakland, California 94621

Re: (i) Revolving Credit, Term Loan, Guaranty and Security Agreement, dated as of February 27, 2019 (as it may hereafter be amended, supplemented, modified, restated and replaced from time to time, “Domestic Credit Agreement”), by and among DASAN ZHONE SOLUTIONS, INC., a Delaware corporation (“DZSI”), ZTI MERGER SUBSIDIARY III, INC., a Delaware corporation (“ZTI,” and together with DZSI and each Person joined hereto as a borrower from time to time, collectively, the “Domestic Borrowers” and each, a “Domestic Borrower”), those certain Subsidiaries of DZSI party thereto from time to time as Guarantors thereunder (collectively, the “Domestic Guarantors”), the financial institutions which are now, or which hereafter, become a party thereto as lenders (collectively, the “Domestic Lenders”), and PNC Bank, National Association (“PNC”), as agent (the “Domestic Agent”), PNC and Citibank, N.A., as Joint Lead Arrangers, and Citibank, N.A., as Documentation Agent and (ii) Export-Import Revolving Credit, Guaranty and Security Agreement, dated as of February 27, 2019 (as it may hereafter be amended, supplemented, modified, restated and replaced from time to time, “Ex-Im Subfacility Credit Agreement”, and together with the Domestic Credit Agreement, the “Credit Agreements”), among DZSI and ZTI (together with DZSI and each Person joined hereto as a borrower from time to time, collectively, the “Ex-Im Borrowers” and each, an “Ex-Im Borrower”, and together with the Domestic Borrowers, collectively, the “Borrowers” and each, a “Borrower”), those certain Subsidiaries of DZSI party thereto from time to time as Guarantors thereunder (collectively, the “Ex-Im Guarantors”, and together with the Domestic Guarantors, collectively, the “Guarantors”, and together with the Borrowers, collectively, the “Loan Parties”), the financial institutions which are now, or which hereafter, become a party thereto as lenders (collectively, the “Ex-Im Lenders”, and together with the Domestic Lenders, collectively, the “Lenders”), and PNC, as agent (the “Ex-Im Agent”, and together with the Domestic Agent, collectively, the “Agents” and each, an “Agent”), PNC and Citibank, N.A., as Joint Lead Arrangers, and Citibank, N.A., as Documentation Agent.  

Ladies and Gentlemen:

Reference is made to the Credit Agreements described above.  Capitalized terms used but not otherwise defined herein shall have the respective meanings given thereto in the respective Credit Agreements; provided that, for the avoidance of doubt, except as otherwise expressly provided herein, any capitalized term used herein and not otherwise defined herein that is a defined term under both Credit Agreements having an identical definition in each Credit Agreement shall have the meanings given to such term in the Credit Agreements and any capitalized term used herein and not otherwise defined herein that is a defined term under only one Credit Agreement shall have the meaning given to such term in such Credit Agreement.  

A certain Event of Default has occurred and is continuing under the Credit Agreements by reason of Loan Parties’ failure to comply with Section 6.5(b) [Leverage Ratio] of the Credit Agreements with respect to the maintenance of the required maximum Leverage Ratio during the period beginning on July 1, 2019 and ending on September 30, 2019 (such Event of Default, including any Event of Default arising under Section 9.5 of the Credit Agreements due to failure to give notice of any such Event of Default or any breaches of any representations or warranties relating to the occurrence or existence of such Event of Default, collectively, the “Known Existing Event of Default”).

The Loan Parties have requested, and Agent and Lenders have agreed, to waive the Known Existing Event of Default as more fully set forth herein, which Agent and Lenders are willing to do on the terms and conditions set forth herein.

Therefore, in exchange for good and sufficient consideration, the receipt and sufficiency of which by each party hereto is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

A.Agent and the Lenders hereby waive the Known Existing Event of Default; provided, however, nothing herein shall be deemed a waiver with respect to any other existing or future failure of any Loan Party to comply fully with any provision of the Credit Agreements.  This waiver shall be effective only for the specific default comprising the Known Existing Event of Default, and in no event shall this waiver be deemed to be a waiver of enforcement of any of Agent’s or any Lender’s rights with respect to any other Defaults or Events of Default now existing or hereafter arising.  Nothing contained in this letter agreement nor any communications between any Loan Party and Agent or any Lender shall be a waiver of any rights or remedies Agent or any Lender has or may have against any Loan Party, except as specifically provided herein.  Except as specifically provided herein, each of Agent and each Lender hereby reserves and preserves all of its rights and remedies against the Loan Parties under the Credit Agreements and the Other Documents.  The waiver of the Known Existing Event of Default provided for herein is made by the Lenders as a one time accommodation to the Loan Parties, and does not and shall not be deemed to constitute any course of conduct or dealing creating any binding obligation or duty on the part of any Lender to grant any waiver of or consent to any other existing or future failure of any Loan Party to comply fully with any provision of the Credit Agreements, whether or not of a similar nature to the Known Existing Event of Default;

B.As a condition to the effectiveness of this letter agreement, Loan Parties shall make a voluntary prepayment of the Term Loan in the amount of $10,000,000 pursuant to Section 2.20 of the Domestic Credit Agreement; and

C.As a condition to the effectiveness of this letter agreement, as consideration for the agreements of Lenders as set forth herein, Loan Parties shall pay to Agent, for the ratable benefit of the Lenders, an amendment fee in the amount of $150,000.00 (the “Amendment Fee”), which the Amendment Fee shall be fully earned and non-refundable, and due and payable in full, on the date hereof.  

Each Loan Party hereby absolutely and unconditionally releases and forever discharges Agent and each Lender, and any and all of their respective participants, parent corporations, subsidiary corporations, affiliated corporations, insurers, indemnitors, successors and assigns thereof, together with all of the present and former directors, officers, agents and employees of any of the foregoing (each a “Released Party”), from any and all claims, demands or causes of action of any kind, nature or description, whether arising in law or equity or upon contract or tort or under any state or federal law or otherwise, in connection with this letter agreement, the Credit Agreements or the Other Documents, which any Loan Party has had, now has or has made claim to have against any such person for or by reason of any act, omission, matter, cause or thing whatsoever arising from the beginning of time to and including the date of this letter agreement, whether such claims, demands and causes of action are matured or unmatured or known or unknown.  It is the intention of each Loan Party in providing this release that the same shall be effective as a bar to each and every claim, demand and cause of action specified, and in furtherance of this intention it waives and relinquishes all rights and benefits under any applicable law that provides that a general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him might have materially affected his settlement with the debtor.  Each Loan Party acknowledges that it may hereafter discover facts different from or in addition to those now known or believed to be true with respect to such claims, demands, or causes of action and agree that this instrument shall be and remain effective in all respects notwithstanding any such differences or additional facts.  Each Loan Party understands, acknowledges and agrees that the release set forth above may be pleaded as a full and complete defense and may be used as a basis for an injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release.

Each Loan Party, on behalf of itself and its successors, assigns, and other legal representatives, hereby absolutely, unconditionally and irrevocably, covenants and agrees with and in favor of each Released Party above that it will not sue (at law, in equity, in any regulatory proceeding or otherwise) any Released Party on the basis of any claim released, remised and discharged by any Loan Party pursuant to the above release.  If any Loan Party or any of its successors, assigns or other legal representatives violates the foregoing covenant, such Loan Party, for itself and its successors, assigns and legal representatives, agrees to pay, in addition to such other damages as any Released Party may sustain as a result of such violation, all attorneys’ fees and costs incurred by such Released Party as a result of such violation.

This letter agreement shall be effective upon execution and delivery hereof by all parties, and shall be binding upon and inure to the benefit of Loan Parties, the Agents, each Lender, all future holders of the Obligations, and their respective successors and assigns, except that no Loan Party may assign or transfer any of its rights or obligations under this letter agreement without the prior written consent of the applicable Agent and each Lender party to such Credit Agreement.  This letter agreement may not be amended or waived except by an instrument in writing signed by the parties hereto.  This letter agreement and all matters relating hereto or arising herefrom (whether arising under contract law, tort law or otherwise) shall, in accordance with Section 5-1401 of the General Obligations Law of the State of New York, be governed by and construed in accordance with the laws of the State of New York.  This letter agreement may be executed in any number of counterparts, each of which shall be an original, and all of which, when taken together, shall constitute one agreement.  Delivery of an executed signature page of this letter agreement by facsimile transmission or other similar method of electronic transmission (e.g., “pdf” or “tif”) shall be effective as delivery of a manually executed counterpart hereof.  The provisions of Sections 12.1, 12.2, 12.3, and 16.1 of the Domestic Credit Agreement are hereby incorporated by reference.  This letter agreement, together with the Credit Agreements and Other Documents (each as in effect on the date hereof as amended or modified hereby) represent and embody the entire agreement of the parties hereto with respect to the subject matter hereof and thereof, and supersede all prior agreements, commitments, arrangements, negotiations or understandings, whether written or oral, of the parties with respect the subject matter hereof and thereof.  Except as expressly set forth herein, all of the terms and conditions of each Credit Agreement and the Other Documents relating to each of them are hereby ratified and confirmed and continue unchanged and in full force and effect.  

[Signatures on Following Page]

IN WITNESS WHEREOF, the parties have executed this letter agreement as of the day and year first above written.  If the terms and provisions of this agreement are acceptable to Loan Parties, please so indicate by executing this letter agreement below.

PNC BANK, NATIONAL ASSOCIATION,
As Domestic Agent, Ex-Im Agent, Domestic
Lender, and Ex-Im Lender
By:	/s/    STEVE ROBERTS
Name:	Steve Roberts
Title:	Senior Vice President
CITIBANK, N.A.
as Domestic Lender and Ex-Im Lender
By:	/s/    CHRISTOPHER L. SNIDER
Name:	Christopher L. Snider
Title:	Senior Vice President

Accepted and Agreed to:
DASAN ZHONE SOLUTIONS, INC.,
as Borrowing Agent under the Domestic
Credit Agreement and Borrowing Agent
under the Ex-Im Subfacility Credit Agreement,
on behalf of all Loan Parties
By:	/s/    IL YUNG KIM
Name:	Il Yung Kim
Title:	Chief Executive Officer

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: November 13, 2019

/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, 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: November 13, 2019

/s/    IL YUNG KIM

Interim Chief Financial Officer

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 Interim Chief Financial Officer of the Company hereby certify that, to his knowledge:

1. The Company’s Quarterly Report on Form 10-Q for the quarter September 30, 2019 (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: November 13, 2019

/s/    IL YUNG KIM

Il Yung Kim

President and Chief Executive Officer

/s/    IL YUNG KIM

Interim Chief Financial Officer

XML

Common Stock - Additional Information (Details) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended	9 Months Ended
	May 20, 2019	Jun. 30, 2019	Sep. 30, 2019
Subsidiary Sale Of Stock [Line Items]
Net proceeds from offering			$ 42,509
Common stock
Subsidiary Sale Of Stock [Line Items]
Number of shares issued	4,717,949	4,718,000
Shares issued upon exercise of underwriters option	615,384
Price per share	$ 9.75
Gross proceeds from offering	$ 46,000
Net proceeds from offering	$ 42,500

XML

Non-Controlling Interests - Non-Controlling Interests (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Stockholders' Equity Attributable to Noncontrolling Interest [Roll Forward]
Beginning balance, non-controlling interests			$ 615	$ 534
Net income (loss) attributable to non-controlling interests	$ 37	$ 29	194	2
Purchase of noncontrolling interest in subsidiary	$ (950)		(823)
Foreign currency translation adjustments (OCI)			$ 14	(5)
Ending balance, non-controlling interests		$ 531		$ 531

XML

Organization and Summary of Significant Accounting Policies - Summary of Required Disclosures about Geographical Concentrations (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Significant Accounting Policies [Line Items]
Revenue	$ 71,524	$ 71,914	$ 229,277	$ 207,675
United States
Significant Accounting Policies [Line Items]
Revenue	9,662	11,125	28,993	41,373
Canada
Significant Accounting Policies [Line Items]
Revenue	1,062	1,131	2,950	3,344
North America
Significant Accounting Policies [Line Items]
Revenue	10,724	12,256	31,943	44,717
Latin America
Significant Accounting Policies [Line Items]
Revenue	6,273	6,841	18,829	21,713
Europe, Middle East, Africa
Significant Accounting Policies [Line Items]
Revenue	15,838	10,425	59,429	27,264
Korea
Significant Accounting Policies [Line Items]
Revenue	20,877	19,609	55,682	50,844
Other Asia Pacific
Significant Accounting Policies [Line Items]
Revenue	17,812	22,783	63,394	63,137
International
Significant Accounting Policies [Line Items]
Revenue	$ 60,800	$ 59,658	$ 197,334	$ 162,958

XML

Business Combinations - Summary of Preliminary Estimated Fair Values of Assets Acquired and Liabilities Assumed at the Date of Acquisition (Details) - Keymile Acquisition $ in Thousands	Jan. 03, 2019 USD ($)
Current assets
Cash and cash equivalents	$ 4,582
Accounts receivable - trade, net	6,820
Other receivables	798
Inventories	9,943
Property, plant and equipment	983
Other assets	163
Intangible assets	12,030
Accounts payable - trade	(3,303)
Short-term debt	(4,582)
Contract liabilities	(364)
Accrued liabilities	(3,614)
Deferred tax liabilities	(1,071)
Pension obligations	(12,656)
Other long term liabilities	(116)
Bargain purchase gain	(334)
Total purchase consideration	$ 9,279

XML

Business Combinations

9 Months Ended

Sep. 30, 2019

Business Combinations [Abstract]

Business Combinations

(2) Business Combinations

Keymile Acquisition

On January 3, 2019, ZTI Merger Subsidiary III Inc., a Delaware corporation and a wholly owned subsidiary of the Company (“ZTI”), acquired all of the outstanding shares of Keymile GmbH (“Keymile”), a limited liability company organized under the laws of Germany, from Riverside KM Beteiligung GmbH (“Riverside”), a limited liability company organized under the laws of Germany, pursuant to a share purchase agreement (the “Keymile Acquisition”).

The allocation of the purchase price was based upon a preliminary valuation, and the Company’s estimates and assumptions are subject to refinement, within the measurement period (up to one year from the Acquisition Date). Measurement period adjustments, with the corresponding adjustment to the bargain purchase gain or goodwill, will be recorded in the reporting period in which the adjustment to the provisional amounts are determined based upon the final valuation.  

The aggregate cash purchase price paid for all of the shares of Keymile and certain of its subsidiaries, was €10,250,000 (approximately $11.8 million), subject to adjustment for the lockbox mechanism described below. The Company also assumed pension obligations of approximately $12.7 million, net of pension assets of $3.5 million. Following the closing of the Keymile Acquisition, Keymile became the Company’s wholly owned subsidiary. The Keymile Acquisition agreement also provided for a lockbox mechanism such that normal operations were observed by Keymile management and any excess cash flows generated from operating activities for the period from October 1, 2018 to December 31, 2018 remained with Keymile following the closing, with the Company as the beneficiary, as the purchaser of Keymile. At December 31, 2018, cash received from the lockbox mechanism amounted to $2.5 million.

On October 1, 2018, as a condition for the Keymile Acquisition, Riverside extended a €4.0 million ($4.4 million, which represents the cash and cash equivalents and short-term debt, in the “Allocation of Purchase Consideration” table below) working capital loan to Keymile. The working capital loan bears interest at a rate of 3.5% per annum and is scheduled for repayment in two equal installments in April and November 2019. The first payment of €2.0 million ($2.2 million) was made in April 2019 and the balance is due in November 2019.  As of September 30, 2019, the outstanding balance under this working capital loan was €2.0 million ($2.2 million). Subsequently in November 2019, the Company fully repaid all the outstanding borrowings under this working capital loan.

Keymile is a leading solution provider and manufacturer of telecommunication systems for broadband access. The Company believes Keymile strengthens its portfolio of broadband access solutions, which now includes a series of multi-service access platforms for FTTx network architectures, including ultra-fast broadband copper access based on VDSL/Vectoring and G. Fast technology.

A summary of the preliminary estimated purchase price allocation to the fair value of assets acquired and liabilities assumed is as follows (in thousands):

Purchase consideration
Cash consideration	$	11,776
Working capital adjustment: cash received from lockbox mechanism		(2,497	)
Adjusted purchase consideration	$	9,279

The following summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for the Keymile Acquisition (in thousands):

Allocation of purchase consideration
Current assets
Cash and cash equivalents	$	4,582
Accounts receivable - trade, net		6,820
Other receivables		798
Inventories		9,943
Property, plant and equipment		983
Other assets		163
Intangible assets		12,030
Accounts payable - trade		(3,303	)
Short-term debt		(4,582	)
Contract liabilities		(364	)
Accrued liabilities		(3,614	)
Deferred tax liabilities		(1,071	)
Pension obligations		(12,656	)
Other long term liabilities		(116	)
Bargain purchase gain		(334	)
Total purchase consideration	$	9,279

The purchase price allocation resulted in the recognition of a gain on bargain purchase of approximately $0.3 million, which was included in the unaudited condensed consolidated statements of comprehensive income (loss) for the nine months ended September 30, 2019. The gain on bargain purchase was the result of the preliminary fair value of the identifiable net assets acquired exceeding the purchase price paid for the Keymile Acquisition which was reduced by the lockbox mechanism.

The estimated weighted average useful lives of the acquired property, plant and equipment is 5 years. Depreciation is calculated using the straight-line method.

The following table represents the preliminary estimated fair value and useful lives of identifiable intangible assets acquired:

	Estimated Fair Value (in thousands)		Estimated Useful Life
Intangible assets acquired
Customer relationships	$	3,667	5 years
Trade name		3,208	5 years
Technology - developed core		5,155	5 years
Total intangible assets	$	12,030

As of the valuation date, there was value attributable to Keymile’s existing customer relationships. Keymile’s key customer base is made up of independent telecommunication service providers and network operators, a base of customers that have seen growth since 2012. Keymile is seen as a market leader and historically has had low customer attrition. In addition, switching costs are considered to be high due to the disruption of switching platforms as well as the additional training necessary. The Company valued the customer relationships using the Income Approach, specifically the Multi-Period Excess Earnings Method (“MPEEM”).

