Our future success depends upon the continued services of our Chief Executive Officer and other key employees, and our ability to identify, attract and retain highly skilled technical, managerial, sales and marketing personnel who have critical industry experience and relationships that we rely on to build and operate our business. The loss of the services of any of our key employees, including our Chief Executive Officer, could delay the development and production of our products and negatively impact our ability to maintain customer relationships, which wouldcould harm our business, operations, financial condition and results of operations. liquidity. Moreover, our historical inability to attract and retain sufficient qualified accounting personnel with expertise in U.S.US GAAP following the Merger mayhas adversely affectaffected our ability to maintain an effective system of internal controls orand our ability to produce reliable financial reports, which maycould materially and adversely affect our business.

We rely on the availability of or investments in, complementary companies, products or technologies to supplement our internal growth, may acquire additional businesses, products or technologies in the future.

We generally rely on a combination of copyrights, patents, trademarks and trade secret laws and commercial agreements containing restrictions on disclosure and other appropriate terms to protect our intellectual property rights. We also enter into confidentiality, or licenseemployee, contractor and commercial agreements with our employees, consultants and corporate partners, and control access to and distribution of our proprietary information.information and use of our intellectual property and technology. Despite our efforts to protect our proprietary rights, unauthorized parties, including those affiliated with foreign governments, may

attempt to copy or otherwise obtain and use our products, technology or technology.intellectual property. Monitoring unauthorized use of our technologyand intellectual property is difficult, and we do not know whether the steps we have taken will prevent unauthorized use of our technology, particularly in foreign countries or jurisdictions where the laws may not protect our proprietary rights as extensively as in the United States. We cannot assure you that our pending, or any future, patent applications will be granted, that any existing or future patents will not be challenged, invalidated, or circumvented, or that any existing or future patents will be enforceable.enforceable or that infringement by third parties will even be detected. While we are not dependent on any individual patents, if we are unable to protect our proprietary rights, we may find ourselves at a competitive disadvantage to others who need not incur the substantial expense, time and effort required to create the innovative products.

The telecommunicationscommunications equipment industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patent, copyright, trademark and other intellectual property rights, whichthat may relate to technologies and related standards that are relevant to us. From time to time, we receive correspondence from companies claiming that our products are using technology covered by or related to the intellectual property rights of these companies and inviting us to discuss or demanding licensing or royalty arrangements for the use of the technology or seeking payment for damages, injunctive relief and other available legal remedies through litigation. These companies also include third-party non-practicing entities (also known as patent trolls) that focus on extracting royalties and settlements by enforcing patent rights.rights through litigation or the threat of litigation. These companies typically have little or no product revenues and therefore our patents maycould provide little or no deterrence against such companies filing patent infringement lawsuits against us. In addition, third parties have initiated and maycould continue to initiate litigation against our manufacturers, suppliers, distributors or even our customers alleging infringement or misappropriation of their proprietary rights with respect to existing or future products, or components of our products. For example, various proceedings have been commenced against Broadcom Corporation and other parties alleging patent infringement in various jurisdictions, and in some cases the courts have issued rulings adverse to Broadcom enjoining Broadcom from offering, distributing, using or importing products that include the challenged intellectual property. Although we are not party to these proceedings, adverse rulings or injunctive relief awarded against Broadcom or other key suppliers of components for our products maycould result in delays or stoppages in the shipment of affected components, or require us to recall, modify or redesign our products containing such components. Regardless of the merit of claims against us or our manufacturers, suppliers, distributors or customers, intellectual property litigation can be time consuming and costly, and result in the diversion of the attention of technical and management personnel. Any such litigation could force us to stop manufacturing, selling, distributing, exporting, incorporating or using products or components that include the challenged intellectual property, or to recall, modify or redesign such products. In addition, if a party accuses us of infringing upon its proprietary rights, we may have to enter into royalty or licensing agreements, which may not be available on terms acceptable to us, if at all. If we are unsuccessful in any such litigation, we could be subject to significant liability for damages and loss of our proprietary rights. Any of these events or results could have a material adverse effect on our business, operations, financial condition and liquidity.

Our collection, processing, storage, use, and transmission of personal data could give rise to liabilities as a result of governmental regulation, increasing legal requirements.

We collect, process, store, use, and transmit personal data on a daily basis. Personal data is increasingly subject to legal and regulatory protections around the world, which vary widely in approach and which possibly conflict with one another. In recent years, for example, U.S. legislators and regulatory agencies, such as the Federal Trade Commission, as well as U.S. states have increased their focus on protecting personal data by law and regulation and have increased enforcement actions for violations of privacy and data protection requirements. The European Commission also recently approved and adopted the GDPR, a recent data protection law, which became effective in May 2018. These data protection laws and regulations are intended to protect the privacy and security of personal data that is collected, processed, and transmitted in or from the relevant jurisdiction. Implementation of and compliance with these laws and regulations may be more costly or take longer than we anticipate, or could otherwise adversely affect our business operations, which could negatively impact our financial position or cash flows.

If we experience a significant disruption in, or breach in security of, our information technology systems, our business could be adversely affected.

We rely on several centralized information technology systems to provide products and services, maintain financial records, process orders, manage inventory, process shipments to customers and operate other critical functions. If we experience a prolonged system disruption in the information technology systems that involve our interactions with customers or suppliers, it could result in the loss of sales and customers and significant incremental costs, which could adversely affect our business. In addition, our information technology systems could be susceptible to damage, disruptions or shutdowns due to power outages, hardware failures, computer viruses, attacks by computer hackers, telecommunication failures, user errors, catastrophes or other unforeseen events. Furthermore, security breaches of our information technology systems could result in the misappropriation or unauthorized disclosure of confidential information belonging to the company or our employees, partners, customers or suppliers, which could result in significant financial, legal or reputational damage to the Company.

Compliance or the failure to comply with current and future environmental regulations could cause us significant expense.

We are subject to a variety of federal, state, local and foreign environmental regulations. If we fail to comply with any present or future regulations, we could be subject to liabilities, the suspension of production or prohibitions on the sale of our products. In addition, such regulations could require us to incur other significant expenses to comply with environmental regulations, including expenses associated with the redesign of any non-compliant product. From time to time new regulations are enacted, and it is difficult to anticipate how such regulations will be implemented and enforced and the impact that they could have on our operations or results. For example, in 2003 the European Union enacted the Restriction on the Use of Certain Hazardous Substances in Electrical and Electronic Equipment Directive and the Waste Electrical and Electronic Equipment Directive, for implementation in European Union member states. We are aware of similar legislation that is currently in force or has been considered in the U. S., as well as other countries, such as Japan and China. Our failure to comply with any such regulatory requirements or contractual obligations could result in us being liable for costs, fines, penalties or third-party claims, and could jeopardize our ability to conduct business in countries or jurisdictions where such regulations apply.

Failure to comply with the U.S. Foreign Corrupt Practices Act and similar laws associated with our international activities could subject us to significant civil or criminal penalties.

Failure to comply with the Foreign Corrupt Practices Act could subject us to significant civil or criminal penalties. A significant portion of our revenues is generated from sales outside of the United States. As a result, we are subject to the U.S. Foreign Corrupt Practices Act (the “FCPA”). The FCPA generally prohibits U.S. companies and their intermediaries from making corrupt payments to foreign officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment and requires companies to maintain adequate record-keeping and internal accounting practices to accurately reflect the transactions of the company. The FCPA applies to companies, individual directors, officers, employees and agents. Under the FCPA, U.S. companies may be held liable for the corrupt actions taken by employees, strategic or local partners or other representatives. If we or our intermediaries fail to comply with the requirements of the FCPA or similar legislation, governmental authorities in the U.S. and elsewhere could seek to impose civil and/or criminal fines and penalties which could have an adverse effect on our results of operations, financial condition and cash flow.

Our business and future operating results are subject to global economic and market conditions.

Market turbulence and weak economic conditions, as well as concerns about energy costs, geopolitical issues, the availability and cost of credit, business and consumer confidence, and unemployment could impact our business in a number of ways, including:

Potential deferment of purchases and orders by customers: Uncertainty about global economic conditions could cause consumers, businesses and governments to defer purchases in response to flat revenue budgets, tighter credit, decreased cash availability and weak consumer confidence. Accordingly, future demand for our products could differ materially from our current expectations.

Customers’ inability to obtain financing to make purchases and/or maintain their business: Some of our customers require substantial financing in order to finance their business operations, including capital expenditures on new equipment and equipment upgrades, and make purchases from us. The potential inability of these customers to access the capital needed to finance purchases of our products and meet their payment obligations to us could adversely impact our business, operations, financial condition, and liquidity. While we monitor these situations carefully and attempt to take appropriate measures to protect ourselves, including factoring credit arrangements to financial institutions, it is possible that we may have to defer revenue until cash is collected or write-down or write-off uncollectible accounts. Such write-downs or write-offs, if large, could have a material adverse effect on our business, operations, financial condition, and liquidity. If our customers become insolvent due to market and economic conditions or otherwise, it could have a material adverse effect on our business, operations, financial condition and liquidity.

Negative impact from increased financial pressures on third-party dealers, distributors and retailers: We make sales in certain regions through third-party dealers, distributors and retailers. These third parties may be impacted, among other things, by a significant decrease in available credit. If credit pressures or other financial difficulties result in insolvency for these third parties and we are unable to successfully transition end customers to purchase our products from other third parties, or from us directly, it could adversely impact our business, operations, financial condition, and liquidity.

Negative impact from increased financial pressures on key suppliers: Our ability to meet customers’ demands depends, in part, on our ability to obtain timely and adequate delivery of quality materials, parts and components from our suppliers. Certain of our components are available only from a single source or limited sources. If certain key suppliers were to become capacity constrained or insolvent, it could result in a reduction or interruption in supplies or a significant increase in the price of supplies and adversely impact our financial condition and results of operations. In addition, credit constraints of key suppliers could result in accelerated payment of accounts payable by us, impacting our cash flow.

None

Not applicable.

INFORMATION ABOUT OUR EXECUTIVE OFFICERS

Set forth below is information concerning our executive officers as of December 31, 2019.

Name		Age		Office
Il Yung Kim		63		Chief Executive Officer, President
Thomas J. Cancro		52		Chief Financial Officer, Corporate Treasurer
Philip Yim		58		Chief Operating Officer

Il Yung Kim has served as our President and Chief Executive Officer since September 11, 2017.  Mr. Kim joined us in connection with the Merger and has served as a member of our Board of Directors since September 9, 2016 and as Co-Chief Executive Officer from September 9, 2016 to September 11, 2017, and Acting Chief Financial Officer from September 11, 2017 to December 1, 2017.  Prior to the Merger, Mr. Kim served as a consultant to DNI in connection with the Merger.  From September 2014 to August 2016, Mr. Kim served as Chief Executive Officer of TukTak in Korea, an online startup company, which enables people with creative talents to collaborate and produce goods and services online. From December 2014 to August 2016, he also served as a strategic adviser for InMobi, a global mobile advertising platform provider. Previously, Mr. Kim held various positions with Korea Telecom, including President and executive board member from 2013 to 2014, and Chief Strategy Officer from 2010 to 2013. Mr. Kim commenced his career with British Telecom (now known as BT Group plc) in 1982, where he held senior positions, including Vice President of Technology and Innovation and Programme Director and Head of Technology and Investment. Mr. Kim holds a Bachelor of Science (with Honors) in Electronic Engineering and a Master of Science Degree in Microwave and Modern Optics from University College, University of London.

Thomas J. Cancro was appointed to the position of Chief Financial Officer and Corporate Treasurer on November 25, 2019. Mr. Cancro recently served as Controller of GE Global Research, General Electric Company’s technology research and IP-licensing business unit. Prior roles include executive positions at Verizon Communications Inc. (“Verizon”), including Chief Financial Officer of Verizon’s joint venture with AT&T Inc. and Deutsche Telekom AG, and an executive role in Verizon’s Treasury organization, where he advised the company as to capital markets strategy. He also served as Chief Accounting Officer and Corporate Controller of GFI Group Inc., a FinTech provider of wholesale brokerage services and SaaS software solutions (now a subsidiary of BGC Partners, Inc.), and as Senior Vice President and Corporate Controller of MasTec, Inc., a Fortune 500 telecommunications and energy infrastructure service provider. Mr. Cancro holds a Bachelor of Science degree in Accounting from the Pennsylvania State University and began his career at PricewaterhouseCoopers LLP. He is a Certified Public Accountant and also holds a CFA Charter.

Philip Yim has served as our Chief Operating Officer since August 2018.  Mr. Yim joined the Company in June 2017 as our Vice President of Engineering, and in August 2018 he was promoted to Chief Operating Officer. Prior to joining DZS, Mr. Yim held several global multinational executive leadership positions across global operations, marketing, development, business and sales, including as Executive Vice President of Global Program Management for Allied Telesis, Inc. from February 2012 to May 2017.  Mr. Yim has a Bachelor of Engineering from the University of Bradford in West Yorkshire, U.K.

PART II

PART II

ITEM 5.    

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Price Range of Common Stock

Our common stock is listed on the Nasdaq Capital Market under the symbol “DZSI” (formerly "ZHNE" prior to the Merger). The following table sets forth, for the periods indicated, the high and low per share sales prices of our common stock as reported on Nasdaq. All per share prices reflect the one-for-five reverse stock split effected on February 28, 2017.

2016:
	High				Low
Fourth Quarter ended December 31, 2016	$	5.95			$	4.65
Third Quarter ended September 30, 2016	7.10				5.25
Second Quarter ended June 30, 2016	8.25				5.60
First Quarter ended March 31, 2016	8.10				5.00

2015:
	High				Low
Fourth Quarter ended December 31, 2015	$	7.50			$	4.70
Third Quarter ended September 30, 2015	11.20				6.80
Second Quarter ended June 30, 2015	14.75				6.25
First Quarter ended March 31, 2015	8.75				6.05

As of September 20, 2017, there were 596March 11, 2020, we had 488 registered stockholders of record. A substantially greater number of holders of DZS common stock are “street name” or beneficial holders, whose shares are held of record by banks, brokers and otheror financial institutions.

Dividend Policy

We have never paid or declared any cash dividends on our common stock or other securities and do not anticipate paying cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of the Board of Directors, subject to any applicable restrictions under our debt and credit agreements, and will be dependent upon our financial condition, results of operations, capital requirements, general business condition and such other factors as the Board of Directors may deem relevant.

Performance Graph

The following performance graph shall not be deemed to be incorporated by reference by means of any general statement incorporating by reference this Annual Report on Form 10-K into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under those acts.

The graph compares the cumulative total return of our common stock from December 31, 2011 through December 31, 2016 with the performance of the S&P 500 Index and the NASDAQ Telecommunications Index over those periods.

The graph assumes that (i) $100 was invested in our common stock at the closing price of our common stock on December 31, 2011, (ii) $100 was invested in each of the S&P 500 Index and the NASDAQ Telecommunications Index at the closing price of the respective indices on that date and (iii) all dividends received were reinvested. To date, no cash dividends have been declared or paid on our common stock.

	12/31/11		12/31/12		12/31/13		12/31/14		12/31/15		12/31/16
DASAN Zhone Solutions, Inc.	$100		$53		$601		$199		$113		$111
S&P 500 Index - Total Returns	$100		$116		$154		$175		$177		$198
NASDAQ Telecommunications Index	$100		$105		$134		$150		$142		$167

ITEM 6.       SELECTED FINANCIAL DATA

The following selected financial data has been derived from our consolidated financial statements and should be read in conjunction with the consolidated financial statements and notes thereto, and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The Merger has been accounted for as a reverse acquisition under which DNS was considered the accounting acquirer of DZS. As such, the selected financial data below comprises the operating results of DNS and its consolidated subsidiaries for periods through September 8, 2016 and DZS. and its consolidated subsidiaries for periods on or after September 9, 2016, the effective date of the Merger.

	Year Ended December 31,
	2016				2015				2014				2013				2012
					(As restated)				(As restated)
	(in thousands, except per share data)
Statement of Comprehensive Income (Loss) Data:
Net revenue	$	121,670			$	114,421			$	108,634			$	108,046			$	102,761
Net revenue - related parties	28,634				24,775				30,760				10,164				5,610
Total net revenue	150,304				139,196				139,394				118,210				108,371
Cost of revenue
Products and services	84,415				81,420				70,361				66,821				58,689
Products and services - related parties	24,738				21,890				28,191				10,436				6,002
Amortization of intangible assets	204				—				—				—				—
Gross profit	40,947				35,886				40,842				40,953				43,680
Operating expenses:
Research and product development	25,396				21,331				22,805				18,774				18,019
Selling, marketing, general and administrative	27,348				17,528				14,834				14,040				18,438
Amortization of intangible assets	1,556				4				—				—				—
Gain from sale of assets	(304		)		—				—				—				—
Total operating expenses	53,996				38,863				37,639				32,814				36,457
Operating income (loss)	(13,049		)		(2,977		)		3,203				8,139				7,223
Interest income	183				136				418				550				1,314
Interest expense	(830		)		(532		)		(526		)		(629		)		(523		)
Other income (expense), net	(145		)		266				122				656				(691		)
Income (loss) before income taxes	(13,841		)		(3,107		)		3,217				8,716				7,323
Income tax provision	1,487				232				1,380				2,208				2
Net income (loss)	(15,328		)		(3,339		)		1,837				6,508				7,321
Net loss attributable to non-controlling interest	(2		)		—				—				—				—
Net income (loss) attributable to DASAN Zhone Solutions, Inc.	$	(15,326	)		$	(3,339	)		$	1,837			$	6,508			$	7,321
Foreign currency translation adjustments	(1,047		)		(2,790		)		(1,997		)		905				2,570
Comprehensive income (loss)	(16,375		)		(6,129		)		(160		)		7,413				9,891
Comprehensive income attributable to non-controlling interest	1				—				—				—				—
Comprehensive income (loss) attributable to DASAN Zhone Solutions, Inc.	$	(16,376	)		$	(6,129	)		$	(160	)		$	7,413			$	9,891
Basic and diluted net income (loss) per share attributable to DASAN Zhone Solutions, Inc. (1) (2)	$	(1.32	)		$	(0.36	)		$	0.20			$	0.71			$	0.80
Weighted average shares outstanding used to compute basic and diluted net income (loss) per share (1)	11,637				9,314				9,199				9,146				9,126

Not Required

⁽¹⁾ Amount presented has been adjusted to reflect the one-for-five reverse stock split effected on February 29, 2017.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

⁽²⁾ Basic net income (loss) per share is not different from the diluted net income (loss) per share because we have not issued the potential common stock for the years ended December 31, 2012 through 2015. Basic net loss per share is the same as diluted net loss per share for the year ended December 31, 2016 because the effects of stock options and restricted stock units would have been anti-dilutive.

	As of December 31,
	2016				2015				2014				2013				2012
					(As restated)				(As restated)
	(in thousands)
Balance Sheet Data:
Cash, cash equivalents and short-term investments	$	18,886			$	9,095			$	7,150			$	24,719			$	11,581
Working capital	56,819				33,159				40,033				37,987				28,082
Total assets	145,447				83,226				103,279				88,384				62,135
Stockholders’ equity and non-controlling interest	66,868				41,465				48,633				47,124				36,102

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Restatement Of Previously Reported Consolidated Financial Statements

We have determined that the incorrect application of generally accepted accounting principles, resulted in material misstatements and a restatement of our consolidated financial statements for the year ended December 31, 2015. The restatement of our financial statements for the year ended December 31, 2015 resulted from improper recognition of revenue under our revenue recognition policy. Specifically, improper revenue recognition resulted from recognition of revenue when collectability was not reasonably assured and the related revenue should have been recognized when the cash was collected. As a result, our consolidated financial statements for the year ended December 31, 2015 contained in our proxy statement filed with the SEC on August 8, 2016 should no longer be relied upon. Refer to Note 1(d) of the Notes to Consolidated Financial Statements for additional information.

Overview

We are a global provider of ultra-broadband network access solutions and communications equipment forplatforms deployed by advanced Tier 1, 2 and 3 service providerproviders and enterprise networks.customers. We operate in a single reporting segment. We research, develop, test, sell, manufacture and support communications equipment in five major areas: broadband access, Ethernet switching, mobile fronthaul/backhaul, POLANPassive Optical LAN and SDN:

SDN/NFV solutions:

Our broadband access products offer a variety of solutions for carriers and service providers to connect residential and business customers, either using high-speed fiber or leveraging their existing deployed copper networks to offer broadband services to customer premises. Once our broadband access products are deployed, the service provider can offer voice, high-definition and ultra-high-definition video, high-speed internet access and business class services to their customers. Both DNS and Legacy Zhone were market leaders in the broadband access market prior to the Merger, and the combination of DNS and Legacy Zhone is expected to enhance our leadership position for both carrier and enterprise solutions in this market following the Merger.

Our Ethernet switching products provide a high-performance and manageable solution that bridges the gap from carrier access technologies to the core network. Our products support pure Ethernet switching as well as layer 3 IP and MPLS capabilities, and are currently being developed for interfacing with SDN. Legacy Zhone did not offer comparable Ethernet switching products prior to the Merger, and therefore the Ethernet switching market is expected to provide an opportunity for growth for the combined company following the Merger.deployment as part of SDNs.

Our mobile fronthaul/backhaul products provide a robust, manageable and scalable solution for mobile operators that enable them to upgrade their mobile fronthaul/backhaul systems and migrate from 3G networks to LTE5G and beyond. Our mobile backhaul products may be collocated at the RAN BSradio access node base station and can aggregate multiple RAN BS in toradio access node base stations into a single backhaul for delivery of mobile traffic to the RANradio access node network controller. We provide standard Ethernet/IP or MPLS interfaces and

interoperate with other vendors in these networks. Legacy Zhone did not offer comparable mobile backhaul products prior to the Merger, and therefore the mobile backhaul market is expected to provide an opportunity for growth for the combined company following the Merger.

Our FiberLAN portfolio of POLANPOL products are designed for enterprise, campus, hospitality, and entertainment arena usage. Our FiberLAN portfolio includes our high-performance, high-bandwidth GPON OLTs connected to the industry’s most diverse ONT product line, which include units with integrated PoE to power a wide range of devices such as our full range of WIFI APs and scalable WIFI AP controller. PoE-enabled access devices.

Our FiberLAN portfolio relates primarilySDN/NFV strategy is to Legacy Zhone products, while our WIFI access points and controllers consist primarily of DNS products. We expect the combination of Legacy Zhone and DNS products in this market to enhance the functionality of our product offerings and provide an opportunity for growth for the combined company following the Merger.

Our SDN and NFVdevelop tools and building blocks tothat will allow service providers to migrate their networks’ full complement of legacy control plane and data plane devices to a centralized intelligent controller that can reconfigure the services of the hundreds of network elements in real time for more controlled and efficient provision of bandwidth and latency across the network. ThisThe migration move to SDN and SDN/NFV provideswill provide better service for end customers and a more efficient and cost-effective use of hardware resources for service providers. Our SDN and NFV tools reflect the combined experience and technologies of DNS and Legacy Zhone.

As discussed under "Liquidity and Capital Resources" below, the maturing of short-term debt obligations and our recurring losses from operations raise substantial doubt on whether we will be able to continue as a going concern.

As of December 31, 2016, the total outstanding principal amount of our debt obligations was $24.4 million, consisting of the following:

$17.6 million in short-term debt obligations;

$6.8 million in long-term debt obligations to related parties.

Our ability to continue as a “going concern” is dependent on many factors, including, among other things, our ability to comply with the covenants in our existing debt agreements, our ability to cure any defaults that occur under our debt agreements or to obtain waivers or forbearances with respect to any such defaults, and our ability to pay, retire, amend, replace or refinance our indebtedness as defaults occur or as interest and principal payments come due.

Going forward, our key financial objectives include the following:

Increasing revenue while continuing to carefully control costs;

Continued

Continuing investments in strategic research and product development activities that will provide the maximum potential return on investment; and

Minimizing consumption of our cash and cash equivalents.

Merger

Recent Developments

DNI

On SeptemberMarch 5, 2020, DASAN Network Solutions, Inc., a corporation organized under the laws of the Republic of Korea, and an indirect, wholly-owned subsidiary of the Company (“DNS Korea”) entered into a Loan Agreement with DNI, pursuant to which DNS Korea borrowed KRW 22.4 billion ($18.5 million USD) from DNI (the “March 2020 DNI Loan”). DNS Korea will fully loan such borrowed funds to the Company, which will be used to repay and terminate the PNC Credit Facilities.

Relocation of Corporation Headquarters and New Facilities in Alameda, California

On March 2, 2020, the Company announced its plans to relocate its corporate headquarters from California to Plano, Texas and establish a new U.S.-based Engineering Center of Excellence in Plano. In connection with the planned relocation, the Company entered into sublease agreements with Huawei Technologies, Inc. and Futurewei Technologies, Inc. to sublease an aggregate of approximately 16,300 square feet located at Legacy Place, 5700 Tennyson Parkway, Plano, Texas.

On July 9, 2016, we2019, the Company entered into a lease agreement with Family Stations, Inc. to lease approximately 16,500 square feet located at 1350 South Loop Road, Alameda, California. The Alameda location will replace the Company’s current facilities in Oakland, California.

Appointment of New Chief Financial Officer

On November 25, 2019, the Company appointed Thomas J. Cancro to the position of Chief Financial Officer and Corporate Treasurer. Mr. Cancro recently served as Controller of GE Global Research, General Electric Company’s technology research and IP-licensing business unit. Prior roles include executive positions at Verizon Communications Inc. (“Verizon”), including Chief Financial Officer of Verizon’s joint venture with AT&T Inc. and Deutsche Telekom AG, and an executive role in Verizon’s Treasury organization, where he advised the company as to capital markets strategy. He also served as Chief Accounting Officer and Corporate Controller of GFI Group Inc., a FinTech provider of wholesale brokerage services and SaaS software solutions (now a subsidiary of BGC Partners, Inc.), and as Senior Vice President and Corporate Controller of MasTec, Inc., a Fortune 500 telecommunications and energy infrastructure service provider. Mr. Cancro holds a Bachelor of Science degree in Accounting from the Pennsylvania State University and began his career at PricewaterhouseCoopers LLP. He is a Certified Public Accountant and also holds a CFA Charter.

Keymile Acquisition

On January 3, 2019, ZTI Merger Subsidiary III Inc., a Delaware corporation and our wholly owned subsidiary, acquired DNS throughall of the mergeroutstanding shares of Keymile GmbH, a limited liability company organized under the laws of Germany (“Keymile”), from Riverside KM Beteiligung GmbH, also a limited liability company organized under the laws of Germany (“Riverside”), pursuant to a share purchase agreement.  The Company refers to this transaction as the “Keymile Acquisition.” The aggregate cash purchase price paid for all of the shares of Keymile and certain of its subsidiaries was EUR 10,250,000 ($11.8 million), which was paid with a combination of cash, a loan from DNI, and a draw under our Wells Fargo Bank (“Wells Fargo”) credit facility (as amended, the “Wells Fargo Facility”). Following the closing of the Keymile Acquisition, Keymile became our indirect wholly owned subsidiary.

Keymile is a leading solution provider and manufacturer of telecommunication systems for broadband access. The Company believes the Keymile Acquisition complements and strengthens our portfolio of broadband access solutions, which now includes a series of multi-service access platforms, including ultra-fast broadband copper access based on very-high-bit-rate DSL (“VDSL/Vectoring”) & G. Fast technology.

DZS Japan

On July 31, 2019, the Company acquired the remaining 30.9% non-controlling interest of DZS Japan, Inc. (“DZS Japan”), and DZS Japan became a wholly owned subsidiary of Zhone Technologies, Inc. withthe 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).

Trends and into DNS, with DNS survivingUncertainties

In December 2019, a strain of coronavirus, now known as COVID-19, was reported to have surfaced in Wuhan, China, resulting in increased travel restrictions and the extended shutdown of certain businesses in the region and within Greater China. Since that time, other countries including the United States, South Korea, Italy and Japan have experienced widespread or sustained transmission of the virus, and there is a risk that the virus will continue to spread to additional countries.

The Company relies on suppliers and contract manufacturers located in China and has significant business operations in South Korea and Japan. The outbreak has had a significant impact on our wholly owned subsidiary. In connection withfirst quarter 2020 results, as we have experienced a negative impact on our Chinese supply chain and softer product demand in EMEA due to the Merger, Zhone Technologies, Inc. changed its name to DASAN Zhone Solutions, Inc. Our common stockeffects of the virus. These effects include travel restrictions, business closures, public health concerns, and other actions affecting the supply of labor and the export of raw materials and finished products. If the virus continues to be traded onspread, the Nasdaq Capital Market, and our ticker symbol was changed from "ZHNE" to "DZSI" effective September 12, 2016.

At the effective timeeffects of the Merger, all issuedvirus could continue to materially and outstanding sharesadversely affect our financial condition and results of capital stockoperations. If we are forced to arrange alternative manufacturing and supply sources, our cost of DNS held by its sole shareholder, DNI, were canceledproduction could increase materially, negatively affecting our financial condition and converted intoresults of operations

Given the right to receive shares of our common stock in an amount equal to 58%ongoing and dynamic nature of the issuedvirus and outstanding shares of our common stock immediately following the Merger. Accordingly, atworldwide response related thereto, it is difficult to predict the effective timefull impact of the Merger, we issued 9,493,016 shares (post reverse stock split)COVID-19 outbreak on our business. The impact of a continued COVID-19 outbreak could have a material adverse effect on our common stock to DNI as consideration in the Merger,business, financial condition and results of which 949,302 shares (post reverse stock split) are being held in escrow as security for claims for indemnifiable lossesoperations.

Impact of Inflation and Changing Price

The financial statements and related data presented herein have been prepared in accordance with U.S. GAAP, which requires the merger agreement relating to the Merger. As a result, immediately following the effective timemeasurement of the Merger, DNI held 58%financial position and operating results in terms of the outstanding shares of our common stock and the holders of our common stock immediately prior to the Merger retained,historical dollars without considering changes in the aggregate, 42%relative purchasing power of the outstanding sharesmoney over time due to inflation. Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during our common stock. See Note 2 to the consolidated financial statements set forth in Part II, Item 8 of this report for additional information regarding the Merger.

Items Affecting Comparability of our Financial Results

As discussed in Note 2 to the consolidated financial statements set forth in Part II, Item 8 of this report, the Merger has been accounted for as a reverse acquisition under which DNS was considered the accounting acquirer of Legacy Zhone. As such, our financial results for thefiscal year ended December 31, 2016 presented in this Annual Report on Form 10-K reflect the operating results of DNS and its consolidated subsidiaries for the period commencing on the first day of the applicable period through September 8, 2016 and the operating results of both DNS and Legacy Zhone and their respective consolidated subsidiaries for the period September 9 through December 31, 2016. Such results are compared to the financial results of DNS and its consolidated subsidiaries for the year ended December 31, 2015. Our balance sheet as of December 31, 2016 included the fair value of the assets and liabilities of Legacy Zhone as of the effective date of the Merger. Those assets include the fair value of acquired intangible assets and goodwill. Due to the foregoing, our financial results for the year ended December 31, 2016 are not comparable to our financial results for prior years. The fourth quarter ended December 31, 2016 was the first quarter in which our financial results reflected a full quarter of operating results for both DNS and Legacy Zhone and their respective consolidated subsidiaries.

2019.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America.U.S. GAAP. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. The policies discussed below are considered by management to be critical because changes in such estimates can materially affect the amount of our reported net income or loss. For all of these policies, management cautions that actual results maycould differ materially from thesesuch estimates under different assumptions or conditions.

Revenue Recognition

We recognize revenues when we transfer control of promised goods or services to our customers in an amount that reflects the consideration to which we expect to be entitled to in exchange for those goods or services.

We generate revenue primarily from sales of products and services, including, extended warranty service and customer support. Our revenue from product sales is recognized at a point in time when control of the goods is transferred to our customers, generally occurring upon shipment or delivery, dependent upon the terms of the underlying contract. Our revenue from services is generally recognized over time on a ratable basis over the contract term, using an output measure of progress, as the contracts usually provide our customers equal benefit throughout the contract period. We typically invoice customers for support contracts in advance, for periods ranging from one (1) to five (5) years.

Our transaction price is calculated as selling price net of variable consideration. Our sales to certain distributors are made under arrangements which provide our distributors with volume discounts, price adjustments, and other allowances under certain circumstances. These adjustments and allowances are accounted for as variable consideration. To estimate variable consideration, we analyze historical data, channel inventory levels, current economic trends and changes in our customer demand for our products, among other factors. Historically, variable consideration has not been a significant component of our contracts with customers.

For contracts with customers that contain multiple performance obligations, we account for the promises separately as individual performance obligations if they are distinct. In determining whether performance obligations meet the criteria for being distinct, we consider a number of factors, including the degree of interrelation and interdependence between obligations and whether or not the good or service significantly modifies or transforms another good or service in the contract. After identifying the separate performance obligations, we allocate transaction price to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices for products are determined using either an adjusted market assessment or expected cost-plus margin. For customer support and extended warranty services, standalone selling price is primarily based on the prices charged to our customers on a standalone basis. Unsatisfied and partially unsatisfied performance obligations as of the end of the reporting period primarily consist of products and services for which our customer purchase orders have been accepted and that are in the process of being delivered.

We record contract assets when it has a right to consideration and record accounts receivable when it has an “unconditional” right to consideration. We record deferred revenue when cash payments received (or unconditional rights to receive cash) in advance of fulfilling our performance obligations.

Our payment terms vary by the earnings process is complete. We recognize product revenue upon shipmenttype and location of product under contractual terms which transfer title to customers upon shipment, under normal credit terms, net of estimated sales returnsour customer and allowances at the time of shipment. Revenue is deferred if there are significant post-delivery obligations or if the fees are not fixed or determinable. When significant post-delivery obligations exist, revenue is deferred until such obligations are fulfilled. Our arrangements generally do not have any significant post-delivery obligations. If our arrangements include customer acceptance provisions, revenue is recognized upon obtaining the signed acceptance certificate from the customer, unless we can objectively demonstrate that the delivered products or services meet all the acceptance criteria specified in the arrangement prior to obtaining the signed acceptance. In those instances where revenue is recognized prior to obtaining the signed acceptance certificate, we use successful completion of customer testing as the basis to objectively demonstrate that the deliveredoffered. For certain products or services meet all the acceptance criteria specified in the arrangement. We also consider historical acceptance experience with theand customer as well as thetypes, we require payment terms specified in the arrangement, when revenue is recognized prior to obtaining the signed acceptance certificate. When collectability is not reasonably assured, revenue is recognized when cash is collected.

We make certain sales to product distributors. These customers are given certain privileges to return a portion of inventory. Return privileges generally allow distributors to return inventory based on a percent of purchases made within a specific period of time. We recognize revenue on sales to distributors that have contractual return rights whenbefore the products have been sold by the distributors, unless there is sufficient customer specific sales and sales returns history to support revenue recognition upon shipment. In those instances when revenue is recognized upon shipment to distributors, we use historical rates of return from the distributors to provide for estimated product returns. We accrue for warranty costs, sales returns and other allowances at the time of shipment based on historical experience and expected future costs.

We derive revenue primarily from stand-alone sales of our products. In certain cases, our products are sold along with services, which include education, training, installation, and/or extended warranty services. As such, some of our sales have multiple deliverables. Our products and services qualify as separate units of accounting and are deemed to be non-contingent deliverables as our arrangements typically do not have any significant performance, cancellation, termination and refund type provisions. Products are typically considered delivered upon shipment. Revenue from services is recognized ratably over the period during which the services are to be performed.

For multiple deliverable revenue arrangements, we allocate revenue to products and services using the relative selling price method to recognize revenue when the revenue recognition criteria for each deliverable are met. The selling price of a deliverable is based on a hierarchy and if we are unable to establish vendor-specific objective evidence of selling price (VSOE) we look to third-party evidence of selling price (TPE) and if no such data is available, we use a best estimated selling price (BSP). In most instances, particularly as it relates to products, we are not able to establish VSOE for all deliverables in an arrangement with multiple elements. This may be due to infrequently selling each element separately, not pricing products

within a narrow range, or only having a limited sales history. When VSOE cannot be established, we attempt to establish the selling price of each element based on TPE. Generally, our marketing strategy differs from that of our peers and our offerings contain a significant level of customization and differentiation such that the comparable pricing of products with similar functionality cannot be obtained. Furthermore, we are unable to reliably determine what similar competitor products’ selling prices are on a stand-alone basis. Therefore, we are typically not able to determine TPE for our products.    

When we are unable to establish selling price using VSOE or TPE, we use BSP. The objective of BSP is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. The BSP of each deliverable is determined using average discounts from list price from historical sales transactions or cost plus margin approaches based on the factors, including but not limited to our gross margin objectives and pricing practices plus customer and market specific considerations.

We have established TPE for our training, education and installation services. These service arrangements are typically short term in nature and are largely completed shortly after delivery of the product. TPE is determined based on competitor prices for similar deliverables when sold separately. Training and education services are based on a daily rate per person and vary accordingdelivered to the type of class offered. Installation services are based on daily rate per person and vary according to the complexity of the products being installed.customer.

Extended warranty services are priced based on the type of product and are sold in one to five year durations. Extended warranty services include the right to warranty coverage beyond the standard warranty period. In substantially all of the arrangements with multiple deliverables pertaining to arrangements with these services, we have used and intend to continue using VSOE to determine the selling price for the services. We determine VSOE based on our normal pricing practices for these specific services when sold separately.

Allowances for Sales Returns and Doubtful Accounts

We record an allowance for sales returns for estimated future product returns related to current period product revenue. The allowance for sales returns is recorded as a reduction of revenue and an allowance against our accounts receivable.accrued and other liabilities. We base our allowance for sales returns on periodic assessments of historical trends in product return rates and current approved returned products. If the actual future returns were to deviate from the historical data on which the reserve had been established, our future revenue could be adversely affected.

We record an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make payments for amounts owed to us. The allowance for doubtful accounts is recorded as a charge to general and administrative expenses. We base our allowance on periodic assessments of our customers’ liquidity and financial condition through analysis of information obtained from credit rating agencies, financial statement reviews and historical collection trends. Additional allowances may be required in the future if the liquidity or financial condition of our customers deteriorates, resulting in impairment indoubts about their ability to make payments.

Inventories

Inventories are stated at the lower of cost or market,net realizable value, with cost being determined using the first-in, first-out (FIFO) method. In assessing the net realizable value of inventories, we are required to make judgments as to future demand requirements and compare these with the current or committed inventory levels. Once inventory has been written down to its estimated net realizable value, its carrying value cannot be increased due to subsequent changes in demand forecasts. To the extent that a severe decline in forecasted demand occurs, or we experience a higher incidence of inventory obsolescence due to rapidly changing technology and customer requirements, we may incur significant charges for excess inventory.

We also evaluate the terms of its agreements with its suppliers and establish accruals for estimated losses on adverse purchase commitments as necessary, applying the same lower of cost or net realizable value approach that is used to value inventory.

Goodwill and Other Acquisition-Related Intangible Assets

Goodwill and other acquisition-related intangible assets not subject to amortization are tested annually for impairment using a two-step approach, and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. In the application of the impairment testing, we are required to make estimates of future operating trends and resulting cash flows and judgments on discount rates and other variables. Actual future results and other assumed variables could differ from these estimates.   Our future operating performance will be impacted by the future amortization of intangible assets, potential charges related to purchased in-process research and development for future acquisitions, and potential impairment charges related to goodwill. Accordingly, the allocation of the purchase price of the acquired companies to intangible assets and goodwill has a significant impact on our future operating results. The allocation process requires management to make significant estimates and assumptions, including estimates of future cash flows expected to be generated by the acquired assets and the appropriate discount rate for these cash flows. Should different conditions prevail, we would have to perform an impairment review that might result in material write-downs of intangible assets and/or goodwill. Other factors

Factors we consider important which could trigger an impairment review, include, but are not limited to, significant changes in the manner of use of ourits acquired assets,

significant changes in the strategy for ourthe Company's overall business or significant negative economic trends. If this evaluation indicates that the value of an intangible asset may be impaired, an assessment of the recoverability of the net carrying value of the asset over its remaining useful life is made. If this assessment indicates that the cost of an intangible asset is not recoverable, based on the estimated undiscounted future cash flows or other comparable market valuations of the entity or technology acquired over the remaining amortization period, the net carrying value of the related intangible asset will be reduced to fair value and the remaining amortization period may be adjusted. DueAn impairment loss is recognized to uncertain market conditionsthe extent that the carrying amount exceeds the asset’s fair value.

In the application of impairment testing, we are required to make estimates of future operating trends and potential changes in our strategyresulting cash flows and product portfolio, it is possible that forecasts used to support our intangible assets may change in thejudgments on discount rates and other variables. Actual future whichresults and other assumed variables could result in additional non-cash charges that would adversely affect our results of operations and financial condition.

differ from these estimates.

Business Combination

We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired 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 acquired as part ofin the Merger.

transaction.

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.

Income Tax

We estimate ouruse the asset and liability method to account for income tax provision or benefit in each of the jurisdictions in which we operate, including estimating exposures related to examinations by taxing authorities. We also make judgments regarding the realization oftaxes. Under this method, deferred tax assets and establish valuation allowances where we believe it is more likely than notliabilities are determined based on differences between the financial reporting and the income tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates and laws that future taxable income in certain jurisdictions will be insufficientin effect when the differences are expected to realize thesereverse. Valuation allowances are established, when necessary, to reduce deferred tax assets. Our estimates regarding future taxable income and income tax provision or benefit may vary dueassets to changes in market conditions, changes in tax laws, or other factors. If our assumptions, and consequently our estimates, change in the future, the valuation allowances we have established mayamount expected to be increased or decreased, impacting future income tax expense.

realized.

RESULTS OF OPERATIONS

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

		Year ended December 31,
		2019				2018
Net revenue:
Third parties			99	%			98	%
Related parties			1	%			2	%
Total net revenue			100	%			100	%
Cost of revenue:
Products and services - third parties			66	%			66	%
Products and services - related parties			—				2	%
Amortization of intangible assets			1	%			—
Total cost of revenue			67	%			68	%
Gross profit			33	%			32	%
Operating expenses:
Research and product development			13	%			13	%
Selling, marketing, general and administrative			20	%			17	%
Restructuring and other charges			2	%			—
Amortization of intangible assets			—				—
Goodwill impairment charge			—				—
Total operating expenses			35	%			30	%
Operating income (loss)			(2	)%			3	%
Interest income			—				—
Interest expense			(1	)%			(1	)%
Other income (expense), net			—				—
Income (loss) before income taxes			(3	)%			2	%
Income tax provision (benefit)			1	%			1	%
Net income (loss)			(4	)%			1	%
Net income (loss) attributable to non-controlling interest			—				—
Net income (loss) attributable to DASAN Zhone Solutions, Inc.			(4	)%			1	%

	Year ended December 31,
	2016			2015			2014
				(As restated)			(As restated)
Net revenue:
Net revenue	81	%		82	%		78	%
Net revenue - related parties	19	%		18	%		22	%
Total net revenue	100	%		100	%		100	%
Cost of revenue:
Products and services	56	%		58	%		50	%
Products and services - related parties	16	%		16	%		20	%
Amortization of intangible assets	—	%		—	%		—	%
Total cost of revenue	73	%		74	%		71	%
Gross profit	27	%		26	%		29	%
Operating expenses:
Research and product development	17	%		15	%		16	%
Selling, marketing, general and administrative	18	%		13	%		11	%
Amortization of intangible assets	1	%		—	%		—	%
Gain from sale of assets	—	%		—	%		—	%
Total operating expenses	36	%		28	%		27	%
Operating income (loss)	(9	)%		(2	)%		2	%
Interest income	0	%		0	%		0	%
Interest expense	(1	)%		0	%		0	%
Other income (expense), net	0	%		0	%		0	%
Income (loss) before income taxes	(9	)%		(2	)%		2	%
Income tax provision	1	%		0	%		1	%
Net income (loss)	(10	)%		(2	)%		1	%
Net loss attributable to non-controlling interest	0	%		0	%		0	%
Net income (loss) attributable to DASAN Zhone Solutions, Inc.	(10	)%		(2	)%		1	%
Foreign currency translation adjustments	(1	)%		(2	)%		(1	)%
Comprehensive loss	(11	)%		(4	)%		—	%
Comprehensive income attributable to non-controlling interest	—	%		—	%		—	%
Comprehensive loss attributable to DASAN Zhone Solutions, Inc.	(11	)%		(4	)%		—	%

2016

2019 COMPARED WITH 2015

2018

Net Revenue

The following table presents our revenues by source (in millions):

		2019				2018				Increase (Decrease)				% change
Products		$	286.3			$	269.3			$	17.0				6.3	%
Services			20.6				13.0				7.6				58.5	%
		$	306.9			$	282.3			$	24.6				8.7	%

Prior

Net revenue increased 8.7% or $24.6 million to $306.9 million for 2019 compared to $282.3 million for 2018. The increase in product revenue was primarily due to product lines added with the Merger, DNS provided communications equipment primarily in the Asia-Pacific region, providing products and services to someacquisition of the largest carriers in the region with a particular focus on Korea, Japan and Vietnam. DNS typically generated approximately 85% of its netKEYMILE.

Service revenue represents revenue from the Asia-Pacific region priormaintenance and other services associated with product shipments. The increase in service revenue was primarily related to the Merger. In contrast, Legacy Zhone typically generated less than 5%a greater number of its net revenue from the Asia-Pacific region prior to the Merger, with instead the majority of its net revenue derived from the Americasproducts under contract for maintenance and the EMEA region. Given DNS’ pre-Merger market share in Korea and in the Asia-Pacific region, we expect that net revenue from Korea and elsewhere in the Asia-Pacific region will continue to be significant for the combined company following the Merger, with growth opportunities for the combined company to expand sales of legacy DNS products in the geographic regions where Legacy Zhone had a strong presence.

extended warranty.

Information about our net revenue for products and services for 2016 and 2015by geography is summarized below (in millions):

		2019				2018				Increase (Decrease)				% change
Revenue by geography:
United States		$	36.4			$	50.8			$	(14.4	)			-28.3	%
Canada			4.7				4.4				0.3				6.8	%
Total North America			41.1				55.2				(14.1	)			-25.5	%
Latin America			23.8				27.6				(3.8	)			-13.8	%
Europe, Middle East, Africa			78.4				34.7				43.7				125.9	%
Korea			79.1				76.0				3.1				4.1	%
Other Asia Pacific			84.5				88.8				(4.3	)			-4.8	%
Total International			265.8				227.1				38.7				17.0	%
Total		$	306.9			$	282.3			$	24.6				8.7	%

	2016				2015				Increase (Decrease)				% change
					(As restated)
Products	$	142.2			$	133.0			$	9.2			7	%
Services	8.1				6.2				1.9				31	%
	$	150.3			$	139.2			$	11.1			8	%

Information about our net revenue for North America and international markets for 2016 and 2015 is summarized below (in millions):

	2016				2015				Increase (Decrease)				% change
					(As restated)
Revenue by geography:
United States	$	16.9			$	4.4			$	12.5			284	%
Canada	2.0				—				2.0				N/A
Total North America	18.9				4.4				14.5				330	%
Latin America	9.6				2.5				7.1				284	%
Europe, Middle East, Africa	13.6				9.4				4.2				45	%
Korea	77.9				114.7				(36.8		)		(32	)%
Other Asia Pacific	30.3				8.2				22.1				270	%
Total International	131.4				134.8				(3.4		)		(3	)%
Total	$	150.3			$	139.2			$	11.1			8	%

Net revenue increased 8%8.7% or $11.1$24.6 million to $150.3$306.9 million for 20162019 compared to $139.2$282.3 million for 2015.2018. The increase in net revenue was primarily due to the consummationacquisition of KEYMILE and, to a lesser extent, growth from the MergerMiddle East and Africa region, which more than offset the decline in September 2016, which resulted in the inclusionNorth America. Across international markets, Asia-Pacific (including Korea) contributed approximately 53.4% of net revenue from the Legacy Zhone business in 2016 for the period from and after the consummationEMEA contributed approximately 25.5% of the Merger. This increase was partially offset by a decrease in product revenue resulting from the decrease in sales to certain customers in Korea.

International net revenue decreased 3% or $3.4 million to $131.4 million for 2016 compared to $134.8 million for 2015, and represented 87% of total net revenue compared with 97% in 2015. The decrease in international net revenue was primarily due to a decrease in sales to certain customers in Korea, which resulted in a decrease in net revenue from Korea of 32% or $36.8 million compared to the prior year period. This decrease was partially offset by the consummation of the Merger in September 2016, which resulted in the inclusion of international net revenue from the Legacy Zhone business in 2016 for the period from and after the consummation of the Merger, primarily relating to sales in Latin America, Europe and the Middle East. Net revenue from North America increased 330% or $14.5 million to $18.9 million in 2016 compared to $4.4 million in 2015. This increase was2019, primarily due to the consummationacquisition of the Merger in September 2016, which resulted in the inclusion of net revenue related to the Legacy Zhone business in North America in 2016 for the period from and after the consummation of the Merger.

For the year ended December 31, 2016, three customers represented 16%, 14% and 10% of net revenue, respectively. For the year ended December 31, 2015, four customers represented 26%, 21%, 17% (a related-party) and 10% of net revenue, respectively.

KEYMILE.  

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 6% or $6.0 million8.2% to $109.4$206.8 million for 2016,2019, compared to $103.3$191.0 million for 2015. The increase in cost of revenue was primarily due to the consummation of the Merger in September 2016, which resulted in the inclusion of cost of revenue related to the Legacy Zhone business in 2016 for the period from and after the consummation of the Merger. This increase was partially offset by lower cost of revenue resulting from decreased sales in Korea in 2016

compared to the prior year period.2018. Total cost of revenue was 73%67.4% of net revenue for 2016,2019, compared to 74%67.7% of net revenue for 2015,2018, which resulted in an increase in gross profit percentage to 32.6% in 2019 from 26%32.3% in 2015 to 27%2018. The increase in 2016. Gross margin slightly increased in 2016 compared to 2015,total cost of revenue, was primarily due to the inclusionacquisition of Legacy Zhone's higher margin business followingKEYMILE. The decrease in the consummationtotal cost of revenue as a percentage of sales was primarily due to the Merger in September 2016.

mix of products sold.

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, with longer term gross margin expansion expected to come from product cost reductions and manufacturing economies of scale resulting from the Merger.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 development expenses include personnel costs, outside contractor and consulting services, depreciation on lab equipment, costs of prototypes and overhead allocations. Research and product development expenses increased 19% or $4.1 millionby 12.6% to $25.4$38.5 million for 20162019 compared to $21.3$35.3 million for 2015.2018. The increase was primarily due to the consummation of the Merger in September 2016, which resulted in the inclusion of $5.1 million in research and product development expense relatingexpenses related to the Legacy Zhone business in 2016 for the period from and after the consummationKeymile of the Merger. This increase was$5.3 million, partially offset by a decrease duringin these expenses in the period prior to the MergerU.S. and Other Asia Pacific region, in research and product development expenses of $0.8 million resulting from lower personnel related expensespart due to a lower headcount. headcount related costs.

We intend to continue to invest in research and product development to attain our strategic product development objectives, while seeking to manage the associated costs through expense controls.

Selling, Marketing, General and Administrative Expenses

Selling, marketing, general and administrative expenses include personnel costs for sales, marketing, administration, finance, information technology, human resources and general management as well as legal and accounting expenses, rent, utilities, trade show expenses and related travel costs.

Selling, marketing, general and administrative expenses increased 56% or $9.8 million26.7% to $27.3$61.2 million for 20162019 compared to $17.5$48.3 million for 2015. The increase was primarily due to the consummation of the Merger in September 2016, which resulted in the inclusion of $10.7 million in selling, marketing, general and administrative expense relating to the Legacy Zhone business in 2016 for the period from and after the consummation of the Merger. This increase was partially offset by a decrease during the period prior to the Merger of sales expenses of $2.6 million due primarily to higher bad debt expenses in 2015 and reduced commission expenses in 2016. We expect selling, marketing, general and administrative expenses to increase in 2017, primarily driven by an increase in sales commission expense resulting from expected additional sales opportunities primarily related to the combined company's mobile backhaul and FiberLAN POLAN products.

Gain from Sale of Assets

We recorded a gain from sale of certain intellectual property of $0.3 million in December of 2016.

Interest Expense, net

Interest expense, net for 2016 and 2015 was $0.6 million and $0.4 million, respectively. This increase was primarily related to an increase in our outstanding debt balance from $21.8 million at December 31, 2015 to $24.4 million at December 31, 2016. Interest rates remained flat during 2016 and 2015.

Other Income (Expense), net

Other expense, net for 2016 was $0.1 million compared to other income, net for 2015 of $0.3 million. The expense recorded in 2016 was primarily related to an increase in guarantee expenses of $0.4 million offset by a gain of $0.3 million related to common area maintenance reimbursement.

Income Tax Provision

We recorded an income tax provision of $1.5 million and $0.2 million related to foreign and state taxes for the years ended December 31, 2016 and 2015, respectively. The increase in tax expense for the year ended December 31, 2016 was primarily due to an additional valuation allowance recorded on deferred tax assets in Korea. Due to our recurring operating losses and the significant uncertainty regarding the realization of our net deferred tax assets, we have recorded a full valuation allowance against our deferred tax assets.

2015 COMPARED WITH 2014

Net Revenue

Information about our net revenue for products and services for 2015 and 2014 is summarized below (in millions):

	2015				2014				Increase (Decrease)				% change
	(As restated)				(As restated)
Products	$	133.0			$	132.3			$	0.7			1	%
Services	6.2				7.1				(0.9		)		(13	)%
	$	139.2			$	139.4			$	(0.2	)		—	%

Information about our net revenue for North America and international markets for 2015 and 2014 is summarized below (in millions):

	2015				2014				Increase (Decrease)				% change
	(As restated)				(As restated)
Revenue by geography:
United States	$	4.4			$	12.5			$	(8.1	)		(65	)%
Canada	—				—				—				—	%
Total North America	4.4				12.5				(8.1		)		(65	)%
Latin America	2.5				1.3				1.2				92	%
Europe, Middle East, Africa	9.4				20.9				(11.5		)		(55	)%
Korea	114.7				99.6				15.1				15	%
Other Asia Pacific	8.2				5.1				3.1				61	%
Total International	134.8				126.9				7.9				6	%
Total	$	139.2			$	139.4			$	(0.2	)		—	%

Net revenue remained flat at $139.2 million for 2015 compared to $139.4 million for 2014. Product revenue increased 1% or $0.7 million for 2015. The increase in product revenue was primarily due to increased sales in Korea, partially offset by decreased sales in Europe, Middle East and Africa. Service revenue decreased 13% or $0.9 million for 2015. Service revenue represents revenue from maintenance and other services associated with product shipments.

International net revenue increased 6% or $7.9 million to $134.8 million in 2015 and represented 97% of total net revenue compared with 91% in 2014. The increase in international net revenue was primarily due to increased sales in Korea as a result of recent growth in demand for our products in these regions, which was partially offset by lower revenue from Europe, Middle East and Africa. Net revenue from North America decreased 65% or $8.1 million to $4.4 million in 2015 compared to $12.5 million in 2014.

For the year ended December 31, 2015, three customers represented 26%, 21% and 10% of net revenue, respectively. For the year ended December 31, 2014, three customers represented 17%, 14% and 12% of net revenue, respectively.

Cost of Revenue and Gross Profit

Total cost of revenue increased 4.8% or $4.8 million to $103.3 million for 2015, compared to $98.6 million for 2014. The increase in cost of revenue for 2015 was primarily due to changes in product mix. Total cost of revenue was 74% of net revenue for 2015, compared to 71% of net revenue for 2014, which resulted in a decrease in gross profit percentage from 29% in 2014 to 26% in 2015.

Research and Product Development Expenses

Research and product development expenses decreased 6% or $1.5 million to $21.3 million for 2015 compared to $22.8 million for 2014. The decrease was primarily due to lower personnel-related expenses.

Selling, Marketing, General and Administrative Expenses

Selling, marketing, general and administrative expenses increased 18% or $2.7 million to $17.5 million for 2015 compared to $14.8 million for 2014.2018. The increase in selling, marketing, general and administrative expenses was primarily attributabledue to increased bad debt expensethe inclusion of KEYMILE's operations in 2019.

Restructuring and increased expenses to related parties for shared human resources, treasuryOther Charges and Goodwill Impairment

During the fourth quarter of 2019, the Company recorded restructuring and other administrative services.

charges of $4.9 million consisting primarily of severance and other termination related benefits of $3.9 million, and an impairment charge of $1.0 million related to a right-of-use asset from an operating lease, associated with cost reductions implemented at KEYMILE. During the fourth quarter of 2019, the Company recorded an impairment of goodwill of $1.0 million associated with KEYMILE as part of the Company’s annual evaluation of goodwill for impairment.

Interest Expense, net

Interest expense, net was $0.4$3.5 million and $1.5 million for 2015,2019 and 2018, respectively. This increase in interest expense was primarily related to higher average borrowings during 2019.

Other Income (Expense), net

Other income, net was $0.9 million for 2019 compared to $0.1Other expense, net of $1.1 million in 2018. The main reason for 2014. Our outstanding debt balance decreased from $23.1 million at December 31, 2014the increase in Other Income, net was due to $21.8 million at December 31, 2015 and interest rates remained low during 2015 and 2014.

foreign currency exchange gains in 2019 compared to foreign currency exchange losses in 2018.

Income Tax Provision

(Benefit)

We recorded an income tax provisionexpense of $0.2$3.6 million for 2019 compared to $1.7 million for 2018. The increase in income tax expense was primarily due to taxable income generated in higher taxed jurisdictions, including Korea and $1.4 million related to foreign and state taxes for the years ended December 31, 2015 and 2014, respectively. Due to our recurring operating losses and the significant uncertainty regarding the realization of our net deferred tax assets we have continued to record a full valuation allowance.

Japan.

OTHER PERFORMANCE MEASURES

In managing our business and assessing our financial performance, we supplement the information provided by our U.S. GAAP results with adjusted earnings before stock-based compensation, interest, taxes, and depreciation, or Adjusted EBITDA, a non-GAAPnon-U.S. GAAP financial measure. We define Adjusted EBITDA as net income (loss) plus (i) interest expense, net, (ii) provision (benefit) for taxes, (iii) depreciation and amortization, (iv) stock-based compensation, and (v) the impact of material non-recurring transactions or events that we believe are not indicative of our core operating performance, such as Merger transaction costsrestructuring and other charges, goodwill impairment, bargain purchase gain, any of which may or a gain (loss) on sale of assets or impairment of fixed assets.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;

Non-cash 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 supplementally.

as a supplemental measure.

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

		Year Ended December 31,
		2019				2018
Net income (loss)		$	(13,263	)		$	2,836
Add (deduct):
Interest expense, net			3,525				1,474
Income tax (benefit) provision			3,585				1,724
Restructuring and other charges			4,908				—
Goodwill impairment charge			1,003				—
Depreciation and amortization			5,115				2,702
Stock-based compensation			3,508				2,080
Inventory step-up amortization			577				—
Merger and acquisition transaction costs			337				1,404
Adjusted EBITDA		$	9,295			$	12,220

	Year Ended December 31,
	2016				2015				2014
					(As restated)
Net income (loss)	$	(15,328	)		$	(3,339	)		$	1,837
Add:
Interest expense, net	647				396				108
Income tax provision	1,487				232				1,380
Depreciation and amortization	3,173				1,404				1,936
Stock-based compensation	336				—				—
Merger transaction costs	1,273				—				—
Adjusted EBITDA	$	(8,412	)		$	(1,307	)		$	5,261

LIQUIDITY AND CAPITAL RESOURCES

Our operations arehave historically and continue to be financed through a combination of our existing cash and cash equivalents, available credit facilities,cash generated in the business, borrowings, and sales of equity and debt instruments, based onequity.

The following table summarizes the information regarding our operating requirements and market conditions.

At December 31, 2016, cash and cash equivalents were $17.9 million compared to $9.1 million at December 31, 2015. Our cash and cash equivalents asworking capital (in thousands):

		December 31, 2019				December 31, 2018
Cash and cash equivalents		$	28,747			$	27,709
Working capital			114,885				75,280

The Company had a net loss of December 31, 2016 included $9.8 million in cash balances held by our Korean subsidiary. The increase in cash and cash equivalents of $8.8 million was attributable to net cash provided by operating activities, financing activities and investing activities of $3.5 million, $2.8 million and $2.7 million, respectively.

Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared in conformity with GAAP, assuming we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Accordingly, the consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of DZS to continue as a going concern.

We have incurred significant losses to date and our losses from operations may continue. We incurred net losses of $15.3 million and $3.3$13.3 million for the years ended December 31, 20162019 and 2015, respectively. Wenet income of $2.8 million for the years ended December 31, 2018.

As of December 31, 2019, we had an accumulated deficit of $19.9$29.2 million and working capital of $56.8 million as of December 31, 2016.$114.9 million. As of December 31, 2016,2019, we had approximately $17.9$28.7 million in cash and cash equivalents, which included $9.8$14.2 million in cash balances held by our Korean subsidiary,international subsidiaries, and $24.4$38.0 million in aggregate principal amount of outstanding borrowings under our short-term debt obligations and our loans from DNI.debt. In addition, we had $4.2 million in aggregate borrowing availability under our revolving credit facilities as of December 31, 2016. We2019, we had $14.6$4.5 million committed as security for letters of credit under these facilities asour revolving credit facilities.

Our current lack of December 31, 2016. Dueliquidity could harm us by:

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

requiring substantial amounts of short-termcash to be used for debt obligations maturing within the next 12 months and our recurring operating losses, our cash resources may not be sufficient to settle these short-term debt obligations. Our ability to continue as a "going concern" is dependent on many factors,servicing, rather than other purposes, including among other things,operations;

limiting our ability to comply with the covenantsplan for, or react to, changes in our existing debt agreements,business and industry; and

influencing investor and customer perceptions about our financial stability and limiting our ability to cure any defaults that occur under our debt agreementsobtain financing or to obtain waivers or forbearances with respect to any such defaults, and our ability to pay, retire, amend, replace or refinance our indebtedness as defaults occur or as interest and principal payments come due. Although the process of amending, replacing or refinancing our short-term debt obligations is ongoing andacquire customers.

However, we are in active discussions with multiple parties, there is no guarantee that they will result in transactions that are sufficientcontinue to provide us with the required liquidity to remove the substantial doubt as to our ability to continue as a going concern. If we are unable to amend, replace, refinance our short-term debt obligations or raise the capital needed to meet liquidity needs and finance capital expenditures and working capital, we may experience material adverse impacts on our business, operating results and financial condition.

We have continued our focus on cost control andmanagement, operating efficiency along withand restrictions on discretionary spending, however in order to meet our liquidity needs and finance our capital expenditures and working capital needs for our business,spending. In addition, if necessary, we may be required to sell assets, issue debt or equity securities or purchase credit insurance or borrow on potentially unfavorable terms. In addition, weinsurance. We may be required toalso reduce the scope of our planned product development, reduce sales and marketing

efforts and reduce our operations in low margin regions, including reductions in headcount. Since December 31, 2019, and as described below under the header March 2020 DNI Loan, we entered into a Loan Agreement with DNI, and the Company intends to use a portion of such funds to repay in full and terminate the Company’s existing credit facility with PNC Bank.Based on our current plans and current business conditions, we believe that our focused operating expense disciplinethese measures along with our existing cash and cash equivalents and available credit facilities will be sufficient to satisfy our anticipated cash requirements for at least the next 12twelve (12) months howeverfrom the factors discussed above raise substantial doubt aboutdate of this Annual Report on Form 10-K.

Our ability to meet our obligations as they become due in the ordinary course of business for the next twelve (12) months will depend on our ability (i) to achieve forecasted results of operations, (ii) access funds under new credit facilities and/or raise additional capital through sale of our common stock to the public, and (iii) effectively manage working capital requirements. If we cannot raise additional funds when we need or wants them, our operations and prospects could be negatively affected. We believe that we will achieve forecasted results of operations assumes that, among other things, we will continue to be successful in implementing its business strategy and that there will be no material adverse development in our business, liquidity or capital

requirements. If one or more of these factors do not occur as a going concern.

expected, it could cause us to fail to meet its obligations as they come due.

Operating Activities

For fiscal year 2016, net

Net cash provided byused for operating activities consisted of a net loss of $15.3 million, adjusted for non-cash expenses totaling $4.7was $22.7 million and a net decrease$12.2 million in operating assets totaling $14.1 million.2019 and 2018, respectively. The most significant components of the changes in net operating assets were an$10.5 million increase in accounts receivable of $2.1 million, an increasecash used for operating activities in accounts payable of $4.5 million and an increase in accrued and other liabilities of $9.8 million. The increase in accounts receivable was related to the timing of cash collections. The increase in accounts payable and accrued and other liabilities2019 was primarily due to timingan increase of payments.

For fiscal year 2015,$7.5 million in our net loss (excluding non-cash items) compared to 2018, as well as a $3.0 million increase in cash used for working capital.  

Investing Activities

Cash flow used in investing activities of $7.0 million in 2019 consists primarily of the Keymile acquisition and purchases of property, plant and equipment, compared with $1.2 million of cash flow used in investing activities in 2018.

Financing Activities

Cash provided by operatingfinancing activities totaled $28.0 million in 2019. and consisted primarily of a net lossproceeds from issuance of $3.3common stock of $42.5 million, adjusted for non-cash expenses totaling less than $0.1 million and a net increase in operating assets totaling $7.6 million. The most significant componentsas well as proceeds from borrowings of the changes in net operating assets were a decrease in accounts receivable of $11.4 million and an decrease in inventory of $6.0$25.0 million, partially offset by a decrease in accounts payablesnet outflow associated with the repayment of $6.7short term borrowings of $20.1 million, the repayment of long term debt of $11.9 million, as well as the repayment of a related party loan of $5.0 million. The increase in accounts receivable was relatedThis compared to the timing of cash collections. The decrease in inventory was primarily due to better utilization of inventory in 2015. The decrease in accounts payable was primarily due to timing of payments.

Investing Activities

For fiscal year 2016, net cash provided by investing activities consisted of cash acquired through the consummation of the Merger of $7.0 million, partially offset by an increase in restricted cash of $2.1 million and the acquisition of property and equipment of $1.3 million.

For fiscal year 2015, net cash provided by investing activities consisted of net proceeds from disposal of property and equipment and other assets of $2.2 million, partially offset by purchases of short-term investments of $1.9 million.

Financing Activities

For fiscal year 2016, net cash provided by financing activities consisted of proceeds$19.0 million in 2018.

Debt Facilities

DNI Loan

On March 5, 2020, DNS Korea, the Company’s wholly-owned, indirect subsidiary entered into a Loan Agreement with DNI (the “March 2020 DNI Loan”). The March 2020 DNI Loan was negotiated and approved on behalf of the Company and its subsidiaries by a special committee of the Board of Directors of the Company (the “Special Committee”) consisting of directors determined to be independent from short-term borrowingsDNI. The March 2020 DNI Loan consists of $25.1a term loan in the amount of KRW 22.4 billion ($18.5 million USD) with interest payable semi-annually at an annual rate of 4.6% and proceeds from long-term borrowings of $5.0 million, offset by repayments of short-term borrowings of $27.3 million.

For fiscal year 2015, net cash used in financing activities consisted repayments of short-term borrowings of $17.8 million and decrease in other capital of $3.0 million, offset by proceeds from short-term borrowings of $18.0 million and proceeds of issuance of common stock of $1.8 million.

Cash Management

Our primary source of liquidity comes from our cash and cash equivalents, which totaled $17.9 million at December 31, 2016, as well as our credit facilities, under which we had aggregate borrowing availability of $4.2 million as of December 31, 2016, and under which $14.6 million was committed asmaturing on March 11, 2022. No principal payments are due on the March 2020 DNI Loan until the maturity date, but DNS Korea may prepay the loan, or a portion thereof, without penalty.

As security for lettersthe March 2020 DNI Loan (and other existing loans between DNI and DNS Korea and/or DNS California), (i) DNS California, a wholly-owned, direct subsidiary of credit asthe Company and the sole stockholder of December 31, 2016. Our cashDNS Korea, agreed to pledge the outstanding shares of DNS Korea to DNI and cash equivalents as of December 31, 2016 included $9.8 million(ii) DNS Korea granted a security interest in cash balances held by our Korean subsidiary.

Wells Fargo Bank Facility

As of December 31, 2016, we had a $25.0 million revolving line of credit and letter of credit facility with Wells Fargo Bank (WFB). Under the WFB Facility, we have the option of borrowing funds at agreed upon interest rates. The amount that we are able to borrow under the WFB Facility varies based on eligibleits personal property assets, accounts receivable and inventory, as definedintellectual property assets to DNI. The March 2020 DNI Loan includes certain covenants consisting of financial reporting obligations, a maintenance covenant whereby DNS Korea agreed to maintain a minimum stockholders’ equity value in the WFB Facility, as long as the aggregatean amount outstanding does not exceed $25.0 million less the amount committed as security for lettersequal to or greater than KRW 43.3 billion ($35.8 million), and customary events of credit. To maintain availabilitydefault. If an event of funds under the WFB Facility, we pay a commitment fee on the unused portion. The commitment fee is 0.25% per annumdefault occurs and is recorded as interest expense.

As of December 31, 2016, we had no outstanding borrowings under our WFB Facility, and $3.5 million was committed as security for letters of credit. We had $3.1 million of borrowing availability undernot remedied within the WFB Facility as of December 31, 2016. The amounts borrowed under the WFB Facility bear interest, payable monthly, at a floating rate equal to the three-month LIBOR plus a margin based on our average excess availability (as calculated under the WFB Facility). The interest rate on the WFB Facility was 3.50% at December 31, 2016. The maturity date under the WFB Facility is March 31, 2019.

Our obligations under the WFB Facility are secured by substantially all of our personal property assets and those of our subsidiaries that guarantee the WFB Facility, including our intellectual property. The WFB Facility contains certain financial covenants, and customary affirmative covenants and negative covenants. If we default under the WFB Facility due to a covenant breach or otherwise, WFB mayapplicable cure period, DNI will be entitled to among other things, requiretake various actions, including requiring the immediate repayment of all outstanding amounts and sell our assets to satisfy the obligations under the WFB Facility. InMarch 2020 DNI Loan and selling the past we have violatedshares or assets of DNS Korea.

DNS Korea loaned the covenantsfunds borrowed under the March 2020 DNI Loan to the Company, and the Company intends to use a portion of such funds to repay in our formerfull and terminate the PNC Credit Facilities, described below.

PNC Credit Facilities

On February 27, 2019, the Company and certain of its subsidiaries (as co-borrowers or guarantors) entered into that certain Revolving Credit, Term Loan, Guaranty and Security Agreement and that certain Export-Import Revolving Credit, Guaranty and Security Agreement, in each case with PNC Bank, National Association (“PNC Bank”) and Citibank, N.A. as lenders, and PNC as agent for the lenders. We refer to such transactions and the agreements referenced above as the “PNC Credit Facilities”.

The PNC Credit Facilities provided for a $25 million term loan and a $15 million revolving line of credit and letter(including subfacilities for Ex-Im transactions, letters of credit facility and received waiversswing loans) with a $10 million incremental increase option. The amount the Company was able to borrow on the revolving line of credit at any time was based on eligible accounts receivable and other conditions, less certain reserves. Borrowings under the PNC Credit Facilities bore interest at a floating rate equal to either the PNC prime rate or the LIBOR rate for these violations.the applicable period, plus a margin that was based on the type of advance.

The Company used a portion of the funds borrowed from the term loan under the PNC Credit Facilities to (i) repay $5.0 million of existing related party indebtedness with DNI plus accrued interest, (ii) repay $1.5 million revolving line of credit outstanding balance plus accrued interest and fees and cash collateralize $3.6 million in outstanding letters of credit under the Company’s former senior secured credit facilities with Wells Fargo Bank (the “Former WFB Facility”), described below, and (iii) repay $5.6 million in short-term debt in Korea and Japan. The Company’s obligations under the PNC Credit Facilities were secured by substantially all of the personal property assets of the Company and its subsidiaries that were co-borrowers or guarantors under the PNC Credit Facilities, including their intellectual property.

The PNC Credit Facilities had a three-year term and were scheduled to mature on February 27, 2022. The PNC Credit Facilities contemplated repayment of the term loan in quarterly installments over the term of the loan, with the balance of the term loan and revolving line of credit due at maturity.

The PNC Credit Facilities had a three-year term and were scheduled to mature on February 27, 2022. The PNC Credit Facilities contemplated repayment of the term loan in quarterly installments over the term of the loan, with the balance of the term loan and revolving line of credit due at maturity. The interest rate on the term loan was 8.12% at December 31, 2019.  On July 3, 2017, we executed2, 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.

The PNC Credit Facilities contained certain covenants, limitations, and conditions with respect to the Company, including a maximum leverage ratio, a minimum fixed charge coverage ratio, and a minimum liquidity covenant, as well as financial reporting obligations, and usual and customary events of default. At September 30, 2019, the Company was not in compliance with the maximum leverage ratio financial covenant in the PNC Credit Facilities, which represented an agreement with WFBevent of default thereunder. On November 8, 2019, the Company obtained a waiver of the foregoing event of default from PNC Bank. As a condition for the issuance of such waiver, the Company voluntarily prepaid $10.0 million of the outstanding term loan and paid a one-time fee of $150,000. The Company would have been in further breach of this financial covenant as of December 31, 2019. As discussed further in Note 7 to extend the due date for delivery for our auditedconsolidated financial statements, in March 2020, the Company entered into a term loan with DNI in the amount of KRW 22.4 billion ($18.5 million). The Company plans to use the proceeds of such loan to repay in full the PNC Credit Facilities, and thus does not expect to be in breach of its financial covenants for the yearperiod ended December 31, 2016 to September 27, 2017. 2019. Covenants under the March 2020 DNI loan are significantly less restrictive than under the PNC Credit Facilities.

As of December 31, 2016, we were2019, the Company had $13.1 million in complianceoutstanding term loan borrowings under the PNC Credit Facilities, and no outstanding borrowings under the revolving line of credit.  

Former Wells Fargo Bank Facility

On February 27, 2019, in connection with the covenantsentry into the PNC Credit Facilities, 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. We make no assurances that we will beRefer to footnote 7. Debt, of the Consolidated Financial Statements, included in compliance with these covenants inthis Form 10-K, for further details about the future.

Former WFB Facility.  