The Company utilized the Relief from Royalty Method (“RFRM”) to value the tradename and developed technology. The RFRM assumes that the value of the asset equals the amount a third party would pay to use the asset and capitalize on the related benefits of the asset. Therefore, a revenue stream for the asset is estimated, and then an appropriate royalty rate is applied to the forecasted revenue to estimate the pre-tax income associated with the asset. The pre-tax income is then tax-effected to estimate the after-tax net income associated with the asset. Finally, the after tax net income is discounted to the present value using an appropriate rate of return that considers both the risk of the asset and the associated cash flow estimates.

Pro Forma Financial Information

The unaudited pro forma information for the periods set forth below gives effect to the Keymile Acquisition as if it had occurred as of January 1, 2018.  The unaudited pro forma financial information has been prepared by management for illustrative purposes only and does not purport to represent what the results of operations, financial condition or other financial information of the Company would have been if the Keymile Acquisition had occurred on January 1, 2018 or what such results or financial condition will be for any future periods. The unaudited pro forma financial information is based on estimates and assumptions and on the information available at the time of the preparation thereof. These estimates and assumptions may change, be revised or prove to be materially different, and the estimates and assumptions may not be representative of facts existing at the time of the Keymile Acquisition. The pro forma adjustments primarily relate to acquisition related costs, amortization of acquired intangibles and interest expense related to financing arrangements. Below is the pro forma financial information (in thousands):

	Three Months Ended		Nine Months Ended
	September 30, 2018		September 30, 2018
Pro forma net revenues	$	84,870	$	242,086
Pro forma net income attributable to DASAN Zhone Solutions, Inc.		726		2,885

Acquisition of the Non-controlling Interest in DZS Japan

On July 31, 2019, the Company acquired the remaining 30.94% non-controlling interest of DZS Japan, Inc. (“DZS Japan”), and DZS Japan became a wholly owned subsidiary of the Company. The Company acquired the remaining interest in DZS Japan for total cash consideration of $950,000, consisting entirely of payments to the former shareholder (Handysoft). This transaction resulted in a decrease to “Additional paid-in capital” of $127,000, a decrease to “Non- controlling interest” of $823,000, and a total impact of $950,000 in the unaudited condensed consolidated balance sheet as of September 30, 2019.

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Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Income Statement [Abstract]
Third parties	$ 71,292	$ 70,227	$ 227,407	$ 203,317
Related parties	232	1,687	1,870	4,358
Total net revenue	71,524	71,914	229,277	207,675
Products and services - third parties	48,755	46,852	151,805	135,208
Products and services - related parties	190	1,478	1,427	3,677
Amortization of intangible assets	402	153	1,216	459
Total cost of revenue	49,347	48,483	154,448	139,344
Gross profit	22,177	23,431	74,829	68,331
Operating expenses:
Research and product development	9,898	8,655	29,512	26,346
Selling, marketing, general and administrative	15,716	11,106	45,684	35,212
Amortization of intangible assets	464	131	1,406	393
Total operating expenses	26,078	19,892	76,602	61,951
Operating income (loss)	(3,901)	3,539	(1,773)	6,380
Interest income	374	42	524	203
Interest expense	(1,124)	(447)	(3,239)	(1,330)
Other income (loss), net	944	(572)	2,517	(859)
Income (loss) before income taxes	(3,707)	2,562	(1,971)	4,394
Income tax provision	289	735	1,098	1,071
Net income (loss)	(3,996)	1,827	(3,069)	3,323
Net income attributable to non-controlling interest	37	29	194	2
Net income (loss) attributable to DASAN Zhone Solutions, Inc.	(4,033)	1,798	(3,263)	3,321
Foreign currency translation adjustments	(2,426)	391	(4,123)	(1,839)
Actuarial gain (loss)	38		(1,115)
Comprehensive income (loss)	(6,384)	2,218	(8,307)	1,484
Comprehensive income (loss) attributable to non- controlling interest	31	16	209	(3)
Comprehensive income (loss) attributable to DASAN Zhone Solutions, Inc.	$ (6,415)	$ 2,202	$ (8,516)	$ 1,487
Net income (loss) per share attributable to DASAN Zhone Solutions, Inc.
Basic	$ (0.19)	$ 0.11	$ (0.17)	$ 0.20
Diluted	$ (0.19)	$ 0.11	$ (0.17)	$ 0.20
Weighted average shares outstanding used to compute basic net income (loss) per share	21,384	16,683	18,732	16,425
Weighted average shares outstanding used to compute diluted net income (loss) per share	21,384	16,891	18,732	16,640

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Balance Sheet Detail - Schedule of Inventories (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Inventory Disclosure [Abstract]
Raw materials	$ 16,630	$ 15,688
Work in process	3,582	2,429
Finished goods	22,834	15,751
Total inventories	$ 43,046	$ 33,868

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Balance Sheet Details (Tables)

9 Months Ended

Sep. 30, 2019

Balance Sheet Related Disclosures [Abstract]

Schedule of Accounts Receivable, Net

Accounts receivable, net consisted of the following (in thousands):

	September 30, 2019			December 31, 2018
Gross accounts receivable	$	101,253		$	71,945
Less: allowance for doubtful accounts		(388	)		(328	)
Total accounts receivable, net	$	100,865		$	71,617

Schedule of Inventories

Inventories consisted of the following (in thousands):

	September 30, 2019		December 31, 2018
Raw materials	$	16,630	$	15,688
Work in process		3,582		2,429
Finished goods		22,834		15,751
Total inventories	$	43,046	$	33,868

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Subsequent Events

9 Months Ended

Sep. 30, 2019

Subsequent Events [Abstract]

Subsequent Events

(18) Subsequent Events

On November 8, 2019, the Company received a waiver from the Lenders under the Credit Agreements with respect to the Company’s violation at September 30, 2019 of the maximum leverage ratio financial covenant set forth in the Credit Agreements. As a condition for the issuance of the waiver, the Company voluntarily prepaid $10.0 million of the outstanding term loan and paid a one-time fee of $150,000.

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Leases

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Leases

(14) Leases

The Company leases certain properties and buildings (including manufacturing facilities, warehouses, and office spaces) and equipment under various arrangements which provide the right to use the underlying asset and require lease payments for the lease term. The Company’s lease portfolio consists of operating leases which expire at various dates through 2027. At September 30, 2019, the Company had one outstanding finance lease.

The Company determines if an arrangement contains a lease at inception. The Company evaluates each service contract upon inception to determine whether it is, or contains, a lease. Such determination is made by applying judgment in evaluating each service contract within the context of the 5-step decision making process under ASC 842. The key concepts of the 5-step decision making process that the Company evaluated can be summarized as: (1) is there an identified physical asset; (2) does the Company have the right to substantially all the economic benefits from the asset throughout the contract period; (3) does the Company control how and for what purpose the asset is used; (4) does the Company operate the asset; and (5) did the Company design the asset in a way that predetermines how it will be used.

Assets and liabilities related to operating leases are included in the condensed consolidated balance sheet as right-of-use assets from operating leases, operating lease liabilities - current and operating lease liabilities - non-current.

Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Many of the Company’s lease agreements contain renewal options; however, the Company does not recognize right-of-use assets or lease liabilities for renewal periods unless it is determined that the Company is reasonably certain of renewing the lease at inception or when a triggering event occurs. Some of the Company’s lease agreements contain rent escalation clauses, rent holidays, capital improvement funding or other lease concessions.

The Company recognizes minimum rental expense on a straight-line basis based on the fixed components of a lease arrangement. The Company amortizes this expense over the term of the lease beginning with the date of initial possession, which is the date lessor makes an underlying asset available for use. Variable lease components represent amounts that are not fixed in nature, are not tied to an index or rate, and are recognized as incurred.

In determining its right-of-use assets and lease liabilities, the Company applies a discount rate to the minimum lease payments within each lease agreement. ASC 842 requires the Company to use the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The Company determines the incremental borrowing rate for each lease based primarily on its lease term and the economic environment of the applicable country or region. When the Company cannot readily determine the discount rate implicit in the lease agreement, the Company utilizes an incremental borrowing rate based on the most recent debt facilities interest rates and applicable to the local geography and with similar term to lease.

For the measurement and classification of its lease agreements, the Company groups lease and non-lease components into a single lease component for all underlying asset classes. Variable lease payments include payments for non-lease components of maintenance costs. The components of lease expense were as follows for the three and nine months ended September 30, 2019:

	Three Months Ended September 30, 2019 (in thousands)		Nine Months Ended September 30, 2019 (in thousands)
Operating lease cost	$	1,064	$	3,327
Variable lease cost		194		520
Total net lease cost	$	1,258	$	3,847

Supplemental cash flow information related to the Company’s operating leases was as follows for the three and nine months ended September 30, 2019:

	Three Months Ended September 30, 2019 (in thousands)		Nine Months Ended September 30, 2019 (in thousands)
Cash paid for amounts included in the measurement of operating lease    liabilities	$	1,265	$	3,888
ROU assets obtained in exchange for operating lease obligations	$	35	$	35

The following table presents the lease balances within the Company’s condensed consolidated balance sheet, weighted average remaining lease term, and weighted average discount rates related to the Company’s operating leases as of September 30, 2019 (in thousands):

Lease Assets and Liabilities
Assets:
Right-of-use assets from operating leases	$	18,349
Liabilities:
Operating lease liabilities - current	$	3,496
Operating lease liabilities - non-current		15,957
Total operating lease liabilities	$	19,453
Weighted average remaining lease term	4.77 years
Weighted average discount rate		6.6	%

The following table presents the maturity of the Company’s operating lease liabilities as of September 30, 2019 (in thousands):

Remainder of 2019	$	1,259
2020		4,197
2021		3,890
2022		3,609
2023		3,460
Thereafter		6,373
Total operating lease payments		22,788
Less: imputed interest		(3,335	)
Total operating lease liabilities	$	19,453

As of December 31, 2018, the estimated future lease payments under non-cancelable operating leases as defined under the previous lease accounting guidance of ASC Topic 840, for the following five fiscal years and thereafter are as follows (in thousands):

	Operating Leases
Year ending December 31:
2019	$	4,100
2020		3,005
2021		2,590
2022		2,664
2023		2,494
Thereafter		5,929
Total minimum lease payments	$	20,782

On August 29, 2019, the Company cancelled a warehouse lease in Germany and recorded $0.2 million of lease cancellation expense to cover early termination costs and renovation obligations. The Company recognized the non-recurring lease cancellation expense in Selling, marketing, general and administrative in the condensed consolidated statement of comprehensive income (loss). In connection with the lease cancellation, balance sheet recognition of approximately $0.6 million right-of-use assets and operating lease liabilities are removed from the condensed consolidated balance sheets as of September 30, 2019.  

New Office Lease

On July 9, 2019, the Company entered into a lease agreement (the “Lease”) with Family Stations, Inc., a California corporation (“Lessor”).  The Lease covers approximately 16,500 square feet of space located at 1350 South Loop Road, Alameda, California (the “Premises”).  The Lease provides for a term of 63 months, commencing on November 1, 2019, with a basic monthly rent ranging from $41,273 to $47,846 per month. The Company recognized approximately $2.1 million right-of-use assets and operating lease liabilities as of the commencement date of November 1, 2019.

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Debt (Tables)

9 Months Ended

Sep. 30, 2019

Debt Disclosure [Abstract]

Summary of Debt

The following tables summarize the Company’s debt (in thousands):

	As of September 30, 2019
	Short-term			Long-term			Total
PNC Bank Facility	$	12,500		$	11,250		$	23,750
Working Capital Loan		2,183			—			2,183
Bank and Trade Facilities - Foreign Operations		20,625			—			20,625
Related Party		—			9,049			9,049
	$	35,308		$	20,299		$	55,607
Less: unamortized deferred financing costs on the PNC Bank Facility		(702	)		(843	)		(1,545	)
	$	34,606		$	19,456		$	54,062

	As of December 31, 2018
	Short-term		Long-term		Total
Wells Fargo Bank Facility	$	7,000		—	$	7,000
Bank and Trade Facilities - Foreign Operations		24,762		—		24,762
Related Party		—		14,142		14,142
	$	31,762	$	14,142	$	45,904

Schedule of Short-term Debt

As of September 30, 2019 and December 31, 2018, the Company had an aggregate outstanding balance of $20.6 million and $24.8 million, respectively, under such financing arrangements. The maturity dates and interest rates per annum applicable to outstanding borrowings under these financing arrangements are listed in the tables below (amount in thousands).

		As of September 30, 2019
		Maturity Date	Denomination	Interest rate (%)		Amount (in U.S. dollars)
Industrial Bank of Korea	Credit facility	10/02/2019 - 11/12/2019	USD	5.34 - 5.49		$	512
NongHyup Bank	Credit facility	10/07/2019 - 02/24/2020	USD	3.69 - 4.49			3,097
The Export-Import Bank of Korea	Export development loan	7/1/2020	KRW	2.75			4,995
Korea Development Bank	General loan	8/8/2020	KRW		3.0		4,162
Korea Development Bank	Credit facility	10/07/2019 - 02/18/2020	USD	3.11 - 3.47			6,194
LGUPlus	General loan	6/17/2020	KRW	0			1,665
						$	20,625

		As of December 31, 2018
		Maturity Date	Denomination	Interest rate (%)	Amount (in U.S. dollars)
Industrial Bank of Korea	Credit facility	01/02/2019 - 05/15/2019	USD	3.96 - 4.36	$	1,982
Industrial Bank of Korea	Trade finance	02/18/2019 - 02/25/2019	USD	5.31 - 6.08		1,920
Shinhan Bank	General loan	3/30/2019	KRW	6.06		2,862
NongHyup Bank	Credit facility	01/07/2019 - 04/29/2019	USD	3.71 - 4.50		2,053
The Export-Import Bank of Korea	Export development loan	07/01/2019	KRW	3.44		6,439
The Export-Import Bank of Korea	Import development loan	02/14/2019	USD	4.31		850
Korea Development Bank	General loan	08/08/2019	KRW	3.48		4,472
Korea Development Bank	Credit facility	02/07/2019 - 03/06/2019	USD	3.64 - 3.91		1,489
LGUPlus	General loan	06/17/2019	KRW	0		1,789
Shoko Chukin Bank	General loan	06/28/2019	JPY	1.33		906
					$	24,762

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

9 Months Ended

Sep. 30, 2019

Earnings Per Share [Abstract]

Reconciliation of Basic and Diluted Net Income (Loss) per Share

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) for the three and nine months ended September 30, 2019 and September 30, 2018:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019			2018		2019			2018
Net income (loss) attributable to DASAN    Zhone Solutions, Inc.	$	(4,033	)	$	1,798	$	(3,263	)	$	3,321
Weighted average number of shares    outstanding:
Basic		21,384			16,683		18,732			16,425
Effect of dilutive securities:
Stock options, restricted stock units    and share awards		—			208		—			215
Diluted		21,384			16,891		18,732			16,640
Net income (loss) per share attributable to    DASAN Zhone Solutions, Inc.:
Basic	$	(0.19	)	$	0.11	$	(0.17	)	$	0.20
Diluted	$	(0.19	)	$	0.11	$	(0.17	)	$	0.20

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Organization and Summary of Significant Accounting Policies - Additional Information (Details) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2019 USD ($) customer country	Sep. 30, 2018 customer	Sep. 30, 2019 USD ($) customer country	Sep. 30, 2018 customer	Dec. 31, 2018 customer	Jan. 01, 2019 USD ($)	Sep. 09, 2016
Significant Accounting Policies [Line Items]
Number of customers | customer	900		900
Number of countries in which entity operates | country	80		80
Entity Incorporation, State or Country Code			DE
Date of entity incorporation			1999-06
Revenue recognized included in prior period contract liability balance	$ 1,700		$ 7,300
Right-of-use assets from operating leases	18,349		18,349			$ 22,500
Operating lease liabilities	19,453		19,453			$ 22,500
Credit Concentration Risk
Significant Accounting Policies [Line Items]
Concentration of credit risk, cash and cash equivalents	47,900		$ 47,900
Credit Concentration Risk | Accounts receivable
Significant Accounting Policies [Line Items]
Number of major customers | customer			2		2
Credit Concentration Risk | Accounts receivable | Customer One
Significant Accounting Policies [Line Items]
Concentration risk, percentage			17.00%		11.00%
Credit Concentration Risk | Accounts receivable | Customer Two
Significant Accounting Policies [Line Items]
Concentration risk, percentage			12.00%		10.00%
Credit Concentration Risk | International Subsidiaries
Significant Accounting Policies [Line Items]
Concentration of credit risk, cash and cash equivalents	$ 7,400		$ 7,400
Customer Concentration Risk | Sales Revenue, Net
Significant Accounting Policies [Line Items]
Number of major customers | customer	1	1	0	1
Concentration risk, percentage	11.00%	11.00%		11.00%
Geographic Concentration Risk | Accounts receivable | Foreign Countries
Significant Accounting Policies [Line Items]
Concentration risk, percentage			94.00%		88.00%
Merger Agreement with Dragon Acquisition Company
Significant Accounting Policies [Line Items]
Percent of voting interest acquired	44.40%		44.40%				58.00%

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Non-Controlling Interests

9 Months Ended

Sep. 30, 2019

Noncontrolling Interest [Abstract]

Non-Controlling Interests

(10) Non-Controlling Interests

Non-controlling interests were as follows (in thousands):

	Nine Months Ended September 30,
	2019			2018
Beginning non-controlling interests	$	615		$	534
Net income (loss) attributable to non-controlling interests		194			2
Purchase of noncontrolling interest in subsidiary		(823	)		—
Foreign currency translation adjustments (OCI)		14			(5	)
Ending non-controlling interests	$	—		$	531

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Property, Plant and Equipment