Bank and Trade Facilities - Foreign Operations

Certain of our foreign subsidiaries have entered into various financing arrangements with foreign banks and other lending institutions consisting primarily of revolving lines of credit, trade facilities, term loans and export development loans. These facilities are renewed on an annual basis and are generally secured by a security interest in certain assets of the applicable foreign subsidiaries.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 December 31, 20162019 and December 31, 2015,2018, we had an aggregate outstanding balance of $17.6$15.8 million and $21.8$24.8 million, respectively, under such financing arrangements, and the interest rate per annum applicable to outstanding borrowings under these financing arrangements as of December 31, 20162019 and December 31, 20152018 ranged from 1.92%0% to 4.08%4.5% and 2.04%0% to 3.55%6.1%, respectively.

Related-Party

Related - Party Debt

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 Merger, onentry into the PNC Credit Facilities, the Company amended the terms of this loan to extend the repayment date to May 27, 2022. As of December 31, 2019, the $1.8 million remained outstanding.

In September, 9, 2016, wethe Company entered into a loan agreement with DNI for a $5.0 million unsecured subordinated term loan facility.  Under theThe term loan agreement, we were permittedwas scheduled to request drawdowns of one or more term loans in an aggregate principal amount not to exceed $5.0 million. As of December 31, 2016, $5.0 million in term loans was outstanding under the facility. Such term loans mature in September 2021 and arewas pre-payable at any time by usthe Company without premium or penalty. The interest rate as of December 31, 2016 under this facility was 4.6% per annum.

In addition, weFebruary 2019, the Company repaid the term loan in full plus accrued interest in connection with the entry into the PNC Credit Facilities, thereby terminating the loan agreement.

In March 2018, Dasan Network Solutions, Inc., a subsidiary of the Company incorporated under the laws of Korea (“DNS Korea”) borrowed $1.8$5.8 million from DNI, for capital investment in February 2016,of which amount$4.5 million was outstanding as of December 31, 2016. Thisrepaid on August 8, 2018.  The loan matured in March 2017 with an option of renewal by mutual agreement, and borebears interest at a rate of 6.9% per annum, payable annually. Effective4.6%. On February 27, 2017, we2019, in connection with the entry into the PNC Credit Facilities, the Company amended the terms of this loan to extend the repayment date from March 2017 to MarchMay 27, 2022. As of December 31, 2019, $1.3 million 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 Credit Facilities, the Company amended

the terms of the term loan to extend the repayment date to May 27, 2022 and to reduceterminate any security granted to DNI with respect to such term loan. As of December 31, 2019, the $6.0 million remained outstanding.

The modifications resulting from the amendments described in the four preceding paragraphs 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 was $0.4 million in both 2019 and 2018.

As of December 31, 2019 and 2018, the Company had borrowings of $9.1 million and $14.1 million, respectively, outstanding from DNI. The outstanding balance at December 31, 2019 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 to DNS Korea which matures in May 2022.  All three loans bear interest at a rate from 6.9% toof 4.6% per annum.

On June 23, 2017, we borrowed $3.5

As noted above under “Debt Facilities – DNI Loan,” on March 5, 2020, DNS Korea entered into a subsequent loan transaction with DNI in the amount of KRW 22.4 billion ($18.5 million from Solueta, an affiliate of DNI,USD), which amount was outstanding as of June 30, 2017. This loan matures in November 2017 andon March 11, 2022. The loan bears interest at a rate of 4.6% per annum, payable monthly.

and is secured by accounts receivable, personal property, intellectual property and the shares of DNS Korea. All four loans are secured by the same collateral and are pre-payable without premium or penalty.

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.

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 December 31, 2016,2019, two (2) customers, APSFL and Softbank, accounted for 12% (a related-party)18% and 10%11%, respectively, of our net accounts receivable, respectively, andreceivable. Our receivables from customers in countries other than the United StatesU.S represented 87%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.

As discussed above in "Ability to Continue as a Going Concern", there is substantial doubt about our ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

Contractual Commitments and Off-Balance Sheet Arrangements

At December 31, 2016,2019, our future contractual commitments by fiscal year were as follows (in thousands):

						Payments due by period
		Total				2020				2021				2022				2023				2024 and thereafter
Operating leases		$	24,725			$	5,287			$	4,655			$	4,211			$	3,795			$	6,777
Purchase commitments			4,354				4,354				—				—				—				—
Short-term debt - bank and trade    facilities			18,279				18,279				—				—				—				—
Long-term debt - bank and trade    facilities			10,625				—				3,438				7,187				—				—
Long-term debt - related party			9,096				—				—				9,096				—				—
Total future contractual commitments		$	67,079			$	27,920			$	8,093			$	20,494			$	3,795			$	6,777

	Total				Payments due by period
					2017				2018				2019				2020				2121				Thereafter
Operating leases	$	21,420			$	3,633			$	2,916			$	2,335			$	2,192			$	2,178			$	8,166
Purchase commitments	10,327				6,441				1,398				1,382				1,106				—				—
Short-term debt	17,599				17,599				—				—				—				—				—
Related-party debt	6,800				—				1,800				—				—				—				5,000
Total future contractual commitments	$	56,146			$	27,673			$	6,114			$	3,717			$	3,298			$	2,178			$	13,166

Operating Leases

The

Future minimum operating lease amounts shownobligations in the table above representinclude primarily off-balance sheet arrangements. For operating lease commitments, a liability is generally not recorded onpayments for our balance sheet unless the facility represents an excess facility foroffice locations and manufacturing, research and development locations, which an estimateexpire at various dates through 2025. See Note 14 “Commitments and Contingencies” of the facility exit costs has been recordedNotes to Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion regarding our balance sheet, net of estimated sublease income. For operating leases that include contractual commitments for operating expenses and maintenance, estimates of such amounts are included based on current rates. Payments made under operating leases will be treated as rent expense for the facilities currently being utilized.

leases.

Purchase Commitments

The purchase commitments shown above represent non-cancellable inventory purchase commitments as of December 31, 2016.2019.

On July 16, 2017, we reached an agreement with a supplier to cancel a purchase arrangement for certain inventory which was committed to through 2020. Under the settlement, we are no longer required to fulfill our commitment to purchase $4.3 million in inventory. In connection with the settlement, we also entered into a technical support services arrangement with the supplier through April 30, 2021.

Short-term Debt

The short-term debt obligations have been recorded as liabilities on our balance sheet, and comprise of $17.6 million in outstanding borrowings under the credit facilities of our foreign subsidiaries. Long-term Debt

The short-term debt obligation amount shown above represents scheduled principal repayments, but not the associated interest payments which may vary based on changes in market interest rates. At December 31, 2016,See Note 7 “Debt” of the interest rate per annum applicableNotes to outstanding borrowings under the trade facilities of our foreign subsidiaries ranged from 1.92% to 4.08%. See above under “Cash Management”Consolidated Financial Statements included in this Annual Report on Form 10-K for further information about these facilities.

Related-Party Debt

As of December 31, 2016, we had borrowed an aggregate of $6.8 million from DNI. The amounts listed in the table above reflect the amendment in February 2017 to the DNS capital investment loan, which among other matters extended the repayment date of the loan from March 2017. The table does not include the $3.5 million borrowed from Solueta, an affiliate of DNI, in June 2017. See above under “Cash Management” for further information aboutdiscussion regarding our related party debt.

operating leases.

ITEM

Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Cash and Cash Equivalents

We consider all cash and highly liquid investments purchased with an original maturity of less than three months to be cash equivalents.

Concentration of Credit Risk

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

RISKS

Not required

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.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

For the year ended December 31, 2016, two customers represented 16% and 10% of net revenue, respectively. For the year ended December 31, 2015, three customers represented 26%, 21% and 10% of net revenue, respectively. As of December 31, 2016, two customers accounted for 12% (a related-party) and 10% of net accounts receivable, respectively. As of December 31, 2015, two customers accounted for 22% and 45% (a related-party) of net accounts receivable, respectively. As of December 31, 2016 and 2015, receivables from customers in countries other than the United States represented 87% and 93%, respectively, of net accounts receivable.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to our outstanding short-term debt. As of December 31, 2016, our outstanding short-term debt balance was $17.6 million. Amounts borrowed under the short-term debt bear interest ranging from 1.92% to 4.08% as of December 31, 2016. Assuming the outstanding balance on our variable rate debt remains constant over a year, a 2% increase in the interest rate would decrease pre-tax income and cash flow by approximately $0.4 million.

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. During fiscal years 2016 and 2015, we did not hedge any of our foreign currency exposure.

We have performed a sensitivity analysis as of December 31, 2016 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 $1.7 million at December 31, 2016. 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.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

DASAN ZHONE SOLUTIONS, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
	Page
ReportReports of Independent Registered Public Accounting FirmFirms	43 38
Report of Independent Registered Public Accounting Firm	44
Consolidated Balance Sheets	45 41
Consolidated Statements of Comprehensive Income (Loss)	46 42
Consolidated Statements of Stockholders' Equity and Non-controlling Interest	47 43
Consolidated Statements of Cash Flows	48 44
Notes to Consolidated Financial Statements	49 45

No financial statement schedules are required because all the relevant data is included elsewhere in this Annual Report on Form 10-K.

these consolidated financial statements.

Report of Independent Registered Public Accounting Firm

To the

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

DASAN Zhone Solutions, Inc.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheet of DASAN Zhone Solutions, Inc.

In our opinion, the consolidated balance sheets (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2019, the related consolidated statements of comprehensive income (loss), of stockholders’ equity and non-controlling interest, and of cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of DASAN Zhone Solutions, Inc. and its subsidiariesthe Company as of December 31, 20162019, and the results of theirits operations and theirits cash flows for the year then ended, December 31, 2016 in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 24, 2020 expressed an adverse opinion.

Change in accounting principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for leases on January 1, 2019 using the modified retrospective approach due to the adoption of the new leasing standard.

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesethe Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Anmisstatement, whether due to error or fraud. Our audit includesincluded performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessingstatements. Our audit also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2019.

San Francisco, California

March 24, 2020

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1(b) to the consolidated financial statements, the Company has a significant amount of debt that is due within twelve months and experienced recurring losses from operations, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1(b). The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ PricewaterhouseCoopers LLP

San Jose, California

September  27, 2017

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

DASAN Zhone Solutions, Inc.

Opinion on internal control over financial reporting

We have audited the internal control over financial reporting of DASAN Zhone Solutions, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2019, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, because of the effect of the material weaknesses described in the following paragraphs on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2019, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Material weaknesses have been identified and included in management’s assessment related to insufficiency of qualified personnel, including a lack of qualified personnel to account for significant unusual transactions; financial close and reporting, including monitoring foreign subsidiaries; and the Company’s control environment, specifically inventory valuation and revenue.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2019. The material weaknesses identified above were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2019 consolidated financial statements, and this report does not affect our report dated March 24, 2020 which expressed an unqualified opinion on those financial statements.

Basis for opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and limitations of internal control over financial reporting

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ GRANT THORNTON LLP

San Francisco, California

March 24, 2020

Report of Independent Registered Public Accounting Firm

To the Board of Directors and ShareholderStockholders of

DASAN NetworkZhone Solutions, Inc. (formerly, DASAN Network Solutions, Inc.)

In our opinion,

Opinion on the Financial Statements

We have audited the consolidated balance sheet of DASAN Zhone Solutions, Inc. and its subsidiaries (the “Company”) as of December 31, 20152018, and the related consolidated statements of comprehensive income(loss)income (loss), of stockholder’sstockholders’ equity and non-controlling interest and of cash flows for each of the two years inyear then ended, including the period ended December 31, 2015,related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of DASAN Zhone Solutions, Inc. (formerly, DASAN Network Solutions, Inc.) and its subsidiariesthe Company as of December 31, 20152018, and the results of theirits operations and theirits cash flows for each of the two years in the periodyear then ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America.  

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’sCompany's management.  Our responsibility is to express an opinion on thesethe Company’s consolidated financial statements based on our audits.audit.  We conducted our audits of these statements in accordanceare a public accounting firm registered with the auditing standards of the Public Company Accounting Oversight Board (United States). (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.  

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. Anmisstatement, whether due to error or fraud.

Our audit includesincluded performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.  Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements.  Our audit also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.statements.  We believe that our audits provideaudit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

San Jose, California

March 12, 2019

We served as the Company's auditor from 2016 to 2019.

As discussed in Note 1(d) and Note 13 to the consolidated financial statements, the Company has restated its 2015 and 2014 financial statements to correct errors relating to the timing of revenue recognition, balance sheet misclassifications and the recording of certain related party sales transactions.

As discussed in Note 1(h) to the consolidated financial statements, the Company has retroactively adjusted the financial statements for a one-for-five reverse stock split.

/s/ Samil PricewaterhouseCoopers

Seoul, Korea

July 28, 2016, except for Note 1 (d),Note 1(h) and Note 13 as to which the date is September 27, 2017

DASAN ZHONE SOLUTIONS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except par value)

		As of December 31,
		2019				2018
Assets
Current assets:
Cash and cash equivalents		$	28,747			$	27,709
Restricted cash			4,646				7,003
Accounts receivable - trade, net of allowance for doubtful accounts of $393 in 2019 and $328 in 2018
Third parties			96,865				71,034
Related parties			—				583
Other receivables
Suppliers and others			8,092				12,923
Related parties			32				65
Inventories			35,439				33,868
Contract assets			16,680				11,381
Prepaid expenses and other current assets			4,185				4,185
Total current assets			194,686				168,751
Property, plant and equipment, net			6,769				5,518
Right-of-use assets from operating leases			20,469				—
Goodwill			3,977				3,977
Intangible assets, net			12,381				5,649
Deferred tax assets, net			1,622				2,752
Long-term restricted cash			242				936
Other assets			6,001				2,424
Total assets		$	246,147			$	190,007
Liabilities, Stockholders’ Equity and Non-controlling Interest
Current liabilities:
Accounts payable - trade
Third parties			38,331				36,865
Related parties			96				1,743
Short-term debt - Bank and trade facilities			17,484				31,762
Other payables
Third parties			1,748				1,792
Related parties			1,530				1,281
Contract liabilities - current			3,567				8,511
Operating lease liabilities - current			4,201				—
Accrued and other liabilities			12,844				11,517
Total current liabilities			79,801				93,471
Long-term debts
Bank and trade facilities			9,937				—
Related party			9,096				14,142
Contract liabilities - non-current			3,230				1,801
Operating lease liabilities - non-current			18,154				—
Pension liabilities			17,671				—
Other long-term liabilities			1,710				2,739
Total liabilities			139,599				112,153
Commitments and contingencies (Note 14)
Stockholders’ equity and non-controlling interest
Common stock, authorized 36,000 shares, 21,419 and 16,587 shares outstanding as of December 31,    2019 and 2018, respectively, at a $0.001 par value			21				16
Additional paid-in capital			139,700				93,192
Accumulated other comprehensive loss			(3,939	)			(192	)
Accumulated deficit			(29,234	)			(15,777	)
Total stockholders' equity			106,548				77,239
Non-controlling interest			—				615
Total stockholders' equity and non-controlling interest			106,548				77,854
Total liabilities, stockholders’ equity and non-controlling interest		$	246,147			$	190,007

	December 31, 2016				December 31, 2015
					(As restated)
Assets
Current assets:
Cash and cash equivalents	$	17,893			$	9,095
Restricted cash	6,650				4,764
Short-term investments	993				—
Accounts receivable, net of allowances for sales returns and doubtful accounts of $1,143 in 2016 and $868 in 2015
Trade receivables	38,324				17,712
Related parties	13,311				14,575
Other receivables
Others	12,068				11,268
Related parties	171				1,742
Current deferred tax assets	—				327
Inventories	31,032				13,976
Prepaid expenses and other current assets	4,131				951
Total current assets	124,573				74,410
Property and equipment, net	6,288				2,251
Goodwill	3,977				693
Intangible assets, net	8,767				3
Non-current deferred tax assets	—				1,058
Other assets	1,842				4,811
Total assets	$	145,447			$	83,226
Liabilities, Stockholders’ Equity and Non-controlling Interest
Current liabilities:
Accounts payable
Others	30,681				14,936
Related parties	430				—
Short-term debt	17,599				21,848
Other payables
Others	2,040				1,352
Related parties	6,940				133
Deferred revenue	1,901				—
Accrued and other liabilities	8,163				2,982
Total current liabilities	67,754				41,251
Long-term debt - related parties	6,800				—
Deferred revenue	1,674				—
Other long-term liabilities	2,351				510
Total liabilities	78,579				41,761
Commitments and contingencies (Note 14)
Stockholders’ equity and non-controlling interest
Common stock, authorized 36,000 shares, 16,375 shares and 9,493 shares outstanding as of December 31, 2016 and December 31, 2015 at $0.001 par value (1)	16				9
Additional paid-in capital	89,174				47,680
Other comprehensive loss	(2,815		)		(1,765		)
Accumulated deficit	(19,923		)		(4,597		)
Total stockholders' equity	66,452				41,327
Non-controlling interest	416				138
Total stockholders' equity and non-controlling interest	66,868				41,465
Total liabilities, stockholders’ equity and non-controlling interest	$	145,447			$	83,226

⁽¹⁾ Authorized and outstanding share amounts reflect the one-for-five reverse stock split effected on February 28, 2017.

See accompanying notes to consolidated financial statements.

DASAN ZHONE SOLUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(In thousands, except per share data)

		Years Ended December 31,
		2019				2018
Net revenue:
Third parties		$	304,369			$	276,718
Related parties			2,513				5,630
Total net revenue			306,882				282,348
Cost of revenue:
Products and services - third parties			203,269				185,709
Products and services - related parties			1,906				4,696
Amortization of intangible assets			1,596				612
Total cost of revenue			206,771				191,017
Gross profit			100,111				91,331
Operating expenses:
Research and product development			38,516				35,306
Selling, marketing, general and administrative			61,206				48,321
Restructuring and other charges			4,908				—
Amortization of intangible assets			1,507				524
Goodwill impairment charge			1,003				—
Total operating expenses			107,140				84,151
Operating income (loss)			(7,029	)			7,180
Interest income			456				264
Interest expense			(3,981	)			(1,738	)
Other income (expense), net			876				(1,146	)
Income (loss) before income taxes			(9,678	)			4,560
Income tax provision (benefit)			3,585				1,724
Net income (loss)			(13,263	)			2,836
Net income (loss) attributable to non-controlling interest			194				69
Net income (loss) attributable to DASAN Zhone Solutions, Inc.			(13,457	)			2,767
Foreign currency translation adjustments			(1,939	)			(2,051	)
Actuarial gain (loss) for pension plan			(1,793	)			—
Comprehensive income (loss)			(16,995	)			785
Comprehensive income attributable to non-controlling interest			209				81
Comprehensive income (loss) attributable to DASAN Zhone Solutions, Inc.		$	(17,204	)		$	704
Basic earnings (loss) per share attributable to DASAN Zhone Solutions, Inc.		$	(0.69	)		$	0.17
Diluted earnings (loss) per share attributable to DASAN Zhone Solutions, Inc.		$	(0.69	)		$	0.17
Weighted average shares outstanding used to compute basic net income (loss)    per share			19,403				16,482
Weighted average shares outstanding used to compute diluted net income (loss)    per share			19,403				16,746

	Years Ended December 31,
	2016				2015				2014
					(As restated)				(As restated)
Net revenue:
Net revenue	$	121,670			$	114,421			$	108,634
Net revenue - related parties	28,634				24,775				30,760
Total net revenue	150,304				139,196				139,394
Cost of revenue:
Products and services	84,415				81,420				70,361
Products and services - related parties	24,738				21,890				28,191
Amortization of intangible assets	204				—				—
Total cost of revenue	109,357				103,310				98,552
Gross profit	40,947				35,886				40,842
Operating expenses:
Research and product development	25,396				21,331				22,805
Selling, marketing, general and administrative	27,348				17,528				14,834
Amortization of intangible assets	1,556				4				—
Gain from sale of assets	(304		)		—				—
Total operating expenses	53,996				38,863				37,639
Operating income (loss)	(13,049		)		(2,977		)		3,203
Interest income	183				136				418
Interest expense	(830		)		(532		)		(526		)
Other income (expense), net	(145		)		266				122
Income (loss) before income taxes	(13,841		)		(3,107		)		3,217
Income tax provision	1,487				232				1,380
Net income (loss)	(15,328		)		(3,339		)		1,837
Net loss attributable to non-controlling interest	(2		)		—				—
Net income (loss) attributable to DASAN Zhone Solutions, Inc.	$	(15,326	)		$	(3,339	)		$	1,837
Foreign currency translation adjustments	(1,047		)		(2,790		)		(1,997		)
Comprehensive loss	(16,375		)		(6,129		)		(160		)
Comprehensive income attributable to non-controlling interest	1				—				—
Comprehensive loss attributable to DASAN Zhone Solutions, Inc.	$	(16,376	)		$	(6,129	)		$	(160	)
Basic and diluted net income (loss) per share attributable to DASAN Zhone Solutions, Inc. (1)	$	(1.32	)		$	(0.36	)		$	0.20
Weighted average shares outstanding used to compute basic and diluted net income (loss) per share (1)	11,637				9,314				9,199

⁽¹⁾ All per share and weighted average share amounts have been adjusted to retroactively reflect the one-for-five reverse stock split effected on February 28, 2017.

See accompanying notes to consolidated financial statements.

DASAN ZHONE SOLUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity and Non-controllingNon-Controlling Interest

Years ended December 31, 2016, 20152019 and 2014

2018

(In thousands)

		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
Balances as of    December 31, 2017			16,410			$	16			$	90,198			$	1,871			$	(18,852	)		$	73,233			$	534			$	73,767
ASC 606 opening    balance adjustment			—				—				—				—				308				308				—				308
Exercise of stock options    and restricted stock grant			177				—				914				—				—				914				—				914
Stock-based compensation			—				—				2,080				—				—				2,080				—				2,080
Net income			—				—				—				—				2,767				2,767				69				2,836
Other comprehensive loss			—				—				—				(2,063	)			—				(2,063	)			12				(2,051	)
Balance as of    December 31, 2018			16,587				16				93,192				(192	)			(15,777	)			77,239				615				77,854
Issuance of common    stock in public offering,    net of issuance costs			4,718				5				42,504				—				—				42,509				—				42,509
Purchase of non-    controlling interest    in subsidiary			—				—				(127	)			—				—				(127	)			(824	)			(951	)
Exercise of stock options    and restricted stock grant			75				—				256				—				—				256				—				256
Employee stock plan    purchase program    (ESPP)			39				—				367				—				—				367				—				367
Stock-based compensation			—				—				3,508				—				—				3,508				—				3,508
Net loss			—				—				—				—				(13,457	)			(13,457	)			194				(13,263	)
Other comprehensive loss			—				—				—				(3,747	)			—				(3,747	)			15				(3,732	)
Balance as of    December 31, 2019			21,419			$	21			$	139,700			$	(3,939	)		$	(29,234	)		$	106,548			$	—			$	106,548

	Common stock							Additional paid-in capital				Other comprehensive income (loss)				Accumulated deficit				Total stockholders' equity				Non-controlling interest				Total stockholders' equity and non-controlling interest
	Shares			Amount
Balances as of December 31, 2013	9,173			$	9			$	47,188			$	3,022			$	(3,095	)		$	47,124			$	—			$	47,124
Issuance of common stock	48			—				1,800				—				—				1,800				—				1,800
Increase in parent company investment	—			—				(131		)		—				—				(131		)		—				(131		)
Net income	—			—				—				—				1,837				1,837				—				1,837
Other comprehensive loss	—			—				—				(1,997		)		—				(1,997		)		—				(1,997		)
Balances as of December 31, 2014	9,221			9				48,857				1,025				(1,258		)		48,633				—				48,633
Issuance of common stock	272			—				1,800				—				—				1,800				—				1,800
Net increase in parent company investment	—			—				(2,977		)		—				—				(2,977		)		—				(2,977		)
Net loss	—			—				—				—				(3,339		)		(3,339		)		—				(3,339		)
Other comprehensive loss	—			—				—				(2,790		)		—				(2,790		)		—				(2,790		)
Acquisition of controlling interest	—			—				—				—				—				—				138				138
Balances as of December 31, 2015 (As restated)	9,493			9				47,680				(1,765		)		(4,597		)		41,327				138				41,465
Stock-based compensation	8			—				336				—				—				336				—				336
Shares of Legacy Zhone stock as of September 8, 2016 acquired through business combination	6,874			7				41,435				—				—				41,442				—				41,442
Net loss	—			—				—				—				(15,326		)		(15,326		)		(2		)		(15,328		)
Other comprehensive income (loss)	—			—				—				(1,050		)		—				(1,050		)		3				(1,047		)
Acquisition of additional interest	—			—				(277		)		—				—				(277		)		277				—
Balances as of December 31, 2016	16,375			$	16			$	89,174			$	(2,815	)		$	(19,923	)		$	66,452			$	416			$	66,868

Share amounts reflect the one-for-five reverse stock split effected on February 28, 2017. See Note 1(g) for information on reverse stock split.

See accompanying notes to consolidated financial statements.

DASAN ZHONE SOLUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

		Years Ended December 31,
		2019				2018
Cash flows from operating activities:
Net income (loss)		$	(13,263	)		$	2,836
Adjustments to reconcile net income (loss) to net cash provided by    (used in) operating activities:
Depreciation and amortization			5,115				2,702
Goodwill impairment charge			1,003				—
Amortization of deferred financing cost			664				—
Stock-based compensation			3,508				2,080
Provision for inventory reserves			2,984				835
Provision for doubtful accounts			155				20
Provision for sales returns			370				1,343
Unrealized loss (gain) on foreign currency transactions			158				(1,229	)
Provision for deferred income taxes			1,130				202
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable			(23,072	)			(10,287	)
Inventories			4,802				(9,359	)
Contract assets			(5,962	)			(12,175	)
Prepaid expenses and other assets			(7,688	)			3,381
Accounts payable			10,340				5,702
Accrued and other liabilities			854				(3,727	)
Contract liabilities			(3,800	)			5,458
Net cash used in operating activities			(22,702	)			(12,218	)
Cash flows from investing activities:
Proceeds from disposal of property, plant and equipment and other assets			—				2
Purchases of property, plant and equipment			(2,314	)			(1,182	)
Acquisition of business, net of cash acquired			(4,660	)			—
Net cash used in investing activities			(6,974	)			(1,180	)
Cash flows from financing activities:
Proceeds from issuance of common stock in public offerings, net of issuance costs			42,509				—
Proceeds from short-term borrowings and line of credit			49,243				55,518
Repayments of short-term borrowings and line of credit			(69,357	)			(45,033	)
Proceeds from long-term borrowings			25,000				—
Repayments of long-term borrowings			(11,875	)			—
Proceeds from related party term loan			—				12,064
Repayments of related party term loan			(5,000	)			(4,460	)
Financing cost - debt issuance			(2,148	)			—
Purchase of non-controlling interest			(951	)			—
Proceeds from exercise of stock options			623				914
Net cash provided by financing activities			28,044				19,003
Effect of exchange rate changes on cash, cash equivalents, and restricted cash			(381	)			(1,369	)
Net increase (decrease) in cash, cash equivalents and  restricted cash			(2,013	)			4,236
Cash, cash equivalents and restricted cash at beginning of period			35,648				31,412
Cash, cash equivalents and restricted cash at end of period		$	33,635			$	35,648
Reconciliation of cash, cash equivalents and restricted cash to statement of    financial position
Cash and cash equivalents		$	28,747			$	27,709
Restricted cash			4,646				7,003
Long-term restricted cash			242				936
		$	33,635			$	35,648
Supplemental disclosure of cash flow information:
Shares of the Company's common stock held in escrow			—				—
Cash paid during the period for:
Interest - bank and trade facilities		$	2,786			$	1,332
Interest - related party		$	509			$	611
Income taxes		$	2,017			$	1,260

	Years Ended December 31,
	2016				2015				2014
					(As restated)				(As restated)
Cash flows from operating activities:
Net income (loss)	$	(15,328	)		$	(3,339	)		$	1,837
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	3,173				1,404				1,936
Gain from sale of assets	(304		)		—				—
Stock-based compensation	336				—				—
Unrealized gain on foreign currency transactions	62				(1,301		)		(2,066		)
Deferred taxes	1,408				(86		)		(432		)
Changes in operating assets and liabilities:
Accounts receivable	(2,092		)		11,442				(16,554		)
Inventories	(1,080		)		6,026				(4,792		)
Prepaid expenses and other current assets	3,074				196				(9,412		)
Accounts payable	4,488				(6,676		)		8,432
Accrued expenses	9,759				(3,415		)		1,541
Net cash provided by (used in) operating activities	3,496				4,251				(19,510		)
Cash flows from investing activities:
Cash acquired through the Merger	7,013				—				—
(Increase) decrease in restricted cash	(2,128		)		1,479				278
Decrease in short-term and long-term loans to others	516				88				209
Increase in short-term and long-term loans to others	(214		)	��	(446		)		—
Proceeds from disposal of property and equipment and other assets	10				2,230				2,678
Purchases of short-term investments	(1,034		)		(1,856		)		(1,899		)
Purchases of property and equipment	(1,311		)		(794		)		(1,137		)
Purchases of intangible assets	(61		)		—				—
Payment for purchase of shares of HandySoft, net of cash acquired	—				(548		)		—
Net cash provided by (used in) investing activities	2,791				153				129
Cash flows from financing activities:
Repayments of borrowings	(27,336		)		(17,796		)		(31,384		)
Proceeds from short-term borrowings	25,069				17,950				38,349
Proceeds from long-term borrowings - related party	5,000				—				—
Government grants received	—				217				156
Proceeds from issuance of common stock	—				1,800				1,800
Decrease in other capital	—				(2,977		)		(131		)
Net cash provided by (used in) financing activities	2,733				(806		)		8,790
Effect of exchange rate changes on cash	(222		)		(510		)		(256		)
Net increase (decrease) in cash and cash equivalents	8,798				3,088				(10,847		)
Cash and cash equivalents at beginning of period	9,095				6,007				16,854
Cash and cash equivalents at end of period	$	17,893			$	9,095			$	6,007
Supplemental disclosure of cash flow information:
Shares of the Company's common stock held in escrow	949				—				—
Cash paid during the period for:
Interest	$	663			$	570			$	474
Income taxes	353				1,496				2,430

See accompanying notes to consolidated financial statements.

DASAN ZHONE SOLUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(1) Organization and Summary of Significant Accounting Policies

(a) Description of Business

DASAN Zhone Solutions, Inc. (formerly known as Zhone Technologies, Inc. and referred(referred to, collectively with its subsidiaries, as "DZS"“DZS” or the "Company"“Company”) is a global provider of ultra-broadband network access solutions and communications equipment forplatforms deployed by advanced Tier 1, 2 and 3 service providerproviders and enterprise networks.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 1,0001200 customers in more than 50120 countries worldwide.

DZS was incorporated under the laws of the state of Delaware in June 1999. The Company is headquartered in Oakland, California with flexible in-house production facilities in Seminole, Florida and Hannover, Germany, and contract manufacturers located in China, India, Korea and Vietnam. The Company also maintains offices to provide sales and customer support at global locations. On September 9, 2016,March 2, 2020, the Company acquired Dasan Network Solutions, Inc. ("DNS") throughannounced its plans to relocate its corporate headquarters from Oakland, California to Plano, Texas and to establish a new U.S.-based Engineering Center of Excellence in Plano.

(b) Basis of Presentation

The consolidated financial statements are prepared in accordance with U.S. GAAP and include the merger of a wholly owned subsidiaryaccounts of the Company, with and into DNS, with DNS surviving as aits wholly owned subsidiaries and a subsidiary in which it had a controlling interest. All inter-company transactions and balances have been eliminated in consolidation.

(c) DNI Ownership

As of December 31, 2019, DNI owned approximately 44.4% 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 followingstock. As a result, DNI is able to significantly influence corporate and management policies and the Merger. In connectionoutcome 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 Merger,interests of the Company changed its name from Zhone Technologies, Inc.Company's other stockholders or with holders of the Company's indebtedness. See Note 7 and Note 12 to DASAN Zhone Solutions, Inc. For periods through September 8, 2016, Zhone Technologies, Inc. is referred to as "Legacy Zhone." The Company’s common stock continues to be traded on the Nasdaq Capital Market,consolidated financial statements for additional information.

(d) Risks and the Company’s ticker symbol was changed from "ZHNE" to "DZSI" effective September 12, 2016. The Company is headquartered in Oakland, California.

(b) Going Concern

Uncertainties

The accompanying consolidated financial statements have been prepared in conformity with generally accepted

accounting principles in the United States ("U.S. GAAP"),GAAP, assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Accordingly, the consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

The Company hashad net loss of $13.3 million for the year ended December 31, 2019 and net income of $2.8 million for the year ended December 31, 2018. Additionally, the Company incurred significant losses to date and losses from operations may continue. The Company incurred net lossesin prior years. As of $15.3 million and $3.3 million for the years ended December 31, 2016 and 2015, respectively. The2019, the Company had an accumulated deficit of $19.9$29.2 million and working capital of $56.8 million as of December 31, 2016.$114.9 million. As of December 31, 2016,2019, the Company had approximately $17.9$28.7 million in cash and cash equivalents, which included $9.8$14.2 million in cash balances held by the Company's Korean subsidiary,its international subsidiaries, and $24.4$38.0 million in aggregate principal amount debt of outstanding borrowings under the Company's short-term debt obligations and the Company's loans from DNI. which $18.3 million was reflected in current liabilities. In addition, the Company had $4.2 million in aggregate borrowing availability under its revolving credit facilities as of December 31, 2016. The2019, the Company had $14.6$4.5 million committed as security for letters of credit under its revolving credit facilities.

The Company’s liquidity could be impacted by:

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

debt servicing requiring substantial amounts of cash, rather than being available for other purposes, including operations;

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

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

The Company’s ability to meet its obligations as they become due in the ordinary course of business for the next twelve (12) months will depend on its ability (i) to achieve forecasted results of operations, (ii) access funds approved under existing or new credit facilities and/or raise additional capital through sale of the Company’s common stock to the public, and (iii) effectively manage working capital requirements. If the Company cannot raise additional funds when it needs or wants them, its operations and prospects could be negatively affected. Management’s belief that it will achieve forecasted results of operations assumes that, among other things, the Company will continue to be successful in implementing its business strategy. If one or more of these facilitiesfactors do not occur as expected, it could cause the Company to fail to meet its obligations as they come due.

At September 30, 2019, the Company was not in compliance with the maximum leverage ratio financial covenant under the PNC Credit Facilities, which represented an event of default thereunder. On November 8, 2019, the Company obtained a waiver of the foregoing event of default. The Company would have been in further breach of this financial covenant as of December 31, 2016. Due2019.  As discussed further in Note 7 to the consolidated financial statements, in March 2020, the Company entered into a term loan with DNI in the amount of short-term debt obligations maturing withinKRW 22.4 billion ($18.5 million). The Company plans to use the next 12 monthsproceeds of such loan to repay in full the PNC Credit Facilities, and terminate the facility. Covenants under the March 2020 DNI loan are less restrictive than under the PNC Credit Facilities.  

In December 2019, a strain of coronavirus, now known as COVID-19, was reported to have surfaced in Wuhan, China. Since that time, other countries including the United States, South Korea, Italy and Japan have experienced widespread or sustained transmission of the virus, and there is a risk that the virus will continue to spread to additional countries. The Company relies on suppliers and contract manufacturers located in China and has significant business operations in South Korea and Japan. If the virus continues to spread, the effects of the virus could continue to materially and adversely affect our financial condition, results of operations, and cash flows. Given the ongoing and dynamic nature of the virus and the Company's recurring operating losses,worldwide response related thereto, it is difficult to predict the Company's cash resources may not be sufficient to settle these debt obligations.full impact of the COVID-19 outbreak on our business. The Company's ability to continue asimpact of a "going concern" is dependent on many factors, including, among other things, its ability to comply with the covenants in its existing debt agreements, its ability to cure any defaults that occur under its debt agreements or to obtain waivers or forbearances with respect to any such defaults, and its ability to pay, retire, amend, replace or refinance its indebtedness as defaults occur or as interest and principal payments come due. Although the process of amending, replacing or refinancing the Company’s short-term debt obligations is ongoing and the Company is in active discussions with multiple parties, there is no guarantee that they will result in transactions that are sufficient to provide the Company with the required liquidity to remove the substantial doubt as to its ability to continue ascontinued COVID-19 outbreak could have a going concern. If the Company is unable to amend, replace, refinance its debt obligations or raise the capital needed to meet liquidity needs and finance capital expenditures and working capital, the Company may experience material adverse impactseffect on itsour business, operatingfinancial condition, results of operations, and financial condition.

The Company has continued its focus on cost control and operating efficiency along with restrictions on discretionary spending, however in order to meet the Company's liquidity needs and finance the Company's capital expenditures and working capital needs for its business, the Company may be required to sell assets, issue debt or equity securities, purchase credit insurance or borrow on potentially unfavorable terms. In addition, the Company may be required to reduce the scope of its planned product development, reduce sales and marketing efforts and reduce its operations in low margin regions, including reductions in headcount. cash flows.

Based on the Company's current plans and current business conditions, the Company believes that its focused operating

expense discipline along with its existing cash, cash equivalents and available credit facilities will be sufficient to satisfy its anticipated cash requirements for at least the next 12twelve (12) months however the factors discussed above raise substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that may result from the outcomedate of the uncertainties set forth above.