9 Months Ended

Sep. 30, 2019

Property Plant And Equipment [Abstract]

Property, Plant and Equipment

(6) Property, Plant and Equipment

Property, plant and equipment consisted of the following (in thousands):

	September 30, 2019			December 31, 2018
Furniture and fixtures	$	10,139		$	8,029
Machinery and equipment		2,341			3,553
Leasehold improvements		4,063			3,715
Computers and software		1,856			922
Other		745			982
		19,144			17,201
Less: accumulated depreciation and amortization		(12,228	)		(11,271	)
Less: government grants		(341	)		(412	)
Total property and equipment, net	$	6,575		$	5,518

Depreciation expense associated with property and equipment for the three and nine months ended September 30, 2019 was $0.5 million and $1.5 million, respectively. Depreciation expense for the three and nine months ended September 30, 2018 was $0.4 million and $1.2 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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Leases - Estimated Future Lease Payments Under Non-cancelable Operating Leases (Details) $ in Thousands	Dec. 31, 2018 USD ($)
Year ending December 31:
2019	$ 4,100
2020	3,005
2021	2,590
2022	2,664
2023	2,494
Thereafter	5,929
Total minimum lease payments	$ 20,782

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Income Taxes - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Income Tax Disclosure [Abstract]
Income tax expense	$ 289	$ 735	$ 1,098	$ 1,071
Income before income taxes	(3,700)	2,600	(2,000)	4,400
Unrecognized tax benefits	800		800
Unrecognized tax benefits that would impact effective tax rate	100		100
Unrecognized tax benefits, period increase (decrease)	$ 0	$ 0	$ 0	$ 0

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Debt - Additional Information (Details)								1 Months Ended		9 Months Ended
	Nov. 08, 2019 USD ($)	Jul. 02, 2019 USD ($)	Feb. 27, 2019 USD ($)	Jan. 03, 2019 USD ($)	Jan. 03, 2019 EUR (€)	Oct. 01, 2018 USD ($)	Oct. 01, 2018 EUR (€)	Apr. 30, 2019 USD ($)	Apr. 30, 2019 EUR (€)	Sep. 30, 2019 USD ($) Installment	Sep. 30, 2018 USD ($)	Sep. 30, 2019 EUR (€)	Dec. 31, 2018 USD ($)
Line Of Credit Facility [Line Items]
Interest rate additional to federal funds rate			0.50%
Interest rate additional to PNC's prime rate or LIBOR rate			1.00%
Interest rate applicable margin			1.00%
Repayment of outstanding letter of credit										$ 38,486,000	$ 48,739,000
Debt discount										$ 1,545,000
Stated interest rate						3.50%	3.50%
Number Of Equal Annual Instalments In Repayment Of Debt | Installment										2
Debt										$ 20,625,000			$ 24,762,000
Credit facility, commitment as security for various letters of credit										10,800,000			5,500,000
Keymile GmbH, LLC
Line Of Credit Facility [Line Items]
Payment to acquire business, gross				$ 11,800,000	€ 10,250,000	$ 4,400,000	€ 4,000,000
P N C Debt Facility | Dasan Network Solutions, Inc. (DNS)
Line Of Credit Facility [Line Items]
Repayments of borrowings										5,000,000
PNC Bank
Line Of Credit Facility [Line Items]
Long-term line of credit										23,800,000
Debt discount										1,500,000
Revolving Line of Credit
Line Of Credit Facility [Line Items]
Long-term line of credit										0
Repayment of outstanding letter of credit		$ 4,400,000
Letter of Credit
Line Of Credit Facility [Line Items]
Credit facility, commitment as security for various letters of credit										9,800,000			2,600,000
Foreign Line of Credit
Line Of Credit Facility [Line Items]
Credit facility, commitment as security for various letters of credit										20,600,000			$ 19,000,000
Base Rate Loans | Term Loans
Line Of Credit Facility [Line Items]
Interest rate applicable margin			5.00%
Base Rate Loans | Revolving Line of Credit
Line Of Credit Facility [Line Items]
Interest rate applicable margin			1.50%
LIBOR Rate Loans | Term Loans
Line Of Credit Facility [Line Items]
Interest rate applicable margin			6.00%
LIBOR Rate Loans | Revolving Line of Credit
Line Of Credit Facility [Line Items]
Interest rate applicable margin			2.50%
PNC Bank
Line Of Credit Facility [Line Items]
Long-term line of credit			$ 25,000,000
Credit facility, maximum borrowing capacity			15,000,000
W F B Facility
Line Of Credit Facility [Line Items]
Repayment of revolving line of credit outstanding balance plus accrued interest and fees and cash collateralized			1,500,000							1,500,000
Repayment of outstanding letter of credit			$ 3,600,000							3,600,000
Korea And Japan | P N C Debt Facility
Line Of Credit Facility [Line Items]
Repayments of short-term debt										$ 5,600,000
Term Loan | P N C Debt Facility
Line Of Credit Facility [Line Items]
Credit agreement, expiration date										Feb. 27, 2022
Quarterly installments. repayment of term loan | Installment										8
Frequency of payments										quarterly
Repayment of the term loan, monthly										$ 625,000,000
Monthly payment, beginning date										Jun. 30, 2019
Repayment of the term loan, quarterly										$ 937,500,000
Quarterly payment, beginning date										Jun. 30, 2021
Term Loan | PNC Bank
Line Of Credit Facility [Line Items]
Credit facility, interest rate										8.12%		8.12%
Term Loan | Subsequent Event
Line Of Credit Facility [Line Items]
One-time fee, paid	$ 150,000
Term Loan | Subsequent Event | PNC Bank
Line Of Credit Facility [Line Items]
Prepayment of outstanding term loan	10,000,000
One-time fee, paid	$ 150,000
Working Capital Loan
Line Of Credit Facility [Line Items]
Repayments of borrowings								$ 2,200,000	€ 2,000,000
Outstanding borrowings										$ 2,200,000		€ 2,000,000

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Goodwill and Intangible Assets - Additional Information (Details) - USD ($)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Goodwill And Intangible Assets Disclosure [Abstract]
Goodwill, impairment loss			$ 0		$ 0
Amortization of intangible assets	$ 900,000	$ 300,000	$ 2,600,000	$ 900,000

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Balance Sheet Detail - Additional Information (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Inventory [Line Items]
Total inventories	$ 43,046	$ 33,868
Collateral pledged
Inventory [Line Items]
Total inventories	$ 6,500	$ 9,500

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Enterprise-Wide Information (Tables)

9 Months Ended

Sep. 30, 2019

Segment Reporting [Abstract]

Property, Plant and Equipment, Net of Accumulated Depreciation

The Company's property, plant and equipment, net of accumulated depreciation, were located in the following geographical areas (in thousands) as of September 30, 2019 and December 31, 2018:

	September 30, 2019		December 31, 2018
United States	$	2,872	$	3,036
Korea		1,976		1,543
Japan and Vietnam		874		910
Taiwan and India		25		29
Germany		828		—
	$	6,575	$	5,518

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Goodwill and Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2019

Goodwill And Intangible Assets Disclosure [Abstract]

Schedule of Goodwill

Goodwill was as follows (in thousands):

	September 30, 2019		December 31, 2018
Gross carrying amount	$	3,977	$	3,977
Less: accumulated impairment		—		—
Net	$	3,977	$	3,977

Schedule of Intangible Assets

Intangible assets consisted of the following (in thousands):

	September 30, 2019
	Gross Carrying Amount		Accumulated Amortization			Net
Developed technology	$	7,972	$	(2,624	)	$	5,348
Customer relationships		8,733		(2,140	)		6,593
Trade name		3,056		(458	)		2,598
Total intangible assets, net	$	19,761	$	(5,222	)	$	14,539

	December 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Net
Developed technology	$	3,060	$	(1,428	)	$	1,632
Customer relationships		5,240		(1,223	)		4,017
Total intangible assets, net	$	8,300	$	(2,651	)	$	5,649

Future Amortization Expense of Intangible Assets

The following table presents the future amortization expense of the Company’s intangible assets as of September 30, 2019 (in thousands):

Remainder of 2019	$	857
2020		3,429
2021		3,225
2022		2,816
2023		2,816
Thereafter		1,396
Total	$	14,539
Weighted average remaining life:
Developed technology	3.74 years
Customer relationships	5.72 years
Trade name	4.25 years

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Related Party Transactions (Tables)

9 Months Ended

Sep. 30, 2019

Related Party Transactions [Abstract]

Schedule of Related Party Transactions

Sales, cost of revenue, purchases (included in manufacturing (cost of revenue)), research and product development, selling, marketing, general and administrative, interest expense and other expenses to and from related parties were as follows (in thousands) for the three and nine months ended September 30, 2019 and September 30, 2018:

		Three Months Ended September 30, 2019
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	N/A	$	232	$	190	$	—	$	—	$	966	$	104	$	84
Tomato Soft Ltd.	100%		—		—		29		—		—		—		—
Tomato Soft (Xi'an) Ltd.	100%		—		—		—		137		—		—		—
Chasan Networks Co., Ltd.	100%		—		—		279		16		—		—		—
		$	232	$	190	$	308	$	153	$	966	$	104	$	84
		Three Months Ended September 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	N/A	$	1,472	$	1,270	$	—	$	—	$	784	$	112	$	89
Tomato Soft Ltd.	100%		—		—		27		—		—		—		—
Tomato Soft (Xi'an) Ltd.	100%		—		—		—		119		—		—		—
Chasan Networks Co., Ltd.	100%		—		—		260		21		—		—		—
HANDYSOFT, Inc.	17.63%		215		208		—		—		2		—		—
		$	1,687	$	1,478	$	287	$	140	$	786	$	112	$	89

		Nine Months Ended September 30, 2019
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	N/A	$	1,828	$	1,346	$	—	$	—	$	2,984	$	349	$	255
Tomato Soft Ltd.	100%		—		—		88		—		—		—		—
Tomato Soft (Xi'an) Ltd.	100%		—		—		—		392		—		—		—
Chasan Networks Co.,    Ltd.	100%		—		—		837		55		—		—		—
J-Mobile Corporation	90.47%		42		81		—		—		—		—		—
		$	1,870	$	1,427	$	925	$	447	$	2,984	$	349	$	255
		Nine Months Ended September 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	N/A	$	3,683	$	3,143	$	—	$	—	$	2,950	$	338	$	234
Tomato Soft Ltd.	100%		—		—		84		—		—		—		—
Tomato Soft (Xi'an) Ltd.	100%		—		—		10		396		—		—		—
Chasan Networks Co.,    Ltd.	100%		—		—		880		57		—		—		—
Dasan France	100%		202		177		—		—		—		—		—
HANDYSOFT, Inc.	17.63%		473		357		—		—		4		—		—
		$	4,358	$	3,677	$	974	$	453	$	2,954	$	338	$	234

Balances of receivables and payables arising from sales and purchases of goods and services with related parties were as follows (in thousands) as of September 30, 2019 and December 31, 2018:

		As of September 30, 2019
Counterparty	DNI ownership interest	Account receivables		Other receivables		Deposits for lease *		Long- term debt		Accounts payable		Other payables		Accrued and other liabilities**
DNI	N/A	$	252		1	$	683	$	9,049	$	—	$	2,656	$	90
Tomato Soft Ltd.	100%		—		—		—		—		—		10		—
Tomato Soft (Xi'an) Ltd.	100%		—		—		—		—		—		45		—
Chasan Networks Co.,    Ltd.	100%		—		—		—		—		96		—		—
		$	252	$	1	$	683	$	9,049	$	96	$	2,711	$	90

		As of December 31, 2018
Counterparty	DNI ownership interest	Account receivables		Other receivables		Deposits for lease*		Loan Payable		Accounts payable		Other payables		Accrued and other liabilities**
DNI	N/A	$	—	$	—	$	735	$	14,142	$	1,000	$	1,231	$	169
Tomato Soft Ltd.	100%		—		—		—		—		—		9		—
Tomato Soft (Xi'an)    Ltd.	100%		—		—		—		—		—		41		—
Dasan France	100%		280		65		—		—		—		—		—
HANDYSOFT, Inc.	14.77%		303		—		—		—		654		—		—
Chasan Networks Co.,    Ltd.	100%		—		—		—		—		89		—		—
		$	583	$	65	$	735	$	14,142	$	1,743	$	1,281	$	169

* Included in other assets related to deposits for lease in the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018.

** Included in accrued and other liabilities in the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018.

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Related Party Transactions

9 Months Ended

Sep. 30, 2019

Related Party Transactions [Abstract]

Related Party Transactions

(11) Related-Party Transactions

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. The term loan was scheduled to mature in September 2021 and was pre-payable at any time by the Company without premium or penalty. The interest rate under this facility was 4.6% per annum.  In February 2019, the Company repaid the term loan in full plus accrued interest in connection with the entry into the PNC Facility, thereby terminating the loan agreement.

In February 2016, DNS borrowed $1.8 million from DNI for capital investment with an interest rate of 4.6% per annum. On February 27, 2019, in connection with the entry into the PNC Facility, the Company amended the terms of this loan to extend the repayment date to May 27, 2022. As of September 30, 2019, the $1.8 million balance of the loan remained outstanding.

On December 27, 2018, the Company entered into a loan agreement with DNI, for a $6.0 million term loan with an interest rate of 4.6% per annum.  On February 27, 2019, in connection with the entry into the PNC Facility, the Company amended the terms of the term loan to extend the repayment date to May 27, 2022 and to terminate any security granted to DNI with respect to such term loan. As of September 30, 2019, the $6.0 million balance of the loan remained outstanding.

In March 2018, Dasan Network Solutions, Inc., a subsidiary of the Company incorporated under the laws of Korea (“DNS Korea”) borrowed KRW6.5 billion ($5.8 million) from DNI, of which KRW5.0 billion ($4.5 million) was repaid on August 8, 2018.The loan bears interest at a rate of 4.6%, and is secured by certain accounts receivable of DNS Korea. On February 27, 2019, in connection with the entry into the PNC Facility, the Company amended the terms of this loan to extend the repayment date to May 27, 2022. As of September 30, 2019, KRW 1.5 billion ($1.3 million) remained outstanding.

The modifications resulting from the amendments described above were limited to the extension of the maturity dates and removal of the collateral on the outstanding term loans with DNI.  There were no fees paid to DNI or external costs otherwise incurred in connection with these modifications.  Interest expense on these related-party borrowings for the three and nine months ended September 30, 2019 was $0.1 million and $0.3 million, respectively. Interest expense for the three and nine months ended September 30, 2018 was $0.1 million and $0.3 million, respectively.  

Other Related-Party Transactions

Sales, cost of revenue, purchases (included in manufacturing (cost of revenue)), research and product development, selling, marketing, general and administrative, interest expense and other expenses to and from related parties were as follows (in thousands) for the three and nine months ended September 30, 2019 and September 30, 2018:

		Three Months Ended September 30, 2019
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	N/A	$	232	$	190	$	—	$	—	$	966	$	104	$	84
Tomato Soft Ltd.	100%		—		—		29		—		—		—		—
Tomato Soft (Xi'an) Ltd.	100%		—		—		—		137		—		—		—
Chasan Networks Co., Ltd.	100%		—		—		279		16		—		—		—
		$	232	$	190	$	308	$	153	$	966	$	104	$	84
		Three Months Ended September 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	N/A	$	1,472	$	1,270	$	—	$	—	$	784	$	112	$	89
Tomato Soft Ltd.	100%		—		—		27		—		—		—		—
Tomato Soft (Xi'an) Ltd.	100%		—		—		—		119		—		—		—
Chasan Networks Co., Ltd.	100%		—		—		260		21		—		—		—
HANDYSOFT, Inc.	17.63%		215		208		—		—		2		—		—
		$	1,687	$	1,478	$	287	$	140	$	786	$	112	$	89

		Nine Months Ended September 30, 2019
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	N/A	$	1,828	$	1,346	$	—	$	—	$	2,984	$	349	$	255
Tomato Soft Ltd.	100%		—		—		88		—		—		—		—
Tomato Soft (Xi'an) Ltd.	100%		—		—		—		392		—		—		—
Chasan Networks Co.,    Ltd.	100%		—		—		837		55		—		—		—
J-Mobile Corporation	90.47%		42		81		—		—		—		—		—
		$	1,870	$	1,427	$	925	$	447	$	2,984	$	349	$	255
		Nine Months Ended September 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	N/A	$	3,683	$	3,143	$	—	$	—	$	2,950	$	338	$	234
Tomato Soft Ltd.	100%		—		—		84		—		—		—		—
Tomato Soft (Xi'an) Ltd.	100%		—		—		10		396		—		—		—
Chasan Networks Co.,    Ltd.	100%		—		—		880		57		—		—		—
Dasan France	100%		202		177		—		—		—		—		—
HANDYSOFT, Inc.	17.63%		473		357		—		—		4		—		—
		$	4,358	$	3,677	$	974	$	453	$	2,954	$	338	$	234

The Company has entered into sales agreements with DNI and certain of its subsidiaries.  Sales and cost of revenue to DNI and Dasan France, a wholly-owned subsidiary of DNI, represent finished goods produced by the Company that are sold to these related parties who sell the Company's products in Korea and France, 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 sourcing and inspection services for the Company.  Under the agreement with Tomato Soft Ltd., the Company is charged a cost plus 7% fee for sourcing and inspection services.  

The Company has entered into an agreement with Tomato Soft (Xi'an) Ltd., a wholly owned subsidiary of DNI, 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 pursuant to 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 and certain administrative functions 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.  The Company entered into certain service sharing agreements with DNI and certain of its subsidiaries for continued use of the shared office space and shared administrative services.  Expenses related to rent and administrative services are allocated to the Company based on square footage occupied and headcount, respectively.

Other expenses to related parties represent expenses to DNI for its payment guarantees relating to the Company's borrowings.  See Note 15 for more information regarding such guarantees.  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 were as follows (in thousands) as of September 30, 2019 and December 31, 2018:

		As of September 30, 2019
Counterparty	DNI ownership interest	Account receivables		Other receivables		Deposits for lease *		Long- term debt		Accounts payable		Other payables		Accrued and other liabilities**
DNI	N/A	$	252		1	$	683	$	9,049	$	—	$	2,656	$	90
Tomato Soft Ltd.	100%		—		—		—		—		—		10		—
Tomato Soft (Xi'an) Ltd.	100%		—		—		—		—		—		45		—
Chasan Networks Co.,    Ltd.	100%		—		—		—		—		96		—		—
		$	252	$	1	$	683	$	9,049	$	96	$	2,711	$	90

		As of December 31, 2018
Counterparty	DNI ownership interest	Account receivables		Other receivables		Deposits for lease*		Loan Payable		Accounts payable		Other payables		Accrued and other liabilities**
DNI	N/A	$	—	$	—	$	735	$	14,142	$	1,000	$	1,231	$	169
Tomato Soft Ltd.	100%		—		—		—		—		—		9		—
Tomato Soft (Xi'an)    Ltd.	100%		—		—		—		—		—		41		—
Dasan France	100%		280		65		—		—		—		—		—
HANDYSOFT, Inc.	14.77%		303		—		—		—		654		—		—
Chasan Networks Co.,    Ltd.	100%		—		—		—		—		89		—		—
		$	583	$	65	$	735	$	14,142	$	1,743	$	1,281	$	169

* Included in other assets related to deposits for lease in the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018.

** Included in accrued and other liabilities in the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018.

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Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2019

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

(7) Goodwill and Intangible Assets

Goodwill was as follows (in thousands):

	September 30, 2019		December 31, 2018
Gross carrying amount	$	3,977	$	3,977
Less: accumulated impairment		—		—
Net	$	3,977	$	3,977

The Company did not recognize impairment loss on goodwill during the nine months ended September 30, 2019 or 2018.

Intangible assets consisted of the following (in thousands):

	September 30, 2019
	Gross Carrying Amount		Accumulated Amortization			Net
Developed technology	$	7,972	$	(2,624	)	$	5,348
Customer relationships		8,733		(2,140	)		6,593
Trade name		3,056		(458	)		2,598
Total intangible assets, net	$	19,761	$	(5,222	)	$	14,539

	December 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Net
Developed technology	$	3,060	$	(1,428	)	$	1,632
Customer relationships		5,240		(1,223	)		4,017
Total intangible assets, net	$	8,300	$	(2,651	)	$	5,649

Intangible assets as of September 30, 2019 include the customer relationships, trade name and developed technology acquired through the Keymile Acquisition (see Note 2) as well as previously acquired intangible assets.

Amortization expense associated with intangible assets for the three and nine months ended September 30, 2019 was $0.9 million and $2.6 million, respectively. Amortization expense for the three and nine months ended September 30, 2018 was $0.3 million and $0.9 million, respectively.

The following table presents the future amortization expense of the Company’s intangible assets as of September 30, 2019 (in thousands):

Remainder of 2019	$	857
2020		3,429
2021		3,225
2022		2,816
2023		2,816
Thereafter		1,396
Total	$	14,539
Weighted average remaining life:
Developed technology	3.74 years
Customer relationships	5.72 years
Trade name	4.25 years

XML

Leases - Maturity of Operating Lease Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Jan. 01, 2019
Leases [Abstract]
Remainder of 2019	$ 1,259
2020	4,197
2021	3,890
2022	3,609
2023	3,460
Thereafter	6,373
Total operating lease payments	22,788
Less: imputed interest	(3,335)
Total operating lease liabilities	$ 19,453	$ 22,500

XML

Commitments and Contingencies - Payment Guarantees to Third Parties (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($)
Guarantee Obligations [Line Items]
Product warranty term	2 years
Payment Guarantee
Guarantee Obligations [Line Items]
Guarantor obligations	$ 64,172
Dasan Network Solutions, Inc. (DNS) | Payment Guarantee
Guarantee Obligations [Line Items]
DNI ownership interest	44.40%
Dasan Network Solutions, Inc. (DNS) | Payment Guarantee | Credit facility from Industrial Bank of Korea
Guarantee Obligations [Line Items]
Guarantor obligations	$ 8,400
Dasan Network Solutions, Inc. (DNS) | Payment Guarantee | Purchasing Card from Industrial Bank of Korea
Guarantee Obligations [Line Items]
Guarantor obligations	1,998
Dasan Network Solutions, Inc. (DNS) | Payment Guarantee | Korea Development Bank, Credit facility
Guarantee Obligations [Line Items]
Guarantor obligations	8,400
Dasan Network Solutions, Inc. (DNS) | Payment Guarantee | Korea Development Bank, General loan
Guarantee Obligations [Line Items]
Guarantor obligations	4,995
Dasan Network Solutions, Inc. (DNS) | Payment Guarantee | NongHyup Bank, Credit facility
Guarantee Obligations [Line Items]
Guarantor obligations	6,000
Dasan Network Solutions, Inc. (DNS) | Payment Guarantee | Borrowings from Korea Development Bank
Guarantee Obligations [Line Items]
Guarantor obligations	3,566
Dasan Network Solutions, Inc. (DNS) | Payment Guarantee | Payment Guarantee from Shinhan Bank
Guarantee Obligations [Line Items]
Guarantor obligations	3,000
Dasan Network Solutions, Inc. (DNS) | Payment Guarantee | Shinhan Bank, General Loan
Guarantee Obligations [Line Items]
Guarantor obligations	1,598
PNC Bank | Payment Guarantee
Guarantee Obligations [Line Items]
Guarantor obligations	4,550
Seoul Guarantee Insurance Co. | Payment Guarantee
Guarantee Obligations [Line Items]
Guarantor obligations	5,516
Industrial Bank of Korea | Payment Guarantee
Guarantee Obligations [Line Items]
Guarantor obligations	1,010
Industrial Bank of Korea | Payment Guarantee | Letter of Credit
Guarantee Obligations [Line Items]
Guarantor obligations	1,096
Korea Development Bank | Payment Guarantee
Guarantee Obligations [Line Items]
Guarantor obligations	6,908
NongHyup Bank | Payment Guarantee
Guarantee Obligations [Line Items]
Guarantor obligations	3,596
Woori Bank | Payment Guarantee
Guarantee Obligations [Line Items]
Guarantor obligations	1,932
Shinhan Bank | Payment Guarantee
Guarantee Obligations [Line Items]
Guarantor obligations	683
Shinhan Bank | Payment Guarantee | Purchasing Card
Guarantee Obligations [Line Items]
Guarantor obligations	573
AXA Insurance Company | Payment Guarantee
Guarantee Obligations [Line Items]
Guarantor obligations	175
Polska Agencja Zeglugi Powietrznej | Payment Guarantee
Guarantee Obligations [Line Items]
Guarantor obligations	112
DDE 64 LTD | Payment Guarantee
Guarantee Obligations [Line Items]
Guarantor obligations	$ 64

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Goodwill and Intangible Assets - Schedule of Intangible Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	$ 19,761	$ 8,300
Accumulated Amortization	(5,222)	(2,651)
Intangible assets, net	14,539	5,649
Developed Technology
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	7,972	3,060
Accumulated Amortization	(2,624)	(1,428)
Intangible assets, net	5,348	1,632
Customer Relationships
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	8,733	5,240
Accumulated Amortization	(2,140)	(1,223)
Intangible assets, net	6,593	$ 4,017
Trade name
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	3,056
Accumulated Amortization	(458)
Intangible assets, net	$ 2,598

XML

Property, Plant and Equipment - Property, Plant and Equipment, Net (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	$ 19,144	$ 17,201
Less: accumulated depreciation and amortization	(12,228)	(11,271)
Less: government grants	(341)	(412)
Property, plant and equipment, net	6,575	5,518
Furniture and fixtures
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	10,139	8,029
Machinery and equipment
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	2,341	3,553
Leasehold improvements
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	4,063	3,715
Computers and software
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	1,856	922
Other
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	$ 745	$ 982

XML

Debt - Schedule of Short-term Debt (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2019	Dec. 31, 2018	Oct. 01, 2018
Debt Instrument [Line Items]
Stated interest rate			3.50%
Debt	$ 20,625	$ 24,762
Industrial Bankof Korea Credit Facility
Debt Instrument [Line Items]
Debt	$ 512	$ 1,982
Industrial Bankof Korea Credit Facility | Minimum
Debt Instrument [Line Items]
Maturity Date, start	Oct. 02, 2019	Jan. 02, 2019
Stated interest rate	5.34%	3.96%
Industrial Bankof Korea Credit Facility | Maximum
Debt Instrument [Line Items]
Maturity Date, end	Nov. 12, 2019	May 15, 2019
Stated interest rate	5.49%	4.36%
NongHyup Bank, Credit facility
Debt Instrument [Line Items]
Debt	$ 3,097	$ 2,053
NongHyup Bank, Credit facility | Minimum
Debt Instrument [Line Items]
Maturity Date, start	Oct. 07, 2019	Jan. 07, 2019
Stated interest rate	3.69%	3.71%
NongHyup Bank, Credit facility | Maximum
Debt Instrument [Line Items]
Maturity Date, end	Feb. 24, 2020	Apr. 29, 2019
Stated interest rate	4.49%	4.50%
The Export Import Bankof Korea Export Development Loan
Debt Instrument [Line Items]
Maturity Date	Jul. 01, 2020	Jul. 01, 2019
Stated interest rate	2.75%	3.44%
Debt	$ 4,995	$ 6,439
Korea Development Bank, General loan
Debt Instrument [Line Items]
Maturity Date	Aug. 08, 2020	Aug. 08, 2019
Stated interest rate	3.00%	3.48%
Debt	$ 4,162	$ 4,472
Korea Development Bank, Credit facility
Debt Instrument [Line Items]
Debt	$ 6,194	$ 1,489
Korea Development Bank, Credit facility | Minimum
Debt Instrument [Line Items]
Maturity Date, start	Oct. 07, 2019	Feb. 07, 2019
Stated interest rate	3.11%	3.64%
Korea Development Bank, Credit facility | Maximum
Debt Instrument [Line Items]
Maturity Date, end	Feb. 18, 2020	Mar. 06, 2019
Stated interest rate	3.47%	3.91%
L G U Plus General Loan
Debt Instrument [Line Items]
Maturity Date	Jun. 17, 2020	Jun. 17, 2019
Stated interest rate	0.00%	0.00%
Debt	$ 1,665	$ 1,789
Industrial Bankof Korea Trade Finance
Debt Instrument [Line Items]
Debt		$ 1,920
Industrial Bankof Korea Trade Finance | Minimum
Debt Instrument [Line Items]
Maturity Date, start		Feb. 18, 2019
Stated interest rate		5.31%
Industrial Bankof Korea Trade Finance | Maximum
Debt Instrument [Line Items]
Maturity Date, end		Feb. 25, 2019
Stated interest rate		6.08%
Shinhan Bank, General Loan
Debt Instrument [Line Items]
Maturity Date		Mar. 30, 2019
Stated interest rate		6.06%
Debt		$ 2,862
The Export Import Bank Of Korea Import Development Loan
Debt Instrument [Line Items]
Maturity Date		Feb. 14, 2019
Stated interest rate		4.31%
Debt		$ 850
Shoko Chukin Bank General Loan
Debt Instrument [Line Items]
Maturity Date		Jun. 28, 2019
Stated interest rate		1.33%
Debt		$ 906

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Net Income Per Share Attributable to DASAN Zhone Solutions, Inc. - Reconciliation of Basic and Diluted Net Income (Loss) per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Earnings Per Share [Abstract]
Net income (loss) attributable to DASAN Zhone Solutions, Inc.	$ (4,033)	$ 1,798	$ (3,263)	$ 3,321
Basic (in shares)	21,384	16,683	18,732	16,425
Effect of dilutive securities:
Stock options, restricted stock units and share awards		208		215
Diluted (in shares)	21,384	16,891	18,732	16,640
Basic (in dollar per share)	$ (0.19)	$ 0.11	$ (0.17)	$ 0.20
Diluted (in dollar per share)	$ (0.19)	$ 0.11	$ (0.17)	$ 0.20

XML

Related Party Transactions - Additional Information (Details) ₩ in Billions					1 Months Ended		3 Months Ended		9 Months Ended
	Feb. 27, 2019	Aug. 08, 2018 USD ($)	Aug. 08, 2018 KRW (₩)	Sep. 09, 2016 USD ($)	Mar. 31, 2018 USD ($)	Mar. 31, 2018 KRW (₩)	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 KRW (₩)	Dec. 31, 2018 USD ($)	Oct. 01, 2018
Related Party Transaction [Line Items]
Stated interest rate													3.50%
Long-term debt							$ 54,062,000		$ 54,062,000			$ 45,904,000
Debt instrument, collateral fees paid to DNI									0
Interest expense, related party							100,000	$ 100,000	300,000	$ 300,000
Research and product development							$ 9,898,000	$ 8,655,000	$ 29,512,000	$ 26,346,000
Term Loan | Loan Agreement
Related Party Transaction [Line Items]
Stated interest rate							4.60%		4.60%		4.60%
Debt instrument maturity date	May 27, 2022
Long-term debt							$ 6,000,000		$ 6,000,000
Line of credit							6,000,000		6,000,000
DASAN | Loan Agreement | Dasan Network Solutions, Inc. (DNS)
Related Party Transaction [Line Items]
Stated interest rate					4.60%	4.60%
Origination of notes receivable from related parties					$ 5,800,000	₩ 6.5
Debt instrument maturity date	May 27, 2022
Long-term debt							$ 1,300,000		$ 1,300,000		₩ 1.5
Repayments of borrowings		$ 4,500,000	₩ 5.0
DASAN | Majority Shareholder
Related Party Transaction [Line Items]
Guarantee fee, percent									0.90%
DASAN | Junior Lien | Majority Shareholder | Loan Agreement | Dasan Network Solutions, Inc. (DNS)
Related Party Transaction [Line Items]
Stated interest rate							4.60%		4.60%		4.60%
Origination of notes receivable from related parties									$ 1,800,000
Debt instrument maturity date	May 27, 2022
Long-term debt							$ 1,800,000		$ 1,800,000
DASAN | Junior Lien | Term Loan | Unsecured Debt | Majority Shareholder | Loan Agreement
Related Party Transaction [Line Items]
Maximum borrowing amount				$ 5,000,000
Debt instrument maturity month and year				2021-09
Stated interest rate				4.60%
Chasan Networks Co., Ltd | Junior Lien | Affiliated Entity | Loan Agreement | Dasan Network Solutions, Inc. (DNS)
Related Party Transaction [Line Items]
Manufacturing and development fee, percent							7.00%		7.00%		7.00%
Tomato Soft Ltd. | Junior Lien | Affiliated Entity | Loan Agreement | Dasan Network Solutions, Inc. (DNS)
Related Party Transaction [Line Items]
Sourcing and inspection services fee, percent							7.00%		7.00%		7.00%
Tomato Soft (Xi'an) Ltd.
Related Party Transaction [Line Items]
Research and product development									$ 800,000

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Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2019	Nov. 12, 2019
Cover [Abstract]
Entity Registrant Name	DASAN ZHONE SOLUTIONS INC
Entity Central Index Key	0001101680
Trading Symbol	DZSI
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Document Type	10-Q
Document Period End Date	Sep. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Common Stock, Shares Outstanding		21,388,445
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Current Reporting Status	Yes
Entity Shell Company	false
Entity File Number	000-32743
Entity Tax Identification Number	22-3509099
Entity Address, Address Line One	7195 Oakport Street
Entity Address, City or Town	Oakland
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	94621
City Area Code	510
Local Phone Number	777-7000
Document Quarterly Report	true
Document Transition Report	false
Entity Incorporation, State or Country Code	DE
Entity Interactive Data Current	Yes
Title of each class	Common stock, $0.001 par value
Name of each exchange on which registered	NASDAQ