(c) Risks and Uncertainties

As resultthis Annual Report on Form 10-K.

Concentration of the Merger, DNI owned approximately 58% of the outstanding shares of the Company's common stock as of December 31, 2016. Thereafter, for so long as DNI and its affiliates hold shares of the Company's common stock representing at least a majority of the votes, DNI will be able to freely nominate and elect all the members of the Company's board of directors. The directors elected by DNI will have the authority to make decisions affecting the Company's capital structure, including the issuance of additional capital stock or options, the incurrence of additional indebtedness, the implementation of stock repurchase programs, and the declaration of dividends. The interests of DNI may not coincide with the interests of the Company's other stockholders or with holders of the Company's indebtedness. DNI’s ability to control all matters submitted to the Company's stockholders for approval limits the ability of other stockholders to influence corporate matters and, as a result,Risk

Financial instruments, which potentially subject the Company may take actions that the Company's other stockholders or holdersto concentrations of our indebtedness do not view as beneficial. See Note 2, Note 13credit risk, consist primarily of cash and Note 14 to the consolidatedcash equivalents, accounts receivable and contract assets. Cash and cash equivalents consist principally of financial statements for additional information.

As discussed above in Note 1(b), there is also substantial doubt about the Company's ability to continue as a going concern. deposits and money market accounts. Cash and cash equivalents are principally held with various domestic financial institutions with high credit standing.

The accompanying consolidated financial statements do notCompany’s customers include any adjustments that might be necessary if the Company is unable to continue as a going concern.

(d) Restatement of Previously Reported Consolidated Financial Statements

competitive and incumbent local exchange carriers, competitive access providers, internet service providers, wireless carriers and resellers serving these markets. The Company identified errors related to the timingperforms ongoing credit evaluations of revenue recognitionits customers and the classification of certain related party revenue, related party cost of revenue and related royalty fees in the consolidated financial statementsgenerally does not require collateral. Allowances are maintained for potential doubtful accounts.

For the year ended December 31, 2015 and December 31, 2014. In addition, the restatement includes corrections2019, no customer represented 10% or more of certain other balance sheet misclassifications.  The Company has concluded that these errors were material to the consolidated financial statements fornet revenue. For the year ended December 31, 20152018, one (1) customer represented 11% of net revenue.

As of December 31, 2019, two (2) customers represented 18% and 11% of net accounts receivable, respectively. As of December 31, 2018, two (2) customers represented 11% and 10% of net accounts receivable, respectively. As of December 31, 2019 and December 31, 2014, and have restated those periods2018, receivables from customers in this filing.

The following schedules reconcile the amounts as previously reported in the consolidated financial statements for the year ended December 31, 2015 and December 31, 2014 to the corresponding restated amounts (in thousands, except per share data):

Consolidated Balance Sheet
		December 31, 2015
		As Previously Reported				Restatement Adjustments				As Restated
Cash and cash equivalents (1)		$	10,015			$	(920	)		$	9,095
Restricted cash (1)		3,844				920				4,764
Accounts receivable - Trade		27,084				(9,372		)		17,712
Accounts receivable - Related Party		5,644				8,931				14,575
Inventories		13,900				76				13,976
Total current assets		74,775				(365		)		74,410
Total assets		83,591				(365		)		83,226
Other comprehensive loss (1)		(1,775		)		10				(1,765		)
Accumulated deficit		(4,222		)		(375		)		(4,597		)
Total stockholders' equity		41,692				(365		)		41,327
Total liabilities and stockholders' equity and non-controlling interest		83,591				(365		)		83,226

⁽¹⁾ The misclassification error related to restricted cash as of December 31, 2015.

Consolidated Statement of Comprehensive Loss
		December 31, 2015
		As Previously Reported				Restatement Adjustments				As Restated
Net revenue		$	127,890			$	(13,469	)		$	114,421
Net revenue - Related Party(1)		12,135				12,640				24,775
Total revenue		140,025				(829		)		139,196
Cost of revenue		92,664				(11,244		)		81,420
Cost of revenue - Related Party		10,722				11,168				21,890
Total cost of revenue		103,386				(76		)		103,310
Gross Profit		36,639				(753		)		35,886
Selling, marketing, general and administrative expense (1)		17,919				(391		)		17,528
Operating income (loss)		(2,615		)		(362		)		(2,977		)
Other income (expense), net		279				(13		)		266
Income (loss) before income taxes		(2,732		)		(375		)		(3,107		)
Net loss		(2,964		)		(375		)		(3,339		)
Comprehensive loss		(5,764		)		(365		)		(6,129		)
Basic and diluted net loss per share		(0.32		)		(0.04		)		(0.36		)

Consolidated Statement of Comprehensive Loss
		December 31, 2014
		As Previously Reported				Restatement Adjustments				As Restated
Net revenue		$	124,648			$	(16,014	)		$	108,634
Net revenue - Related Party (1)		15,226				15,534				30,760
Total revenue		139,874				(480		)		139,394
Cost of revenue		84,598				(14,237		)		70,361
Cost of revenue - Related Party		13,954				14,237				28,191
Total cost of revenue		98,552				—				98,552
Gross Profit		41,322				(480		)		40,842
Selling, marketing, general and administrative expense (1)		15,314				(480		)		14,834

⁽¹⁾ As discussed in Note 13, the Company did not appropriately classify certain brand royalty fee of $0.4 million and $0.5 million as a reduction of revenue for the years ended December 31, 2015 and December 31, 2014.

Consolidated Statement of Cash Flows
		December 31, 2015
		As Previously Reported				Restatement Adjustments				As Restated
Net cash provided by (used in) operating activities (1)		$	4,261			$	(10	)		$	4,251
Net cash provided by (used in) investing activities (1)		294				(141		)		153

⁽¹⁾ The Company did not appropriately classify restricted cash of $0.9 million separately from cash and cash equivalents as of December 31, 2015.

Consolidated Statement of Cash Flows
		December 31, 2014
		As Previously Reported			Restatement Adjustments			As Restated
Net cash provided by (used in) investing activities (1)		908			(779	)		129

⁽¹⁾ The Company did not appropriately classify restricted cash of $0.8 million separately from cash and cash equivalents as of December 31, 2014

The disclosures in these notes to consolidated financial statements include schedules reconciling the amounts previously reported to the corresponding restated amounts in their respective sections.

(e) Basis of Presentation

The consolidated financial statements are prepared in accordance with accounting principles generally accepted incountries other than the United States represented 94% and include the88% of net accounts of the Company, its wholly-owned subsidiaries and a subsidiary in which it has a controlling interest. All inter-company transactions and balances have been eliminated in consolidation.

As discussed more fully in Note 2, on September 9, 2016, the acquisition of DNS was consummated 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.

At the effective time of the Merger, all issued and outstanding shares of capital stock of DNS held by 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. As a result, immediately following the effective time of the Merger, DNI held 58% of the outstanding shares of the Company's common stock and the holders of the Company's common stock immediately prior to the Merger retained, in the aggregate, 42% of the outstanding shares of the Company's common stock.

The Merger has been accounted for as a reverse acquisition under which DNS was considered the accounting acquirer of the Company. As such, the consolidated financial results of the Company for the year ended December 31, 2016 presented in the consolidated financial statements reflect the operating results of DNS and its consolidated subsidiaries for the period commencing on the first day of the applicable period through September 8, 2016 and the operating results of both DNS and Legacy Zhone and their respective consolidated subsidiaries for the period September 9 through December 31, 2016. The balance sheet of the Company as of December 31, 2016 includes the fair value of the assets and liabilities of Legacy Zhone as of the effective date of the Merger. Those assets include the fair value of acquired intangible assets and goodwill. Due to the foregoing, the Company’s financial results for the year ended December 31, 2016 are not comparable to its financial results for prior years.

Except as otherwise specifically noted herein, all references to the "Company" refer to (i) DNS and its consolidated subsidiaries for periods through September 8, 2016 and (ii) the Company and its consolidated subsidiaries for periods on or after September 9, 2016.

(f)receivable, respectively.      

(e) Consolidated Subsidiaries

Details of the Company's consolidated operating subsidiaries as of December 31, 20162019 and December 31, 20152018 are as follows:

				Percentage of ownership (%)
		Location		December 31, 2019				December 31, 2018
Dasan Network Solutions, Inc. (U.S. subsidiary)		US			100	%			100	%
Dasan Network Solutions, Inc. (Korean subsidiary)		Korea			100	%			100	%
DZS Japan Inc.		Japan			100	%			69.06	%
DASAN Vietnam Company Limited		Vietnam			100	%			100	%
D-Mobile Limited		Taiwan			100	%			100	%
DASAN India Private Limited		India			99.99	%			99.99	%
Keymile Gmbh		Germany			100	%			—	%

				Percentage of ownership (%)
		Location		December 31, 2016			December 31, 2015
Dasan Network Solutions, Inc. (U.S. subsidiary)		US		100	%		100	%
Dasan Network Solutions, Inc. (Korean subsidiary)		Korea		100	%		100	%
DASAN Network Solutions Japan Co., Ltd. (formerly: HandySoft Japan Co., Ltd.)		Japan		69.06	%		50.25	%
DASAN Vietnam Co., Ltd		Vietnam		100	%		N/A

(g)

(f) Use of Estimates

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles in the United States of AmericaU.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.

(h) Reverse Stock Split

On February 28, 2017,

(g) Revenue Recognition

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

The Company generates revenue primarily from sales of products and services, including, extended warranty service and customer support. Revenue from product sales is recognized at a Certificate of Amendment with the Delaware Secretary of State to amend the Company's Restated Certificate of Incorporation, which amendment effected a one-for-five reverse stock splitpoint in time when control of the Company's common stock and reducedgoods is transferred to the authorized sharescustomer, generally occurring upon shipment or delivery dependent upon the terms of the Company's common stock from 180 million to 36 million. As a resultunderlying contract. Most of the reverse stock split, the number of shares of the Company’s common stock then issued and outstanding was reduced from approximately 81.9 million to approximately 16.4 million. References to shares of the Company's common stock, stock options (and associated exercise price) and restricted stock units in this Annual Report on Form 10-K are provided on a post-reverse stock split basis.

(i) Revenue Recognition

The Company recognizes revenue when the earnings process is complete. The Company recognizes product revenue upon shipment of product under contractual terms which transfer title to customers upon shipment, under normal credit terms, net of estimated sales returns and allowances at the time of shipment. Revenue is deferred if there are significant post-delivery obligations or if the fees are not fixed or determinable. When significant post-delivery obligations exist, revenue is deferred until such obligations are fulfilled. The Company’s arrangements generally do not have any significant post-delivery obligations. If the Company’s arrangements include customer acceptance provisions, revenue is recognizedprovisions.  Transfer of control occurs upon obtaining the signed acceptance certificate from the customer, unless the Company can objectively demonstrate that the delivered products or services meet all thecustomer acceptance criteria specified in the arrangement prior to obtaining the signed acceptance.is a formality. In those instances, where revenue is recognizedtransfer of control occurs prior to obtaining the signed acceptance certificate, the Company usesconsiders a number of factors, including successful completion of customer testing as the basis to objectively demonstrate that the delivered products or services meet all the acceptance criteria specified in the arrangement. The Company also considers historical acceptancearrangement, its experience with the customer as welland its experience with other contracts for similar products. 

Revenue from services is generally recognized over time on a ratable basis over the contract term, using an output measure of progress, as the contracts usually provide the customer equal benefit throughout the contract period. The Company typically invoices customers for support contracts in advance, for periods ranging from one (1) to five (5) years.

Transaction price is calculated as selling price net of variable consideration. Sales to certain distributors are made under arrangements which provide the distributors with volume discounts, price adjustments, and other allowances under certain circumstances. These adjustments and allowances are accounted for as variable consideration. To estimate variable consideration, the Company analyzes historical data, channel inventory levels, current economic trends and changes in customer demand for the Company's products, among other factors. Historically, variable consideration has not been a significant component of the Company’s contracts with customers.

For contracts with customers that contain multiple performance obligations, the Company accounts for the promised performance obligations separately as individual performance obligations if they are distinct. In determining whether performance obligations meet the criteria for being distinct, the Company considers a number of factors, including the degree of interrelation and interdependence between obligations and whether or not the good or service significantly modifies or transforms another good or service in the contract. After identifying the separate performance obligations, the transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices for products are determined using either an adjusted market assessment or expected cost-plus margin. For customer support and extended warranty services, standalone selling price is primarily based on the prices charged to customers, when sold separately. Unsatisfied and partially unsatisfied performance obligations as of the end of the reporting period primarily consist of products and services for which customer purchase orders have been accepted and that are in the process of being delivered.

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

The Company’s payment terms specifiedvary by the type and location of its customer and the products or services offered. For certain products or services and customer types, the Company requires payment before the products or services are delivered to the customer.

Other related policies and revenue information

Warranties

Products sold to customers include standard warranties, typically for one year, covering bug fixes and minor updates such that the product continues to function according to published technical specifications. These standard warranties are assurance type warranties and do not offer any services in addition to the arrangement, whenassurance that the product will continue working as specified. Therefore, standard warranties are not considered separate performance obligations. Instead, the expected cost of warranty is accrued as expense in accordance with applicable guidance. Optional extended warranties, for up to five years, are sold with certain products and include additional support services. The transaction price for extended warranties is accounted for as service revenue isand recognized prior to obtainingratably over the signed acceptance certificate. When collectability is not reasonably assured, revenue is recognized when cash is collected.

life of the contract.

The Company makes certain salesrecords estimated costs related to standard warranties upon product distributors. These customers are given certain privileges to return a portionshipment or upon identification of inventory. Return privileges generally allow distributors to return inventory based on a percent of purchases made within a specific product failure. The Company recognizes estimated warranty costs when it is probable that a liability has been incurred and the amount of loss is reasonably estimable. The estimates are based upon historical and projected product failure and claim rates, historical costs incurred in correcting product failures and information available related to any specifically identified product failures. Significant judgment is required in estimating costs associated with warranty activities and the Company's estimates are limited to information available to the Company at the time of such estimates. In some cases, such as when a specific product failure is first identified or a new product is introduced, the Company may initially have limited information and limited historical failure and claim rates upon which to base its estimates, and such estimates may require revision in future periods. The recorded amount is adjusted from time to time for specifically identified warranty exposure.

Contract Costs

Applying a practical expedient, the Company recognizes the incremental costs of obtaining contracts, which primarily consist of sales commissions, as sales and marketing expense, when incurred if the amortization period of time. the assets that otherwise would have been recognized is one year or less. If the service period, inclusive of any anticipated renewal, is longer than a year, the incremental direct costs are capitalized and amortized over the period of benefit. As of December 31, 2019 and 2018, such capitalized costs were not significant.

Financing

The Company applies the practical expedient not to adjust the promised amount of consideration for the effects of a financing component if the Company expects, at contract inception, that the period between when the Company transfers a good or service to the customer and when the customer pays for the good or service will be one year or less. During the year ended December 31, 2019 and 2018, such financing components were not significant.

Bill-and-hold

The Company recognizes revenue from the sale of products when control has passed to the customer, which is based on salesthe shipping terms of the arrangement, when significant risk and rewards have transferred to distributorsthe customer. In some instances, the customer agrees to buy product from the Company but requests delivery at a later date, commonly known as bill-and-hold arrangements. For these transactions, the Company deems that have contractual return rightscontrol passes to the customer when the product is ready for delivery. The Company views products readiness for delivery when a signed agreement is in place, the transaction is billable, and the customer has significant risk and rewards for the products, the ability to direct the assets, the products have been sold byset aside specifically for the distributors, unless there is sufficient customer, specific sales and sales returns historycannot be redirected to support revenue recognition upon shipment. In those instancesanother customer.

Shipping and Handling

The Company has elected to account for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment cost rather than as an additional promised service. As a result, the Company accrues the costs of shipping and handling when the related revenue is recognized upon shipment to distributors, the Company uses historical rates of return from the distributors to provide for estimated product returns.

.

Unsatisfied Performance Obligations

The Company derives revenue primarily from stand-alone salesdoes not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. The majority of the Company's performance obligations in its products. In certain cases,contracts with customers relate to contracts with duration of less than one year. The transaction price allocated to unsatisfied performance obligations included in contracts with duration of more than 12 months is reflected in contract liabilities – non-current on the consolidated balance sheet.

Disaggregation of Revenue

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

		Years ended December 31,
		2019				2018
Revenue by products and services:
Products		$	286,292			$	269,269
Services			20,590				13,079
Total		$	306,882			$	282,348

Information about the Company’s products are sold along with services, which include education, training, installation, and/or extended warranty services. As such, some of the Company’s sales have multiple deliverables. The Company’s productsnet revenue for North America and services qualify as separate units of accountinginternational markets for 2019 and are deemed to be non-contingent deliverables as the Company’s arrangements typically do not have any significant performance, cancellation, termination and refund type provisions. Products are typically considered delivered upon shipment. Revenue from services2018 is recognized ratably over the period during which the services are to be performed.summarized below (in thousands):

		Years ended December 31,
		2019				2018
Revenue by geography:
United States		$	36,383			$	50,795
Canada			4,690				4,413
Total North America			41,073				55,208
Latin America			23,774				27,596
Europe, Middle East, Africa			78,375				34,741
Korea			79,124				76,006
Other Asia Pacific			84,536				88,797
Total International			265,809				227,140
Total		$	306,882			$	282,348

For multiple deliverable revenue arrangements, the Company allocates revenue to products and services using the relative selling price method to recognize revenue when the revenue recognition criteria for each deliverable are met. The selling price of a deliverable is based on a hierarchy and if the Company is unable to establish vendor-specific objective evidence of selling price (“VSOE”) it uses third-party evidence of selling price (“TPE”), and if no such data is available, it uses a best estimated selling price (“BSP”). In most instances, particularly as it relates to products, the Company is not able to establish VSOE for all deliverables in an arrangement with multiple elements. This may be due to infrequently selling each element separately, not pricing products within a narrow range, or only having a limited sales history. When VSOE cannot be established, the Company attempts to establish the selling price of each element based on TPE. Generally, the Company’s marketing strategy differs from that of the Company’s peers and the Company’s offerings contain a significant level of customization and differentiation such that the comparable pricing of products with similar functionality cannot be obtained. Furthermore, the Company is unable to reliably determine what similar competitor products’ selling prices are on a stand-alone basis. Therefore, the Company is typically not able to determine TPE for the Company’s products.

When the Company is unable to establish selling price using VSOE or TPE, the Company uses BSP. The objective of BSP is to determine the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis. The

BSP of each deliverable is determined using average discounts from list price from historical sales transactions or cost plus margin approaches based on the factors, including but not limited to, the Company’s gross margin objectives and pricing practices plus customer and market specific considerations.

The Company has established TPE for its training, education and installation services. TPE is determined based on competitor prices for similar deliverables when sold separately. These service arrangements are typically short term in nature and are largely completed shortly after delivery of the product. Training and education services are based on a daily rate per person and vary according to the type of class offered. Installation services are based on daily rate per person and vary according to the complexity of the products being installed.

Extended warranty services are priced based on the type of product and are sold in one to five year durations. Extended warranty services include the right to warranty coverage beyond the standard warranty period. In substantially all of the arrangements with multiple deliverables pertaining to arrangements with these services, the Company has used and intends to continue using VSOE to determine the selling price for the services. The Company determines VSOE based on its normal pricing practices for these specific services when sold separately.

(j)

(h) Allowances for Sales Returns and Doubtful Accounts

The Company records an allowance for sales returns for estimated future product returns related to current period product revenue. The allowance for sales returns is recorded as a reduction of revenue and an allowance against accounts receivable.increase to accrued and other liabilities. The Company bases its allowance for sales returns on periodic assessments of historical trends in product return rates and current approved returned products. If the actual future returns were to deviate from the historical data on which the reserve had been established, the Company’s future revenue could be adversely affected.

The Company records an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make payments for amounts owed to the Company. The allowance for doubtful accounts is recorded as an expense tounder general and administrative expenses. The Company bases its allowance on periodic assessments of its customers’ liquidity and financial condition through analysis of information obtained from credit rating agencies, financial statement review and historical collection trends. Additional allowances may be required in the future if the liquidity or financial conditionscondition of itsthe Company's customers deteriorate,deteriorates, resulting in impairment indoubts about their ability to make payments.

Activity under the Company’s allowance for doubtful accounts is comprised as follows (in thousands):

		December 31,
		2019				2018
Balance at beginning of year		$	328			$	1,246
Charged to expense			155				20
Reversal of expense			—				(11	)
Utilization/write offs/exchange rate differences			(90	)			(927	)
Balance at end of year		$	393			$	328

Activity under the Company’s allowance for sales returns and doubtful accounts wasis comprised as follows (in thousands):

		December 31,
		2019				2018
Balance at beginning of year		$	706			$	445
Charged to revenue			370				1,343
Utilization/write offs/exchange rate differences			(733	)			(1,082	)
Balance at end of year		$	343			$	706

	Years ended December 31,
	2016				2015				2014
Balance at beginning of year	$	868			$	136			$	589
Charged to revenue	466				767				—
Utilization/write offs	(149		)		—				(450		)
Exchange differences	(42		)		(35		)		(3		)
Balance at end of year	$	1,143			$	868			$	136

The allowance for doubtful accounts was $0.8 million and $0.9 million as of December 31, 2016 and 2015, respectively.

(k)

(i) Inventories

Inventories are stated at the lower of cost or market,net realizable value, with cost being determined using the first-in, first-out (FIFO) method. In assessing the net realizable value of inventories, the Company is required to make judgments as to future demand requirements and compare these with the current or committed inventory levels. Once inventory has been written down to its estimated net realizable value, its carrying value cannot be increased due to subsequent changes in demand. To the extent that a severe decline in forecasted demand occurs, or the Company experiences a higher incidence of inventory obsolescence due to rapidly changing technology and customer requirements, the Company may incur significant expenses for excess and obsolete inventory.

(l) The Company also evaluates the terms of its agreements with its suppliers and establishes accruals for estimated losses on adverse purchase commitments as necessary, applying the same lower of cost or net realizable value approach that is used to value inventory.

(j) Foreign Currency Translation

For operations outside the United States, the Company translates assets and liabilities of foreign subsidiaries, whose functional currency is the applicable local currency, at end of period exchange rates. Revenues and expenses are translated at periodic average rates. The adjustment resulting from translating the financial statements of such foreign subsidiaries, is included in accumulated other comprehensive loss,income (loss,) which is reflected as a separate component of stockholders’ equity. Gains and losses on foreign currency transactions are included in other income (expense) in the accompanying consolidated statement of comprehensive income (loss).

(m)

(k) Comprehensive Income (Loss)

There have been no items reclassified out of accumulated other comprehensive income (loss) and into net income (loss). The Company’s other comprehensive lossincome (loss) for the years ended December 31, 2016, 2015,2019 and 20142018 is comprised of only foreign currency translations.

(n) Concentration of Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cashtranslation gains and cash equivalentslosses and accounts receivable. Cashactuarial gains and cash equivalents consist principally of financial depositslosses from pension liability.

(l) Property, Plant and money market accounts. Cash and cash equivalents are principally held with various domestic 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 year ended December 31, 2016, three customers represented 16%, 14% (a related-party) and 10% of net revenue, respectively. For the year ended December 31, 2015, four customers represented 26%, 21%, 17% (a related-party) and 10% of net revenue, respectively. For the year ended December 31, 2014, four customers represented 17%, 14%, 12% and 11% (a related-party) of net revenue, respectively.

The target customers for the Company’s products are network service providers that operate voice, data and video communications networks. There are a limited number of potential customers in this target market. The Company expects that a significant portion of the Company’s future revenue will depend on sales of its products to a limited number of customers. Any failure of one or more customers to purchase products from the Company for any reason, including any downturn in their businesses, would seriously harm the Company’s business, financial condition and results of operations.

As of December 31, 2016, two customers accounted for 13% (a related-party) and 10% of net accounts receivable. As of December 31, 2015, two customers accounted for 45% (a related-party) and 22% and of net accounts receivable, respectively. As of December 31, 2016 and December 31, 2015, receivables from customers in countries other than the United States represented 87% and 93%, respectively, of net accounts receivable.

The Company’s products are concentrated primarily in the communications equipment market, which is highly competitive and subject to rapid changes. Significant technological changes in the industry could adversely affect operating results. The Company’s inventories include components that may be specialized in nature, and subject to rapid technological obsolescence. The Company actively manages inventory levels, and the Company considers technological obsolescence and potential changes in product demand based on macroeconomic conditions when estimating required allowances to reduce recorded inventory amounts to market value. Such estimates could change in the future.

The Company’s growth and ability to meet customer demands are also dependent on its ability to obtain timely deliveries of components from suppliers and contract manufacturers. The Company depends on contract manufacturers and sole or limited source suppliers for several key components. If the Company were unable to obtain these components on a timely basis, the Company would be unable to meet its customers’ product delivery requirements which could adversely impact operating results. While the Company is not solely dependent on one contract manufacturer, it expects to continue to rely on contract manufacturers to fulfill a portion of its product manufacturing requirements.

(o) Equipment

Property, and Equipment

Propertyplant, and equipment are stated at cost, less accumulated depreciation, and are depreciated using the straight-line method over the estimated useful life of each asset. The useful life of each asset category is as follows:

Asset Category		Useful Life
Asset Category	Useful Life
Furniture and fixtures		3 to 4 years
Machinery and equipment		3 to 610 years
Computers and software		3 years
Leasehold improvements		Shorter of remaining lease term or estimated useful lives

Upon retirement or sale, the cost and related accumulated depreciation of the asset are removed from the balance sheet and the resulting gain or loss is reflected in operating expenses.

(p)

(m) Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable based on expected undiscounted cash flows attributable to that asset or asset group.recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to the future net undiscounted cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future net undiscounted cash flows, an impairment expense is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Any assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and would no longer be depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.

The Company estimates the fair value of its long-lived assets based on a combination of market information primarily obtained from third-party quotes and online markets. In the application of the impairment testing, the Company is required to make estimates of future operating trends and resulting cash flows and judgments on discount rates and other variables. Actual future results and other assumed variables could differ from these estimates. During the years ended December 31, 2016, 2015, and 2014, the Company recorded no impairment expenses related to the impairment of long-lived assets.

(q)

(n) Goodwill and Other Acquisition-Related Intangible Assets

Goodwill and other acquisition-related intangible assets not subject to amortization are tested annually for impairment using a two-step approach, and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. In the application of the impairment testing, the Company is required to make estimates of future operating trends and resulting cash flows and judgments on discount rates and other variables. Actual future results and other assumed variables could differ from these estimates.   The Company's future operating performance will be impacted by the future amortization of intangible assets, potential expenses related to purchased in-process research and development for future acquisitions, and potential impairment expenses related to goodwill. Accordingly, the allocation of the purchase price of the acquired companies to intangible assets and goodwill has a significant impact on the Company's future operating results. The allocation process requires management to make significant estimates and assumptions, including estimates of future cash flows expected to be generated by the acquired assets and the appropriate discount rate for these cash flows. Should different conditions prevail, the Company would have to perform an impairment review that might result in material write-downs of intangible assets and/or goodwill. Other factors

Factors the Company considers important which could trigger an impairment review, include, but are not limited to, significant changes in the manner of use of its acquired assets, significant changes in the strategy for ourthe Company's overall business or significant negative economic trends. If this evaluation indicates that the value of an intangible asset may be impaired, an assessment of the recoverability of the net carrying value of the asset over its remaining useful life is made. If this assessment indicates that the cost of an intangible asset is not recoverable, based on the estimated undiscounted future cash flows or other comparable market valuations of the entity or technology acquired over the remaining amortization period, the net carrying value of the related intangible asset will be reduced to fair value and the remaining amortization period may be adjusted. DueAn impairment loss is recognized to uncertain market conditionsthe extent that the carrying amount exceeds the asset’s fair value.

In the application of impairment testing, the Company is required to make estimates of future operating trends and potential changes inresulting cash flows and judgments on discount rates and other variables. Actual future results and other assumed variables could differ from these estimates.

During 2019, the Company's strategy and product portfolio, it is possibleCompany recorded Goodwill of $1.0 million related to the acquisition of Keymile. In performing the annual impairment evaluation, utilizing a present value cash flow model to determine the fair value of the reporting unit, the Company determined that forecasts usedthe goodwill related to support its intangible assets may change inKeymile was impaired, due to the future, which could result in additional non-cash expenses that would adversely affect its resultsfinancial performance on the reporting unit. The Company recognized an impairment loss of operations and financial condition.

(r)$1.0 million of this goodwill for the year ended December 31, 2019.

(o) Business Combination

The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired 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.

(s)

(p) Stock-Based Compensation

The Company amortizes the values of the stock-based compensation to expense using the straight-line method. The value of the award is recognized as expense over the requisite service periods in the Company’s consolidated statement of comprehensive income (loss). The Company accounts for forfeitures as they occur.

The Company uses the Black Scholes model to estimate the fair value of options, which is affected by the Company's stock price as well as assumptions regarding a number of complex and subjective variables. These variables include the Company's expected stock price volatility over the expected term of the awards, actual and projected employee option exercise behaviors, risk-free interest rates and expected dividends. The expected stock price volatility is based on the weighted average of the historical volatility of the Company's common stock over the most recent period commensurate with the estimated expected life of the Company's stock options. The Company based its expected life assumption on its historical experience and on the terms and conditions of the stock awards granted. Risk-free interest rates reflect the yield on zero-coupon U.S.United States Treasury securities.

The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statement of comprehensive income (loss). The Company attributes the values of the stock-based compensation to expense using the straight-line method.

Awards of stock options granted to non-employees under the Company’s share-based compensation plans are accounted for at fair value determined by using the Black Scholes option pricing model. These options are generally immediately exercisable and expire seven to ten years from the date of grant. Non-employee options subject to vesting are re-valued as they become vested.

(t)

(q) Income Taxes

The Company uses the asset and liability method to account for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and the income tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. Based on the cumulative losses incurred, the Company has recorded a full valuation allowance against its net deferred tax assets at December 31, 2016 due to the significant uncertainty regarding whether the deferred tax assets will be realized.

(u)

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

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

(v) Shipping and Handling Costs

The Company records costs related to shipping and handling in cost of revenue for all periods presented.

(w)

(s) Research and Development Cost

Costs related to research and development, which primarily consists of labor and benefits, supplies, facilities, consulting, and outside service fees, are expensed as incurred.

(x) Warranty

The Company offers a standard warranty for its hardware products

(t) Cash and Cash Equivalents

Cash and cash equivalents consist of one year,cash and short-term investments (if any) with the option to purchase an extended warrantyoriginal maturities of up to five years, depending on the product type. The Company recognizes estimated costs related to warranty activities upon product shipment or upon identification of a specific product failure. The Company recognizes estimated warranty costs when it is probable that a liability has been incurred and the amount of loss is reasonably estimable. The estimates are based upon historical and projected product failure and claim rates, historical costs incurred in correcting product failures and information available related to any specifically identified product failures. Significant judgment is required in estimating costs associated with warranty activities and the Company estimates are limited to information available to the Company at the time of such estimates. In some cases, such as when a specific product failure is first identified or a new product is introduced, the Company may initially have limited information and limited historical failure and claim rates upon which to base its estimates, and such estimates may require revision in future periods. The recorded amount is adjusted from time to time for specifically identified warranty exposure.

(y)less than three months.

(u) Recent Accounting Pronouncements

On May 28, 2014,

Recent Accounting Pronouncements Adopted

Lease Accounting

In February 2016, the Financial Accounting Standards Board ("FASB"(“FASB”) issued Accounting Standards Update ("ASU"Codification 842, Leases (“ASC 842”) No. 2014-09, Revenue from Contracts with Customers,, 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, 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 amount of revenueCompany elected to not separate non-lease components from lease components to which it expects to be entitledthey relate and has accounted for the transfercombined 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 promised goodsthe 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 servicescalculable, such renewal lease payments would be included in the initial measurement of the lease liability. If the Company believes that it will exercise the renewal period and the renewal

payments are unknown or not calculable, the renewal term will not be included until they become known or calculable at which time the Company would remeasure the remaining lease payments similar to customers. The ASU will replace most existing revenuea lease modification.

Adoption of ASC 842 resulted in the balance sheet recognition guidanceof 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  consolidated statements of comprehensive income (loss), stockholders’ equity and non-controlling interest, and cash flows.  See Note 13 in U.S. GAAP when it becomes effective. The standard permits the use of either the retrospective or cumulative effect transition method. notes to consolidated financial statements.

Income Tax Effects within Accumulated Other Comprehensive Income

In August 2015,February 2018, the FASB issued ASU 2015-14, which defers2018-02, 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 effective dateTax Cuts and Jobs Act (the “Tax Act”).  The adoption of this standard on January 1, 2019 did not have an impact on the guidanceCompany’s consolidated financial statements.  

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 ASU No. 2014-09, Revenue from Contracts with Customer, for all entities by one year. With the deferral, the newother 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 Company on January 1, 2018. Early adoptionfirst 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 permitted, but not before the original effective dateonly component of January 1, 2017. net periodic post-retirement cost, is recognized in Other income (loss), net in the consolidated statement of comprehensive income (loss).

Other recent accounting pronouncements

In May 2016,December 2019, the FASB issued ASU 2016-12, Revenue from Contracts with Customers, Narrow-ScopeNo. 2019-12, Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in the ASU are effective for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. We have not early adopted this ASU for 2019.  The ASU is currently not expected to have a material impact on the Company’s consolidated financial statements.

In November 2019, the FASB issued ASU No. 2019-11, Codification Improvements and Practical Expedients,to Topic 326, Financial Instruments-Credit Losses, which provides clarification on how to assess collectibility, present sales tax, treat noncash consideration, and account for completed and modified contracts at the time of transitionclarifies or addresses specific issues about certain aspects of ASU 2014-09.2016-13. ASU 2019-11 clarifies that to use the practical expedient, entities must reasonably expect the borrower “to continue to replenish the collateral to meet the requirements of the contract.” In addition, if entities have elected the practical expedient (i.e., they reasonably expect the borrower to continue to replenish the collateral to meet the requirements of the contract) and the fair value of the collateral is less than the amortized cost of the financial asset, they should estimate expected credit losses on the portion of the amortized cost basis that is unsecured (i.e., the amount by which the amortized cost basis of the financial asset exceeds the fair value of the collateral). The expected credit loss is limited to the difference between the amortized cost basis of the financial asset and the fair value of the collateral. Effective Dates for entities that have not yet adopted ASU 2016-13, the amendments in ASU 2019-11 are effective date of this updated guidance for the Company ison the same date as those in ASU 2016-13. For entities that have adopted ASU 2016-13, the amendments in ASU 2019-11 are effective date of ASU 2014-09, which is January 1, 2018. The Company does not plan to early adopt this guidance. for fiscal years beginning after December 15, 2019, and interim periods therein. The Company is currently assessing the potential impact of adopting this new guidance on its consolidated financial statements.

In July 2015,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. 2015-11, Simplifying the Measurement of Inventory, which requires an entity2018-19, Codification Improvements to measure inventory at the lower of cost and net realizable value. The guidance does not apply to inventory that is measured using last-in, first-out ("LIFO") or the retail inventory method. The guidance applies to all other inventory, which includes inventory that is measured using first-in, first-out ("FIFO") or average cost. The guidance is effective for the Company on January 1, 2017, and will be adopted accordingly.Topic 326, Financial Instruments - Credit Losses, ASU No. 2015-11 should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The adoption of this standard will have no impact2019-04, 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 Company's consolidated financial statements.

In November 2015, the FASBpreviously issued ASU 2015-17, Income Taxes, Balance Sheet Classification of Deferred Taxes, which simplifies the classification of deferred tax assets and liabilities as non-current in the balance sheet.ASU. The updated guidance is effective for the Company on January 1, 2017,2020, and will be adopted accordingly. Therequires a modified retrospective adoption of this standard will not have a material impact on the Company's consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 requires that lease arrangements longer than 12 months result in an entity recognizing an asset and liability. The updated guidance is effective for the Company on January 1, 2019, and earlymethod.  Early adoption is permitted. The Company does not plan to early adopt this guidance. The Company expects its assets and liabilities to increase as a result of the adoption of this standard.  The Company is currently assessing the potential impact of adopting this new guidance on its consolidated financial statements. The Company is not able to quantify or cannot reasonably estimate quantitative information related to the impact of the new standard on its consolidated financial statements at this time.

In March 2016,November 2019, the FASB issued ASU 2016-09, Improvements2019-08, Compensation - Stock Compensation (ASC 718). This ASU requires an entity measure and classify share-based payment awards granted to Employee Share-Based Payment Accounting, which requires entities to simplify several aspectsa customer by applying the guidance in ASC 718. The amount of the accounting for share-based payment transactions, including income tax consequences, classificationaward that is recorded as a reduction of awards as either equity or liabilities, and classification on statements of cash flows.the transaction price is required to be measured at the grant-date fair value in accordance with ASC 718. The guidance isamendments in this update are effective for the Company on January 1, 2017,for annual and has been adoptedinterim periods beginning in fiscal 2020. The Company does not expect the first quarter of 2017. The adoption of this standard had no material impact on the Company's consolidated financial statements.

In August 2016, FASB issued ASU 2016-15, Statement of Cash Flows, Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The updated guidance is effective for the Company on January 1, 2018. Early adoption is permitted. The Company continues to assess all the potential impacts of the new standard and anticipates this standard may have a material impact on itsthe consolidated

financial statements.

financial statements.