XML

Unaudited Condensed Consolidated Statements of Stockholders' Equity and Non-Controlling Interest - USD ($) shares in Thousands, $ in Thousands	Total	Common stock	Additional paid-in capital	Accumulated other comprehensive income (loss)	Accumulated deficit	Total stockholders equity	Non-controlling interest
Beginning Balance, Stockholders' equity at Dec. 31, 2017	$ 73,767	$ 16	$ 90,198	$ 1,871	$ (18,852)	$ 73,233	$ 534
Beginning Balances, Stockholders' equity (in shares) at Dec. 31, 2017		16,410
ASC 606 opening balance adjustment	342				342	342
Exercise of stock options and restricted stock grant	111		111			111
Exercise of stock options and restricted stock grant (in shares)		21
Stock-based compensation	363		363			363
Net income (loss)	141				107	107	34
Other comprehensive income(loss)	287			257		257	30
Ending Balances, Stockholders' equity at Mar. 31, 2018	75,011	$ 16	90,672	2,128	(18,403)	74,413	598
Ending Balances, Stockholders' equity (in shares) at Mar. 31, 2018		16,431
Beginning Balance, Stockholders' equity at Dec. 31, 2017	73,767	$ 16	90,198	1,871	(18,852)	73,233	534
Beginning Balances, Stockholders' equity (in shares) at Dec. 31, 2017		16,410
Net income (loss)	3,323
Ending Balances, Stockholders' equity at Sep. 30, 2018	77,770	$ 16	92,408	5	(15,190)	77,239	531
Ending Balances, Stockholders' equity (in shares) at Sep. 30, 2018		16,566
Beginning Balance, Stockholders' equity at Mar. 31, 2018	75,011	$ 16	90,672	2,128	(18,403)	74,413	598
Beginning Balances, Stockholders' equity (in shares) at Mar. 31, 2018		16,431
ASC 606 opening balance adjustment	(1)				(1)	(1)
Exercise of stock options and restricted stock grant	77		77			77
Exercise of stock options and restricted stock grant (in shares)		19
Stock-based compensation	377		377			377
Net income (loss)	1,355				1,416	1,416	(61)
Other comprehensive income(loss)	(2,549)			(2,527)		(2,527)	(22)
Ending Balances, Stockholders' equity at Jun. 30, 2018	74,270	$ 16	91,126	(399)	(16,988)	73,755	515
Ending Balances, Stockholders' equity (in shares) at Jun. 30, 2018		16,450
Exercise of stock options and restricted stock grant	665		665			665
Exercise of stock options and restricted stock grant (in shares)		116
Stock-based compensation	617		617			617
Net income (loss)	1,827				1,798	1,798	29
Other comprehensive income(loss)	391			404		404	(13)
Ending Balances, Stockholders' equity at Sep. 30, 2018	77,770	$ 16	92,408	5	(15,190)	77,239	531
Ending Balances, Stockholders' equity (in shares) at Sep. 30, 2018		16,566
Beginning Balance, Stockholders' equity at Dec. 31, 2018	$ 77,854	$ 16	93,192	(192)	(15,777)	77,239	615
Beginning Balances, Stockholders' equity (in shares) at Dec. 31, 2018	16,587	16,587
Stock-based compensation	$ 825		825			825
Stock-based compensation (in shares)		9
Net income (loss)	(1,457)				(1,638)	(1,638)	181
Other comprehensive income(loss)	(1,125)			(1,124)		(1,124)	(1)
Ending Balances, Stockholders' equity at Mar. 31, 2019	76,097	$ 16	94,017	(1,316)	(17,415)	75,302	795
Ending Balances, Stockholders' equity (in shares) at Mar. 31, 2019		16,596
Beginning Balance, Stockholders' equity at Dec. 31, 2018	$ 77,854	$ 16	93,192	(192)	(15,777)	77,239	615
Beginning Balances, Stockholders' equity (in shares) at Dec. 31, 2018	16,587	16,587
Purchase of non-controlling interest in subsidiary	$ (823)
Net income (loss)	(3,069)
Ending Balances, Stockholders' equity at Sep. 30, 2019	$ 114,396	$ 21	138,860	(5,445)	(19,040)	114,396
Ending Balances, Stockholders' equity (in shares) at Sep. 30, 2019	21,388	21,388
Beginning Balance, Stockholders' equity at Mar. 31, 2019	$ 76,097	$ 16	94,017	(1,316)	(17,415)	75,302	795
Beginning Balances, Stockholders' equity (in shares) at Mar. 31, 2019		16,596
Issuance of common stock in public offering, net of issuance costs	42,509	$ 5	42,504			42,509
Issuance of common stock in public offering, net of issuance costs (in shares)		4,718
Exercise of stock options and restricted stock grant	473		473			473
Exercise of stock options and restricted stock grant (in shares)		55
Stock-based compensation	811		811			811
Stock-based compensation (in shares)		11
Net income (loss)	2,384				2,408	2,408	(24)
Other comprehensive income(loss)	(1,725)			(1,748)		(1,748)	23
Ending Balances, Stockholders' equity at Jun. 30, 2019	120,549	$ 21	137,805	(3,064)	(15,007)	119,755	794
Ending Balances, Stockholders' equity (in shares) at Jun. 30, 2019		21,380
Purchase of non-controlling interest in subsidiary	(950)		(127)			(127)	(823)
Stock-based compensation	1,182		1,182			1,182
Stock-based compensation (in shares)		8
Net income (loss)	(3,996)				(4,033)	(4,033)	37
Other comprehensive income(loss)	(2,389)			(2,381)		(2,381)	$ (8)
Ending Balances, Stockholders' equity at Sep. 30, 2019	$ 114,396	$ 21	$ 138,860	$ (5,445)	$ (19,040)	$ 114,396
Ending Balances, Stockholders' equity (in shares) at Sep. 30, 2019	21,388	21,388

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Balance Sheet Detail - Schedule of Accounts Receivable, Net (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Balance Sheet Related Disclosures [Abstract]
Gross accounts receivable	$ 101,253	$ 71,945
Less: allowance for doubtful accounts	(388)	(328)
Total accounts receivable, net	$ 100,865	$ 71,617

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Organization and Summary of Significant Accounting Policies - Schedule of Revenues by Source (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Disaggregation Of Revenue [Line Items]
Revenue	$ 71,524	$ 71,914	$ 229,277	$ 207,675
Product
Disaggregation Of Revenue [Line Items]
Revenue	66,447	68,787	214,890	198,830
Service
Disaggregation Of Revenue [Line Items]
Revenue	$ 5,077	$ 3,127	$ 14,387	$ 8,845

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Business Combinations - Summary of Preliminary Estimated Purchase Price Allocation to Fair Value of Asset Acquired and Liabilities Assumed (Details) - Keymile Acquisition $ in Thousands	Jan. 03, 2019 USD ($)
Purchase consideration
Cash consideration	$ 11,776
Working capital adjustment: cash received from lockbox mechanism	(2,497)
Adjusted purchase consideration	$ 9,279

XML

Fair Value Measurement

9 Months Ended

Sep. 30, 2019

Fair Value Disclosures [Abstract]

Fair Value Measurement

(3) 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 September 30, 2019 and the consolidated balance sheet as of December 31, 2018, but require disclosure of their fair values: cash and cash equivalents, restricted cash, accounts and other receivables, accounts payable, accrued liabilities, lease liabilities and debt.  The carrying values of financial instruments such as cash and cash equivalents, restricted cash, accounts and other receivables, accounts payable and accrued liabilities approximate their fair values based on their short-term nature. The carrying value of the Company's lease liabilities and debt approximates their fair values based on the current rates available to the Company for debt of similar terms and maturities.

XML

Organization and Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2019

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Basis of Presentation

(c) Basis of Presentation

For a complete description of what the Company believes to be the critical accounting policies and estimates used in the preparation of its unaudited condensed consolidated financial statements, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do 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 presentation 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, 2018 filed with the Securities and Exchange Commission (“SEC”) on March 12, 2019.

Use of Estimates

(d) Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.

Reclassifications

(e) Reclassifications

For the three and nine months ended September 30, 2018, certain previously reported statement of comprehensive income (loss) and statement of cash flows amounts have been adjusted for certain immaterial reclassifications to correctly reflect: (i) cost of products and services to related parties; and (ii) changes in accounts receivable and contract assets.  

Revenue

(f) Revenue

The following table presents the revenues by source (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Revenue by source:
Products	$	66,447	$	68,787	$	214,890	$	198,830
Services		5,077		3,127		14,387		8,845
Total	$	71,524	$	71,914	$	229,277	$	207,675

The following summarizes required disclosures about geographical concentrations (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Revenue by geography:
United States	$	9,662	$	11,125	$	28,993	$	41,373
Canada		1,062		1,131		2,950		3,344
Total North America		10,724		12,256		31,943		44,717
Latin America		6,273		6,841		18,829		21,713
Europe, Middle East, Africa		15,838		10,425		59,429		27,264
Korea		20,877		19,609		55,682		50,844
Other Asia Pacific		17,812		22,783		63,394		63,137
Total International		60,800		59,658		197,334		162,958
Total	$	71,524	$	71,914	$	229,277	$	207,675

Contract Balances

The Company records contract assets when it has a right to consideration and records accounts receivable when it has an “unconditional” right to consideration. Contract liabilities consist of cash payments received (or unconditional rights to receive cash) in advance of fulfilling performance obligations.

The opening and closing balances of contract assets and contract liabilities related to contracts with customers are as follows:

	Contract Assets			Contract Liabilities
Opening, January 1, 2019	$	12,175		$	10,312
Closing, September 30, 2019		10,328			6,206
Decrease	$	(1,847	)	$	(4,106	)

The amount of revenue recognized in the three months ended September 30, 2019 that was included in the prior period contract liability balance was $1.7 million. The amount of revenue recognized in the nine months ended September 30, 2019 that was included in the January 1, 2019 contract liability balance was $7.3 million. This revenue consists of services provided to customers who had prepaid for those services prior to the current year.

Concentration of Risk

(g) Concentration of Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents which totaled $47.9 million at September 30, 2019, including $7.4 million held by its international subsidiaries.  Cash and cash equivalents consist of financial deposits and money market accounts that are principally held with various domestic and international financial institutions with high credit standing.

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 months ended September 30, 2019, one customer accounted for 11% of net revenue. For the nine months ended September 30, 2019, no single customer accounted for 10% or more of net revenue.  For the three and nine months ended September 30, 2018, one customer accounted for 11% of net revenue.

As of September 30, 2019, two customers represented 17% and 12% of net accounts receivable, respectively. As of December 31, 2018, two customers represented 11% and 10% of net accounts receivable, respectively.

As of September 30, 2019 and December 31, 2018, receivables from customers in countries other than the United States represented 94% and 88%, respectively, of net accounts receivable.

Business Combinations

(h) Business Combinations

The Company allocates the fair value of purchase consideration to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets and certain tangible assets such as inventory.

Critical estimates in valuing certain tangible and intangible assets include but are not limited to future expected cash flows from the underlying assets and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

Defined Benefit Plans and Plan Assumptions

(i) Defined Benefit Plans and Plan Assumptions

The Company provides certain defined benefit pension plans to employees in Germany. Pension accounting is intended to reflect the recognition of future benefit costs over the employees' average expected future service to the Company based on the terms of the plans and investment and funding decisions. To estimate the impact of these future payments and the Company’s decisions concerning funding of these obligations, the Company is required to make assumptions using actuarial concepts within the framework of U.S. GAAP. Two critical assumptions are the discount rate and the expected long-term return on plan assets. Other important assumptions include expected future salary increases, expected future increases to benefit payments, expected retirement dates, employee turnover, retiree mortality rates and portfolio composition. The Company evaluates these assumptions at least annually.

Recent Accounting Pronouncements

(j) Recent Accounting Pronouncements

Recent Accounting Pronouncements Adopted

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases as modified subsequently by ASUs 2018-01, 2018-10, 2018-11, 2018-20 and 2019-01 (“ASC 842”), which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. ASC 842 requires that lease arrangements longer than 12 months’ result in an entity recognizing an asset and liability, with respect to such lease arrangement, among other changes.

The Company adopted the new standard on January 1, 2019, the first day of fiscal 2019, using the modified retrospective approach whereby the cumulative effect of adoption was recognized on the adoption date and prior periods were not restated. There was no net cumulative effect adjustment to retained earnings as of January 1, 2019 as a result of this adoption. ASC 842 sets out the principles for the recognition, measurement, presentation and disclosure of leases.

The Company has elected to use a certain package of practical expedients permitted under the transition guidance within ASC 842. Those practical expedients are as follows:

• The Company did not reassess (i) whether expired or existing contracts contain leases under the new definition of a lease; (ii) lease classification for expired or existing leases; and (iii) whether previously capitalized initial direct costs would qualify for capitalization under ASC 842.

• The Company did not reassess a lease whose term is 12 months or less and does not include a purchase option that the lessee is reasonably certain to exercise.

• The Company did not elect to use hindsight for transition when considering judgments and estimates such as assessments of lessee options to extend or terminate a lease or purchase the underlying asset.

• For all asset classes, the Company elected to not recognize a right-of-use asset and lease liability for leases with a term of 12 months or less.

• For all asset classes, the Company elected to not separate non-lease components from lease components to which they relate and has accounted for the combined lease and non-lease components as a single lease component.

The Company applies significant judgment in considering all relevant factors that create an economic benefit (e.g., contract-based, asset-based, entity-based, and market-based, among others) as of the commencement date in determining the initial lease term and future lease payments. For example, the Company exercises judgment in determining whether renewal periods will be exercised during the initial measurement process. If the Company believes it will exercise the renewal option, and the lease payments associated with the renewal periods are known or calculable, such renewal lease payments would be included in the initial measurement of the lease liability. Otherwise, even if the Company believes that it will exercise the renewal period, if the renewal payments are unknown or not calculable, they would not be included until they become known or calculable at which time the Company would remeasure the remaining lease payments similar to a lease modification.

Adoption of ASC 842 resulted in the balance sheet recognition of right of use assets and lease liabilities of approximately $22.5 million as of January 1, 2019. Adoption of ASC 842 did not materially impact the Company’s unaudited condensed consolidated statements of comprehensive income (loss) and cash flows. See Note 14 in the notes to unaudited condensed consolidated financial statements.

Income Tax Effects within Accumulated Other Comprehensive Income

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”). The adoption of this standard on January 1, 2019 did not have a material impact on the Company’s condensed consolidated financial statements, since the Company did not elect to reclassify the income tax effects of the Tax Act from accumulated other comprehensive income to retained earnings.  

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-Retirement Benefit Cost

In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-Retirement Benefit Cost. The ASU requires the Company to disaggregate the service cost component from the other components of net periodic benefit costs and requires the Company to present the other components of net periodic benefit cost in other income, net. The standard is effective for annual and interim periods beginning after December 31, 2017, and retrospective application is required. The Company adopted this guidance during the first quarter of 2019 without any retrospective adjustments since the underlying pension obligations were acquired through the Keymile Acquisition in 2019. The interest cost, which is the only component of net periodic post-retirement cost, is recognized in Other income (loss), net in the condensed consolidated statement of comprehensive income (loss).

Other Recent Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other Internal-Use Software - Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement. The update reduces complexity for the accounting for costs of implementing a cloud computing service arrangement and aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for annual and interim periods beginning after December 15, 2019, and retrospective or prospective application is permitted. We are currently evaluating the impact of adoption of this ASU, but it is not expected to have a material effect on our condensed consolidated financial statements.

In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the Company to measure and recognize expected credit losses for financial assets held and not accounted for at fair value through net income. In November 2018, April 2019 and May 2019, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, and ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief, which provided additional implementation guidance on the previously issued ASU. The updated guidance is effective for the Company on January 1, 2020, and requires a modified retrospective adoption method.  Early adoption is permitted.  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.

On August 28, 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), which removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC 820. The updated guidance is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently assessing the potential impact of adopting this new guidance on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans, which amends ASC 715 to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The updated guidance is effective for the Company on January 1, 2021, with early adoption permitted. The Company is currently assessing the potential impact of adopting this new guidance on its consolidated financial statements.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2019

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

(15) Commitments and Contingencies

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 included in accrued and other liabilities (in thousands) for the nine months ended September 30, 2019 and September 30, 2018:

	Nine Months Ended September 30,
	2019			2018
Beginning balance	$	1,319		$	931
Assumed balance from Keymile		230			—
Charged to cost of revenue		732			1,022
Claims and settlements		(782	)		(598	)
Foreign exchange impact		(27	)		6
Ending balance	$	1,472		$	1,361

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 September 30, 2019, the Company had $13.8 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 $3.2 million as of September 30, 2019.

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.

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 September 30, 2019 (in thousands) that have been provided by third parties and DNI. DNI owns approximately 44.4% of the outstanding shares of the Company's common stock:  

Guarantor	Amount Guaranteed (in thousands)		Description of Obligations Guaranteed
DNI	$	8,400	Credit facility from Industrial Bank of Korea
DNI		1,998	Purchasing Card from Industrial Bank of Korea
DNI		8,400	Credit facility from Korea Development Bank
DNI		4,995	Borrowings from Korea Development Bank
DNI		6,000	Credit facility from NongHyup Bank
DNI		3,566	Borrowings from Export-Import Bank of Korea
DNI		3,000	Payment Guarantee from Shinhan Bank
DNI		1,598	Backed Loan from Shinhan Bank
PNC Bank, N.A.		4,550	Letter of Credit
Seoul Guarantee Insurance Co.		5,516	Performance Bond, Warranty Bond, etc. (*)
Industrial Bank of Korea		1,096	Letter of Credit
Industrial Bank of Korea		1,010	Bank Guarantee
Korea Development Bank		6,908	Letter of Credit
NongHyup Bank		3,596	Letter of Credit
Woori Bank		1,932	Bank Guarantee
Shinhan Bank		573	Purchasing Card
Shinhan Bank		683	Payment Guarantee
AXA Insurance Company		175	Guarantee for flexible retirement program
Polska Agencja Zeglugi Powietrznej		112	Performance Bond, Warranty Bond, etc. (*)
DDE 64 Ltd.		64	Guarantee Bond
	$	64,172

* The Company is generally responsible for warranty liabilities for a period of two years with respect to major product sales and has, therefore, contracted for surety insurance for a portion of the warranty liabilities.

Legal Proceedings

From time to time, 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 that 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, results of operations or cash flows. 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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Property, Plant and Equipment (Tables)

9 Months Ended

Sep. 30, 2019

Property Plant And Equipment [Abstract]

Property Plant and Equipment, Net

Property, plant and equipment consisted of the following (in thousands):

	September 30, 2019			December 31, 2018
Furniture and fixtures	$	10,139		$	8,029
Machinery and equipment		2,341			3,553
Leasehold improvements		4,063			3,715
Computers and software		1,856			922
Other		745			982
		19,144			17,201
Less: accumulated depreciation and amortization		(12,228	)		(11,271	)
Less: government grants		(341	)		(412	)
Total property and equipment, net	$	6,575		$	5,518

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

9 Months Ended

Sep. 30, 2019

Earnings Per Share [Abstract]

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

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

Basic net income per share attributable to DASAN Zhone Solutions, Inc. is computed by dividing the net income 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 per share attributable to DASAN Zhone Solutions, Inc. gives effect to common stock equivalents; however, potential common stock equivalents are excluded if their effect is antidilutive. Potential common stock equivalents are composed of incremental shares of common stock issuable upon the exercise of stock options and the vesting of restricted stock units. In periods when a net loss is reported, all common stock equivalents are excluded from the calculation because they would have an anti-dilutive effect, meaning the loss per share would be reduced. Therefore, in periods when a loss is reported, basic and dilutive loss per share are the same.