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. The Company is not able to quantify or cannot reasonably estimate quantitative information related tocurrently evaluating the impact of the new standardadoption of this ASU, but it is not expected to have a material effect on its consolidated financial statements at this time.

In November 2016, FASB issued ASU 2016-18, Statement of Cash Flows, Restricted Cash, which require that a statement of cash flows to explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash and restricted cash equivalents. The updated guidance is effective for the Company beginning on January 1, 2018. Early adoption is permitted. Adoption of this ASU is applied using a retrospective approach. As a result, the Company will no longer present transfers between cash and cash equivalents and restricted cash in the consolidated cash flow 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. The Company is not able to quantify or cannot reasonably estimate quantitative information related to the impact of the new standard on its consolidated financial statements at this time.

In May 2017,

On August 28, 2018, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation2018-13, Fair Value Measurement (Topic 718): Scope of modification accounting. The purpose of the amendment is820), which removes, modifies, and adds certain disclosure requirements related to clarify which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting.fair value measurements in ASC 820.  The updated guidance is effective for the Companyannual and interim periods beginning on January 1, 2018.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.

(2) Merger

On September 9, 2016,

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 acquired DNS throughon 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 ofSubsidiary 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”).

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.

The aggregate cash purchase price paid for all of the shares of Keymile and certain of its subsidiaries, was €10.25 million (approximately $11.8 million), prior to adjustment for the lockbox mechanism described below. The Company also assumed pension obligations of approximately $16.2 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, resulting in a final adjusted acquisition price of $9.3 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 into DNS,cash equivalents and short-term debt, in the “Allocation of Purchase Consideration” table below) working capital loan to Keymile. The working capital loan bore interest at a rate of 3.5% per annum and was repaid during 2019.

A summary of the final 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 final 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		$	4,619
Accounts receivable - trade, net			6,820
Other receivables			798
Inventories			9,943
Property, plant and equipment			983
Other assets			3,698
Right-of-use assets from operating leases			5,011
Intangible assets			10,047
Accounts payable - trade			(3,303	)
Short-term debt			(4,582	)
Contract liabilities			(364	)
Accrued liabilities			(3,651	)
Operating lease liabilities - current			(823	)
Deferred tax liabilities			(425	)
Pension obligations			(16,191	)
Operating lease liabilities - non-current			(4,188	)
Other long term liabilities			(116	)
Goodwill			1,003
Total purchase consideration		$	9,279

The purchase price allocation resulted in the recognition of goodwill of approximately $1.0 million. The goodwill was the result of the purchase price paid for the Keymile Acquisition (adjusted for amounts received under the lockbox mechanism) exceeding the fair value of the identifiable net assets acquired.

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 final estimated fair value and useful lives of identifiable intangible assets acquired:

		Estimated Fair Value (in thousands)				Estimated Useful Life
Intangible assets acquired
Technology - developed core		$	5,040			5 years
Customer relationships			3,632			5 years
Trade name			1,375			5 years
Total intangible assets		$	10,047

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 DNS survivingthe 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 period 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 of the Company would have been if the Keymile Acquisition had occurred on January 1, 2018 or what such results 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 intangible assets and interest expense related to financing arrangements.

Below is the pro forma financial information (in thousands), unaudited:

		Year Ended December 31, 2018
Pro forma net revenues		$	332,571
Pro forma net income attributable to DASAN Zhone Solutions, Inc.			2,480

Below is the financial information for Keymile (in thousands):

		Year Ended December 31, 2019
Net revenues		$	36,390
Net loss attributable to DASAN Zhone Solutions, Inc.			(13,072	)

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 Merger combines leading technology platforms withCompany 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 broadened customer base.

At the effective timedecrease to “Additional paid-in capital” of the Merger, all issued$127,000, a decrease to “Non- controlling interest” of $823,000, and outstanding sharesa total impact of capital stock of DNS held by 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. Accordingly, at the effective time of the Merger, the Company issued 9,493,016 shares (post reverse stock split) of the Company’s common stock to DNI as consideration$950,000 in the Merger,consolidated statement of which 949,302 shares (post reverse stock split) are being held in escrow as security for claims for indemnifiable losses in accordance with the merger agreement relating to the Merger. As a result, immediately following the effective time of the Merger, DNI held 58% of the outstanding shares of the Company's common stockstockholders’ equity and the holders of the Company's common stock immediately prior to the Merger retained, in the aggregate, 42% of the outstanding shares of the Company's common stock.

As described in Note 1(d), the Company accounted for the Merger as a reverse acquisition under the acquisition method of accounting in accordance with ASC 805, "Business Combination." Consequently, for the purpose of the purchase price allocation ("PPA") DNS' assets and liabilities have been retained at their carrying values and Legacy Zhone's assets acquired, and liabilities assumed, by DNS (as the accounting acquirer in the Merger) have been recorded at their fair value measured as of September 9, 2016.

The total purchase consideration in the Merger is based on the number of shares of Legacy Zhone common stock and Legacy Zhone stock options vested and outstanding immediately prior to the closing of the Merger, and was determined based on the closing price of $5.95 per share (post reverse stock split) of the Company's common stock on the September 9, 2016. The estimated total purchase consideration is calculated as follows (in thousands):

		Shares			Estimated Fair Value
Shares of Legacy Zhone stock as of September 8, 2016 (1)		6,874			$	40,902
Legacy Zhone stock options (1)		198			540
Total purchase consideration					$	41,442

⁽¹⁾ Amount presented has been adjusted to reflect the one-for-five reverse stock split effected on February 28, 2017.

The following table summarizes the allocation of the fair value consideration transferred as of the acquisition date (in thousands):

		Preliminary Fair Value as of September 9, 2016				Correction of Errors (1)				Fair Value as of December 31, 2016
Cash and cash equivalents		$	7,013			$	—			$	7,013
Accounts receivable		18,847				(337		)		18,510
Inventory		16,456				—				16,456
Prepaid expenses and other current assets		2,436				(245		)		2,191
Property and equipment		4,339				—				4,339
Other assets		125				—				125
Identifiable intangible assets		10,479				—				10,479
Goodwill		2,820				464				3,284
Accounts payable		(11,021		)		—				(11,021		)
Accrued and other liabilities		(7,272		)		183				(7,089		)
Other long-term liabilities		(2,780		)		(65		)		(2,845		)
Total Indicated Fair Value of Assets		$	41,442			$	—			$	41,442

⁽¹⁾ During the quarter ended December 31, 2016, the Company recorded an out of period adjustment for various errors related to the original preliminary purchase price allocation.

The goodwill was primarily attributed to people, geographic diversification and complementary products. The goodwill arising from the Merger is not tax deductible.

The Company considered the deferred tax liabilities caused by the Merger to be a source of income to support recoverability of acquired deferred tax assets, before considering the recoverability of the acquirer's existing deferred tax assets. Accordingly, the valuation allowance on the acquiree's deferred tax assets was reduced by the deferred tax liabilities caused by the Merger and accounted for as part of the purchase price allocation.

The Company recorded $1.3 million in Merger related costs during the year ended December 31, 2016. These expenses are included in selling, marketing, general and administrative expense.

The following table presents the fair values of the acquired intangible assets at the effective date of the Merger (in thousands, except years):

		Useful life (in Years)		Fair Value
Developed technology		5		$	3,060
Customer relationships		10		5,240
Backlog		1		2,179
				$	10,479

The following unaudited pro forma condensed combined financial informationnon-controlling interests for the year ended December 31, 2016 and 2015 gives effect to the Merger as if it had occurred at the beginning of 2015. The unaudited pro forma condensed combined financial information has been included for comparative purposes only and is not necessarily indicative of what the combined Company's financial position or results of operations might have been had the Merger been completed as of the date indicated. In addition, the unaudited pro forma condensed combined financial information does not purport to project the future financial position or results of operations of the combined company. The unaudited pro forma condensed combined financial information reflects adjustments related to the Merger, such as to record certain incremental expenses resulting from purchase accounting adjustments (such as amortization expenses in connection with the fair value adjustments to intangible assets and Merger related costs).     

		Years Ended December 31,
(in thousands)		2016				2015
Pro forma total net revenue		$	202,321			$	240,342
Pro forma net loss		(29,514		)		(11,369		)

For the period from September 9, 2016 (the effective date of the Merger) through December 31, 2016, the Company's income statement included $29.0 million of net revenues and $7.6 million of net loss from the Legacy Zhone business.

2019.

(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 arewere not measured at fair value on the Company’s consolidated balance sheet as of December 31, 20162019 and 2015,2018, but require disclosure of their fair values: cash and cash equivalents, short-term investments,restricted cash, accounts receivable,and other receivables, accounts payable and debt. The carrying values of financial instruments such as cash and cash equivalents, short-term investments,restricted cash, accounts receivableand other receivables and accounts payable approximate their fair values based on their short-term nature. The carrying value of the Company's debt approximates their fair values based on the current rates available to the Company for debt of similar terms and maturities.

All derivatives are entered into and exited at the end of the period, thus there is no fair value associated with any outstanding derivatives at December 31, 2018. No such instruments were in place during 2019.

(4)	Cash and Cash Equivalents and Restricted Cash

(4) Cash and Cash Equivalents and Restricted Cash

As of December 31, 20162019 and December 31, 2015,2018, the Company's cash and cash equivalents comprisedconsisted of financial deposits.  Restricted cash comprisedconsisted primarily of cash restricted for research and development activitiesperformance bonds, warranty bonds and collateral for borrowings.

 At December 31, 2018, cash and cash equivalents included $11.8 million intended for payment for the Keymile acquisition.

(5) Balance Sheet Detail

Balance sheet detail as of December 31, 20162019 and 20152018 is as follows (in thousands):

Inventories

		As of December 31,
		2019				2018
Inventories:
Raw materials		$	15,774			$	15,688
Work in process			1,458				2,429
Finished goods			18,207				15,751
		$	35,439			$	33,868

	2016				2015
					(As restated)
Inventories:
Raw materials	$	13,547			$	5,519
Work in process	3,705				2,074
Finished goods	13,780				6,383
	$	31,032			$	13,976

Inventories provided as collateral for borrowings from Export-Import Bank of Korea amounted to $14.4$6.7 million and $9.5 million as of December 31, 2016.

	2016				2015
Property and equipment, net:
Furniture and fixtures	$	20,040			$	20,456
Machinery and equipment	4,530				3,173
Leasehold improvements	3,573				688
Computers and software	411				16
Other	922				438
	29,476				24,771
Less accumulated depreciation and amortization	(22,922		)		(22,121		)
Less government grants	(266		)		(399		)
	$	6,288			$	2,251

Depreciation2019 and amortization2018, respectively.

Property, plant and equipment

		As of December 31,
		2019				2018
Property, plant and equipment, net:
Furniture and fixtures		$	10,803			$	8,029
Machinery and equipment			2,550				3,553
Leasehold improvements			4,267				3,715
Computers and software			1,990				922
Other			660				982
			20,270				17,201
Less: accumulated depreciation and amortization			(13,130	)			(11,271	)
Less: government grants			(371	)			(412	)
		$	6,769			$	5,518

Depreciation expense associated with property, plant and equipment was $1.3 million, $1.4$2.0 million and $1.9$1.6 million for the years ended December 31, 2016, 20152019 and 2014,2018, respectively.

The Company receives grants from thevarious 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.

 Accrued and other liabilities

		As of December 31,
		2019				2018
Accrued and other liabilities (in thousands):
Accrued warranty		$	1,611			$	1,319
Accrued compensation			1,618				2,461
Other accrued expenses			9,615				7,737
		$	12,844			$	11,517

	2016				2015
Accrued and other liabilities (in thousands):
Accrued warranty	$	878			$	441
Accrued compensation	2,834				—
Other Accrued expenses	4,451				2,541
	$	8,163			$	2,982

The Company accrues for warranty costs based on historical trends for the expected material and labor costs to provide warranty services. The Company's standard warranty period is one year from the date of shipment with the ability for customers to purchase an extended warranty of up to five years from the date of shipment. The following table summarizes the activity related to the product warranty liability (in thousands):

		As of December 31,
		2019				2018
Balance at beginning of the year		$	1,319			$	931
Charged to cost of revenue			967				1,171
Claims and settlements			(903	)			(791	)
Warranty liability assumed from Keymile acquisition			230				—
Foreign exchange impact			(2	)			8
Balance at end of the year		$	1,611			$	1,319

Contract Asset

The balance of Contract Assets, current at December 31, 2019 was $16.7 million, which increased from $11.4 million as of December 31, 2018. The increase in contract assets by $5.3 million was primarily due to new customer contracts entered into during the year of $6.5 million, partially offset by billed products and services during the year of $1.2 million.

Contract Liability

The balance of Contract Liabilities, current at December 31, 2019 was $3.6 million, comprising of Products and services contract liability of $2.7 million and Extended warranty contract liability of $0.9 million. The balance of Contract Liabilities, current at December 31, 2018 was $8.5 million.

The balance of Contract Liabilities, long-term at December 31, 2019 was $3.2 million, comprising of Products and services contract liability of $1.0 million and Extended warranty contract liability of $2.2 million. The balance of Contract Liabilities, current at December 31, 2018 was $1.8 million.

During the year ended December 31, 2019, the Company recorded $2.5 million in Net Revenue, related to Contract Liabilities as of December 31, 2018.

Accrued Restructuring Costs

The Company established a restructuring plan in September 2019 to further align its business resources based on an analysis of the current business conditions. The Company incurred restructuring and other charges of approximately $4.9 million for the year ended December 31, 2019, consisting primarily of severance and other termination related benefits of $3.9 million, and an impairment charge of $1.0 million related to an Right-of-use asset from an operating lease.  Severance and other termination related benefits are as follows (in thousands):

	Severance and Related Benefits
Balance as of December 31, 2018	$	—
Restructuring charges for the year		3,930
Cash payments		(3,930	)
Balance as of December 31, 2019	$	—

Balance at December 31, 2013	$	312
Charged to cost of revenue	401
Claims and settlements	(324		)
Balance at December 31, 2014	389
Charged to cost of revenue	578
Claims and settlements	(526		)
Balance at December 31, 2015	441
Balance assumed with the Merger	652
Charged to cost of revenue	717
Claims and settlements	(925		)
Foreign exchange impact	(7		)
Balance at December 31, 2016	$	878

(6) Goodwill and Intangible Assets

Goodwill as of December 31, 20162019 and December 31, 20152018 was as follows (in thousands):

		As of December 31,
		2019				2018
Balance at beginning of the year		$	3,977			$	3,977
Goodwill from Keymile acquisition			1,003				—
Less: Impairment of Keymile acquisition goodwill			(1,003	)			—
Balance at end of the year		$	3,977			$	3,977

	December 31, 2016				December 31, 2015
Beginning balance	$	693			$	—
Goodwill from Merger	2,820				693
Correction of errors	464				—
Less: accumulated impairment	—				—
Ending balance	$	3,977			$	693

During 2019, the Company recorded Goodwill of $1.0 million related to the acquisition of Keymile. Refer to Note 2 Business Combinations, for further detail. In performing the annual impairment evaluation, utilizing a present value cash flow model to determine the fair value of the reporting unit, the Company determined that the goodwill related to Keymile was impaired, due to the financial performance of the reporting unit. The Company did not recognizerecognized an impairment loss of $1.0 million on goodwill duringfor the yearsyear ended December 31, 2016, 20152019 and 2014.

accumulated impairment of goodwill was $1.0 million as of December 31, 2019.

Intangible assets as of December 31, 20162019 and December 31, 20152018 were as follows (in thousands):

		As of December 31, 2019
		Gross Carrying Amount				Accumulated Amortization				Net
Developed technology		$	7,994			$	(3,027	)		$	4,967
Customer relationships			8,795				(2,458	)			6,337
Trade name			1,346				(269	)			1,077
Total intangible assets, net		$	18,135			$	(5,754	)		$	12,381

During 2019 the Company recorded $5.0 million, $3.6 million and $1.4 million in Developed technology, Customer relationships and Trade names, respectively, related to the acquisition of Keymile. Refer to Note 2 Business Combinations, for further detail.

		As of 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
Backlog			2,179				(2,179	)			-
Total intangible assets, net		$	10,479			$	(4,830	)		$	5,649

		December 31, 2016
		Gross Carrying Amount				Accumulated Amortization				Government Grant				Net
Developed Technology		$	3,060			$	(203	)		$	—			$	2,857
Customer Relationships		5,240				(321		)		—				4,919
Backlog		2,179				(1,236		)		—				943
Other		105				(34		)		(23		)		48
Total intangible assets, net		$	10,584			$	(1,794	)		$	(23	)		$	8,767

		December 31, 2015
		Gross Carrying Amount			Accumulated Amortization			Government Grant			Net
Other		40			(37	)		—			3
Total intangible assets, net		40			(37	)		—			3

Amortization expense associated with intangible assets for the yearyears ended December 31, 20162019 and 20152018 amounted to $1.8$3.1 million, and $10.0 thousand,$1.1 million, respectively.  As of December 31, 2016,2019, expected future amortization expense for the years indicated was as follows (in thousands):

Period	Expected Amortization Expense
2020	$	3,103
2021		2,899
2022		2,491
2023		2,491
2024		524
Thereafter		873
Total	$	12,381

Period		Expected Amortization Expense
2017		$	2,087
2018		1,145
2019		1,166
2020		1,136
2021		933
Thereafter		2,300
Total		$	8,767

(7) Debt

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

		As of December 31, 2019
		Short-term				Long-term				Total
PNC Credit Facilities		$	2,500			$	10,625			$	13,125
Bank and Trade Facilities - Foreign Operations			15,779				—				15,779
Related party			—				9,096				9,096
			18,279				19,721				38,000
Less: unamortized deferred financing costs on the PNC Bank Facility			(795	)			(688	)			(1,483	)
		$	17,484			$	19,033			$	36,517

		As of December 31, 2018
		Short-term				Long-term				Total
Former WFB 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

The future principal maturities of our Secured Term Loans for each of the next five years are as follows (in thousands):

Year ended December 31,
2020	$	18,279
2021		3,438
2022		16,283
2023		—
2024		—
Thereafter		—
Total	$	38,000

PNC Credit Facilities

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 Credit Facilities”), which replaced the Company’s former senior secured credit facilities with Wells Fargo Bank (the “Former WFB Facility”). We refer to such transactions and the agreements referenced above as the “PNC Credit Facilities.”

The PNC Credit Facilities provided for a $25 million term loan and a $15 million revolving line of credit (including subfacilities for Ex-Im transactions, letters of credit and swing loans) with a $10 million incremental increase option. The amount the Company was able to borrow on the revolving line of credit at any time was based on eligible accounts receivable and other conditions, less certain reserves. Borrowings under the PNC Credit Facilities bore interest at a floating rate equal to either the PNC prime rate or the LIBOR rate for the applicable period, plus a margin that was based on the type of advance.   

The Company used a portion of the funds borrowed from the term loan under the PNC Credit Facilities to (i) repay $5.0 million of existing related party indebtedness with DNI plus accrued interest, (ii) repay $1.5 million revolving line of credit outstanding balance plus accrued interest and fees and cash collateralize $3.6 million in outstanding letters of credit under the Wells Fargo Credit Facility

(described below), and (iii) repay $5.6 million in short-term debt in Korea and Japan. The Company’s obligations under the PNC Credit Facilities were secured by substantially all of the personal property assets of the Company and its subsidiaries that were co-borrowers or guarantors under the PNC Credit Facilities, including their intellectual property.

The PNC Credit Facilities had a three-year term and were scheduled to mature on February 27, 2022. The PNC Credit Facilities contemplated repayment of the term loan in quarterly installments over the term of the loan, with the balance of the term loan and revolving line of credit due at maturity.

The PNC Credit Facilities contained certain covenants, limitations, and conditions with respect to the Company, including a maximum leverage ratio, a minimum fixed charge coverage ratio, and a minimum liquidity covenant, as well as financial reporting obligations, and usual and customary events of default. At September 30, 2019, the Company was not in compliance with the maximum leverage ratio financial covenant in the PNC Credit Facilities, which represented an event of default thereunder. On November 8, 2019, the Company obtained a waiver of the foregoing event of default from PNC Bank. As a condition for the issuance of such waiver, the Company voluntarily prepaid $10.0 million of the outstanding term loan and paid a one-time fee of $150,000.

The interest rate on the term loan was 8.12% at December 31, 2019.  Deferred financing costs of $1.5 million has been netted against the aggregate principal amount of the PNC term loan in the consolidated balance sheet as of December 31, 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.

As of December 31, 2016,2019, the Company had $13.1 million in outstanding term loan borrowings under the PNC Facilities, and no outstanding borrowings under the revolving line of credit.  

Former WFB Facility

As of December 31, 2018, the Company had a $25.0 million revolving line of credit andfacility (including up to $5.0 million in letter of credit facility (the "WFB Facility")credit) with Wells Fargo Bank ("WFB"(the “Former WFB Facility”). Under the Former WFB Facility, the Company has the option of borrowing funds at agreed upon interest rates. The amount that the Company iswas able to borrow under the WFBWells Fargo Facility variesvaried based on eligible accounts receivable and inventory less amount committed as defined incash collateral for letter of credit.  

As of December 31, 2018, the agreement, as long as the aggregate amountCompany had $7.0 million outstanding does not exceed $25.0

borrowings under its Former WFB Facility and $1.3 million less the amount committed as security for letters of credit. To maintain availability of funds under the WFB Facility, the Company pays a commitment fee on the unused portion. The commitment fee is 0.25% per annum and is recorded as interest expense.

As of December 31, 2016, the Company had no outstanding borrowings under its WFB Facility and $3.5 million was committed as security for letters of credit. The Company had $3.1 million of borrowing availability under the WFB Facility as of December 31, 2016.credit outstanding. The amounts borrowed under the WFBWells Fargo Facility bearbore interest, payable monthly, at a floating rate equal to the three-month LIBOR plus a margin based on the Company's average excess availability (asas calculated under the Former WFB Facility).Facility. The interest rate on the WFBWells Fargo Facility was 3.50%5.1% at December 31, 2016. The maturity date2018. Subsequently, on January 8, 2019, the Company fully repaid the $7.0 million outstanding borrowings under the WFB Facility is March 31, 2019.

revolving line of credit.

The Company’s obligations under the Former WFB Facility arewere secured by substantially all of its personal property assets and those of its subsidiaries that guarantee the WFBWells Fargo Facility, including their intellectual property. The Former WFB Facility containscontained certain financial covenants,covenants, and customary affirmative covenants and negative covenants. If the Company defaults under the WFB Facility due to a covenant breach or otherwise, WFB may be entitled to, among other things, require the immediate repayment of all outstanding amounts and sell the Company’s assets to satisfy the obligations under the WFB Facility. On July 3, 2017, the Company executed an agreement with WFB to extend the due date for delivery for the Company's audited financial statements for the year ended December 31, 2016 to September 27, 2017. As of December 31, 2016,2018, the Company was in compliance with the covenants under the Former WFB Facility.

On February 27, 2019, the Company repaid $1.5 million in principal amount of outstanding borrowings on the revolving line of credit plus accrued interest and fees and cash collateralized $3.6 million in outstanding letters of credit under the Former WFB Facility with some of the proceeds of the PNC Credit Facilities. On February 27, 2019, the Company also 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 bore interest at a rate of 3.5% per annum and was repaid during 2019.

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 on an annual basisas they mature and are generally secured by a security interest in certain assets of the applicable foreign subsidiaries.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 December 31, 20162019 and December 31, 2015,2018, the Company had an aggregate outstanding balance of $17.6$15.8 million and $21.8$24.8 million, respectively, under such financing arrangements,arrangements. The weighted average borrowing rate as of December 31, 2019 was 2.7%. The maturity date and the interest rates per annum applicable to outstanding borrowings under these financing arrangements were as listed in the tables below (in(amounts in thousands).

As of December 31, 2019

Maturity Date

Denomination

Interest rate (%)

Amount

NongHyup Bank

Credit facility

09/30/2020

USD

3.50 ~ 4.50

$

2,091

The Export-Import Bank of Korea

Export development loan

07/01/2020

KRW

2.75

5,182

Korea Development Bank

General loan

08/08/2020

KRW

3

4,319

Korea Development Bank

Credit facility

08/07/2020

USD

3.00 ~ 3.15

2,460

LGUPlus

General loan

06/17/2020

KRW

0

1,727

$

15,779

As of December 31, 2018

Maturity Date

Denomination

Interest rate (%)

Amount

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, 2016
				Interest rate (%)		Amount
Industrial Bank of Korea		Credit facility		2.16 - 2.76		$	1,106
Shinhan Bank		General loan		4.08		3,310
Shinhan Bank		Trade finance		3.28 - 3.44		1,752
NongHyup Bank		Credit facility		1.92 - 2.66		482
KEB Hana Bank		Comprehensive credit loan		2.79		3,501			*
The Export-Import Bank of Korea		Export development loan		3.10		7,448
						$	17,599

* As of June 30, 2017, this balance owed to KEB Hana Bank had been fully repaid.

				As of December 31, 2015
				Interest rate (%)		Amount
Industrial Bank of Korea		Credit facility		2.04 - 2.34		$	3,431
Shinhan Bank		General loan		2.94		3,413
Shinhan Bank		Trade finance		2.80		329
NongHyup Bank		Credit facility		1.60 - 1.95		1,574
KEB Hana Bank		Comprehensive credit loan		3.55		5,421
The Export-Import Bank of Korea		Export development loan		2.94		7,680
						$	21,848

As of December 31, 2016,2019 and December 31, 2018, the Company had $1.6$4.6 million and $5.5 million in outstanding borrowings, respectively, and $9.3$0.8 million and $2.6 million committed as security for letters of credit under the Company's $12.0$19.0 million credit facility with certain foreign banks.

(8) Executive Compensation

On September 9,

Related Party Debt

In February 2016, in connection with the consummation of the Merger, the Company entered into an amended and restated employment agreement with James Norrod and employment agreements with each of Il Yung Kim and Kirk Misaka, in the respective forms approved by the Board of Directors, each ofDNS California borrowed $1.8 million from DNI for capital investment, which superseded their respective existing employment arrangements, and each of which had an initial term of one year, to be automatically extended for additional successive one year terms unless either party elects not to extend the term.

Il Yung Kim

Under the employment agreement between Il Yung Kim and the Company, Mr. Kim agreed to serve as Co-Chief Executive Officer in exchange for an initial annual base salary of $320,000, representing a voluntary 20% salary reduction, whichamount was automatically increased to $400,000 on April 1, 2017. Mr. Kim is also eligible to participate in a performance-based annual bonus program, for which his target bonus is equal to $400,000. Mr. Kim did not earn and was not paid a bonus for his services in 2016. The Company has reimbursed Mr. Kim for $30,000 in relocation expenses and provides a monthly housing allowance of up to $6,000. Mr. Kim is also entitled to an additional $30,000 in relocation expenses in the event that his employment is terminated. All such relocation expenses provided to Mr. Kim will be grossed up for taxes. Mr. Kim is also eligible to participate in all health benefits, insurance programs, pension and retirement plans and other employee benefit and compensation arrangements generally available to the Company’s other officers.

In accordance with the terms of his employment agreement, the Board of Directors granted Mr. Kim a stock option award to purchase 200,000 shares of the Company’s common stock under the Company’s Amended and Restated 2001 Stock Incentive Plan, as amended, on September 9, 2016. Mr. Kim’s options have a 10 year term and vest as to 25% of the shares on the first anniversary of the Merger and thereafter vest in 36 equal monthly installments, subject to his continuing to render services to the Company through the applicable vesting date. The exercise price of the options is $5.95 per share, adjusted for the subsequent one-for-five reverse stock split of the Company’s common stock effected on February 28, 2017.

James Norrod

Under the amended and restated employment agreement between James Norrod and the Company, Mr. Norrod agreed to serve as Co-Chief Executive Officer in exchange for an initial annual base salary of $320,000, representing a voluntary 20% salary reduction, which was automatically increased to $400,000 on April 1, 2017. Mr. Norrod was also eligible to participate in a performance-based annual bonus program, for which his target bonus was equal to $400,000. Mr. Norrod did not earn and was not paid this bonus in 2016. The Company paid for or reimbursed Mr. Norrod for reasonable lodging expenses while he was working from the Company’s principal executive offices. Mr. Norrod was also eligible to participate in all health benefits, insurance programs, pension and retirement plans and other employee benefit and compensation arrangements generally available to the Company’s other officers.

In accordance with the terms of his employment agreement, the Board of Directors granted Mr. Norrod a stock option award to purchase 200,000 shares of the Company’s common stock under the Company’s Amended and Restated 2001 Stock Incentive Plan, as amended, on September 9, 2016. Mr. Norrod’s options have a 10 year term and vest in 48 equal monthly installments, subject to his continuing to render services to the Company through the applicable vesting date. The exercise price of the options is $5.95 per share, adjusted for the subsequent one-for-five reverse stock split of the Company’s common stock effected on February 28, 2017.

Additionally, Mr. Norrod was granted a $1,000,000 cash bonus on completion of the Merger, which was paid in equal installments in October 2016 and January 2017.

Kirk Misaka

Under the employment agreement between Kirk Misaka and the Company, Mr. Misaka agreed to serve as Chief Financial Officer in exchange for an initial annual base salary of $292,000, representing a voluntary 20% salary reduction, which was automatically increased to $365,000 on April 1, 2017. Mr. Misaka was also eligible to participate in a performance-based annual bonus program, for which his target bonus was equal to $200,000. Mr. Misaka did not earn and was not paid a bonus in 2016. Mr. Misaka was also eligible to participate in all health benefits, insurance programs, pension and retirement plans and other employee benefit and compensation arrangements generally available to the Company’s other officers.

In accordance with the terms of his employment agreement, the Board of Directors granted Mr. Misaka a stock option award to purchase 100,000 shares of the Company’s common stock under the Company’s Amended and Restated 2001 Stock Incentive

Plan, as amended, on September 9, 2016. Mr. Misaka’s options have a 10 year term and vest in 48 equal monthly installments, subject to his continuing to render services to the Company through the applicable vesting date. The exercise price of the options is $5.95 per share, adjusted for the subsequent one-for-five reverse stock split of the Company’s common stock effected on February 28, 2017.

Additionally, Mr. Misaka was granted a $500,000 cash bonus on completion of the Merger, which was paid in March 2017.

(9) Stockholders’ Equity

(a) Overview

The Company’s equity capitalization consisted of 36.0 million authorized shares of common stock, of which 16.4 million were outstanding at December 31, 2016.

(b) Stock-Based Compensation

Prior to September 9, 2016, the date of the Merger, DNS did not have any stock-based compensation plans. The plan information described below represents stock-based compensation plans that were carried over from Legacy Zhone and were in effect as of December 31, 2019. This loan was due to mature in March 2018 with an option of renewal by mutual agreement, and bore interest at a rate of 4.6% per annum, payable annually.  Effective January 31, 2018, we amended the terms of this loan to extend the repayment date from March 2018 to July 2019 and maintain an interest rate of 4.6%. On February 27, 2019, we amended the terms of this loan to extend the repayment date until May 27, 2022.

In September 2016, andwe entered into a loan agreement with DNI for a $5.0 million unsecured subordinated term loan facility. Under the loan agreement, we were permitted to request drawdowns of one or more term loans in an additional stock-based compensation plan adopted by the Company in January 2017.aggregate principal amount not to exceed $5.0 million. As of December 31, 2016,2019, the loan was repaid in full. As of December 31, 2018, $5.0 million in term loans was outstanding under the facility. The interest rate as of December 31, 2019 under this facility was 4.6% per annum. On or about February 27, 2019, the entire outstanding balance on this term loan was repaid with some of the proceeds of the PNC Credit Facilities.

In March 2018, DNS Korea borrowed $5.8 million from DNI of which $4.5 million was repaid on August 8, 2018. As of December 31, 2018, $1.3 million remained outstanding. The loan bears interest at a rate of 4.6%, and is secured by certain accounts receivable of DNS Korea. On February 27, 2019, the Company amended the terms of this loan to extend the repayment date until May 27, 2022.      

In December 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, we amended the terms of the term loan to extend the repayment date until May 27, 2022.  

The modifications resulting from the amendments described in the four preceding paragraphs 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 was $0.4 million in 2019 and 2018, respectively.

On March 5, 2020, DNS Korea entered into a loan transaction with DNI in the amount of KRW 22.4 billion ($18.5 million USD), which loan matures on March 11, 2022, bears interest at a rate of 4.6% per annum and is pre-payable without premium or penalty. See Note 18 to the consolidated financial statements for additional information.

As of December 31, 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.

(8) Stockholders’ Equity

Changes in Accumulated Other Comprehensive Income (Loss)

The table below summarizes the changes in accumulated other comprehensive income (loss) by component, net of tax (in thousands):

		As of December 31,
		2019				2018
Beginning accumulated other comprehensive income		$	(192	)			1,871
Actuarial loss for pension plan			(1,793	)			—
Foreign currency translation adjustments, net			(1,939	)			(2,051	)
Non-controlling interest			(15	)			(12	)
Ending accumulated other comprehensive income		$	(3,939	)		$	(192	)

Stock-based Compensation

As of December 31, 2019, the Company has one significant(1) stock-based compensation plan related to equity compensation (including equity compensation in the form of stock options, restricted stock and restricted stock units) and one (1) plan related to employee stock purchases.

The following table summarizes stock-based compensation expense for the year ended December 31, 2016 (in thousands):

		Years ended December 31,
		2019				2018
Cost of revenue		$	41			$	18
Research and product development			267				134
Selling, marketing, general and administrative			3,200				1,928
		$	3,508			$	2,080

	Year ended December 31,
	2016
Compensation expense relating to employee stock options, restricted stock units and restricted stock	$	336

2017 Stock Incentive Plans

The Company’s stock-based compensation plans are designed to attract, motivate, retain and reward employees, directors and consultants and align stockholder and employee interests. As

On January 4, 2017, the Board of December 31, 2016,Directors approved, and at the Company had one active stock incentive plan,2017 Annual Meeting of Stockholders, the Amended and Restated 2001 StockCompany’s stockholders approved, the DASAN Zhone Solutions, Inc. 2017 Incentive Award Plan.  On February 12, 2018, the Board of Directors approved an amendment to the 2017 Incentive Award Plan, ("2001 Plan"which is referred to herein as the “2017 Plan Amendment”).  The 2001Company’s stockholders approved the 2017 Plan provided forAmendment at the grant2018 Annual Meeting of incentive stock options, non-statutorythe Stockholders.  The 2017 Incentive Award Plan, as amended by the 2017 Plan Amendment, is referred to herein as the “2017 Plan.”  

The 2017 Plan authorizes the issuance of stock options, restricted stock, unitrestricted stock units, dividend equivalents, stock payment awards, restricted stock appreciation rights, performance bonus awards and other stock-basedincentive awards. The 2017 Plan authorizes the grant of awards to officers, employees, non-employee directors and consultants of the Company.Company and its subsidiaries. Under the 20012017 Plan, stock options were permitted tomay be granted at an exercise price less than, equal to or greater than the fair market value on the date of grant, except that anystock options granted to a 10% stockholder must have an exercise price equal to at least 110% of the fair market value of the Company’s common stock on the date of grant. The Board of Directors determineddetermine the term of each stock option, the option exercise price and the vesting terms. Stock options wereare generally granted at an exercise price equal to the fair

market value on the date of grant, expiring seven (7) to ten (10) years from the date of grant and vesting over a period of four years. On January 1 of each year, if the number of shares available for grant under the 2001 Plan was less than 5% of the total number of shares of common stock outstanding as of that date, the shares available for grant under the plan were automatically increased by the amount necessary to make the total number of shares available for grant equal to 5% of the total number of shares of common stock outstanding, or by a lesser amount as determined by the Board of Directors.

As of December 31, 2016, 6,259 shares were available for grant under the 2001 Plan. The 2001 Plan expired in March 2017.

On January 4, 2017, the Board of Directors of the Company approved the DASAN Zhone Solutions, Inc. 2017 Incentive Award Plan (the "2017 Plan"), subject to stockholder approval at the Company’s 2017 annual meeting of stockholders. The 2017 Plan authorizes the issuance of stock options, restricted stock, restricted stock units, dividend equivalents, stock payment awards, stock appreciation rights, performance bonus awards and other incentive awards. The 2017 Plan also authorizes the Compensation Committee of the Board to grant performance awards payable in the form of shares of the Company’s common stock or cash, including equity awards and incentive cash bonuses that may qualify as “performance-based compensation” under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The 2017 Plan authorizes the grant of awards to employees, non-employee directors and consultants of the Company and its subsidiaries.

The maximum number of shares of the Company’s common stock for which grants may be madegranted under the 2017 Plan is the sum of (i) 600,000 shares, plus (ii) any shares subject to awards granted under the Amended and Restated 2001 Stock Incentive Planprior plan to the extent such shares become available for issuance under the 2017 Plan pursuant to its terms, plus (iii) any shares subject to an annual increase on each January 1 during the 10 year term of the 2017 Plan equal to the lesser of (x) 4% of the total

shares of the Company’s common stock outstanding (on an as-converted basis) and (y) such smaller amount as may be determined by the Board of Directors in its sole discretion. The annual increase on January 1, 2019 was 663,473 shares. In addition, the following annual limitations apply: (i) the maximum aggregate number of shares of the Company’s common stock that may be subject to awards granted to any one participant during a calendar year is 4,000,000 sharesshares; and (ii) the maximum aggregate amount of cash that may be paid to any one participant during any calendar year with respect to awards initially payable in cash is $10 million. The number of shares of the Company’s common stock that may be issued or transferred pursuant to awards granted under the 2017 Plan shall not exceed an aggregate of 7,000,000.

On January 4, 2017, the Board of Directors and the Compensation Committee granted an award of 100,000 options to purchase common stock of the Company under the 2017 Plan, subject to stockholder approval of the 2017 Plan, to Il Yung Kim, the Chief Executive Officer of the Company. The options have a ten-year term and an exercise price of $4.82 per share, adjusted for the subsequent one-for-five reverse stock split of the Company’s common stock effected on February 28, 2017. Provided that Mr. Kim continues to render services to the Company through the applicable vesting date, the options vest as to 25% of the shares on the first anniversary of the vesting commencement date and vest as to the remaining shares in 36 equal monthly installments thereafter. Between January 4, 2017 and September 15, 2017, the Company’s Board of Directors (or its designee) granted to 55 other employees an aggregate of 262,999 stock options under the 2017 Plan, subject to obtaining stockholder approval of the 2017 Plan, with a weighted average exercise price of $4.75. The stock options granted to the Company’s employees will vest as to 25% of the shares on the first anniversary of the grant date and as to the remaining shares in 36 equal monthly installments thereafter. If the 2017 Plan is not approved by the Company’s stockholders at the 2017 annual meeting, the foregoing stock option awards will be automatically canceled and become null and void. The Company may grant further awards to employees, including executive officers, and consultants under the 2017 Plan prior to the annual meeting in the ordinary course of business, which awards will also be contingent options that are subject to stockholder approval of the 2017 Plan.

8,000,000 shares.

The Company has estimated the fair value of stock-based payment awards on the date of grant using the Black Scholes pricing model, which is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. These variables include the Company’s expected stock price volatility over the term of the awards, actual and projected employee option exercise behaviors, risk-free interest rate and expected dividends. The estimated expected term of options granted was determined based on historical option exercises. Estimated volatility was based on the historical volatility of the Company and the risk freerisk-free interest rate was based on the U.S. Treasury yield in effect at the time of grant for the expected life of the options. The Company does not anticipate paying any cash dividends in the foreseeable future, and therefore used an expected dividend yield of zero in the option valuation model. Forfeitures are recognized as they occur.

Stock Options

The Company is also required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. Historical data was used to estimate pre-vesting forfeitures and record stock-based compensation expense only for those awards that are expected to vest.

Theweighted average assumptions used to value option grants for the year ended December 31, 2016 is2019 and 2018 are as follows:

		Years ended December 31,
		2019				2018
Expected term (years)			5.85				4.88
Volatility			65.72	%			81.87	%
Risk free interest rate			1.99	%			2.74	%

	Year ended December 31,
	2016
Expected term (years)	4.01 - 6.17
Expected volatility	79.9% - 81.5%
Risk free interest rate	1.14	%

The weighted average grant date fair value of options granted during the yearyears ended December 31, 2016 was $4.08. There2019 and 2018 were no exercises of options during the year ended December 31, 2016.

$7.22 and $6.49, respectively.

The following table sets forth the summary of option activity under the stock option program for the year ended December 31, 20162019 (in thousands, except per share data):

		Options Outstanding				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term				Aggregate Intrinsic Value
Outstanding as of December 31, 2018			1,744			$	8.00
Granted			470				10.36
Canceled/Forfeited			(128	)			9.83
Expired			(39	)			8.32
Exercised			(35	)			6.22
Outstanding as of December 31, 2019			2,012				8.47				7.36				2,418
Vested and expected to vest at December 31, 2019			2,012				8.47				7.36				2,418
Vested and exercisable at December 31, 2019			946				7.47				5.74				1,684

	Options Outstanding (1)			Weighted  Average Exercise  Price (1)				Weighted  Average Remaining Contractual  Term		Aggregate Intrinsic Value
Outstanding as of December 31, 2015	—			$	—
Options assumed as part of the Merger	265			$	8.68
Granted	530			$	5.95
Canceled/Forfeited	(8	)		$	11.75
Exercised	—			$	—
Outstanding as of December 31, 2016	787			$	6.84			8.56		$	60
Vested and expected to vest at December 31, 2016	684			$	7.01			8.39		$	52
Vested and exercisable at December 31, 2016	233			$	8.34			5.85		$	14

⁽¹⁾ Amount presented has been adjusted to reflect the one-for-five reverse stock split effected on February 28, 2017.

The aggregate intrinsic value represents the total pretax intrinsic value, based on the Company’s closing stock price as of December 31, 20162019 of $4.90,$8.86 per share which would have been received by the option holders had the option holders exercised their options as of that date.

The aggregate intrinsic value of awards exercised during the years ended December 31, 2019 and 2018 were $0.2 million and $0.6 million, respectively.

As of December 31, 2016,2019, there was $2.1$6.3 million of unrecognized compensation costs adjusted for estimated forfeitures which are expected to be recognized over a weighted average period of 2.3three (3) years.

The following table sets forth the summary of option activity under the stock option program for the year ended December 31, 2018 (in thousands, except per share data):

		Options Outstanding				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term				Aggregate Intrinsic Value
Outstanding as of December 31, 2017			1,213			$	6.50
Granted			836				9.86
Canceled/Forfeited			(155	)			8.00
Exercised			(150	)			6.08
Outstanding as of December 31, 2018			1,744				8.00				8.65				10,378
Vested and expected to vest at December 31, 2018			1,744				8.00				8.65				10,378
Vested and exercisable at December 31, 2018			488				6.77				7.51				3,497

Restricted Stock Units

The following table sets forth the summary of restricted stock unit awards activity under the stock award program for the year ended December 31, 2019 (in thousands, except per share data):

		RSU Outstanding				Weighted Average Grant Date Fair Value
Non-vested as of December 31, 2018			4			$	7.50
Granted			40				12.77
Canceled/Forfeited			—				—
Vested			(33	)			13.11
Non-vested as of December 31, 2019			11				10.05

The following table sets forth the summary of restricted stock unit awards activity under the stock award program for the year ended December 31, 2018 (in thousands, except per share data):

		RSU Outstanding				Weighted Average Grant Date Fair Value
Non-vested as of December 31, 2017			5			$	7.43
Granted			35				9.66
Canceled/Forfeited			—				—
Vested			(36	)			9.56
Non-vested as of December 31, 2018			4				7.50

Total grant-date fair value of awards granted during the years ended December 31, 2019 and 2018 was $0.5 million and $0.3 million, respectively. Total fair value of awards vested was $0.4 million during both years ended December 31, 2019 and 2018.

2018 Employee Stock Purchase Plan

On May 22, 2018, the stockholders of the Company approved the adoption of the DASAN Zhone Solutions, Inc. 2018 Employee Stock Purchase Plan (the “ESPP”). The ESPP replaced the DASAN Zhone Solutions, Inc. 2002 Employee Stock Purchase Plan.

(10)The ESPP authorizes the issuance of up to 250,000 shares of the Company’s common stock. In addition, the ESPP provides for an annual increase on the first day of each calendar year beginning on January 1, 2019, and ending on and including January 1, 2028, equal to the lesser of (i) 1% of the shares outstanding on the last day of the immediately preceding calendar year and (ii) such smaller number of shares as may be determined by the Board of Directors in its sole discretion. Notwithstanding the foregoing, the number of shares of stock that may be issued or transferred pursuant to awards under the ESPP may not exceed an aggregate of 2,000,000 shares. These 2,000,000 shares have been registered pursuant to a registration statement on Form S-8 filed with the SEC on November 8, 2018. The purchase price of the shares will be 85% of the lower of the fair market value of our common stock on (a) the first trading day of the offering period or (b) the final trading day of the offering period, which would be the applicable purchase date.

The weighted average assumptions used to value option grants for the year ended December 31, 2019 included an Expected term of 0.5 years, Volatility of 66.04% and a Risk free interest rate of 2.31%. The Company recorded $149,000 and $14,000 of expense related to the ESPP for the year ended December 31, 2019 and 2018, respectively.

(9) Net Income (Loss) Per Share

The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share data):

		Years ended December 31,
		2019				2018
Numerator:
Net income (loss) attributable to DASAN Zhone Solutions, Inc.		$	(13,457	)		$	2,767
Denominator:
Weighted average number of shares outstanding:
Basic			19,403				16,482
Effect of dilutive securities:
Stock options, restricted stock units and share awards			—				264
Diluted			19,403				16,746
Net income (loss) per share attributable to DASAN Zhone Solutions    Inc.:
Basic		$	(0.69	)		$	0.17
Diluted		$	(0.69	)		$	0.17

	Years ended December 31,
	2016				2015				2014
					(As restated)
Numerator:
Net income (loss) attributable to DASAN Zhone Solutions, Inc.	$	(15,326	)		$	(3,339	)		$	1,837
Denominator:
Weighted average number of shares outstanding:
Basic (1)	11,637				9,314				9,199
Effect of dilutive securities:
Stock options, restricted stock units and share awards	—				—				—
Diluted (1)	11,637				9,314				9,199
Net income (loss) per share attributable to DASAN Zhone Solutions Inc.:
Basic (1)	$	(1.32	)		$	(0.36	)		$	0.20
Diluted (1)	$	(1.32	)		$	(0.36	)		$	0.20

⁽¹⁾ Amount presented has been adjusted to reflect the one-for-five reverse stock split effected on February 28, 2017.

The following tables set forth potential common stock that is not included in the diluted net income (loss) per share calculation above because their effect would be anti-dilutive for the periods indicated (in thousands, except exercise price per share data):

		2019				Weighted average option exercise price				2018				Weighted average option exercise price
Outstanding stock options, restricted stock units    and unvested restricted shares			2,023			$	8.42				1,747			$	7.91

	2016			Weighted average option exercise price
Outstanding stock options, restricted stock units and unvested restricted shares	796			$	6.84

As of December 31, 2016, 20152019 and 2014,2018, no shares of issued common stock were subject to repurchase.

(11)

(10) Income Taxes

The geographical breakdown of income (loss) before income taxes is as follows (in thousands):

		Years ended December 31,
		2019				2018
Loss before income taxes - Domestic		$	(11,069	)		$	(3,003	)
Income before income taxes - Foreign			1,391				7,563
Income (loss) before income taxes		$	(9,678	)		$	4,560

The following is a summary of the components of income tax expense applicable to lossincome (loss) before income taxes (in thousands):

		Years ended December 31,
		2019				2018
Current:
Federal		$	—			$	—
State			16				13
Foreign			2,439				1,509
Total current tax provision		$	2,455			$	1,522
Deferred:
Federal		$	—			$	12
State			—				—
Foreign			1,130				190
Total deferred tax provision (benefit)		$	1,130			$	202
Total tax provision (benefit)		$	3,585			$	1,724

	Years ended December 31,
	2016				2015				2014
Current:
Federal	$	—			$	—			$	—
State	(9		)		—				—
Foreign	88				318				1,812
Total current tax expense	$	79			$	318			$	1,812
Deferred:
Federal	$	—			$	—			$	—
State	—				—				—
Foreign	1,408				(86		)		(432		)
Total deferred tax expense	$	1,408			$	(86	)		$	(432	)
Total tax expense	$	1,487			$	232			$	1,380

A reconciliation of the expected tax expenseprovision (benefit) to the actual tax expenseprovision (benefit) is as follows (in thousands):

		Years ended December 31,
		2019				2018
Expected tax provision (benefit) at statutory rate		$	(2,032	)		$	953
State taxes, net of Federal effect			13				297
State change in deferreds			1,927				—
Foreign rate differential			2,751				129
Valuation allowance			557				(906	)
Permanent differences			544				297
Other permanent items			—				1,178
Tax credit carry-forwards			(212	)			(280	)
Tax expense adjustments after tax return for prior period			37				74
Others			—				(18	)
Total tax provision		$	3,585			$	1,724

	Years ended December 31,
	2016				2015				2014
Expected tax expense (benefit) at statutory rate (e.g. 34%)	$	(4,644	)		$	(929	)		$	1,094
State taxes, net of Federal effect	(348		)		—				—
Foreign rate differential	391				328				(386		)
Valuation allowance	7,004				218				260
Permanent differences	687				40				237
Tax credit carry-forwards	(896		)		(674		)		—
Tax on accumulated earnings from prior year	29				1,348				—
Tax paid to overseas	71				—				—
Tax expense adjustments after tax return for prior	(837		)		—				—
Foreign currency translation	124				—				—
Other	(94		)		(99		)		175
Total tax expense	$	1,487			$	232			$	1,380

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 20162019 and 20152018 are as follows (in thousands):

		As of December 31,
		2019				2018
Deferred tax assets:
Net operating loss, capital loss, and tax credit carryforwards		$	23,195			$	12,621
Fixed assets and intangible assets			1,057				1,451
Inventory and other reserves			1,368				1,998
Operating lease liability			1,684				—
Other (mainly accrued expenses)			2,552				2,042
Gross deferred tax assets			29,856				18,112
Less valuation allowance			(26,827	)			(15,360	)
Deferred tax liabilities:
Operating lease right-of-use-asset			(1,407	)			—
Gross deferred tax liabilities			(1,407	)			—
Total net deferred tax assets		$	1,622			$	2,752

	2016				2015
Deferred tax assets:
Net operating loss, capital loss, and tax credit carryforwards	$	14,243			$	1,907
Reduction of gross deferred tax assets due to built-in loss limitation	(4,402		)		—
Fixed assets and intangible assets	3,775				217
Inventory and other reserves	4,573				513
Other	2,661				197
Gross deferred tax assets	20,850				2,834
Less valuation allowance	(20,850		)		(1,449		)
Total net deferred tax assets	$	—			$	1,385

For the years ended December 31, 20162019 and 2015,2018, the net changes in the valuation allowance were an increase of $19.4$11.5 million, and $0.2a decrease of $0.9 million, respectively. The Company recorded a full valuation allowance againstincrease during the current year is mainly due to the increase of U.S. net deferred tax assets at December 31, 2016and recognition of the Germany deferred tax assets. The decrease during 2018 is mainly due to the decrease of U.S. net deferred tax assets. The Company maintains a valuation allowance on its U.S. and Germany net deferred tax assets since it is more likely than not that the net deferred tax assets will not be realized due to the lack of previously paid taxes and anticipated taxable income.

As of December 31, 2016,2019, the Company had net operating loss carryforwards for federal state, and foreignstate income tax purposes of approximately $29.0 million, $43.9$38.0 million and $2.1$29.4 million, respectively. The federal losses begin to expire in 2025.various years beginning in 2030. The state losses begin to expire in 2017. The foreign losses begin to expire in 2026.

As of December 31, 2016, the Company had research credit carryforwards of approximately $0.1 million, $0.1 million, and $1.2 million for federal, state, and foreign income tax purposes, respectively. If not utilized, the federal carryforward will expire in various amountsyears beginning in 2036.2021. The state credit can be carried forward indefinitely. If not utilized, the foreign creditFederal net operating loss carryforward will expire in 2021.

As of December 31, 2016, the Company also had alternative minimum tax credit carryforward for federal income tax purposes of approximately $0.1includes $12.6 million which are available to reduce future income taxes, if any overthat has an indefinite carryforward period.

Pursuant to Sections 382 and 383 of the Internal Revenue Code, or IRC, annual use of the Company's net operating losses and tax credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year-period.three-year period. The Company had an ownership change in September 2016, which has resulted in an annual limitation on the amount of net operating lossesloss and tax credit carryforwardscarry forward which arose prior to that date that the Company can utilize.

utilize in a future year. In addition, some of the pre-acquisition NOLs have written off due to the limitation.

As of December 31, 2019, the Company had research credit carryforwards of approximately $1.2 million and $1.6 million for federal and state purposes, respectively. If not utilized, the federal carryforwards will expire beginning in 2036. The California credit carryforwards do not expire and the Georgia credit carryforwards will expire beginning in 2026.

In accordance with ASC 740 the Company is requirerequired to inventory, evaluate, and measure all uncertain tax positions taken or to be taken on tax returns, and to record liabilities for the amount of such positions that may not be sustained, or may only be partially sustained, upon examination by the relevant taxing authorities. At December 31, 2016,2019, the Company had gross unrecognized tax benefits of $0.1$1.0 million, none of which if recognized, would reduce the effective tax rate in a future period, due to the Company's full valuation allowance.

allowance on U.S. net deferred tax assets.

A reconciliation of the beginning and ending unrecognized tax benefit amounts for 20162019 and 20152018 are as follows (in thousands):

		As of December 31,
		2019				2018
Balance at beginning of the year		$	807			$	380
Increases related to current year tax positions			229				427
Balance at end of the year		$	1,036			$	807

Balance at December 31, 2014	$	—
Increases related to prior year tax positions	—
Decreases related to prior year tax positions	—
Increases related to current year tax positions	—
Settlements	—
Lapse of statute of limitations	—
Balance at December 31, 2015	—
Increases related to prior year tax positions	—
Decreases related to prior year tax positions	—
Increases related to current year tax positions	77
Settlements	—
Lapse of statute of limitations	—
Balance at December 31, 2016	$	77

It is the Company's policy to account for interest and penalties related to uncertain tax positions as interest expense and general administrative expense, respectively in its statementthe consolidated statements of operations. comprehensive income (loss).

The Company did not record any interest and penalty (benefit) expenseprovision during the yearyears ended December 31, 20162019 and 2015.

2018.

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The open tax years for the major jurisdictions are as follows:

Federal		2016 - 2019
•    Federal	2013 - 2016
•     California and Canada	2012	2015 - 20162019
•     Brazil	2011	2014 - 20162019
•     Germany	2012	2015 - 20162019
•     Japan	2011	2014 - 20162019
•     Korea	2015	2017 - 20162019
•     United Kingdom	2014	2016 - 20162019
•     Vietnam	2016	2017 - 2019

However, due to the fact the Company had net operating losses and credits carried forward in most jurisdictions, certain items attributable to technically closed years are still subject to adjustment by the relevant taxing authority through an adjustment to tax attributes carried forward to open years.

The Company estimates that its foreign income will generally be subject to taxation in the United States on a current basis and that its foreign subsidiaries and representative offices will therefore not have any material untaxed earnings subject to deferred taxes. In addition, to the extent the Company is deemed to have sufficient connection to a particular taxing jurisdiction to enable that jurisdiction to tax the Company but the Company has not filed an income tax return in that jurisdiction for the year(s) at issue, the jurisdiction would typically be able to assert a tax liability for such years without limitation on the number of years it may examine.

The Company is not currently under examination for income taxes in any material jurisdiction.

(12)

(11) Non-Controlling Interests

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

		As of December 31,
		2019				2018
Beginning non-controlling interests		$	615			534
Net income attributable to non-controlling interests			194			69
Foreign currency translation adjustments (Other Comprehensive Income)			15			12
Purchase of non-controlling interests			(824	)			—
Ending non-controlling interests		$	—			$	615

		Years Ended December 31,
		2016				2015
Beginning non-controlling interests		$	138			$	—
Acquisition of additional interest in a subsidiary		277				—
Net loss attributable to non-controlling interests		(2		)		—
Foreign currency translation adjustments (OCI)		3				—
Acquisition of controlling interest		—				138
Ending non-controlling interests		$	416			$	138

(13)

Acquisition of the Non-Controlling Interest in DNS Japan

On July 31, 2019, the Company acquired the remaining 30.94% non-controlling interest of Dasan Network Solutions JAPAN, Inc. (“DNS Japan”), and DNS Japan became a wholly owned subsidiary of the Company. The Company acquired the remaining interest in DNS 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 Consolidated Statements of Stockholders' Equity and Non-Controlling Interest.

(12) 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. Under the loan agreement, the Company was permitted to request drawdowns of one or more term loans in an aggregate principal amount not to exceed $5.0 million.

As of December 31, 2016, $5.0 million in term loans was outstanding under the facility. Such term loans mature in September 20212019 and are pre-payable at any time by2018, the Company without premium or penalty. The interest rate as of December 31, 2016 under this facility was 4.6% per annum.

In addition,had $9.1 million and $14.1 million, respectively, outstanding from related party borrowings from DNI.

See Note 7 Debt – Related Party Debt for further information about the Company borrowed $1.8 million from DNI for capital investment in February 2016, which amount was outstanding as of December 31, 2016. This loan matured in March 2017 with an option of renewal by mutual agreement, and bore interest at a rate of 6.9% per annum, payable annually. Effective February 27, 2017, the Company amended the terms of this loan to extend the repayment date from March 2017 to March 2018, and to reduce the interest rate from 6.9% to 4.6% per annum.

On June 23, 2017, the Company borrowed $3.5 million from Solueta, an affiliate of DNI, which amount was outstanding as of June 30, 2017. This loan matures in November 2017 and bears interest at a rate of 4.6% per annum, payable monthly.

Company’s related party debt.

Other Related Party Transactions

Sales and Purchases to and from Related Parties

Sales and purchases, cost of revenue, research and product development, selling, marketing, general and administrative and other income and expenses to and from related parties for the years ended December 31, 2016, 20152019 and 20142018 were as follows (in thousands):

						For the year ended December 31, 2019
Counterparty		DNI direct 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				$	2,471			$	1,825				—				—			$	3,768			$	459			$	341
Tomato Soft Ltd.		100%					—				—				117				—				—				—				—
Tomato Soft (Xi'an) Ltd.		100%					—				—				—				526				—				—				—
CHASAN Networks Co., Ltd.		100%					—				—				1,103				71				—				—				—
J-Mobile Corporation		91.50%					42				81				—				—				—				—				—
						$	2,513			$	1,906			$	1,220			$	597			$	3,768			$	459			$	341

						For the year ended December 31, 2018
Counterparty		DNI direct 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				$	4,633			$	3,892				—				—			$	4,262			$	435			$	343
Tomato Soft Ltd.		100%					—				—				121				—				—				—				—
Tomato Soft (Xi'an) Ltd.		100%					—				—				—				520				—				—				—
Chasan Networks Co., Ltd.		100%					—				—				1,119				72				—				—				—
Dasan France		100%					203				177				—				—				—				—				—
Handysoft, Inc.		17.63%					794				627				—				—				6				—				—
						$	5,630			$	4,696			$	1,240			$	592			$	4,268			$	435			$	343

				For the year ended December 31, 2016
Counterparty		DNI Ownership Interest		Sales				Cost of revenue				Manufacturing (Cost of revenue)				Research and product development				Selling, marketing, general and administrative				Other income				Other expenses
DNI (Parent Company)		N/A		$	21,214			$	18,173			$	—			$	—			$	5,079			$	—			$	389
ABLE		61.99%		50				—				—				—				—				—				—
CHASAN Networks Co., Ltd.		100%		—				—				720				149				—				—				—
DASAN France		100%		19				18				—				—				—								—
DASAN INDIA Private Limited		100%		2,710				2,080				—				—				—				—				—
DMC		100%		1				1				—				—				—				—				—
D-Mobile		100%		4,431				3,610				—				—				421				—				—
DTS		81.56%		—				—				—				—				—				1				—
HANDYSOFT, Inc.		17.64%		155				136				—				—								—				—
J-Mobile Corporation		68.56%		54				—				—				—				634				25				—
PANDA Media, Inc.		90%		—				—				—				—				2				—				1
Tomato Soft (Xi'an) Ltd.		100%		—				—				—				750				—				—				—
				$	28,634			$	24,018			$	720			$	899			$	6,136			$	26			$	390

				For the year ended December 31, 2015
Counterparty		DNI Ownership Interest		Sales (1) (2)				Cost of revenue (2)				Manufacturing (Cost of revenue)				Research and product development				Selling, marketing, general and administrative (1)				Other income				Other expenses
				As Restated				As Restated												As Restated
DNI (Parent Company)		N/A		$	23,365			$	19,822			$	—			$	—			$	7,230			$	24			$	363
CHASAN Networks Co., Ltd.		100%		—				—				731				358				—				—				—
DASAN RND Co., LTD		100%		—				—				—				—				605				—				—
D-Mobile		100%		—				—				—				—				91				—				—
HANDYSOFT, Inc.		17.64%		1,410				1,337				—				—				—				—				184
J-Mobile Corporation		68.56%		—				—				—				—				1,511				15				—
Tomato Soft (Xi'an) Ltd.		100%		—				—				—				631				—				—				—
				$	24,775			$	21,159			$	731			$	989			$	9,437			$	39			$	547

				For the year ended December 31, 2014
Counterparty		DNI Ownership Interest		Sales (1) (2)				Cost of revenue (2)				Manufacturing (Cost of revenue)				Research and product development				Selling, marketing, general and administrative (1)				Other income				Other expenses
				As Restated				As Restated												As Restated
DNI (Parent Company)		N/A		$	30,760			$	27,353			$	—			$	—			$	7,098			$	—			$	—
CHASAN Networks Co., Ltd.		100%		—				—				838				471				—				—				—
DASAN RND Co., LTD		100%		—				—				—				—				1,214				—				—
J-Mobile Corporation		68.56%		—				—				—				—				766				—				—
Tomato Soft (Xi'an) Ltd.		100%		—				—				—				575				—				—				—
				$	30,760			$	27,353			$	838			$	1,046			$	9,078			$	—			$	—

⁽¹⁾ As discussed in Note 1(d), the Company corrected errors in the classification of certain brand royalty fee of $0.4 million and $0.5 million which should have been treated as a reduction of revenue for the years ended December 31, 2015 and December 31, 2014.

⁽²⁾ The Company corrected errors in the classification of certain revenues of $13.0 million and $16.0 million and related party cost of revenue of $11.1 million and $14.2 million relating to DNI (Parent Company) which should have been classified as related party revenue and related party cost of revenue for the years ended December 31, 2015 and 2014.

Further, an error in the classification of certain revenues of $4.8 million, $4.5 million, and $0.2 million which should have been classified as related party revenue for the quarters ended March 31, 2016, June 30, 2016, and September 30, 2016 was corrected in the annual results included above for the fiscal year ended December 31, 2016.  The Company concluded that the error is not material for the periods impacted but will revise the previously issued consolidated financial statements for this error in future quarterly filings. 

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

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

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

The Company has entered into an agreement with Tomato Soft (Xi'an) Ltd. to provide research and development services for the Company. Under the agreement with Tomato Soft (Xi'an) Ltd., the Company is charged an expected annual fee of $0.8$0.7 million for the development of certain deliverables.

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

The Company shares office space with DNI and certain of DNI's subsidiaries.  Prior to the Merger, DNS, then a wholly owned subsidiary of DNI, shared human resources, treasury and other administrative support with DNI.  As such, the Company entered into certain service sharing agreements with DNI and certain of its subsidiaries for the 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 income from J-Mobile Corporation represents interest income earned on a loan receivable from J-Mobile Corporation. The loan receivable was issued for the amount of $0.5 million and earned an interest rate of 6.9% per annum. The loan receivable was scheduled to mature on July 1, 2020, but was fully paid off on September 3, 2016.

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

Balances of Receivables and Payables with Related Parties

Balances of receivables and payables arising from sales and purchases of goods and services with related parties as of December 31, 20162019 and 20152018 were as follows (in thousands):

				As of December 31, 2016
Counterparty		DNI Ownership Interest		Account receivables				Other receivables				Deposits for lease*				Accounts payable				Other payables				Loans
DNI (Parent Company)		N/A		$	6,679			$	171			$	690			$	360			$	6,861			$	6,800
ABLE		61.99%		53				—				9				—				—				—
DASAN France		100%		23				—				—				—				—				—
DASAN INDIA Private Limited		100%		2,606				—				—				—				—				—
D-Mobile		100%		3,943				—				—				—				—				—
HANDYSOFT, Inc.		17.64%		2				—				—				—				—				—
J-Mobile Corporation		68.56%		5				—				—				—				—				—
Tomato Soft Ltd.		100%		—				—				—				—				16				—
Tomato Soft (Xi'an) Ltd.		100%		—				—				—				70				63				—
				$	13,311			$	171			$	699			$	430			$	6,940			$	6,800

						As of December 31, 2019
Counterparty		DNI Ownership Interest				Other receivables				Deposits for lease*				Loans payable				Accounts payable				Other payables				Accrued and other liabilities**
DNI (parent company)		N/A				$	32			$	709			$	9,096			$	—			$	1,475			$	119
Tomato Soft Ltd.		100%					—				—				—				—				10				—
Tomato Soft (Xi'an) Ltd.		100%					—				—				—				—				45				—
Dasan France		100%					—				—				—				—				—				—
Chasan Networks Co., Ltd.		100%					—				—				—				96				—				—
						$	32			$	709			$	9,096			$	96			$	1,530			$	119

						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 (parent company)		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

				As of December 31, 2015
Counterparty		DNI Ownership Interest		Account receivables (As Restated)				Other receivables				Deposits for lease*				Other payables				Loans
DNI (Parent Company)		N/A		$	14,553			$	1,431			$	3,137			$	—			$	—
CHASAN Networks Co., Ltd.		100%		—				—				—				62				—
DMC, Inc.		100%		—				1				—				—				—
HANDYSOFT, Inc.		17.64%		22				—				—				—				—
J-Mobile Corporation		68.56%		—				310								—				430
Tomato Soft Ltd.		100%		—				—				—				16				—
Tomato Soft (Xi'an) Ltd.		100%		—				—				—				55				—
				$	14,575			$	1,742			$	3,137			$	133			$	430

*

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

**	Included in accrued and other liabilities in the consolidated balance sheet as of December 31, 2019 and 2018.

(13) 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.  

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.  

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 year ended December 31, 2019:

		Year ended December 31, 2019
		(in thousands)
Operating lease cost		$	5,212
Variable lease cost			644
Short-term lease cost			404
Total net lease cost		$	6,260

Lease expense was approximately $4.3 million for the year ended December 31, 2018.

Supplemental cash flow information related to the Company’s operating leases was as follows for the year ended December 31, 2019:

		Year ended December 31, 2019
		(in thousands)
Operating cash flows from operating leases		$	4,932
ROU assets obtained in exchange for operating lease obligations		$	3,812

The following table presents the lease balances within the Company’s consolidated balance sheet, weighted average remaining lease term, and weighted average discount rates related to the Company’s operating leases as of December 31, 2016 and 2015.2019 (in thousands):

Lease Assets and Liabilities
Assets:
Right-of-use assets from operating leases		$	20,469
Liabilities:
Operating lease liabilities - current		$	4,201
Operating lease liabilities - non-current			18,154
Total operating lease liabilities		$	22,355
Weighted average remaining lease term		2.22 years
Weighted average discount rate			4.8	%

During the year ended December 31, 2019, the Company reviewed assets designated for its Keymile business. As a result of the Company’s restructuring activities, it determined that the carrying value of a right-to-use asset for an operating lease building was impaired. As a result, the Company recorded a non-cash asset impairment charge of $0.7 million to reduce the carrying value of these assets, as reflected within Restructuring charges, on the Company’s Consolidated Statements of Comprehensive Income (Loss) for the year ended December 31, 2019.

The following table presents the maturity of the Company’s operating lease liabilities as of December 31, 2019 (in thousands):

		Minimum Future Lease Payments
Year ending December 31:
2020		$	5,287
2021			4,655
2022			4,211
2023			3,795
2024			3,320
Thereafter			3,457
Total operating lease payments			24,725
Less: imputed interest			(2,370	)
Total minimum lease payments		$	22,355

(14) Commitments and Contingencies

Operating Leases

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

	Minimum Future Lease Payments
Year ending December 31:
2017	$	3,633
2018	2,916
2019	2,335
2020	2,192
2021	2,178
Thereafter	8,166
Total minimum lease payments	$	21,420

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 December 31, 2016,2019, the Company had $0.5$9.2 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. However, the Company has agreements with various contract

manufacturers which include non-cancellable inventory purchase commitments. The amount of non-cancellable purchase commitments outstanding net of reserve, was $10.3$4.3 million as of December 31, 2016.

On July 16, 2017, the Company reached an agreement with a supplier to cancel a purchase arrangement for certain inventory which was committed through 2020. Under the settlement, the Company is no longer required to fulfill its commitment to purchase $4.3 million in inventory. In connection with the settlement, the Company also entered into a technical support services arrangement with the supplier through April 30, 2021.

2019.

Payment Guarantees Provided by Third Parties

and DNI

The following table sets forth third parties that have provided payment guarantees of the Company's indebtedness and other obligations as of December 31, 2016 (in thousands):2019 that have been provided by third parties and DNI. DNI owns approximately 44.3% of the outstanding shares of our common stock. The amount guaranteed exceeds the principal amounts of outstanding obligations due to collateral requirements by the banks.

Guarantor		Amount Guaranteed (in thousands)				Description of Obligations Guaranteed
DNI		$	8,400			Credit facility from Industrial Bank of Korea
DNI		$	2,073			Purchasing Card from Industrial Bank of Korea
DNI		$	8,400			Credit facility from Korea Development Bank
DNI		$	5,182			Borrowings from Korea Development Bank
DNI		$	6,000			Credit facility from NongHyup Bank
DNI		$	3,700			Borrowings from Export-Import Bank of Korea
DNI		$	3,000			Payment Guarantee from Shinhan Bank
DNI		$	1,658			Backed Loan from Shinhan Bank
PNC Bank N.A.		$	4,649			Performance Bond
Citi Bank		$	253			Performance Bond
Seoul Guarantee Insurance Co.		$	6,009			Performance Bond, Warranty Bond, etc. (*)
Industrial Bank of Korea		$	836			Bank Guarantee
Korea Development Bank		$	3,124			Letter of Credit
NongHyup Bank		$	2,266			Letter of Credit
Woori Bank		$	1,626			Bank Guarantee
Shinhan Bank		$	583			Purchasing Card
Shinhan Bank		$	683			Payment Guarantee
AXA Insurance Company		$	179			Guarantee for flexible retirement program
		$	58,621

*	The Company is responsible for the warranty liabilities generally for the period of two (2) years regarding major product sales and have contracted surety insurance to cover part of the warranty liabilities.

Guarantor		Amount Guaranteed				Description of Obligations Guaranteed
DNI		$	3,972			Borrowings from Shinhan Bank
DNI		1,986				Purchasing card from Shinhan Bank
DNI		4,800				Borrowings from KEB Hana Bank
DNI		11,379				Credit facility and purchasing card from Industrial Bank of Korea
DNI		6,000				Credit facility from NongHyup Bank
DNI		993				Purchasing card from NongHyup Bank
Industrial Bank of Korea		6,881				Credit facility
Industrial Bank of Korea		286				Credit facility (local)
NongHyup Bank		3,678				Credit facility
Shinhan Bank		299				Purchasing card
KEB Hana Bank		59				Performance bonds
State Bank of India		37				Performance bonds
Seoul Guarantee Insurance Co.		403				Performance payment guarantee
		$	40,773

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.

(15)

Litigation

The

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, or results of operations.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 and cash flows of the reporting period in which the ruling occurs, or future periods.

(16)

(15) Employee Benefit Plans

The Company maintains a 401(k) plan for its employees whereby eligible employees may contribute up to a specified percentage of their earnings, on a pretax basis, subject to the maximum amount permitted by the Internal Revenue Code. Under the 401(k) plan, the Company may make discretionary contributions. The 401(k) plan is a Legacy Zhone plan. The Company made no discretionary contributions to the plan in 2016.

2019 or 2018.

The Company also maintains a defined contribution plan for its employees in Korea. Under the defined contribution plan, the Company contributes 8.33% of an employee's gross salary into the plan. For the year ended December 31, 2019, the Company recorded an expense of $1.3 million for the plan.

Pension Plans

The Company sponsors defined benefit plans for its employees in Keymile and Japan. Defined benefit plans provide pension benefits based on compensation and years of service.

The net periodic benefit cost related to the plans consisted of the following components during the year ended December 31, 2019 (in thousands):

		Year Ended December 31, 2019
Service Cost		$	219
Interest Cost			265
Net amortization			—
Net periodic benefit cost		$	484

The service cost component of net benefit cost is presented within cost of sales or selling, general and administrative expense on the accompanying statements of operations, in accordance with where compensation cost for the related associate is reported. All other components of net benefit cost, including interest cost and net amortization noted above, are presented within other income/expense, net in the accompanying statements of operations.

The following provides a reconciliation of the changes in plan every quarter.assets and benefit obligation, and the funded status at the end of the year (in thousands):

		Year Ended December 31, 2019
Benefit obligation, January 1		$	—
Assumed with acquisition			16,191
Service cost			219
Interest cost			265
Benefits paid			(456	)
Plan amendments			—
Actuarial (gains) losses			1,793
Foreign exchange impact			(341	)
Benefit obligation, December 31			17,671
Underfunded status, December 31		$	17,671

The Company has recorded the 2019 underfunded status as a long-term liability on the consolidated balance sheets. The accumulated benefit obligation for the plans were $17.7 million as of December 31, 2019. The Company has life insurance contracts, with the Company as beneficiary, in the amount of $3.3 million as of December 31, 2019, related to individuals under the pension plans. These insurance contracts are classified as other assets on the Company’s Consolidated Balance Sheet. The Company intends to use any proceeds from these policies to fund the pension plans. However, since the Company is the beneficiary on these policies, these assets have not been designated pension plan assets.

The estimated net loss and prior service cost for the plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year is $19,000. The Company expects to make no contributions to the plans in 2020.