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) for the three and nine months ended September 30, 2019 and September 30, 2018:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019			2018		2019			2018
Net income (loss) attributable to DASAN    Zhone Solutions, Inc.	$	(4,033	)	$	1,798	$	(3,263	)	$	3,321
Weighted average number of shares    outstanding:
Basic		21,384			16,683		18,732			16,425
Effect of dilutive securities:
Stock options, restricted stock units    and share awards		—			208		—			215
Diluted		21,384			16,891		18,732			16,640
Net income (loss) per share attributable to    DASAN Zhone Solutions, Inc.:
Basic	$	(0.19	)	$	0.11	$	(0.17	)	$	0.20
Diluted	$	(0.19	)	$	0.11	$	(0.17	)	$	0.20

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Defined Benefit Plans

9 Months Ended

Sep. 30, 2019

Compensation And Retirement Disclosure [Abstract]

Defined Benefit Plans

(9) Defined Benefit Plans

The Company provides certain defined benefit pension plans in Germany for active and former employees of Keymile and their surviving dependents. These benefits were promised upon an employee either reaching retirement age or becoming disabled. Benefits paid depend on an employee’s years of service and annual earnings. These plans were frozen as of September 30, 2003 and have not been offered to new employees after that date. Employees who were already covered by such plans ceased earning benefits under such plans from the freeze date forward. The benefit obligations are determined separately for each plan by estimating the present value of future benefits that employees have earned in prior periods. Given that all plans are frozen; the Company does not have any current service costs to recognize within its defined benefit obligation or pension expense.

The only component of pension expense relates to $0.1 million of interest expense on the defined benefit pension plans, which is recognized in Other income (loss), net in the condensed consolidated statement of comprehensive income (loss). The interest expense is determined by multiplying the defined benefit obligation by the discount rate used to determine the defined benefit obligation. Actuarial gains and losses from changes in assumptions are included in Other comprehensive loss in the condensed consolidated statement of comprehensive income (loss).

The following key actuarial assumptions were made in determining the benefit obligation:

	September 30, 2019
Discount rate	1.20%
Rate of pension increase	1.70%
Retirement age	63-67 years

As of September 30, 2019, the Company’s employee benefit obligations under the defined benefit plans is approximately $13.3 million, net of pension assets of $3.4 million which is under a reinsurance contract policy.  During the three and nine months ended September 30, 2019, the Company made no cash contributions to the defined benefit plans.

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Balance Sheet Details

9 Months Ended

Sep. 30, 2019

Balance Sheet Related Disclosures [Abstract]

Balance Sheet Details

(5) Balance Sheet Details

Accounts receivable, net consisted of the following (in thousands):

	September 30, 2019			December 31, 2018
Gross accounts receivable	$	101,253		$	71,945
Less: allowance for doubtful accounts		(388	)		(328	)
Total accounts receivable, net	$	100,865		$	71,617

Inventories consisted of the following (in thousands):

	September 30, 2019		December 31, 2018
Raw materials	$	16,630	$	15,688
Work in process		3,582		2,429
Finished goods		22,834		15,751
Total inventories	$	43,046	$	33,868

Inventories provided as collateral for borrowings from Export-Import Bank of Korea amounted to $6.5 million and $9.5 million as of September 30, 2019 and December 31, 2018, respectively.

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Defined Benefit Plans (Tables)

9 Months Ended

Sep. 30, 2019

Compensation And Retirement Disclosure [Abstract]

Schedule of Assumptions Used in Determining the Benefit Obligation

The following key actuarial assumptions were made in determining the benefit obligation:

	September 30, 2019
Discount rate	1.20%
Rate of pension increase	1.70%
Retirement age	63-67 years

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Leases (Tables)

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Components of Lease Expense

The components of lease expense were as follows for the three and nine months ended September 30, 2019:

	Three Months Ended September 30, 2019 (in thousands)		Nine Months Ended September 30, 2019 (in thousands)
Operating lease cost	$	1,064	$	3,327
Variable lease cost		194		520
Total net lease cost	$	1,258	$	3,847

Supplemental Cash Flow Information Related to Operating Leases

Supplemental cash flow information related to the Company’s operating leases was as follows for the three and nine months ended September 30, 2019:

	Three Months Ended September 30, 2019 (in thousands)		Nine Months Ended September 30, 2019 (in thousands)
Cash paid for amounts included in the measurement of operating lease    liabilities	$	1,265	$	3,888
ROU assets obtained in exchange for operating lease obligations	$	35	$	35

Lease Balances within Condensed Consolidated Balance Sheet, Weighted Average Remaining Lease Term, and Weighted Average Discount Rates Related to Operating Leases

The following table presents the lease balances within the Company’s condensed consolidated balance sheet, weighted average remaining lease term, and weighted average discount rates related to the Company’s operating leases as of September 30, 2019 (in thousands):

Lease Assets and Liabilities
Assets:
Right-of-use assets from operating leases	$	18,349
Liabilities:
Operating lease liabilities - current	$	3,496
Operating lease liabilities - non-current		15,957
Total operating lease liabilities	$	19,453
Weighted average remaining lease term	4.77 years
Weighted average discount rate		6.6	%

Maturity of Operating Lease Liabilities

The following table presents the maturity of the Company’s operating lease liabilities as of September 30, 2019 (in thousands):

Remainder of 2019	$	1,259
2020		4,197
2021		3,890
2022		3,609
2023		3,460
Thereafter		6,373
Total operating lease payments		22,788
Less: imputed interest		(3,335	)
Total operating lease liabilities	$	19,453

Estimated Future Lease Payments under Non-Cancelable Operating Leases

As of December 31, 2018, the estimated future lease payments under non-cancelable operating leases as defined under the previous lease accounting guidance of ASC Topic 840, for the following five fiscal years and thereafter are as follows (in thousands):

	Operating Leases
Year ending December 31:
2019	$	4,100
2020		3,005
2021		2,590
2022		2,664
2023		2,494
Thereafter		5,929
Total minimum lease payments	$	20,782

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Debt - Summary of Debt (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Debt Instrument [Line Items]
Debt before unamortized deferred financing costs	$ 55,607
Less: unamortized deferred financing costs on the PNC Bank Facility	(702)
Short-term	34,606	$ 31,762
Less: unamortized deferred financing costs on the PNC Bank Facility	(843)
Long-term	19,456	14,142
Less: unamortized deferred financing costs on the PNC Bank Facility	(1,545)
Total	54,062	45,904
P N C Bank Facility
Debt Instrument [Line Items]
Debt before unamortized deferred financing costs	23,750
Working Capital Loan
Debt Instrument [Line Items]
Debt before unamortized deferred financing costs	2,183
Short-term		7,000
Total		7,000
Bank And Trade Facilities Foreign Operations
Debt Instrument [Line Items]
Debt before unamortized deferred financing costs	20,625
Short-term		24,762
Total		24,762
Related Party
Debt Instrument [Line Items]
Debt before unamortized deferred financing costs	9,049
Long-term		14,142
Total		$ 14,142
Short-term Debt
Debt Instrument [Line Items]
Debt before unamortized deferred financing costs	35,308
Short-term Debt | P N C Bank Facility
Debt Instrument [Line Items]
Debt before unamortized deferred financing costs	12,500
Short-term Debt | Working Capital Loan
Debt Instrument [Line Items]
Debt before unamortized deferred financing costs	2,183
Short-term Debt | Bank And Trade Facilities Foreign Operations
Debt Instrument [Line Items]
Debt before unamortized deferred financing costs	20,625
Long-term Debt
Debt Instrument [Line Items]
Debt before unamortized deferred financing costs	20,299
Long-term Debt | P N C Bank Facility
Debt Instrument [Line Items]
Debt before unamortized deferred financing costs	11,250
Long-term Debt | Related Party
Debt Instrument [Line Items]
Debt before unamortized deferred financing costs	$ 9,049

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Goodwill and Intangible Assets - Schedule of Goodwill (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Goodwill And Intangible Assets Disclosure [Abstract]
Gross carrying amount	$ 3,977	$ 3,977
Net	$ 3,977	$ 3,977

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Leases - Supplemental Cash Flow Information Related to Operating Leases (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2019
Leases [Abstract]
Cash paid for amounts included in the measurement of operating lease liabilities	$ 1,265	$ 3,888
ROU assets obtained in exchange for operating lease obligations	$ 35	$ 35

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Commitments and Contingencies - Additional Information (Details) $ in Millions	9 Months Ended
	Sep. 30, 2019 USD ($)
Purchase Commitment
Guarantee 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	$ 3.2
Performance Guarantee
Guarantee Obligations [Line Items]
Guarantor obligations	$ 13.8
Minimum
Guarantee Obligations [Line Items]
Product warranty period from the date of shipment	1 year
Maximum
Guarantee Obligations [Line Items]
Product warranty period from the date of shipment	5 years

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Enterprise-Wide Information - Property, Plant and Equipment, Net of Accumulated Depreciation (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Property Plant And Equipment [Line Items]
Property, plant and equipment, net	$ 6,575	$ 5,518
United States
Property Plant And Equipment [Line Items]
Property, plant and equipment, net	2,872	3,036
Korea
Property Plant And Equipment [Line Items]
Property, plant and equipment, net	1,976	1,543
Japan and Vietnam
Property Plant And Equipment [Line Items]
Property, plant and equipment, net	874	910
Taiwan and India
Property Plant And Equipment [Line Items]
Property, plant and equipment, net	25	$ 29
Germany
Property Plant And Equipment [Line Items]
Property, plant and equipment, net	$ 828

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Unaudited Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares shares in Thousands	Sep. 30, 2019	Dec. 31, 2018
Statement Of Financial Position [Abstract]
Common stock, authorized (in shares)	36,000	36,000
Common stock, outstanding (in shares)	21,388	16,587
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001

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Organization and Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2019

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Organization and Summary of Significant Accounting Policies

(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 ultra-broadband network access solutions and communications platforms deployed by advanced Tier 1, 2 and 3 service providers and enterprise customers. 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 900 customers in more than 80 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., a California corporation (“DNS”), 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 58% 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 with flexible in-house production facilities in Seminole, Florida and Hanover, Germany (acquired as part of the Keymile Acquisition (defined below) in January 2019), and contract manufacturers located in China, India, Korea and Vietnam. The Company also maintains offices to provide sales and customer support at global locations.          

(b) DNI Ownership

As of September 30, 2019, DNI owned approximately 44.4% of the outstanding shares of the Company's common stock.  As a result, DNI is able to significantly influence corporate and management policies and the outcome of any corporate transaction or other matter submitted to the Company’s stockholders for approval. Such transactions may include mergers and acquisitions, sales of all or some of the Company’s assets or purchases of assets, and other significant corporate transactions.  The interests of DNI may not coincide with the interests of the Company's other stockholders or with holders of the Company's indebtedness. See Note 11 and Note 15 to the unaudited condensed consolidated financial statements for additional information.

(c) Basis of Presentation

For a complete description of what the Company believes to be the critical accounting policies and estimates used in the preparation of its unaudited condensed consolidated financial statements, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do 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 presentation 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, 2018 filed with the Securities and Exchange Commission (“SEC”) on March 12, 2019.

(d) Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.

(e) Reclassifications

For the three and nine months ended September 30, 2018, certain previously reported statement of comprehensive income (loss) and statement of cash flows amounts have been adjusted for certain immaterial reclassifications to correctly reflect: (i) cost of products and services to related parties; and (ii) changes in accounts receivable and contract assets.  

(f) Revenue

The following table presents the revenues by source (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Revenue by source:
Products	$	66,447	$	68,787	$	214,890	$	198,830
Services		5,077		3,127		14,387		8,845
Total	$	71,524	$	71,914	$	229,277	$	207,675

The following summarizes required disclosures about geographical concentrations (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Revenue by geography:
United States	$	9,662	$	11,125	$	28,993	$	41,373
Canada		1,062		1,131		2,950		3,344
Total North America		10,724		12,256		31,943		44,717
Latin America		6,273		6,841		18,829		21,713
Europe, Middle East, Africa		15,838		10,425		59,429		27,264
Korea		20,877		19,609		55,682		50,844
Other Asia Pacific		17,812		22,783		63,394		63,137
Total International		60,800		59,658		197,334		162,958
Total	$	71,524	$	71,914	$	229,277	$	207,675

Contract Balances

The Company records contract assets when it has a right to consideration and records accounts receivable when it has an “unconditional” right to consideration. Contract liabilities consist of cash payments received (or unconditional rights to receive cash) in advance of fulfilling performance obligations.

The opening and closing balances of contract assets and contract liabilities related to contracts with customers are as follows:

	Contract Assets			Contract Liabilities
Opening, January 1, 2019	$	12,175		$	10,312
Closing, September 30, 2019		10,328			6,206
Decrease	$	(1,847	)	$	(4,106	)

The amount of revenue recognized in the three months ended September 30, 2019 that was included in the prior period contract liability balance was $1.7 million. The amount of revenue recognized in the nine months ended September 30, 2019 that was included in the January 1, 2019 contract liability balance was $7.3 million. This revenue consists of services provided to customers who had prepaid for those services prior to the current year.

(g) Concentration of Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents which totaled $47.9 million at September 30, 2019, including $7.4 million held by its international subsidiaries.  Cash and cash equivalents consist of financial deposits and money market accounts that are principally held with various domestic and international financial institutions with high credit standing.

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 months ended September 30, 2019, one customer accounted for 11% of net revenue. For the nine months ended September 30, 2019, no single customer accounted for 10% or more of net revenue.  For the three and nine months ended September 30, 2018, one customer accounted for 11% of net revenue.

As of September 30, 2019, two customers represented 17% and 12% of net accounts receivable, respectively. As of December 31, 2018, two customers represented 11% and 10% of net accounts receivable, respectively.

As of September 30, 2019 and December 31, 2018, receivables from customers in countries other than the United States represented 94% and 88%, respectively, of net accounts receivable.

(h) Business Combinations

The Company allocates the fair value of purchase consideration to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets and certain tangible assets such as inventory.

Critical estimates in valuing certain tangible and intangible assets include but are not limited to future expected cash flows from the underlying assets and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

(i) Defined Benefit Plans and Plan Assumptions

The Company provides certain defined benefit pension plans to employees in Germany. Pension accounting is intended to reflect the recognition of future benefit costs over the employees' average expected future service to the Company based on the terms of the plans and investment and funding decisions. To estimate the impact of these future payments and the Company’s decisions concerning funding of these obligations, the Company is required to make assumptions using actuarial concepts within the framework of U.S. GAAP. Two critical assumptions are the discount rate and the expected long-term return on plan assets. Other important assumptions include expected future salary increases, expected future increases to benefit payments, expected retirement dates, employee turnover, retiree mortality rates and portfolio composition. The Company evaluates these assumptions at least annually.

(j) Recent Accounting Pronouncements

Recent Accounting Pronouncements Adopted

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases as modified subsequently by ASUs 2018-01, 2018-10, 2018-11, 2018-20 and 2019-01 (“ASC 842”), which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. ASC 842 requires that lease arrangements longer than 12 months’ result in an entity recognizing an asset and liability, with respect to such lease arrangement, among other changes.

The Company adopted the new standard on January 1, 2019, the first day of fiscal 2019, using the modified retrospective approach whereby the cumulative effect of adoption was recognized on the adoption date and prior periods were not restated. There was no net cumulative effect adjustment to retained earnings as of January 1, 2019 as a result of this adoption. ASC 842 sets out the principles for the recognition, measurement, presentation and disclosure of leases.

The Company has elected to use a certain package of practical expedients permitted under the transition guidance within ASC 842. Those practical expedients are as follows:

• The Company did not reassess (i) whether expired or existing contracts contain leases under the new definition of a lease; (ii) lease classification for expired or existing leases; and (iii) whether previously capitalized initial direct costs would qualify for capitalization under ASC 842.

• The Company did not reassess a lease whose term is 12 months or less and does not include a purchase option that the lessee is reasonably certain to exercise.

• The Company did not elect to use hindsight for transition when considering judgments and estimates such as assessments of lessee options to extend or terminate a lease or purchase the underlying asset.

• For all asset classes, the Company elected to not recognize a right-of-use asset and lease liability for leases with a term of 12 months or less.

• For all asset classes, the Company elected to not separate non-lease components from lease components to which they relate and has accounted for the combined lease and non-lease components as a single lease component.

The Company applies significant judgment in considering all relevant factors that create an economic benefit (e.g., contract-based, asset-based, entity-based, and market-based, among others) as of the commencement date in determining the initial lease term and future lease payments. For example, the Company exercises judgment in determining whether renewal periods will be exercised during the initial measurement process. If the Company believes it will exercise the renewal option, and the lease payments associated with the renewal periods are known or calculable, such renewal lease payments would be included in the initial measurement of the lease liability. Otherwise, even if the Company believes that it will exercise the renewal period, if the renewal payments are unknown or not calculable, they would not be included until they become known or calculable at which time the Company would remeasure the remaining lease payments similar to a lease modification.

Adoption of ASC 842 resulted in the balance sheet recognition of right of use assets and lease liabilities of approximately $22.5 million as of January 1, 2019. Adoption of ASC 842 did not materially impact the Company’s unaudited condensed consolidated statements of comprehensive income (loss) and cash flows. See Note 14 in the notes to unaudited condensed consolidated financial statements.

Income Tax Effects within Accumulated Other Comprehensive Income

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”). The adoption of this standard on January 1, 2019 did not have a material impact on the Company’s condensed consolidated financial statements, since the Company did not elect to reclassify the income tax effects of the Tax Act from accumulated other comprehensive income to retained earnings.  

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-Retirement Benefit Cost

In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-Retirement Benefit Cost. The ASU requires the Company to disaggregate the service cost component from the other components of net periodic benefit costs and requires the Company to present the other components of net periodic benefit cost in other income, net. The standard is effective for annual and interim periods beginning after December 31, 2017, and retrospective application is required. The Company adopted this guidance during the first quarter of 2019 without any retrospective adjustments since the underlying pension obligations were acquired through the Keymile Acquisition in 2019. The interest cost, which is the only component of net periodic post-retirement cost, is recognized in Other income (loss), net in the condensed consolidated statement of comprehensive income (loss).

Other Recent Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other Internal-Use Software - Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement. The update reduces complexity for the accounting for costs of implementing a cloud computing service arrangement and aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for annual and interim periods beginning after December 15, 2019, and retrospective or prospective application is permitted. We are currently evaluating the impact of adoption of this ASU, but it is not expected to have a material effect on our condensed consolidated financial statements.

In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the Company to measure and recognize expected credit losses for financial assets held and not accounted for at fair value through net income. In November 2018, April 2019 and May 2019, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, and ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief, which provided additional implementation guidance on the previously issued ASU. The updated guidance is effective for the Company on January 1, 2020, and requires a modified retrospective adoption method.  Early adoption is permitted.  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.

On August 28, 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), which removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC 820. The updated guidance is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently assessing the potential impact of adopting this new guidance on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans, which amends ASC 715 to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The updated guidance is effective for the Company on January 1, 2021, with early adoption permitted. The Company is currently assessing the potential impact of adopting this new guidance on its consolidated financial statements.

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Organization and Summary of Significant Accounting Policies - Summary of Contract Assets and Contract Liabilities Related to Contracts with Customers (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($)
Accounting Policies [Abstract]
Opening, Contract Assets	$ 12,175
Closing, Contract Assets	10,328
Decrease, Contract Assets	(1,847)
Opening, Contract Liabilities	10,312
Closing, Contract Liabilities	6,206
Decrease, Contract Liabilities	$ (4,106)

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Business Combinations - Schedule of Preliminary Estimated Fair Value and Useful Lives of Identifiable Intangible Assets (Details) - Keymile Acquisition $ in Thousands	Jan. 03, 2019 USD ($)
Business Acquisition [Line Items]
Intangible assets	$ 12,030
Customer Relationships
Business Acquisition [Line Items]
Intangible assets	$ 3,667
Estimated Useful Life	5 years
Trade name
Business Acquisition [Line Items]
Intangible assets	$ 3,208
Estimated Useful Life	5 years
Developed Technology
Business Acquisition [Line Items]
Intangible assets	$ 5,155
Estimated Useful Life	5 years

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Leases - Components of Lease Expense (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2019
Leases [Abstract]
Operating lease cost	$ 1,064	$ 3,327
Variable lease cost	194	520
Total net lease cost	$ 1,258	$ 3,847

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Related Party Transactions - Balances of Receivables and Payables with Related Parties (Details) - USD ($) $ in Thousands		Sep. 30, 2019	Dec. 31, 2018
Related Party Transaction [Line Items]
Long-term debt		$ 54,062	$ 45,904
Receivables And Payables With Related Parties
Related Party Transaction [Line Items]
Account receivables		252	583
Other receivables		1	65
Deposits for lease	[1]	683	735
Long-term debt		9,049	14,142
Accounts payable		96	1,743
Other payables		2,711	1,281
Accrued and other liabilities	[2]	90	169
DASAN | Majority Shareholder | Receivables And Payables With Related Parties
Related Party Transaction [Line Items]
Account receivables		252
Other receivables		1
Deposits for lease	[1]	683	735
Long-term debt		9,049	14,142
Accounts payable			1,000
Other payables		2,656	1,231
Accrued and other liabilities	[2]	$ 90	$ 169
Tomato Soft Ltd. | Affiliated Entity | Receivables And Payables With Related Parties
Related Party Transaction [Line Items]
DNI ownership interest		100.00%	100.00%
Other payables		$ 10	$ 9
Tomato Soft (Xi'an) Ltd. | Affiliated Entity | Receivables And Payables With Related Parties
Related Party Transaction [Line Items]
DNI ownership interest		100.00%	100.00%
Other payables		$ 45	$ 41
Chasan Networks Co., Ltd | Affiliated Entity | Receivables And Payables With Related Parties
Related Party Transaction [Line Items]
DNI ownership interest		100.00%	100.00%
Accounts payable		$ 96	$ 89
Dasan France | Affiliated Entity | Receivables And Payables With Related Parties
Related Party Transaction [Line Items]
DNI ownership interest			100.00%
Account receivables			$ 280
Other receivables			$ 65
Handysoft Inc | Affiliated Entity | Receivables And Payables With Related Parties
Related Party Transaction [Line Items]
DNI ownership interest			14.77%
Account receivables			$ 303
Accounts payable			$ 654

[1] Included in other assets related to deposits for lease in the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018.

[2] Included in accrued and other liabilities in the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018.

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Defined Benefit Plans - Schedule of Assumptions Used in Determining the Benefit Obligation (Details)	9 Months Ended
	Sep. 30, 2019
Discount rate	1.20%
Rate of pension increase	1.70%
Minimum
Retirement age	63 years
Maximum
Retirement age	67 years

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Business Combinations (Tables)

9 Months Ended

Sep. 30, 2019

Business Combinations [Abstract]

Summary of Preliminary Estimated Purchase Price Allocation to Fair Value of Asset Acquired and Liabilities Assumed

A summary of the preliminary estimated purchase price allocation to the fair value of assets acquired and liabilities assumed is as follows (in thousands):

Purchase consideration
Cash consideration	$	11,776
Working capital adjustment: cash received from lockbox mechanism		(2,497	)
Adjusted purchase consideration	$	9,279

Schedule of Estimated Fair Value of Assets Acquired and Liabilities Assumed

The following summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for the Keymile Acquisition (in thousands):

Allocation of purchase consideration
Current assets
Cash and cash equivalents	$	4,582
Accounts receivable - trade, net		6,820
Other receivables		798
Inventories		9,943
Property, plant and equipment		983
Other assets		163
Intangible assets		12,030
Accounts payable - trade		(3,303	)
Short-term debt		(4,582	)
Contract liabilities		(364	)
Accrued liabilities		(3,614	)
Deferred tax liabilities		(1,071	)
Pension obligations		(12,656	)
Other long term liabilities		(116	)
Bargain purchase gain		(334	)
Total purchase consideration	$	9,279

Schedule of Preliminary Estimated Fair Value and Useful Lives of Identifiable Intangible Assets

The following table represents the preliminary estimated fair value and useful lives of identifiable intangible assets acquired:

	Estimated Fair Value (in thousands)		Estimated Useful Life
Intangible assets acquired
Customer relationships	$	3,667	5 years
Trade name		3,208	5 years
Technology - developed core		5,155	5 years
Total intangible assets	$	12,030

Summary of Pro Forma Information

The unaudited pro forma information for the periods set forth below gives effect to the Keymile Acquisition as if it had occurred as of January 1, 2018.  The unaudited pro forma financial information has been prepared by management for illustrative purposes only and does not purport to represent what the results of operations, financial condition or other financial information of the Company would have been if the Keymile Acquisition had occurred on January 1, 2018 or what such results or financial condition will be for any future periods. The unaudited pro forma financial information is based on estimates and assumptions and on the information available at the time of the preparation thereof. These estimates and assumptions may change, be revised or prove to be materially different, and the estimates and assumptions may not be representative of facts existing at the time of the Keymile Acquisition. The pro forma adjustments primarily relate to acquisition related costs, amortization of acquired intangibles and interest expense related to financing arrangements. Below is the pro forma financial information (in thousands):

	Three Months Ended		Nine Months Ended
	September 30, 2018		September 30, 2018
Pro forma net revenues	$	84,870	$	242,086
Pro forma net income attributable to DASAN Zhone Solutions, Inc.		726		2,885

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Enterprise-Wide Information

9 Months Ended

Sep. 30, 2019

Segment Reporting [Abstract]

Enterprise-Wide Information

(17) Enterprise-Wide Information  

The Company is a global provider of ultra-broadband network access solutions and communications platforms deployed by advanced Tier 1, 2 and 3 service providers and enterprise customers. 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 property, plant and equipment, net of accumulated depreciation, were located in the following geographical areas (in thousands) as of September 30, 2019 and December 31, 2018:

	September 30, 2019		December 31, 2018
United States	$	2,872	$	3,036
Korea		1,976		1,543
Japan and Vietnam		874		910
Taiwan and India		25		29
Germany		828		—
	$	6,575	$	5,518

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Business Combinations - Additional Information (Details)						1 Months Ended		3 Months Ended	9 Months Ended	12 Months Ended
	Jul. 31, 2019 USD ($)	Jan. 03, 2019 USD ($)	Jan. 03, 2019 EUR (€)	Oct. 01, 2018 USD ($)	Oct. 01, 2018 EUR (€)	Apr. 30, 2019 USD ($)	Apr. 30, 2019 EUR (€)	Sep. 30, 2019 USD ($)	Sep. 30, 2019 USD ($)	Dec. 31, 2018 USD ($)	Sep. 30, 2019 EUR (€)	Oct. 01, 2018 EUR (€)
Business Acquisition [Line Items]
Gain on bargain purchase									$ 334,000
Purchase of interest in subsidiary								$ 950,000	823,000
Additional paid-in capital
Business Acquisition [Line Items]
Purchase of interest in subsidiary								127,000
Non-controlling interest
Business Acquisition [Line Items]
Purchase of interest in subsidiary								823,000
Working Capital Loan
Business Acquisition [Line Items]
Repayments of borrowings						$ 2,200,000	€ 2,000,000
Outstanding borrowings								$ 2,200,000	2,200,000		€ 2,000,000
Keymile GmbH, LLC
Business Acquisition [Line Items]
Payment to acquire business, gross		$ 11,800,000	€ 10,250,000	$ 4,400,000	€ 4,000,000
Pension obligation		12,700,000
Pension asset		$ 3,500,000
Cash received										$ 2,500,000
Payment to acquire business, gross				$ 4,400,000								€ 4,000,000
Working capital loan interest rate				3.50%								3.50%
Gain on bargain purchase									300,000
Weighted average useful lives of acquired property, plant and equipment		5 years	5 years
DZS Japan, Inc
Business Acquisition [Line Items]
Remaining non controlling interest percentage acquired	30.94%
Payments to acquire remaining non controlling	$ 950,000
Purchase of interest in subsidiary									950,000
DZS Japan, Inc | Additional paid-in capital
Business Acquisition [Line Items]
Purchase of interest in subsidiary									127,000
DZS Japan, Inc | Non-controlling interest
Business Acquisition [Line Items]
Purchase of interest in subsidiary									$ 823,000

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Business Combinations - Summary of Pro Forma Information (Details) - Keymile Acquisition - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2018
Business Acquisition [Line Items]
Pro forma net revenues	$ 84,870	$ 242,086
Pro forma net income attributable to DASAN Zhone Solutions, Inc.	$ 726	$ 2,885

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Unaudited Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 47,851	$ 27,709
Restricted cash	4,448	7,003
Accounts receivable, net, trade receivables	100,613	71,034
Accounts receivable, net, related parties	252	583
Other receivables, others	8,002	12,923
Other receivables, related parties	1	65
Contract assets	9,351	11,381
Inventories	43,046	33,868
Prepaid expenses and other current assets	6,253	4,185
Total current assets	219,817	168,751
Property, plant and equipment, net	6,575	5,518
Right-of-use assets from operating leases	18,349
Goodwill	3,977	3,977
Intangible assets, net	14,539	5,649
Deferred tax assets	1,691	2,752
Long-term restricted cash	501	936
Other assets	2,784	2,424
Total assets	268,233	190,007
Current liabilities:
Accounts payable, trade	43,320	36,865
Accounts payable, related parties	96	1,743
Short-term debt - bank and trade facilities	34,606	31,762
Other payables, others	1,652	1,792
Other payables, related parties	2,711	1,281
Contract liabilities - current	3,609	8,511
Operating lease liabilities - current	3,496
Accrued and other liabilities	10,389	11,517
Total current liabilities	99,879	93,471
Long-term debt, bank and trade facilities	10,407
Long-term debt, related parties	9,049	14,142
Contract liabilities - non-current	2,597	1,801
Deferred tax liabilities	1,021
Operating lease liabilities - non-current	15,957
Pension liabilities	13,269
Other long-term liabilities	1,658	2,739
Total liabilities	153,837	112,153
Commitments and contingencies (Note 15)
Stockholders’ equity and non-controlling interest:
Common stock, authorized 36,000 shares, 21,388 and 16,587 shares outstanding as of September 30, 2019 and December 31, 2018, respectively, at $0.001 par value	21	16
Additional paid-in capital	138,860	93,192
Accumulated other comprehensive loss	(5,445)	(192)
Accumulated deficit	(19,040)	(15,777)
Total stockholders’ equity	114,396	77,239
Non-controlling interest		615
Total stockholders’ equity and non-controlling interest	114,396	77,854
Total liabilities, stockholders’ equity and non-controlling interest	$ 268,233	$ 190,007

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Cash flows from operating activities:
Net income (loss)	$ (3,069)	$ 3,323
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	4,110	2,033
Amortization of deferred financing costs	453
Bargain purchase gain on acquisition	(334)
Stock-based compensation	2,818	1,357
Provision for inventory write-down	2,289	753
Allowance for doubtful accounts	148	2
Provision for sales returns	413	839
Unrealized loss (gain) on foreign currency transactions	(2,080)	226
Deferred taxes	884	(56)
Changes in operating assets and liabilities:
Accounts receivable	(29,724)	(15,377)
Contract assets	819	(5,984)
Inventories	(3,454)	(21,967)
Prepaid expenses and other assets	3,859	(1,958)
Accounts payable	9,275	24,790
Contract liabilities	(4,246)
Accrued and other liabilities	(4,049)	(3,695)
Net cash used in operating activities	(21,888)	(15,714)
Cash flows from investing activities:
Purchases of property, plant and equipment	(1,461)	(753)
Proceeds from disposal of property and equipment and other assets		1
Acquisition of business, net of cash acquired	(4,697)
Net cash used in investing activities	(6,158)	(752)
Cash flows from financing activities:
Proceeds from issuance of common stock in public offering, net of issuance costs	42,509
Proceeds from short-term borrowings and line of credit	25,884	61,419
Repayments of short-term borrowings and line of credit	(38,486)	(48,739)
Proceeds from long-term borrowings	25,000
Repayments of long-term borrowings	(1,250)
Proceeds from related party term loan		6,098
Repayments of related party term loan	(5,000)	(4,460)
Deferred financing costs	(1,998)
Purchase of non-controlling interest	(950)
Proceeds from exercise of stock options	473	853
Net cash provided by financing activities	46,182	15,171
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(984)	(1,417)
Net increase in cash, cash equivalents and restricted cash	17,152	(2,712)
Cash, cash equivalents and restricted cash at beginning of period	35,648	31,412
Cash, cash equivalents and restricted cash at end of period	52,800	28,700
Reconciliation of cash, cash equivalents and restricted cash to statement of financial position
Reconciliation of cash, cash equivalents and restricted cash	$ 35,648	$ 31,412

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Related Party Transactions - Sales and Purchases To and From Related Parties (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Related Party Transaction [Line Items]
Sales	$ 232	$ 1,687	$ 1,870	$ 4,358
Cost of revenue	190	1,478	1,427	3,677
Interest expense	100	100	300	300
Sales And Purchases To And From Related Parties
Related Party Transaction [Line Items]
Sales	232	1,687	1,870	4,358
Cost of revenue	190	1,478	1,427	3,677
Manufacturing (cost of revenue)	308	287	925	974
Research and product development	153	140	447	453
Selling, marketing, general and administrative	966	786	2,984	2,954
Interest expense	104	112	349	338
Other expenses	84	89	255	234
DASAN | Majority Shareholder | Sales And Purchases To And From Related Parties
Related Party Transaction [Line Items]
Sales	232	1,472	1,828	3,683
Cost of revenue	190	1,270	1,346	3,143
Selling, marketing, general and administrative	966	784	2,984	2,950
Interest expense	104	112	349	338
Other expenses	$ 84	$ 89	$ 255	$ 234
Tomato Soft Ltd. | Affiliated Entity | Sales And Purchases To And From Related Parties
Related Party Transaction [Line Items]
DNI ownership interest	100.00%	100.00%	100.00%	100.00%
Manufacturing (cost of revenue)	$ 29	$ 27	$ 88	$ 84
Tomato Soft (Xi'an) Ltd. | Affiliated Entity | Sales And Purchases To And From Related Parties
Related Party Transaction [Line Items]
DNI ownership interest	100.00%	100.00%	100.00%	100.00%
Manufacturing (cost of revenue)				$ 10
Research and product development	$ 137	$ 119	$ 392	$ 396
Chasan Networks Co., Ltd | Affiliated Entity | Sales And Purchases To And From Related Parties
Related Party Transaction [Line Items]
DNI ownership interest	100.00%	100.00%	100.00%	100.00%
Manufacturing (cost of revenue)	$ 279	$ 260	$ 837	$ 880
Research and product development	$ 16	$ 21	$ 55	$ 57
Handysoft Inc | Affiliated Entity | Sales And Purchases To And From Related Parties
Related Party Transaction [Line Items]
DNI ownership interest		17.63%		17.63%
Sales		$ 215		$ 473
Cost of revenue		208		357
Selling, marketing, general and administrative		$ 2		$ 4
J Mobile | Affiliated Entity | Sales And Purchases To And From Related Parties
Related Party Transaction [Line Items]
DNI ownership interest	90.47%		90.47%
Sales			$ 42
Cost of revenue			$ 81
Dasan France | Affiliated Entity | Sales And Purchases To And From Related Parties
Related Party Transaction [Line Items]
DNI ownership interest		100.00%		100.00%
Sales				$ 202
Cost of revenue				$ 177

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Defined Benefit Plans - Additional Information (Details)	3 Months Ended	9 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2019 USD ($)
Defined Benefit Pension Plans And Defined Benefit Postretirement Plans Disclosure [Abstract]
Defined benefit pension plans, interest expense		$ 100,000
Defined benefit plans obligation	$ 13,300,000	13,300,000
Defined benefit plans assets	3,400,000	3,400,000
Defined benefit plans cash contributions	$ 0	$ 0

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Leases - Additional Information (Details)		9 Months Ended
	Jul. 09, 2019 USD ($) ft²	Sep. 30, 2019 USD ($)	Nov. 01, 2019 USD ($)	Jan. 01, 2019 USD ($)
Leases Operating Lease [Line Items]
Finance lease		$ 1
Area under lease | ft²	16,500
Lease term	63 months
Lease commenced date	Nov. 01, 2019
Right-of-use assets from operating leases		18,349,000		$ 22,500,000
Operating lease liabilities		19,453,000		$ 22,500,000
Subsequent Event
Leases Operating Lease [Line Items]
Right-of-use assets from operating leases			$ 2,100,000
Operating lease liabilities			$ 2,100,000
Minimum
Leases Operating Lease [Line Items]
Monthly rent expenses	$ 41,273
Maximum
Leases Operating Lease [Line Items]
Monthly rent expenses	$ 47,846
Warehouse Lease Cancellation
Leases Operating Lease [Line Items]
Lease cancellation expense		200,000
Right use assets		600,000
Operating lease liabilities		$ 600,000

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Organization and Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2019

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Schedule of Revenues by Source

The following table presents the revenues by source (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Revenue by source:
Products	$	66,447	$	68,787	$	214,890	$	198,830
Services		5,077		3,127		14,387		8,845
Total	$	71,524	$	71,914	$	229,277	$	207,675

Information about Our Net Revenue for North America and International Markets

The following summarizes required disclosures about geographical concentrations (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Revenue by geography:
United States	$	9,662	$	11,125	$	28,993	$	41,373
Canada		1,062		1,131		2,950		3,344
Total North America		10,724		12,256		31,943		44,717
Latin America		6,273		6,841		18,829		21,713
Europe, Middle East, Africa		15,838		10,425		59,429		27,264
Korea		20,877		19,609		55,682		50,844
Other Asia Pacific		17,812		22,783		63,394		63,137
Total International		60,800		59,658		197,334		162,958
Total	$	71,524	$	71,914	$	229,277	$	207,675

Summary of Contract Assets and Contract Liabilities Related to Contracts with Customers

The opening and closing balances of contract assets and contract liabilities related to contracts with customers are as follows:

	Contract Assets			Contract Liabilities
Opening, January 1, 2019	$	12,175		$	10,312
Closing, September 30, 2019		10,328			6,206
Decrease	$	(1,847	)	$	(4,106	)

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Income Taxes

9 Months Ended

Sep. 30, 2019

Income Tax Disclosure [Abstract]

Income Taxes

(16) Income Taxes

Income tax expense for the three and nine months ended September 30, 2019 was approximately $0.3 million and $1.1 million, respectively, on pre-tax loss of $3.7 million and $2.0 million, respectively.  Income tax expense for the three and nine months ended September 30, 2018 was $0.7 million and $1.1 million, respectively, on pre-tax income of $2.6 million and $4.4 million, respectively.