The following gross amounts are recognized net of tax in accumulated other comprehensive loss:

The following benefit payments, which reflect expected future service, are expected to be paid (in thousands):

(17)

Years Ending December 31,
2020		$	602
2021			647
2022			687
2023			720
2024			699
2025 - 2029			3,496

The following gross amounts are recognized net of tax in accumulated other comprehensive loss:

		Year Ended December 31, 2019
Prior service cost		$	—
Net loss			1,793
Net periodic benefit cost		$	1,793

The weighted average assumptions used in determining the periodic net cost and benefit obligation information related to the plans are as follows:

		Year Ended December 31, 2019
Net periodic benefit cost :
Discount rate			0.9	%
Rate of compensation increase			1.7	%
Benefit obligation:
Discount rate			0.9	%
Rate of compensation increase			1.7	%

(16) Enterprise-Wide Information

The Company is a global provider of ultra-broadband network access solutions and communications equipment forplatforms deployed by advanced Tier 1, 2 and 3 service providerproviders and enterprise networks.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 chief operating decision makers aremaker is the Company’s Co-ChiefChief Executive Officers,Officer, who reviewreviews financial information presented on a consolidated basis accompanied by disaggregated information about revenues by geographic region for purposes of making operating decisions and assessing financial performance. The Company attributes revenue from customers to individual countries based on location shipped. The following summarizes required disclosures about geographicgeographical concentrations and revenue by products and services (in thousands):

		Years ended December 31,
		2019				2018
Revenue by geography:
United States		$	36,383			$	50,795
Canada			4,690				4,413
Total North America			41,073				55,208
Latin America			23,774				27,596
Europe, Middle East, Africa			78,375				34,741
Korea			79,124				76,006
Other Asia Pacific			84,536				88,797
Total International			265,809				227,140
Total		$	306,882			$	282,348

		Years ended December 31,
		2019				2018
Revenue by products and services:
Products		$	286,292			$	269,269
Services			20,590				13,079
Total		$	306,882			$	282,348

	Years ended December 31,
	2016				2015				2014
Revenue by geography:					As Restated				As Restated
United States	$	16,872			$	4,426			$	12,526
Canada	1,967				7				—
Total North America	18,839				4,433				12,526
Latin America	9,604				2,510				1,318
Europe, Middle East, Africa	13,611				9,383				20,865
Korea	77,979				114,676				99,646
Other Asia Pacific	30,271				8,194				5,039
Total International	131,465				134,763				126,868
Total	$	150,304			$	139,196			$	139,394

	Years ended December 31,
	2016				2015				2014
Revenue by products and services:					As Restated				As Restated
Products	$	142,238			$	133,036			$	132,282
Services	8,066				6,160				7,112
Total	$	150,304			$	139,196			$	139,394

The Company's property, plant and equipment, net of accumulated depreciation, were located in the following geographical areas as of December 31, 20162019 and 20152018 (in thousands):

		As of December 31,
		2019				2018
United States		$	2,809			$	3,036
Korea			2,020				1,543
Japan and Vietnam			1,074				910
Taiwan and India			24				29
Germany			842				—
		$	6,769			$	5,518

	As of December 31,
	2016				2015
United States	$	4,094			$	113
Korea	1,455				2,138
Japan and Vietnam	739				—
	$	6,288			$	2,251

(18) Quarterly Information (unaudited)

	Year ended December 31, 2016
	Q1 (1)				Q2 (1)				Q3 (1) (2)				Q4 (2)
	(in thousands, except per share data)
Net revenue	$	25,340			$	34,252			$	31,240			$	59,472
Gross profit	4,611				9,002				9,300				18,034
Operating loss	(4,341		)		(165		)		(5,114		)		(3,429		)
Net loss	(3,761		)		(533		)		(4,789		)		(6,245		)
Net income (loss) attributable to non-controlling interest	6				33				(56		)		15
Net loss attributable to DASAN Zhone Solutions, Inc.	(3,767		)		(566		)		(4,733		)		(6,260		)
Net loss per share attributable to DASAN Zhone Solutions, Inc.:
Basic	$	(0.40	)		$	(0.06	)		$	(0.42	)		$	(0.38	)
Diluted	(0.40		)		(0.06		)		(0.42		)		(0.38		)
Weighted-average shares outstanding:
Basic	9,493				9,493				11,139				16,375
Diluted	9,493				9,493				11,139				16,375

(17) Subsequent Events⁽¹⁾ Certain prior quarterly financial information has been revised due

Relocation of Corporation Headquarters and New Facilities in Alameda, California

On March 2, 2020, the Company announced its plans to correctionrelocate its corporate headquarters from Oakland, California to Plano, Texas and establish a new U.S.-based Engineering Center of Excellence in Plano.  

On February 24, 2020, in connection with the planned relocation, the Company entered into two separate Agreements of Sublease (the “Subleases”) with Huawei Technologies USA Inc. (“Huawei”) and Futurewei Technologies, Inc. (“Futurewei,” together with Huawei, the “Sublessors”), respectively, for two suites at Legacy Place, 5700 Tennyson Parkway, Plano, Texas (the “Premises”). The Subleases are subject to that certain errors.Office Lease dated October 7, 2009 by and between Equus Investment Partnership XI, L.P., as successor-in-interest to Legacy Acquisition, L.P., and Huawei, as amended, and that certain Office Lease dated December 14, 2017 by and between Equus Investment Partnership XI, L.P., as successor-in-interest to L&B CIP Legacy Place I & II, LLC, and Futurewei, respectively.

The Subleases cover premises which, together, consist of 16,333 rentable square feet.  Both Subleases are expected to commence in March, 2020 and terminate on November 30, 2025. The Company identified and recorded immaterial errors relateddoes not have any option to extend the quarters ended March 31, 2016, June 30, 2016 and September 30, 2016.  The immaterial errors resulted from overstatementterm of net revenue and the associated related costs.  The overall impacteither of the errorsSubleases. The Subleases provide that the base rent will be abated until July 1, 2020. Beginning on July 1, 2020, the Company's consolidated financial positionaggregate base monthly rent payments due under the Subleases will be $21,777, subject to an annual increase of $0.50 per rentable square foot per annum thereafter. The Company is also responsible for certain other costs under the Subleases including operating expenses, insurance and resultsutilities.

DNI Loan

On March 5, 2020, DNS Korea, the Company’s wholly-owned, indirect subsidiary entered into a Loan Agreement with DNI (the “March 2020 DNI Loan”). The March 2020 DNI Loan was negotiated and approved on behalf of operations is not material and as such, previously filed Quarterly Report on Form 10-Q affected by the errors has not been amended.

The adjustments resulted in a decrease in revenues of $0.5 million, $1.0 million and $0.8 million for the quarters ended March 31, 2016, June 30, 2016 and September 30, 2016, respectively, and increase in net losses of $0.3 million, $0.6 million and $0.1 million for the quarters ended March 31, 2016, June 30, 2016 and September 30, 2016, respectively.

⁽²⁾ Results include the operating results of Legacy Zhone from and after September 9, 2016.

The information set forth below for all quarters and year-to-date periods in fiscal year 2015 has been restated to correct the misstatements described in Note 1. The following tables reconcile the amounts as previously reported in the applicable financial statement to the corresponding restated amounts. All financial statements are unaudited.

	Year ended December 31, 2015
	Q1												Q2
	As Previously Reported				Restatement Adjustments				As Restated				As Previously Reported				Restatement Adjustments				As Restated
	(in thousands, except per share data)
Net revenue	$	38,727			$	(322	)		$	38,405			$	32,021			$	(188	)		$	31,833
Gross profit	9,755				(322		)		9,433				8,480				(188		)		8,292
Operating income (loss)	137				(103		)		34				(2,108		)		(170		)		(2,278		)
Net income (loss)	389				(103		)		286				(2,547		)		(170		)		(2,717		)
Net income (loss) per share:
Basic	$	0.04			$	(0.01	)		$	0.03			$	(0.28	)		$	(0.01	)		$	(0.29	)
Diluted	0.04				(0.01		)		0.03				(0.28		)		(0.01		)		(0.29		)
Weighted-average shares outstanding:
Basic	9,222				9,222				9,222				9,233				9,233				9,233
Diluted	9,222				9,222				9,222				9,233				9,233				9,233

	Year ended December 31, 2015
	Q3												Q4
	As Previously Reported				Restatement Adjustments				As Restated				As Previously Reported				Restatement Adjustments				As Restated
	(in thousands, except per share data)
Net revenue	$	22,591			$	(68	)		$	22,523			$	46,686			$	(251	)		$	46,435
Gross profit	5,817				(18		)		5,799				12,587				(225		)		12,362
Operating income (loss)	(2,981		)		(18		)		(2,999		)		2,337				(71		)		2,266
Net income (loss)	(2,779		)		(18		)		(2,797		)		1,973				(84		)		1,889
Net income (loss) per share:
Basic	$	(0.30	)		$	—			$	(0.30	)		$	0.21			$	(0.01	)		$	0.20
Diluted	(0.30		)		—				(0.30		)		0.21				(0.01		)		0.20
Weighted-average shares outstanding:
Basic	9,331				9,331				9,331				9,459				9,459				9,459
Diluted	9,331				9,331				9,331				9,459				9,459				9,459

(19) Subsequent Events

Management Transition

On June 27, 2017, the Company and its former Chief Technology Officer of the Company, entered into an agreement setting for the terms pursuant to which the former Chief Technology Officer ceased to be an officer and employee of the Company effective July 11, 2017. Under the terms of this agreement, the former Chief Technology Officer: (a) receivedsubsidiaries by a severance payment equivalent to two months and two weeks of his base salary; (b) received an acceleration of unvested stock options to purchase 5,000 shares then held by the former Chief Technology Officer and an extension of exercise period with respect to such options until December 31, 2017; (c) has until October 9, 2017 to exercise his remaining vested options; and (d) received COBRA benefits for up to one month.

On September 11, 2017, the Company announced management transition changes in connection with the first anniversary of the Merger and the progress successfully attained in the integration of the businesses of Legacy Zhone and DNS. The Legacy Zhone senior management team of James Norrod and Kirk Misaka had been serving as the Company’s Co-Chief Executive Officer and Chief Financial Officer, respectively, since the completion of the DNS acquisition under one-year employment agreements to ensure a smooth transition and integration of the businesses of legacy Zhone and DNS. Given the successful integration over the past year, the Company agreed with Messrs. Norrod and Misaka that they would step down from their management roles effective as of September 11, 2017. On September 11, 2017, Mr. Norrod also agreed to step down as a memberspecial committee of the Board of Directors of the Company. In connection with their resignationsCompany (the “Special Committee”) consisting of directors, each of whom was determined to be independent from their management roles, Messrs. Norrod and Misaka entered into release agreements with the Company. Pursuant to his release agreement, Mr. Norrod is entitled to receiveDNI. The March 2020 DNI Loan consists of a lump sum cash payment of $300,000, continued health benefits at Company expense for a period of six

months following his termination of employment and an extension of the period of time to exercise his vested stock options through September 11, 2018. Pursuant to his release agreement, Mr. Misaka is entitled to receive a lump sum cash payment of $232,500 and an extension of the period of time to exercise his vested stock options through September 11, 2018. Mr. Misaka has agreed to remainterm loan in the employamount of KRW 22.4 billion ($18.5 million USD) with interest payable semi-annually at an annual rate of 4.6% and maturing on March 11, 2022. No principal payments are due on the March 2020 DNI Loan until the maturity date, but DNS Korea may prepay the loan, or a portion thereof, without penalty.

As security for the March 2020 DNI Loan (and other existing loans between DNI and DNS Korea and/or DNS California), (i) DNS California, a wholly-owned, direct subsidiary of the Company asand the sole stockholder of DNS Korea, agreed to pledge the outstanding shares of DNS Korea to DNI and (ii) DNS Korea granted a security interest in its Corporate Treasurerpersonal property assets, accounts receivable and Secretary forintellectual property assets to DNI. The March 2020 DNI Loan includes certain covenants consisting of financial reporting obligations, a transitionalmaintenance covenant whereby DNS Korea agreed to maintain a minimum stockholders’ equity value in an amount equal to or greater than KRW 43.3 billion ($35.8 million USD), and customary events of default. If an event of default occurs and is not remedied within the applicable cure period, DNI will be entitled to assist withtake various actions, including requiring the transitionimmediate repayment of his responsibilities, withall outstanding amounts under the same base salary as was in effect priorMarch 2020 DNI Loan and selling the shares or assets of DNS Korea.

DNS Korea loaned the funds borrowed under the March 2020 DNI Loan to the management transition,Company, and continued vesting of his outstanding stock options during the term of his employment, although his continued employment will no longer be governed by the terms of his employment agreement, which was terminated effective September 11, 2017. As part of this management transition, effective September 11, 2017, the Board of Directors of the Company appointed Il Yung Kimintends to serve as President, Chief Executive Officerutilize a portion of such funds to repay in full and Acting Chief Financial Officer ofterminate the Company.

Patent Infringement Injunction Relating to Supplier

In July 2017, a supplier of the Company lost a patent infringement case relating to certain components that are used in Company products. As a result of this injunction, the Company will no longer sell or ship these products to Germany.

PNC Credit Facilities.

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

The information required by this Item 9 and Item 304(a) of Regulations S-K was previously reported in our Current Reports on Form 8-K filed on October 17, 2016 and December 2, 2016.

ITEM 9A.    

ITEM 9A.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to provide reasonable assurance of achieving the objective that information required to be disclosed in our reports filed or submitted pursuant to the Securities Exchange Act of 1934 (the Exchange Act)“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 Co-ChiefChief Executive OfficersOfficer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), of the Exchange Act, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2016,2019, the end of the period covered by this report. The evaluation was done under the supervision and with the participation of Annual Report on Form 10-K. Our management, including our Co-ChiefChief Executive OfficersOfficer and our Chief Financial Officer. Based upon this evaluationOfficer, supervised and participated in the results of the independent investigation conducted by the Audit Committee (as discussed above, under "Business - Audit Committee Investigation"), our Co-Chief Executive Officers and Chief Financial Officerevaluation. They concluded that our disclosure controls and procedures were not effective as of December 31, 2019 because of the materialmaterial weaknesses in our internal control over financial reporting described below under “Management’s Annual Report on Internal Control over Financial Reporting,Reporting.” The effectiveness of our disclosure controls and procedures were not effectiveinternal control over financial reporting as of December 31, 2016.

2019 has been audited by Grant Thornton LLP, an independent registered public accounting firm, and Grant Thornton LLP has issued a report on our internal control over financial reporting, which is included herein.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2016,2019, the end of our fiscal year.the period covered by this Annual Report on Form 10-K. In making this assessment, management used the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment of internal control over financial reporting, management hasCommission. Management concluded that, as of December 31, 2016,2019, our internal control over financial reporting was not effective, because of the unremediated material weaknesses in our internal control over financial reporting described below, was not effective.

below.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the registrant’s annual or interim financial statements will not be prevented or detected on a timely basis.  Based onManagement determined that the results of the independent investigation and due to the incorrect application of generally accepted accounting principles that resulted in material misstatements andCompany did not maintain a restatement of our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2016, management identified material weaknesses in our internal control over financial reporting as of December 31, 2016. Specifically, we did not

maintain an effective control environment as there was an insufficientsufficient complement of personnel with appropriate accounting knowledge, experience and competence, resultingtraining in incorrectthe application of generally acceptedUS GAAP, including accounting principles. This material weakness contributed tofor significant unusual transactions.  In addition, the following material weaknesses. WeCompany did not maintain an effective control environment as it did not appropriately identify internal controls over our financial close process.inventory valuation and revenue. Also, weManagement determined that the Company did not design and maintain effective controls over the financial closing process, including controls surrounding monitoring and review of supporting information to determine the completeness and accuracyactivity of the accounting for complex transactions, specifically related to the business combination that occurred on September 9, 2016, which resulted in an incorrect application of generally accepted accounting principles that resulted in material misstatements and a restatement of our unaudited condensed consolidated financial statements for the three and nine months period ended September 30, 2016. Additionally, theseits foreign subsidiaries.

These material weaknesses could result in a misstatement in the financial statements that would result in a material misstatement in the annual or interim consolidated financial statements that would not be prevented or detected.

Remediation Plan for Material Weaknesses in Internal Control over Financial Reporting

As of the date of this report,Annual Report on Form 10-K, we are re-assessing the design of our controls and modifying processes related to the accounting for significant and unusual transactions as well as enhancing monitoring and oversight controls in the application of applicable accounting guidance related to such transactions. In connection therewith, in December of 2019, we hired a new Chief Financial Officer and Chief Accounting Officer, 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

There were no changes in our internal control over financial reporting that occurred during the fourth quarter of our lastlatest fiscal quarteryear that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Merger-related integration activities may lead us to modify certain internal controls in future periods.

Inherent Limitations on Effectiveness of Controls

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

ITEM 9B.    

ITEM 9B.

OTHER INFORMATION

None.

PART III

PART III

ITEM 10.    

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

EXECUTIVE OFFICERS

The information required in this item relating to our corporate governance, directors and nominees, and the compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated herein by reference to the sections of our definitive proxy statement for our 2020 Annual Meeting of Stockholders to be filed with SEC within 120 days of the end of our fiscal year (the “Proxy Statement”) entitled “Corporate Governance Principles and Board Matters,” “Ownership of Securities” and “Proposal 1: Election of Directors.” Since our last Annual Report on Form 10-K, we have not made any material changes to the procedures by which our stockholders may recommend nominees to the Board of Directors.

Information relating to our executive officers is included under the caption "Executive Officers"“Information About our Executive Officers” in Part I of this Annual Report on Form 10-K, pursuant to General Instruction G(3) of Form 10-K.

DIRECTORS

In accordance with our certificate of incorporation, we divide our Board of Directors into three classes, with Class I consisting of two members, Class II consisting of one member, and Class III consisting of two members. We elect one class of directors to serve a three year term at each annual meeting of stockholders. Each elected director will continue to serve until his or her successor is duly elected or appointed.

The following table sets forth for each director: the age of such director, the positions currently held with the Company, the year in which such director’s current term will expire, and the class of such director.

Name		Age		Position		Term Expires		Class
Min Woo Nam		54		Chairman of the Board of Directors		2019		III
Michael Connors		75		Director		2017		I
Il Yung Kim		60		President, Chief Executive Officer, Acting Chief Financial Officer and Director		2019		III
Seong Gyun Kim		50		Director		2017		I
Sung-Bin Park		50		Director		2018		II

All of our directors bring to the Board of Directors a wealth of executive leadership experience derived from their service as executives or managing directors of small, large and multinational corporations or venture capital firms . They also bring extensive board experience. The process undertaken by the Corporate Governance and Nominating Committee in recommending qualified director candidates is described below under “Corporate Governance Principles and Board Matters-Committee Composition-Corporate Governance and Nominating Committee.” See also “Corporate Governance Principles and Board Matters - Board Structure” above for a discussion of requirements with respect to our Board of Directors prior to September 9, 2018. Certain individual qualifications and skills of our directors that contribute to the Board of Director’s effectiveness as a whole are described in the following paragraphs.

Min Woo Nam has served as the Chairman of the Board of Directors of DZS since the consummation of the Merger on September 9, 2016. Mr. Nam currently serves as the Chief Executive Officer and Chairman of the Board of Directors of DNI, a position he has held since March 1993. Mr. Nam previously served as the Chief Executive Officer of Korea Ready System and Dasan Engineering Co., Ltd. His work has included export of technical services to Silicon Valley, California since 1999. Mr. Nam served as General Chairman of the International Network of Korean Entrepreneurs from 2004 until 2006, and has served as Director of the Korea Entrepreneurship Foundation since November 2011. Previously, he has served as Chairman of the Korean Venture Business Association. Mr. Nam completed his B.E.in Mechanical Engineering from Seoul National University in 1984. We believe Mr. Nam is well suited to serve as the Chairman of our Board of Directors given his extensive experience in chief executive officer and chairman roles and his in-depth knowledge of the telecommunications industry.

Michael Connors has served as a director of DZS since November 2003 following the consummation of Legacy Zhone’s merger with Tellium, Inc. Dr. Connors had been a member of Tellium’s board of directors since June 2000. From 1992 to 1998, Dr. Connors held the office of President of AOL Technologies, an Internet service provider, where he led the creation and growth of AOLnet and the development of AOL software and services. Dr. Connors is currently a director of The Connors Foundation. Dr. Connors earned a B.S. in Engineering, an M.S. in Statistics and a Ph.D. in Operations Research from Stanford University. We believe Dr. Connors is well suited to serve on our Board of Directors given his extensive knowledge of the communications industry based on his experience as President of AOL Technologies and director of Tellium.

Il Yung Kim has served as a director and Co-Chief Executive Officer of DZS since the consummation of the Merger on September 9, 2016, and assumed his current role of director and President, Chief Executive Officer and Acting Chief

Financial Officer as part of the management transition in connection with the first anniversary of the Merger in September 2017. Prior to joining DZS, Mr. Kim served as a consultant to DNI in connection with the Merger. From September 2014 to

August 2016, Mr. Kim served as Chief Executive Officer of TukTak in Korea, an online startup company, which enables people with creative talents to collaborate and produce goods and services online. From December 2014 to August 2016, he also served as a strategic advisor for InMobi, a global mobile advertising platform provider. Previously, Mr. Kim held various positions with Korea Telecom, including as President and executive board member from 2013 to January 2014, and as Chief Strategy Officer from 2010 to 2013. Mr. Kim commenced his career with British Telecom in 1982, where he held various senior positions including Vice President of Technology and Innovation and Programme Director and Head of Technology and Investment. Mr. Kim holds a B.S. (with Honors) in Electronic Engineering and an M.S. Degree in Microwave and Modern Optics from University College, University of London. We believe Mr. Kim is well suited to be our Chief Executive Officer and serve on our Board of Directors given his extensive chief executive officer experience, his expertise in the business arena and his in-depth knowledge of the telecommunications industry.

Seong Gyun Kim has served as a director of DZS since the consummation of the Merger on September 9, 2016. Mr. Kim currently serves as the Chief Financial Officer and a director of Finetex EnE, Inc., a nanofiber technology company listed on KOSDAQ, positions he has held since 2008. Prior to joining Finetex, Mr. Kim served as a Vice President of Mbizkorea, a game development and game products try-and-buy service supplier company, from 2006 to 2008. From 2013 to 2016, Mr. Kim served as a director of Interpark Corp., a KOSDAQ-listed Korean online auction and shopping mall. Mr. Kim holds an M.B.A. from Ajou University in South Korea and a B.S. in International Economics from Seoul National University. We believe Mr. Kim is well suited to serve on our Board of Directors given his considerable experience in the business arena as well as serving on different boards of public companies.

Sung-Bin Park has served as a director of DZS since the consummation of the Merger on September 9, 2016. Mr. Park is a co-founder and Managing Director of TransLink Capital (a U.S.-based venture capital firm), a position he has held since February 2009. Mr. Park is also a founder and Chief Executive Officer of SPK Inc. (which provides Korean business development services to U.S.-based start-ups) and Spark and Associates (a consulting firm providing big data analytics services), positions he has held since May 2002 and November 2010, respectively. Mr. Park earned an M.B.A. from Stanford University and a B.S. in Materials Science and Engineering from Massachusetts Institute of Technology. We believe Mr. Park is well suited to serve on our Board of Directors given his extensive knowledge providing Korean business development services to U.S. based companies as founder and Chief Executive Officer of SPK Inc.

CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS

We are dedicated to maintaining the highest standards of business integrity. It is our belief that adherence to sound principles of corporate governance, through a system of checks, balances and personal accountability is vital to protecting our reputation, assets, investor confidence and customer loyalty. Above all, the foundation of our integrity is our commitment to sound corporate governance. Our corporate governance principles and Code of Conduct and Ethics can be found in the "Corporate Governance" section of our website at http://dasanzhone.com/about/investor-relations/corporate-governance/.

Board Structure

On September 9, 2016, we acquired DNS through the Merger. At the closing of the Merger, we issued 9,493,016 shares (post reverse stock split) of our common stock to DNI, as the sole stockholder of DNS, of which 949,302 shares (post reverse stock split) are being held in escrow as security for claims for indemnifiable losses in accordance with the agreement governing the Merger (the Merger Agreement). As a result, immediately following the effective time of the Merger, DNI held 58% of the outstanding shares of our common stock and the holders of our common stock immediately prior to the Merger retained, in the aggregate, 42% of the outstanding shares of our common stock.

On September 9, 2016, effective as of the effective time of the Merger and in accordance with the terms of the Merger Agreement, (1) Robert Dahl and Mahvash Yazdi resigned from our Board of Directors, (2) the size of our Board of Directors was increased from five to seven directors, (3) the Board of Directors appointed Min Woo Nam, Il Yung Kim, Seong Gyun Kim and Sung-Bin Park to fill the vacancies on the Board resulting from the resignations of Mr. Dahl and Ms. Yazdi and the newly created directorships, and (4) Mr. Nam was elected as Chairman of our Board of Directors. As required by the Merger Agreement, the appointments of Messrs. Nam, Kim, Kim and Park to the Board of Directors were designated by DNI.

In connection with the Merger, effective as of September 9, 2016, we amended our bylaws to provide that, from the closing of the Merger until September 9, 2018: (1) the number of directors constituting our Board of Directors shall be seven and (2) subject to the failure of any director to be re-elected to the Board of Directors by our stockholders, the Board of Directors shall be composed of the four directors designated at the closing by DNI (or a replacement approved by a majority of the remaining DNI-designated directors (or their replacements)) and the three directors designated at the closing by us (or a replacement approved by a majority of the remaining directors designated at the closing by us (or their replacements)). With respect to our 2017 and 2018 annual meetings of stockholders (or any special meeting of stockholders for the election of directors held prior to the second anniversary of the Merger), our bylaws require that the nominees for election to the relevant Class of the Board of

Directors at such meeting be comprised of the director(s) of that Class designated at the closing by DNI and us (or a replacement approved by the applicable remaining directors, as described above).

In connection with the Merger and in accordance with the terms of the Merger Agreement, on September 9, 2016, we also entered into a stockholder agreement with DNI, pursuant to which DNI has agreed, on the terms set forth therein, to vote its shares of our common stock until September 9, 2018 (1) in favor of the election of each person who is nominated by the Board of Directors for election to the Board in accordance with our bylaws and (2) against the removal of any such director unless such removal is recommended by a resolution approved by the affirmative vote of at least two-thirds of the entire Board of Directors.

On September 11, 2017, in connection with the first anniversary of the Merger and the progress successfully attained in the integration of the businesses of Legacy Zhone and DNS, we announced that the Legacy Zhone senior management team of James Norrod and Kirk Misaka were stepping down from their respective roles as Co-Chief Executive Officer and Chief Financial Officer. Messrs. Norrod and Misaka had been serving in those roles under one-year employment agreements to ensure a smooth transition and integration of the businesses of Legacy Zhone and DNS. Mr. Norrod resigned from DZS, including from our Board of Directors, as part of this management transition effective as of September 11, 2017. Mr. Misaka has agreed to remain in our employ as Corporate Treasurer and Secretary for a transitional period to assist with the transition of his responsibilities. Also effective as of September 11, 2017, Richard Kramlich resigned from the Board of Directors to focus on his other business endeavors. Under our bylaws, as Messrs. Norrod and Kramlich were designed by Legacy Zhone at the closing of the Merger, any director appointed to fill the vacancies created by their resignations must be approved by Michael Connors, as the remaining Legacy Zhone director designee. We do not intend to fill the vacancies on our Board of Directors created by the resignations of Messrs. Norrod and Kramlich at this time, but may elect to do so in the future.

The positions of Chairman and Chief Executive Officer are separate. The Board of Directors believes its current leadership structure is appropriate at this time to maximize the effectiveness of its oversight of management and to provide a perspective that is separate and distinct from that of management. The Board of Directors also believes the separation of the Chairman and Chief Executive Officer roles allows our Chief Executive Officer to focus his time and energy on operating and managing our business and leverages the Chairman’s experience and perspectives.

We have elected to be treated as a “controlled company” under Nasdaq Marketplace Rules because more than 50% of the voting power for the election of directors is held by DNI. As a “controlled company,” we may rely on exemptions 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.

Board Independence

The Board of Directors has affirmatively determined that each member of the Board of Directors, other than Min Woo Nam and Il Yung Kim, is independent under the criteria established by Nasdaq for independent board members. At the conclusion of the regularly scheduled Board of Directors meetings, the independent directors have the opportunity to and regularly meet outside of the presence of our management. In addition, each member of the Audit Committee of the Board of Directors is currently an independent director in accordance with Nasdaq standards.

Committee Composition

As of the date of this report, we had the following three standing committees: (1) Audit Committee, (2) Compensation Committee, and (3) Corporate Governance and Nominating Committee. The membership during the last fiscal year and the function of each of the committees are described below. Each of the committees operates under a written charter which can be found on the “Corporate Governance” section of our website at www.dasanzhone.com.

Director		Audit Committee		Compensation Committee		Corporate Governance and Nominating Committee
Michael Connors (1)		Member
Robert Dahl (2)		Chair		Member		Member
Morteza Ejabat (3)
Il Yung Kim
Seong Gyun Kim(2)		Chair
C. Richard Kramlich (1) (4)		Member		Member		Member
Min Woo Nam (2)(4)				Chair		Chair
James Norrod (5)
Sung-Bin Park (4)(6)		Member		Member		Member
Mahvash Yazdi (7)
Number of Meetings in 2016		6		4		4

(1)	Effective as of September 11, 2017, Mr. Kramlich resigned from his position as a director of DZS and member of the Compensation Committee and Corporate Governance and Nominating Committee, and Dr. Connors was appointed as a member of both committees to fill the resulting vacancies.

(2)

Mr. Dahl resigned from his position as a director of DZS, Chairman of the Audit Committee and member of the Compensation Committee and Corporate Governance and Nominating Committee in connection with the Merger effective as of September 9, 2016. Mr. Seong Gyun Kim was appointed as Chairman of the Audit Committee to fill the vacancy effective as of September 9, 2016. Mr. Nam was appointed member of the Corporate Governance and Nominating Committee to fill the vacancy effective as of September 9, 2016.

(3)	Mr. Ejabat resigned from his position as Executive Chairman of our Board of Directors effective as of January 31, 2016.

(4)	Mr. Kramlich resigned from his position as Interim Chairman of our Board of Directors and as a member of the Audit Committee in connection with the Merger effective as of September 9, 2016. Mr. Nam was appointed Chairman of our Board of Directors effective as of September 9, 2016. Mr. Park was appointed as a member of the Audit Committee to fill the vacancy effective as of September 9, 2016.

(5)	Mr. Norrod stepped down from his position as Co-Chief Executive Officer and resigned as a director of DZS effective as of September 11, 2017.

(6)	Effective as of September 9, 2016, in connection with the Merger, the size of the Corporate Governance and Nominating Committee was expanded from two to three members. Mr. Park was appointed as a member of the Corporate Governance and Nominating Committee to fill the vacancy effective as of September 9, 2016.

(7)	Ms. Yazdi resigned from her position as a director of DZS in connection with the Merger effective as of September 9, 2016.

Audit Committee

The Audit Committee reviews the professional services provided by our independent registered public accounting firm, the independence of such independent registered public accounting firm from our management, and our annual and quarterly financial statements. The Audit Committee also reviews such other matters with respect to our accounting, auditing and financial reporting practices and procedures as it may find appropriate or may be brought to its attention. The responsibilities and activities of the Audit Committee are described in greater detail in the section entitled “Audit Committee Report.”

Each member of the Audit Committee is an independent director under the criteria established by Nasdaq. Our Board of Directors has also determined that each member of the Audit Committee qualifies as an “audit committee financial expert,” as that term is defined in the rules and regulations established by the SEC. Stockholders should understand that this designation is a disclosure requirement of the SEC related to the experience and understanding of our Audit Committee members with respect to certain accounting and auditing matters. The designation does not impose upon them any duties, obligations or liabilities that are greater than are generally imposed on them as a member of the Audit Committee and the Board of Directors, and their

designation as audit committee financial experts pursuant to this SEC requirement does not affect the duties, obligations or liability of any other member of the Audit Committee or the Board of Directors.

Compensation Committee

The Compensation Committee is responsible for establishing and monitoring policies governing the compensation of executive officers. In carrying out these responsibilities, the Compensation Committee is responsible for reviewing the performance and compensation levels for executive officers, establishing salary and bonus levels for these individuals, and approving stock option grants for these individuals under our stock option plans. The objectives of the Compensation Committee are to correlate executive officer compensation with our business objectives and financial performance, and to enable us to attract, retain and reward executive officers who contribute to the long-term success of the company. The Compensation Committee seeks to reward executive officers in a manner consistent with our annual and long-term performance goals, and to recognize individual initiative and achievement among executive officers.

Corporate Governance and Nominating Committee

The Corporate Governance and Nominating Committee develops and reviews corporate governance principles applicable to the company, identifies individuals qualified to serve as directors, selects or recommends nominees to the Board of Directors for the election of directors, and advises the Board of Directors with respect to Board of Directors and committee composition. The Corporate Governance and Nominating Committee is also responsible for reviewing with the Board of Directors from time to time the appropriate skills and characteristics required of Board of Directors members in the context of the current size and make-up of the Board of Directors. This assessment includes issues of diversity of professional experience, viewpoint, age, skills (such as understanding of manufacturing, technology, finance and marketing), and international background. These factors, and any other qualifications considered useful by the Corporate Governance and Nominating Committee, are reviewed in the context of an assessment of the perceived needs of the Board of Directors at a particular point in time. As a result, the priorities and emphasis of the Corporate Governance and Nominating Committee and of the Board of Directors may change from time to time to take into account changes in business and other trends, and the portfolio of skills and experience of current and prospective Board of Directors members. Therefore, while focused on the achievement and the ability of potential candidates to make a positive contribution with respect to such factors, the Corporate Governance and Nominating Committee has not established any specific minimum criteria or qualifications that a nominee must possess.

Subject to the requirements under our bylaws with respect to elections to the Board of Directors prior to the second anniversary of the Merger (as described above), in selecting or recommending candidates for election to the Board of Directors, the Corporate Governance and Nominating Committee considers nominees recommended by directors, management and stockholders using the same criteria to evaluate all candidates. The Corporate Governance and Nominating Committee reviews each candidate’s qualifications, including whether a candidate possesses any of the specific qualities and skills desirable in certain members of the Board of Directors. Evaluations of candidates generally involve a review of background materials, internal discussions and interviews with selected candidates as appropriate. Upon the identification of a qualified candidate, the Corporate Governance and Nominating Committee would select, or recommend for consideration by the full Board of Directors, the nominee for the election of directors. The Corporate Governance and Nominating Committee may engage consultants or third party search firms to assist in identifying and evaluating potential nominees. To recommend a prospective nominee for the Corporate Governance and Nominating Committee’s consideration, stockholders should submit the candidate’s name and qualifications to our Corporate Secretary in writing to the following address: DASAN Zhone Solutions, Inc., Attention: Corporate Secretary, 7195 Oakport Street, Oakland, California 94621. When submitting candidates for nomination to be elected at the annual meeting of stockholders, stockholders must also follow the notice procedures and provide the information required by our bylaws. See “Board Structure” above for a discussion of requirements with respect to the composition of the Board of Directors prior to September 9, 2018.

Special Committee

Pursuant to the Merger Agreement, the Board of Directors has also established a Special Committee which is responsible for administering certain post-closing provisions of the Merger Agreement on our behalf. Michael Connors is currently the sole member of the Special Committee. The Special Committee did not hold any meetings during the year ended December 31, 2016.

Board Meetings and Director Attendance at Annual Meetings of Stockholders

During the year ended December 31, 2016, the Board of Directors of Legacy Zhone (prior to the Merger) and DZS

(following the Merger) held nine meetings. During this period, all of the directors attended or participated in at least 75% of the aggregate of the total number of meetings of the Board of Directors and the total number of meetings held by all committees of

the Board of Directors on which each such director served, in each case during the period for which they were directors of Legacy Zhone or DZS (as applicable). We endeavor to schedule our annual meeting of stockholders at a time and date to maximize attendance by directors taking into account the directors’ schedules. One of our directors attended last year’s annual meeting of stockholders.

Board of Directors' Role in Risk Oversight

The Board of Directors has an active role, as a whole and also at the committee level, in overseeing management of the company’s risks. The Compensation Committee is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements. The Audit Committee oversees management of financial risks and discusses our policies with respect to risk assessment and risk management. The Corporate Governance and Nominating Committee manages risks associated with the independence of the Board of Directors and potential conflicts of interest.

The Board of Directors’ role in our risk oversight process includes receiving regular reports from members of senior management on areas of material risk to the company, including operational, financial, legal and regulatory, and strategic and reputational risks. The full Board of Directors (or the appropriate committee in the case of risks that are under the purview of a particular committee) receives these reports from the appropriate “risk owner” within the organization to enable it to understand our risk identification, risk management and risk mitigation strategies. When a committee receives the report, the Chairman of the relevant committee reports on the discussion to the full Board of Directors during the committee reports portion of the next Board of Directors meeting. This enables the Board of Directors and its committees to coordinate the risk oversight role, particularly with respect to risk interrelationships.