For the three and nine months ended September 30, 2019 and 2018, the effective income tax rate varied from the United States statutory income tax rate primarily due to valuation allowances in the United States and the mix of earnings generated by the Company’s wholly owned foreign subsidiaries.

The total amount of unrecognized tax benefits, including interest and penalties, at September 30, 2019 was $0.8 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 three and nine months ended September 30, 2019 and 2018. The Company does not anticipate any significant changes with respect to unrecognized tax benefits within the next 12 months.

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Debt

9 Months Ended

Sep. 30, 2019

Debt Disclosure [Abstract]

Debt

(8) Debt

The following tables summarize the Company’s debt (in thousands):

	As of September 30, 2019
	Short-term			Long-term			Total
PNC Bank Facility	$	12,500		$	11,250		$	23,750
Working Capital Loan		2,183			—			2,183
Bank and Trade Facilities - Foreign Operations		20,625			—			20,625
Related Party		—			9,049			9,049
	$	35,308		$	20,299		$	55,607
Less: unamortized deferred financing costs on the PNC Bank Facility		(702	)		(843	)		(1,545	)
	$	34,606		$	19,456		$	54,062

	As of December 31, 2018
	Short-term		Long-term		Total
Wells Fargo Bank Facility	$	7,000		—	$	7,000
Bank and Trade Facilities - Foreign Operations		24,762		—		24,762
Related Party		—		14,142		14,142
	$	31,762	$	14,142	$	45,904

PNC Bank Facility

On February 27, 2019, the Company and ZTI (collectively, the “Borrowers”), and certain direct and indirect subsidiaries of the Borrowers, as guarantors, entered into a Revolving Credit, Term Loan, Guaranty and Security Agreement (the “Domestic Credit Agreement”) and an Export-Import Revolving Credit, Guaranty and Security Agreement (the “Ex-Im Credit Agreement,” and together with the Domestic Credit Agreement, the “Credit Agreements”), in each case with PNC Bank, National Association (“PNC”) and Citibank, N.A. as lenders, and PNC as agent for the lenders (the “PNC Facility”), which replaced the Company’s former senior secured credit facilities with Wells Fargo Bank (the “Former WFB Facility”).

The Credit Agreements provide for a $25.0 million term loan and a $15.0 million revolving line of credit (including sub-facilities for export-import transactions, letters of credit and swing loans).  The amount the Company is able to borrow on the revolving line of credit at any time is based on eligible accounts receivable and other conditions, less certain reserves. Borrowings under the PNC Facility bear interest at the Company’s option, at either (i) a base rate equal to the highest of the federal funds rate plus 0.50%, PNC’s prime rate, or the daily LIBOR rate plus 1.00%, or (ii) the LIBOR rate for the applicable interest period, subject to a floor of 1.00% (with respect to the term loans only), plus in each case, an applicable margin.  The applicable margin for term loans is 5.00% for base rate loans and 6.00% for LIBOR rate loans, and the applicable margin for borrowings under the revolving line of credit is 1.50% for base rate loans and 2.50% for LIBOR rate loans.

The Company used a portion of the funds borrowed from the term loan under the Credit Agreements to (i) repay $5.0 million in principal amount of existing related-party indebtedness with DNI plus accrued interest, (ii) repay $1.5 million in outstanding borrowings under the Company’s former revolving line of credit plus accrued interest and fees and cash collateralize $3.6 million in outstanding letters of credit under the Former WFB Facility, and (iii) repay $5.6 million short-term debt in Korea and Japan. The Company intends to use the remaining funds for ongoing working capital needs. Obligations under the Credit Agreements are secured by substantially all of the personal property assets of the Borrowers and the subsidiaries that guarantee the Credit Agreements, including their intellectual property.

The maturity date under the Credit Agreements is February 27, 2022. The term loan under the Credit Agreements is repayable in eight quarterly installments of $625,000 beginning June 30, 2019, followed by quarterly installments of $937,500 beginning on June 30, 2021, with all remaining unpaid principal and accrued interest due on the maturity date.

The Credit Agreements contain certain covenants, limitations, and conditions with respect to the Borrowers and their subsidiaries, including a maximum leverage ratio, a minimum fixed charge coverage ratio, and a minimum liquidity covenant, as well as financial reporting obligations, and customary events of default. If an event of default occurs, the agent and lenders will be entitled to take various actions, including requiring the immediate repayment of all outstanding amounts under the Credit Agreements, terminating commitments to make additional advances and selling the assets of the Borrowers and their subsidiary guarantors to satisfy the obligations under the Credit Agreements. At September 30, 2019, the Company was not in compliance with the maximum leverage ratio financial covenant in the Credit Agreements, which represents an event of default thereunder. On November 8, 2019, the Company obtained a waiver of the foregoing event of default from the lenders under the Credit Agreements. As a condition for the issuance of the waiver, the Company voluntarily prepaid $10.0 million of the outstanding term loan and paid a one-time fee of $150,000. Uncertainty exists as to the Company’s ability to meet these financial covenants at the respective reporting dates during the next twelve months. As a result, the Company is in the process of renegotiating these financial covenants with the banks; however, there is no assurance that the Company will be able to successfully complete such renegotiations. If the Company violates covenants in the Credit Agreements or the contemplated amended covenants, the Company could be required to repay the amounts then outstanding under the Credit Agreements.

As of September 30, 2019, the Company had $23.8 million in outstanding term loan borrowings under its PNC Facility, and no outstanding borrowings under the revolving line of credit. The interest rate on the term loan was 8.12%at September 30, 2019. Deferred financing costs of $1.5 million has been netted against the aggregate principal amount of the PNC term loan in the unaudited condensed consolidated balance sheet as of September 30, 2019. On July 2, 2019, $4.4 million in outstanding borrowings under the revolving line of credit (which represented all outstanding borrowings under the revolving line of credit) was repaid in full.  

Former Wells Fargo Bank Facility

On February 27, 2019, in connection with the entry into the PNC Facility, the Company repaid $1.5 million in principal amount of outstanding borrowings plus accrued interest and fees under the Former WFB Facility and cash collateralized $3.6 million in outstanding letters of credit under the Former WFB Facility and terminated the Former WFB Facility.

Working Capital Loan

On October 1, 2018, as a condition for the Keymile Acquisition, Riverside, the former stockholder of Keymile, extended a €4.0 million ($4.4 million) working capital loan to Keymile. The working capital loan bears interest at a rate of 3.5% per annum and is scheduled for repayment in two equal installments.  The first payment of €2.0 million ($2.2 million) was made in April 2019 and the balance is due in November 2019.  As of September 30, 2019, the outstanding balance under this working capital loan was €2.0 million ($2.2 million). Subsequently in November 2019, the Company fully repaid all the outstanding borrowings under this working capital loan.

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 September 30, 2019 and December 31, 2018, the Company had an aggregate outstanding balance of $20.6 million and $24.8 million, respectively, under such financing arrangements. The maturity dates and interest rates per annum applicable to outstanding borrowings under these financing arrangements are listed in the tables below (amount in thousands).

		As of September 30, 2019
		Maturity Date	Denomination	Interest rate (%)		Amount (in U.S. dollars)
Industrial Bank of Korea	Credit facility	10/02/2019 - 11/12/2019	USD	5.34 - 5.49		$	512
NongHyup Bank	Credit facility	10/07/2019 - 02/24/2020	USD	3.69 - 4.49			3,097
The Export-Import Bank of Korea	Export development loan	7/1/2020	KRW	2.75			4,995
Korea Development Bank	General loan	8/8/2020	KRW		3.0		4,162
Korea Development Bank	Credit facility	10/07/2019 - 02/18/2020	USD	3.11 - 3.47			6,194
LGUPlus	General loan	6/17/2020	KRW	0			1,665
						$	20,625

As of September 30, 2019, the Company had $10.8 million in outstanding borrowings and $9.8 million committed as security for letters of credit under the Company's $20.6 million credit facilities with certain foreign banks.

		As of December 31, 2018
		Maturity Date	Denomination	Interest rate (%)	Amount (in U.S. dollars)
Industrial Bank of Korea	Credit facility	01/02/2019 - 05/15/2019	USD	3.96 - 4.36	$	1,982
Industrial Bank of Korea	Trade finance	02/18/2019 - 02/25/2019	USD	5.31 - 6.08		1,920
Shinhan Bank	General loan	3/30/2019	KRW	6.06		2,862
NongHyup Bank	Credit facility	01/07/2019 - 04/29/2019	USD	3.71 - 4.50		2,053
The Export-Import Bank of Korea	Export development loan	07/01/2019	KRW	3.44		6,439
The Export-Import Bank of Korea	Import development loan	02/14/2019	USD	4.31		850
Korea Development Bank	General loan	08/08/2019	KRW	3.48		4,472
Korea Development Bank	Credit facility	02/07/2019 - 03/06/2019	USD	3.64 - 3.91		1,489
LGUPlus	General loan	06/17/2019	KRW	0		1,789
Shoko Chukin Bank	General loan	06/28/2019	JPY	1.33		906
					$	24,762

As of December 31, 2018, the Company had $5.5 million in outstanding borrowings and $2.6 million committed as security for letters of credit under the Company's $19.0 million credit facilities with certain foreign banks.

See Note 11 Related-Party Transactions for a discussion of related-party debt.

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Cash and Cash Equivalents and Restricted Cash

9 Months Ended

Sep. 30, 2019

Cash And Cash Equivalents [Abstract]

Cash, Cash Equivalents and Restricted Cash

(4) Cash, Cash Equivalents and Restricted Cash

As of September 30, 2019 and December 31, 2018, the Company's cash and cash equivalents consisted of financial deposits and money market accounts that are principally held with various domestic and international financial institutions with high credit standing. Restricted cash consisted primarily of cash restricted for performance bonds, warranty bonds and collateral for borrowings.

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Common Stock

9 Months Ended

Sep. 30, 2019

Equity [Abstract]

Common Stock

(12) Common Stock

On May 20, 2019, the Company completed a public offering of 4,717,949 shares of its common stock, inclusive of 615,384 shares sold upon full exercise of the underwriters’ option to purchase additional shares of common stock, at a price to the public of $9.75 per share.  All shares of common stock were sold by the Company. The total gross proceeds from the offering, before deducting underwriting discounts, commissions and offering expenses, were approximately $46.0 million.  After deducting the underwriters’ discount, commissions and other offering expenses, the net proceeds were approximately $42.5 million.  

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Non-Controlling Interests (Tables)

9 Months Ended

Sep. 30, 2019

Noncontrolling Interest [Abstract]

Non-controlling Interests

Non-controlling interests were as follows (in thousands):

	Nine Months Ended September 30,
	2019			2018
Beginning non-controlling interests	$	615		$	534
Net income (loss) attributable to non-controlling interests		194			2
Purchase of noncontrolling interest in subsidiary		(823	)		—
Foreign currency translation adjustments (OCI)		14			(5	)
Ending non-controlling interests	$	—		$	531

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Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2019

Commitments And Contingencies Disclosure [Abstract]

Reconciliation of Changes in Accrued Warranties and Related Costs Included in Accrued and Other Liabilities

The following table reconciles changes in the Company’s accrued warranties and related costs included in accrued and other liabilities (in thousands) for the nine months ended September 30, 2019 and September 30, 2018:

	Nine Months Ended September 30,
	2019			2018
Beginning balance	$	1,319		$	931
Assumed balance from Keymile		230			—
Charged to cost of revenue		732			1,022
Claims and settlements		(782	)		(598	)
Foreign exchange impact		(27	)		6
Ending balance	$	1,472		$	1,361

Payment Guarantees to Third Parties

The following table sets forth payment guarantees of the Company's indebtedness and other obligations as of September 30, 2019 (in thousands) that have been provided by third parties and DNI. DNI owns approximately 44.4% of the outstanding shares of the Company's common stock:  

Guarantor	Amount Guaranteed (in thousands)		Description of Obligations Guaranteed
DNI	$	8,400	Credit facility from Industrial Bank of Korea
DNI		1,998	Purchasing Card from Industrial Bank of Korea
DNI		8,400	Credit facility from Korea Development Bank
DNI		4,995	Borrowings from Korea Development Bank
DNI		6,000	Credit facility from NongHyup Bank
DNI		3,566	Borrowings from Export-Import Bank of Korea
DNI		3,000	Payment Guarantee from Shinhan Bank
DNI		1,598	Backed Loan from Shinhan Bank
PNC Bank, N.A.		4,550	Letter of Credit
Seoul Guarantee Insurance Co.		5,516	Performance Bond, Warranty Bond, etc. (*)
Industrial Bank of Korea		1,096	Letter of Credit
Industrial Bank of Korea		1,010	Bank Guarantee
Korea Development Bank		6,908	Letter of Credit
NongHyup Bank		3,596	Letter of Credit
Woori Bank		1,932	Bank Guarantee
Shinhan Bank		573	Purchasing Card
Shinhan Bank		683	Payment Guarantee
AXA Insurance Company		175	Guarantee for flexible retirement program
Polska Agencja Zeglugi Powietrznej		112	Performance Bond, Warranty Bond, etc. (*)
DDE 64 Ltd.		64	Guarantee Bond
	$	64,172

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Goodwill and Intangible Assets - Future Amortization Expense of Intangible Assets (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($)
Finite-Lived Intangible Assets [Line Items]
Amortization expense of intangible assets, remainder of 2019	$ 857
Amortization expense of intangible assets, 2020	3,429
Amortization expense of intangible assets, 2021	3,225
Amortization expense of intangible assets, 2022	2,816
Amortization expense of intangible assets, 2023	2,816
Amortization expense of intangible assets, thereafter	1,396
Amortization expense of intangible assets, total	$ 14,539
Developed Technology
Finite-Lived Intangible Assets [Line Items]
Weighted average remaining life	3 years 8 months 26 days
Customer Relationships
Finite-Lived Intangible Assets [Line Items]
Weighted average remaining life	5 years 8 months 19 days
Trade name
Finite-Lived Intangible Assets [Line Items]
Weighted average remaining life	4 years 3 months

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Property, Plant and Equipment - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Property, Plant and Equipment
Property Plant And Equipment [Line Items]
Depreciation and amortization associated with property, plant and equipment	$ 0.5	$ 0.4	$ 1.5	$ 1.2

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Subsequent Events - Additional Information (Details) - Subsequent Event - Term Loan	Nov. 08, 2019 USD ($)
Subsequent Event [Line Items]
Prepayment of outstanding term loan	$ 10,000,000
One-time fee, paid	$ 150,000

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Leases - Lease Balances within Condensed Consolidated Balance Sheet, Weighted Average Remaining Lease Term, and Weighted Average Discount Rates Related to Operating Leases (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Jan. 01, 2019
Assets:
Right-of-use assets from operating leases	$ 18,349	$ 22,500
Liabilities:
Operating lease liabilities - current	3,496
Operating lease liabilities - non-current	15,957
Total operating lease liabilities	$ 19,453	$ 22,500
Weighted average remaining lease term	4 years 9 months 7 days
Weighted average discount rate	6.60%

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Commitments and Contingencies - Reconciliation of Changes in Accrued Warranties and Related Costs Included in Accrued and Other Liabilities (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Commitments And Contingencies Disclosure [Abstract]
Beginning balance	$ 1,319	$ 931
Assumed balance from Keymile	230
Charged to cost of revenue	732	1,022
Claims and settlements	(782)	(598)
Foreign exchange impact	(27)	6
Ending balance	$ 1,472	$ 1,361