Communications with the Board of Directors

Any stockholder wishing to communicate with any of our directors regarding corporate matters may write to the director, c/o Corporate Secretary, DASAN Zhone Solutions, Inc., 7195 Oakport Street, Oakland, California 94621. The Corporate Secretary will forward these communications directly to the director(s). However, certain correspondence such as spam, junk mail, mass mailings, product complaints or inquiries, job inquiries, surveys, business solicitations or advertisements, or patently offensive or otherwise inappropriate material may be forwarded elsewhere within the company for review and possible response.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors, executive officers and holders of more than 10% of our common stock to file reports of ownership and changes in ownership with the SEC. These persons are required to furnish us with copies of all forms that they file. Based solely on our review of copies of these forms in our possession and in reliance upon written representations from our directors and executive officers, with the exception of one late Form 4 filing for Mr. Norrod on April 6, 2016, disclosing a single transaction in which Mr. Norrod was granted an option to purchase 250,000 shares of our common stock, we believe that all of our directors, executive officers and 10% stockholders complied with the Section 16(a) filing requirements during 2016.

Code of Conduct

We have adopted a Code of Conduct and Ethics applicable to all of our employees, directors and officers (including our principal executive officer, principal financial officer, principal accounting officer and controller). The Code of Conduct and Ethics is designed to deter wrongdoing and to promote honest and ethical conduct and compliance with applicable laws and regulations. The full text of our Code of Conduct and Ethics can be found in the "Corporate Governance" section ofis published on our website at http:https://dasanzhone.com/about/investor-relations/corporategovernance/. corporate-governance. We intend to disclose any future amendments to certain provisions of our Code of Conduct and Ethics, or waivers of such provisions granted to executive officers and directors, on our website within four business days following the date of such amendment or waiver.

ITEM 11.    

ITEM 11.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

This compensation discussion and analysis summarizes our philosophy and objectives regarding

The information required by this item is incorporated herein by reference to the compensation of our executive officers and senior managers, including how we determine the elements and amounts of compensation. The Compensation Committeesections of the Board of Directors is responsible for determining, establishingProxy Statement entitled “Executive Compensation” and approving each element of compensation including salary and all bonus, incentive, equity and other compensation for the company’s executive officers and

senior managers. Our fiscal year 2016 named executive officers were: Il Yung Kim, Co-Chief Executive Officer; James Norrod, Co-Chief Executive Officer; and Kirk Misaka, Chief Financial Officer.

On September 9, 2016, effective as of the effective time of the Merger, Mr. Kim was appointed as Co-Chief Executive Officer of DZS and the title of Mr. Norrod was changed from President and Chief Executive Officer to Co-Chief Executive Officer. The appointments of Messrs. Kim and Norrod as Co-Chief Executive Officers in connection with the consummation of the Merger was required by the terms of the Merger Agreement, and each of our named executive officers entered into a one-year employment agreement with DZS to ensure a smooth transition and integration of the businesses of Legacy Zhone and DNS. On September 11, 2017, we announced management transition changes in connection with the first anniversary of the Merger and the progress successfully attained in the integration of the businesses of Legacy Zhone and DNS. Given the successful integration over the past year, we agreed with Messrs. Norrod and Misaka that they would step down from their management roles effective as of September 11, 2017. On September 11, 2017, Mr. Norrod also agreed to step down as a member of our Board of Directors. Mr. Misaka has agreed to remain in our employ as our Corporate Treasurer and Secretary for a transitional period to assist with the transition of his responsibilities. As part of this management transition, effective September 11, 2017, the Board of Directors appointed Il Yung Kim to serve as our President, Chief Executive Officer and Acting Chief Financial Officer.

Executive Summary

DZS is a global provider of network access solutions and communications equipment for service providers and enterprise networks. We operate in a highly competitive environment. The purpose of our executive compensation program is to attract, motivate and retain the executives who lead our business and align their interests with the long-term interests of our stockholders. The main elements of our compensation program are base salary, annual cash bonus and long-term equity incentive awards. We seek to pay our named executive officers fairly and link pay with performance.

The leadership and discipline of our management team heavily contributed to our performance over the last several years. Among other achievements, our named executive officers demonstrated solid execution of our business plan and the promotion of our strategic objectives, including the successful completion of the Merger. They continued to position us appropriately for growth, including by increasing revenues, expanding operating income as a percentage of revenue, and promoting a diverse customer and product mix in our businesses. Their focus on expense and working capital management increased our efficiency and improved our results. In addition, our managers promoted a philosophy of continuous improvement, leadership development among our senior managers and the ongoing importance of diversity and inclusion among our employee population. Our named executive officers have transitioned the company to expand and grow our business. Our fiscal 2016 accomplishments, guided by our named executive officers, illustrate this focus, which included, among other things, the following:

We completed the Merger and initiated the process of integrating the businesses of Legacy Zhone and DNS.

Our results from continuing operations in fiscal year 2016 reflected ongoing resiliency in our business as demonstrated in our carrier business while investing in the expansion of the enterprise business.

Overall, we demonstrated strong execution on strategic business objectives.

In determining the compensation of our named executive officers for 2016, the Compensation Committee evaluated our company’s overall performance and their individual contributions to that performance, including the factors described above.

Based on the comparable company information reviewed by the Compensation Committee each year in connection with its annual review of our executive compensation program, the Compensation Committee has historically targeted total direct compensation opportunities for the named executive officers at approximately the median of the competitive market data at time of hire and gradually made adjustments to levels above the median as the named executive officer demonstrates performance and assumes additional responsibilities over time. In keeping with our corporate objectives to conserve cash, none of Legacy Zhone's named executive officers received raises in base salary for 2015. Additionally, commencing in October 2015, a voluntary salary reduction was initiated by the executive officers pursuant to which our named executive officers’ base salaries were reduced by 20%. This salary reduction, initiated in 2015, remained in effect in 2016, but was discontinued on April 1, 2017 for our named executive officers. On that date, Mr. Kim’s and Mr. Norrod’s annual salary increased to $400,000 and Mr. Misaka’s annual salary increased to $365,000.

In light of our recent performance and the other factors described above, we believe our executive pay is reasonable, consistent with our performance and financial objectives and position.

Philosophy and Objectives

We strive to find the best talent, resources and infrastructure to serve our customers and strategically expand our product portfolio. Our goal is to attract and retain highly qualified executives to manage and oversee each of our business functions. We seek out individuals who we believe will be able to contribute to our business and our vision of future success, culture, principles and values, and who will promote the long-term interests and growth of our company. Our compensation philosophy is intended

to promote a team-oriented approach to performance as a portion of each named executive officer's incentive compensation is based on achievement against the same performance objectives as our broad-based incentive plan. In 2016, all employees were provided with the same health, welfare and retirement benefits as the executives.

Our compensation programs aim to achieve the following:

foster a goal-oriented, highly talented leadership team with a clear understanding of business objectives and shared corporate principles and values;

allocate our resources effectively in the development and selling of market-leading technology and products;

control costs in our business to maximize our efficiency;

ensure that the elements of compensation provided to our employees and executives are balanced, individually and in combination, and do not encourage excessive risk-taking;

reflect the competitive environment of our industry and our changing business needs;

enable us to attract, retain and drive a world-class leadership team; and

maintain pay parity and fair compensation practices across our organization.

In furtherance of these goals, our compensation programs are designed to:

be market competitive;

emphasize pay for performance;

share risks and rewards with our stockholders;

align the interests of our employees and executives with those of our stockholders; and

reflect our principles and values.

Our executive compensation program in 2016 consisted of the following components:

base salary;

potential cash bonuses;

equity-based incentives; and

health, welfare and retirement benefits.

The Compensation Committee’s goal is to set total compensation for our named executive officers at levels that are generally comparable to executives with similar roles and responsibilities at our peer group of companies, consistent with our goals, and appropriate in light of the company’s financial position and the executive’s experience level and expected contribution. The Compensation Committee typically targets total compensation for our named executive officers at or above the median of the market data from our peer group of companies, although actual compensation for an executive officer may be higher or lower than the targeted position depending on such factors as the individual performance of the named executive officer, our actual financial performance during the year, intensity of competition and general market conditions, the experience level, responsibilities and expected future contribution of the executive, and the importance of each position. The Compensation Committee does not rely solely upon rigid, pre-determined formulas for determining executive compensation and may consider any factor that is deemed pertinent to its executive compensation decisions.

Role of Chief Executive Officer and Chief Financial Officer in Determining Executive Compensation and Benchmarking Data

We generally have followed a consistent process over the years for determining compensation for our named executive officers. At the conclusion of each fiscal year, our Chief Executive Officer (or Co-Chief Executive Officers, as applicable) and Chief Financial Officer with the assistance of the Human Resources Department, consider the compensation of executives in similar positions to theirs at our peer group, which is discussed below, using information gathered from proxy statements and other SEC filings. Our Chief Executive Officer (or Co-Chief Executive Officers, as applicable) and Chief Financial Officer then provide recommendations to the Compensation Committee for adjustments to their base salaries, bonus opportunities and equity levels.

Our Chief Executive Officer (or Co-Chief Executive Officers, as applicable) and our Chief Financial Officer attend some of the Compensation Committee meetings, but the Compensation Committee also regularly holds executive sessions not attended by any members of management or non-independent directors. The Compensation Committee discusses our Chief Executive Officer’s and Chief Financial Officer’s compensation package with them, but makes decisions with respect to their compensation without them present. The Compensation Committee has the ultimate authority to make decisions with respect to the compensation of our named executive officers, but may, if it chooses, delegate any of its responsibilities to subcommittees. The

Compensation Committee has delegated to Mr. Kim the authority to grant long-term incentive awards to employees below the level of executive officer under guidelines set by the Compensation Committee. The Compensation Committee also has authorized Mr. Kim to make salary adjustments and short-term incentive decisions for all employees other than officers under guidelines approved by the Compensation Committee. The Compensation Committee has not delegated any of its authority with respect to the compensation of executive officers. Although neither the Compensation Committee nor the Board of Directors is required to ratify the actions of Mr. Kim with regard to the authority delegated to him, as a matter of good corporate practice, Mr. Kim periodically provides a report to the Board of Directors regarding grants of long-term incentive awards to employees authorized by him. The Compensation Committee reviews this information in light of its own current experience, access to compensation information and experience at other companies and on other boards. The Compensation Committee historically has given considerable weight to management recommendations based on their direct knowledge of their performance and contributions to the company. The Compensation Committee considers these factors, as well as any other factors it may deem relevant to its executive compensation determinations, and sets the compensation for the company’s executive officers.

In determining the compensation of the named executive officers for fiscal year 2016, the Compensation Committee considered external market data and publicly available information from a peer group of comparable companies compiled as described above. This market data focused on, among other things, the cash components of compensation for executives.

The 2016 peer group used for purposes of determining 2016 compensation for the named executive officers represents companies within the telecommunications industry. The peer group was chosen primarily because they are our primary business competitors and because we consider the scope and complexity of their business operations to be closely related to ours. Our 2016 peer group was established by the Compensation Committee based on recommendations made by management.

For fiscal year 2016, our peer group was comprised of the following companies:

Adtran, Inc.

Brocade Communications Systems, Inc.

Calix, Inc.

Ciena Corporation

F5 Networks, Inc.

Harmonic, Inc.

Infinera Corporation

IXIA

Juniper Networks, Inc.

Sonus Networks, Inc.

Westell Technologies, Inc.

Role of Compensation Consultants

In performing its duties, the Compensation Committee may obtain input, as it deems necessary, from outside professional consulting firms retained directly by the Compensation Committee or through the assistance of the Human Resources Department. The Compensation Committee did not retain an outside professional consulting firm to conduct a competitive review and assessment of the company’s executive compensation program for the 2016 fiscal year.

Elements of Compensation Allocation

The Compensation Committee believes that each element of our compensation program is essential to attracting and retaining experienced and motivated executive officers who are able to successfully manage our operations, strategic direction and financial performance, particularly given the intensely competitive and rapidly changing telecommunications industry in which we operate. In evaluating the overall mix of compensation for named executive officers, the Compensation Committee typically does not rely on pre-determined formulas for weighting different elements of compensation for allocating between long-term and short-term compensation, but instead strives to develop comprehensive compensation packages that emphasize attainment of our short-term and long-term objectives and are reflective of our financial position and the executive’s abilities, experience level and contributions.

Base Salaries

In general, base salaries for employees, including named executive officers, are established based on the scope of their responsibilities, individual contribution, prior experience, sustained performance and anticipated level of difficulty of replacing the employee with someone of comparable experience and skill. Decisions regarding salary increases take into account the executive’s current salary and the amounts paid to the named executive officer’s peers outside the company. In addition to considering the competitive pay practices of our peer group of companies, we also consider the amounts paid to a named executive officer’s peers internally by conducting an internal pay equity analysis which compares the pay of each named executive officer to other members of the management team. Base salaries are reviewed periodically, but are not automatically increased if the Compensation Committee believes that other elements of compensation are more appropriate in light of our stated objectives. This strategy is consistent with our intent of offering compensation that is contingent on the achievement of performance objectives. In keeping with our corporate objectives to conserve cash, none of our named executive officers received raises in base salary for 2016. Additionally, commencing in October 2015, a voluntary salary reduction was initiated by the named executive officers. For 2015, Legacy Zhone's named executive officers’ base salaries were reduced by 20%. All other exempt employees company-wide incurred a base salary reduction of 10%. This salary reduction initiated in 2015 was reinstated in July 2016 and remained in effect in 2016 for Messrs. Norrod, Kim and Misaka. The salary reduction was discontinued on April 1, 2017. On that date, Mr. Kim’s and Mr. Norrod’s annual salary increased to $400,000 and Mr. Misaka’s annual salary increased to $365,000.

Annual Incentives

In addition to the named executive officers’ base salaries, they are eligible to participate in a performance-based annual bonus program, to be earned and paid quarterly in equal installments. Mr. Kim’s target quarterly bonus is $100,000. Mr. Norrod’s target quarterly bonus was $100,000. Mr. Misaka’s target quarterly bonus was $50,000. Their actual bonus is intended to be based upon our Board of Directors’ evaluation of our overall results compared to the annual budget approved by our Board of Directors for the following criteria: revenues; pre-tax income from operations (excluding any non-recurring and/or extraordinary charges or credits); free cash flow (excluding any equity and/or debt changes); and other non-financial subjective criteria determined by the Board of Directors. For 2016, no specific quarterly performance objectives were established for the named executive officers’ bonus opportunities. Instead, the quarterly bonus plan achievement and payout was determined by our Board of Directors based on their subjective evaluation of our overall performance relative to the operating plan and of the named executive officers’ individual performance. Our Board of Directors determined none of the named executive officers were entitled to receive a bonus payment in 2016 under this program. Mr. Kim did not receive a bonus for 2016 due to the fact his employment commenced upon consummation of the Merger in September 2016.

Transaction Bonuses

On September 9, 2016, in connection with the consummation of the Merger, we entered into transaction bonus agreements with each of Messrs. Norrod and Misaka pursuant to which these executives were entitled to receive a one-time cash bonus in connection with the successful consummation of the Merger. The amount of the cash bonus payable under the transaction bonus agreements was $1,000,000 for Mr. Norrod and $500,000 for Mr. Misaka. Mr. Norrod was paid $500,000 in October 2016 and $500,000 in January 2017. Mr. Misaka was paid $500,000 in March 2017.

Long-Term Equity Incentives

The goal of our long-term, equity-based incentive awards is to align the interests of employees with stockholders and to provide each employee with an incentive to manage our company from the perspective of an owner with an equity stake in the business. Because vesting is based on continued employment, our equity-based incentives also facilitate the retention of employees through the term of the awards. In determining the size of the long-term equity incentives to be awarded to employees, we take into account a number of internal factors, such as the relative job scope, individual performance history, prior contributions, the size of prior grants and competitive market data for our peer group of companies. Based upon these factors, the Compensation Committee determines the size of the long-term equity incentives at levels it considers appropriate to create a meaningful opportunity for reward predicated on the creation of long-term stockholder value. The Compensation Committee does not apply any set formula or consider any specific weighting of these factors in setting the awards for a year. Rather, the level of awards is determined solely in the discretion of the Compensation Committee, taking into account those factors and the recommendations of management.

To reward and retain employees in a manner that best aligns employees’ interests with stockholders’ interests, we use stock options as the primary incentive vehicle for long-term compensation opportunities. We believe that stock options are an effective tool for meeting our compensation goal of increasing long-term stockholder value by tying the value of the stock options to our future performance. Because employees are able to profit from stock options only if our stock price increases in value over the stock option’s exercise price, we believe the options provide effective incentives to employees to achieve increases in the value of

our stock. To the extent they are awarded in any given year, annual grants of options have historically been approved by the Board of Directors at its regularly scheduled meeting in August and had a grant date effective as of the first day of the September following the Board of Director’s meeting. While historically the vast majority of stock option awards to our employees have been made pursuant to our annual grant program, the Compensation Committee retains discretion to make stock option awards to employees at other times, including in connection with the hiring of an employee, the promotion of an employee, to reward an employee, for retention purposes or for other circumstances recommended by management or the Compensation Committee. The exercise price of any such grant is the fair market value of our common stock on the grant date. In addition, our stock option programs are broad-based.

In 2016, in lieu of their typical annual awards, the named executive officers were granted stock options in connection with the successful completion of the Merger. These grants are described in the table under "2016 Grants of Plan-Based Awards" below. The Compensation Committee has not granted, but they may in the future grant, equity compensation awards to employees in anticipation of the release of material nonpublic information that is likely to result in changes to the price of our common stock, such as a significant positive or negative earnings announcement. Similarly, the Compensation Committee has not timed, nor does it intend in the future to time, the release of material nonpublic information based on equity award grant dates.

Retirement Savings

Our employees are eligible to participate in our 401(k) plan. Each employee may make before-tax contributions of up to 75% of their base salary, up to the limits imposed by the Code. We provide this plan to help our employees save some amount of their cash compensation for retirement in a tax efficient manner. We currently do not provide a matching contribution under our 401(k) plan, nor do we offer other retirement benefits.

Health and Welfare Benefits

The establishment of competitive benefit packages for our employees is an important factor in attracting and retaining highly qualified personnel. Our named executive officers are eligible to participate in all of our employee benefit plans, such as medical, dental, vision, group life and disability insurance, in each case on the same basis as other employees. We believe that these health and welfare benefits help ensure that the company has a productive and focused workforce.

Tax Deductibility of Executive Compensation

Limitations on the deductibility of compensation may occur under Section 162(m) of the Code, which generally limits the tax deductibility of compensation paid by a public company to its chief executive officer and certain other highly compensated executive officers to $1 million, unless such compensation is performance based and certain specific and detailed criteria are satisfied. Tax deductibility is not a primary objective of our compensation programs, particularly in light of our company’s substantial net operating losses. We believe that achieving our compensation objectives set forth above is more important than the benefit of tax deductibility, and we reserve the right to maintain flexibility in how we compensate our executive officers that may result in limiting the deductibility of amounts of compensation from time to time.

Relationship Between Compensation and Risk

In early 2017, management assessed our compensation policies and programs for all employees for purposes of determining the relationship of such policies and programs and the enterprise risks faced by us. After that assessment, management determined that none of our compensation policies or programs create risks that are reasonably likely to have a material adverse effect on us. Management reported the results of its assessment to the Compensation Committee.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on its review and discussions with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this report.

Respectfully Submitted by the Compensation Committee

Min Woo Nam (Chairman)

Michael Connors

Sung-Bin Park

“Director Compensation.”

* The information contained in this Compensation Committee Report shall not be deemed to be “soliciting material,” to be “filed” with the SEC or be subject to Regulation 14A or Regulation 14C or to the liabilities of Section 18 of the Exchange Act,

and shall not be deemed to be incorporated by reference into any filing of DZS, except to the extent that DZS specifically incorporates it by reference into a document filed under the Securities Act of 1933 or the Exchange Act.

Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee for the 2016 fiscal year were C. Richard Kramlich and Robert Dahl until the consummation of the Merger on September 9, 2016. Effective as of September 9, 2016, (1) the size of the Compensation Committee was increased to three members, (2) Mr. Dahl resigned from his position as a director and member of the Compensation Committee, (3) Min Woo Nam and Sung-Bin Park were appointed to fill the resulting vacancies on the committee and (4) Mr. Nam was appointed Chair of the Compensation Committee. All members of the Compensation Committee during 2016 other than Mr. Nam were independent directors, and none of them were our officers or employees or former officers or employees. During 2016, none of our executive officers served on the compensation committee (or equivalent), or the board of directors, of another entity whose executive officer(s) served on the Compensation Committee or Board of Directors.

Summary Compensation Table

The following table sets forth the compensation earned during the years ended December 31, 2016, 2015 and 2014 by the individuals serving as our Chief Executive Officer (or our Co-Chief Executive Officers, as applicable) and our Chief Financial Officer during such years. We refer to these executive officers throughout this report as our “named executive officers.”

Name and Principal Position		Year		Salary ($)			Bonus ($) (1)			Stock Awards($)			Option Awards ($) (2)			Non - Equity Incentive Plan Compensation ($)			Change in Pension Value and Non- qualified Deferred Compensation Earnings($)			All Other Compensation ($) (3)				Total ($)
Il Yung Kim		2016		113,711		(5)	—			—			739,907									33,095		(6)		886,713
President, Chief Executive Officer and Acting Chief Financial Officer (4)
James Norrod		2016		320,000			1,000,000			—			707,535			—			—			71,380		(7)		2,098,915
Former Co-Chief Executive Officer (4)		2015		396,923			100,000			—			—			—			—			86,248		(8)		583,171
		2014		172,306			—			—			2,826,383			—			—			49,738				3,048,427
Kirk Misaka		2016		292,000			500,000			—			411,850			—			—			20,954		(9)		1,224,804
Corporate Treasurer and Secretary and Former Chief Financial Officer (4)		2015		362,192			267,237			—			—			—			—			17,631		(10)		647,060
		2014		365,000			—			—			—			—			—			15,039				380,039

(1)

Amounts reflect, for 2015, discretionary bonuses and, for 2016, Merger consummation bonuses paid to our named executive officers. On September 9, 2016, in connection with the consummation of the Merger, we entered into transaction bonus agreements with each of Messrs. Norrod and Misaka pursuant to which these executives were entitled to receive a one-time cash bonus in connection with the successful consummation of the Merger. The amount of the cash bonus payable under the transaction bonus agreements was $1,000,000 for Mr. Norrod and $500,000 for Mr. Misaka. Mr. Norrod was paid $500,000 in October 2016 and $500,000 in January 2017. Mr. Misaka was paid $500,000 in March 2017.

(2)

This column represents the grant date fair value of the option awards granted during the applicable fiscal year to our named executive officers, calculated in accordance with Accounting Standards Codification Topic 718, Compensation-Stock Compensation, or ASC Topic 718. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For additional information on the valuation assumptions used in the calculation of these amounts, refer to Note 9 to the consolidated financial statements set forth in Part II, Item 8 of this report.

(3)	Unless otherwise provided, amounts reflected in this column represent medical benefit premiums, contributions to health savings accounts and life insurance premiums paid by us on behalf of the executive for the applicable fiscal year.

(4)	As part of the management transition in connection with the first anniversary of the Merger, in September 2017, Messrs. Norrod and Misaka stepped down from their roles as Co-Chief Executive Officer and Chief Financial Officer, respectively, and Mr. Kim was appointed President, Chief Executive Officer and Acting Chief Financial Officer. Mr.

Misaka has agreed to remain in our employ as Corporate Treasurer and Secretary for a transitional period to assist with the transition of his responsibilities.

(5)

For Mr. Kim, for the period from September 9, 2016 through December 31, 2016, includes (a) $32,000 paid in U.S. Dollars and (b) $83,711 paid in Korean Won (with the KRW 95,640,000 paid to Mr. Kim converted to U.S. Dollars using an average exchange rate of 1,155 KRW:1.00 USD (which represents the average of the actual exchange rates on the date of each payment to Mr. Kim for the period from September 23, 2016 through December 23, 2016)).

(6)

For Mr. Kim, includes (a) $16,480 in housing allowance, (b) $677 in medical insurance paid by us on Mr. Kim’s behalf, (c) $78 in other insurance premiums (including dental, vision, life insurance, short and long term disability) paid by us on his behalf and (d) $15,860 in fees to obtain immigration visas paid by us on his behalf. DZS entered into a lease agreement on October 10, 2016 for a period on one year for a home in Oakland, California in which Mr. Kim resides while conducting his duties in Oakland, California. The lease expense is $6,200 per month, including utilities and expenses. Mr. Kim pays $200 per month to DZS for the difference between his housing allowance and the lease cost per the terms of his employment agreement. No payments were made to Mr. Kim in 2016 for his relocation from Korea to Oakland, California.

(7)

For Mr. Norrod, includes (a) $24,877 for reimbursement of housing expenses in Oakland, California, (b) $27,419 for reimbursement of airfare for travel home from the San Francisco Bay Area to visit his family, (c) $17,606 in medical insurance premiums paid by us on his behalf and (d) $1,478 in other insurance premiums (including dental, vision, life insurance, short and long term disability) paid by us on his behalf.

(8)

For Mr. Norrod, includes (a) $46,021 for reimbursement of housing expenses in Oakland, California, (b) $22,245 for reimbursement of airfare for travel home from the San Francisco Bay Area to visit his family, (c) $15,017 in medical insurance premiums paid by us on his behalf, (d) $1,465 in other insurance premiums including dental, vision, life insurance, short and long term disability paid by us on his behalf.

(9)	For Mr. Misaka, includes (a) $15,923 in medical insurance premiums paid by us on his behalf, (b) $2,700 in contributions made to his health savings account and (c) $2,331 in other insurance premiums (including dental, vision, life insurance, short and long term disability) paid by us on his behalf.

(10)	For Mr. Misaka, includes (a) $13,585 in medical insurance premiums paid by us on his behalf, (b) $1,700 in contributions made to his health savings account and (c) $2,346 in other insurance premiums (including dental, vision, life insurance, short and long term disability) paid by us on his behalf.

2016 Grants of Plan-Based Awards

The following table sets forth summary information regarding grants of plan-based awards made to our named executive officers during the year ended December 31, 2016.

	Name		Grant Date		Estimated Possible Payouts under Non-Equity Incentive Plan Awards Target ($)			All Other Stock Awards: Number of Shares of Stock or Units (#)			All Other Option Awards: Number  of Securities Underlying Options (#) (1)			Exercise or base Price of Option Awards ($/Sh)			Grant Date Fair Value of Stock  and Option Awards ($)
	Il Yung Kim		9/9/2016		400,000			—			200,000			5.95			$	739,907
	James Norrod		9/9/2016		400,000			—			200,000			5.95			$	707,535
	Kirk Misaka		9/9/2016		200,000			—			100,000			5.95			$	411,850

(1) Amounts presented have been adjusted to reflect the one-for-five reverse stock split effected on February 28, 2017. The options granted to Mr. Kim have a term of ten years from the date of grant and vest over four years with the first 25% vesting on September 9, 2017 and the remaining shares vesting in 36 equal monthly installments over the course of the remaining three years thereafter. The options granted to Messrs. Norrod and Misaka have a term of ten years from the date of grant and vest and become exercisable in 48 equal monthly installments over the course of four years from the date of grant. The vesting of the stock options held by our named executive officers may accelerate under certain circumstances as described below under "Potential Payments Upon Termination."

Outstanding Equity Awards at 2016 Fiscal Year End

The following lists all outstanding equity awards held by our named executive officers as of December 31, 2016.

		Option Awards (1)
Name		Number of Securities Underlying Unexercised Options (#) Exercisable		(2)		Number of Securities Underlying Unexercised Options (#) Unexercisable		(2)		Equity  Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)			Option Exercise Price ($)(2)				Option Expiration Date
Il Yung Kim		—				200,000		(3)					$	5.95			9/9/2027
James Norrod		12,499				187,500				—			5.95				9/9/2027
Kirk Misaka		17,999				—				—			6.16				9/1/2017
		17,999				—				—			7.55				9/1/2018
		6,249				93,751				—			5.95				9/9/2027

(1)	Except as otherwise described, all options have a term of ten years from the date of grant and vest and become exercisable in 48 equal monthly installments over the course of four years from the date of grant. The vesting of the stock options held by our named executive officers may accelerate under certain circumstances as described below under “Potential Payments Upon Termination.”

(2)	Amounts presented have been adjusted to reflect the one-for-five reverse stock split effected on February 28, 2017.

(3)	The options have a term of ten years from the date of grant and vest over four years with the first 25% vesting on September 9, 2017 and the remaining shares vesting in 36 equal monthly installments over the course of the remaining three years thereafter.

Option Exercises and Stock Vested in 2016

None of our named executive officers exercised options or had stock awards vest in 2016.

Pension Benefits

None of our named executive officers participates in or has account balances in qualified or non-qualified defined benefit plans sponsored by us.

Nonqualified Deferred Compensation

None of our named executive officers participates in or has account balances in qualified or non-qualified contribution plans or other deferred compensation plans maintained by us.

Potential Payments Upon Termination

We have employment, severance, change of control or release agreements with certain of the named executive officers, as described below.

Employment Agreement with Il Yung Kim

In September 2016, we entered into an employment agreement with Mr. Kim. This agreement had an initial term expiring on September 9, 2017 and was automatically extended for an additional year on such date and may be automatically extended on each subsequent anniversary of the initial expiration date. Prior to the management transition in September 2017, Mr. Kim served as Co-Chief Executive Officer. As part of this management transition, effective September 11, 2017, the Board of Directors appointed Mr. Kim to serve as our President, Chief Executive Officer and Acting Chief Financial Officer.

During the term, Mr. Kim will perform the responsibilities as President, Chief Executive Officer and Acting Chief Financial Officer, reporting to the Board of Directors of the company, with such duties and responsibilities as are commensurate with such positions. Under the employment agreement, Mr. Kim’s annual salary was initially $320,000, which automatically increased to $400,000 on April 1, 2017, and will be reviewed on at least an annual basis by the Compensation Committee. In addition, Mr. Kim is eligible to participate in a performance-based annual bonus program, to be earned and paid quarterly in equal installments. Mr. Kim’s target bonus is equal to 100% of his annual salary. Mr. Kim is entitled to $30,000 in relocation assistance to relocate his principal place of residence to the San Francisco Bay Area. Mr. Kim will also be reimbursed a maximum of $6,000 per month for housing allowance. Mr. Kim is also eligible to participate in all health benefits, insurance programs, pension and retirement plans and other employee benefit and compensation arrangements generally available to our other officers.

Under Mr. Kim’s employment agreement, Mr. Kim will receive certain compensation in the event that his employment is terminated by us for any reason other than by reason of Mr. Kim’s death, disability, his termination for “cause” (as defined below) or expiration of the term of his employment agreement, or if Mr. Kim resigns for “good reason” (as defined below) (which we refer to as a Qualifying Termination), Mr. Kim will be entitled to receive a lump sum payment equal to his annual salary as in effect immediately prior to the date of termination (or, if greater, $400,000). If termination occurs after the first anniversary of his employment agreement the lump sum payment will be reduced to 50% of his annual salary (or, if greater, $200,000). In addition, in the event of Mr. Kim’s Qualifying Termination following a change in control (as defined in our 2001 Plan), the vesting and exercisability of his stock options will accelerate on the date of termination. In addition, Mr. Kim is eligible for up to $30,000 reimbursement of expenses for relocation to his new principal place of residence.

Assuming a hypothetical Qualifying Termination of Mr. Kim’s employment on December 31, 2016, the last day of our 2016 fiscal year, we would have been obligated to pay Mr. Kim a lump sum payment of $400,000. If a change in control had occurred on December 31, 2016 and, in connection with such change in control, Mr. Kim experienced a Qualifying Termination, we would have been obligated to pay Mr. Kim a lump sum payment of $400,000, up to $30,000 reimbursement of expenses for relocation to his new principal place of residence, and the vesting and exercisability of his stock options would have accelerated on the date of termination, which stock options would have had no value as of December 31, 2016, due to the fact that the closing price per share of our common stock on December 30, 2016 (the last trading day of 2016) was $5.00, which was lower than the exercise price per share of Mr. Kim’s stock options.

Employment Agreement with James Norrod

In September 2016, we entered into an amended and restated employment agreement with Mr. Norrod. The amended and restated agreement replaced the previous employment agreement dated July 14, 2014 with Mr. Norrod.

Mr. Norrod's employment agreement had an initial term expiring on September 9, 2017 and was eligible for automatic extension for an additional year and further extension on each subsequent anniversary of the initial expiration date. Pursuant to the management transition in September 2017, Mr. Norrod stepped down from his position as Co-Chief Executive Officer and a director of the company effective September 11, 2017. Mr. Norrod entered into a release agreement in connection with his resignation from his management roles and employment with the company, which is described below under "Release Agreements with Messrs. Norrod and Misaka."

During the term of his employment agreement, Mr. Norrod performed his responsibilities as Co-Chief Executive Officer, reporting to the Board of Directors of the company, with such duties and responsibilities as were commensurate with the position. Under the employment agreement, Mr. Norrod’s annual salary was initially $320,000, which automatically increased to $400,000 on April 1, 2017, and was reviewed on at least an annual basis by the Compensation Committee. In addition, Mr. Norrod was eligible to participate in a performance-based annual bonus program, to be earned and paid quarterly in equal installments. Mr. Norrod’s target bonus was equal to 100% of his annual salary. Mr. Norrod was also eligible to participate in all health benefits, insurance programs, pension and retirement plans and other employee benefit and compensation arrangements generally available to our other officers.

Under Mr. Norrod’s amended and restated employment agreement, Mr. Norrod was eligible to receive certain compensation in the event that his employment was terminated by us for any reason other than by reason of Mr. Norrod’s death, disability, his termination for “cause” (as defined below) or expiration of the term of his employment agreement, or if Mr. Norrod resigned for “good reason” (as defined below) (which we refer to as a Qualifying Termination), Mr. Norrod was entitled to receive a lump sum payment equal to his annual salary as in effect immediately prior to the date of termination (or, if greater, $400,000). If termination occurred after the first anniversary of his employment agreement, the lump sum payment would be reduced to 50% of his annual salary (or, if greater, $200,000). In addition, in the event of Mr. Norrod’s Qualifying Termination following a change in control (as defined in our Amended and Restated 2001 Stock Incentive Plan), the vesting and exercisability of his stock options would have accelerated on the date of termination.

Assuming a hypothetical Qualifying Termination of Mr. Norrod’s employment on December 31, 2016, the last day of our 2016 fiscal year, we would have been obligated to pay Mr. Norrod a lump sum payment of $400,000. If a change in control had occurred on December 31, 2016 and, in connection with such change in control, Mr. Norrod experienced a Qualifying Termination, we would have been obligated to pay Mr. Norrod a lump sum payment of $400,000 and the vesting and exercisability of his stock options would have accelerated on the date of termination, which stock options would have had no value as of December 31, 2016 due to the fact that the closing price per share of our common stock on December 30, 2016 (the last trading day of 2016) was $5.00, which was lower than the exercise price per share of Mr. Norrod’s stock options.

Employment Agreement with Kirk Misaka

In September 2016, we entered into an employment agreement with Mr. Misaka. This agreement had an initial term expiring on September 9, 2017 and was eligible for automatic extension for an additional year and further extension on each subsequent anniversary of the initial expiration date. Pursuant to the management transition in September 2017, Mr. Misaka stepped down from his position as Chief Financial Officer of the company effective September 11, 2017. Mr. Misaka agreed to remain in the employ of the company as our Corporate Treasurer and Secretary for a transitional period to assist with the transition of his responsibilities, with the same base salary as was in effect prior to the management transition, and continued vesting of his outstanding stock options during the term of his employment, although his continued employment will no longer be governed by the terms of his employment agreement, which was terminated effective September 11, 2017. Mr. Misaka entered into a release agreement in connection with his resignation from his management role, which is described below under "Release Agreements with Messrs. Norrod and Misaka."

During the term of his employment agreement, Mr. Misaka performed the responsibilities as Chief Financial Officer, reporting to our Chief Executive Officer (or the Co-Chief Executive Officers, as applicable), with such duties and responsibilities as were commensurate with the position. Under the employment agreement, Mr. Misaka’s annual salary was initially $292,000, which automatically increased to $365,000 on April 1, 2017, and was reviewed on at least an annual basis by the Compensation Committee. In addition, Mr. Misaka was eligible to participate in a performance-based annual bonus program, to be earned and paid quarterly in equal installments. Mr. Misaka’s target bonus was equal to 100% of his annual salary. Mr. Misaka was also eligible to participate in all health benefits, insurance programs, pension and retirement plans and other employee benefit and compensation arrangements generally available to our other officers.

Under Mr. Misaka’s employment agreement, Mr. Misaka was eligible to receive certain compensation in the event that his employment was terminated by us for any reason other than by reason of Mr. Misaka’s death, disability, his termination for “cause” (as defined below) or expiration of the term of his employment agreement, or if Mr. Misaka resigned for “good reason” (as defined below) (which we refer to as a Qualifying Termination), Mr. Misaka was entitled to receive a lump sum payment equal to his annual salary as in effect immediately prior to the date of termination (or, if greater, $365,000). If termination occurred after the first anniversary of his employment agreement, the lump sum payment would be reduced to 50% of his annual salary (or, if greater, $182,500). In addition, in the event of Mr. Misaka’s Qualifying Termination following a change in control (as defined in our Amended and Restated 2001 Stock Incentive Plan), the vesting and exercisability of his stock options would have accelerated on the date of termination. The employment agreement termination of benefits replaced the severance agreement between the company and Mr. Misaka dated August 2012.

Assuming a hypothetical Qualifying Termination of Mr. Misaka’s employment on December 31, 2016, the last day of our 2016 fiscal year, we would have been obligated to pay Mr. Misaka a lump sum payment of $365,000. If a change in control had occurred on December 31, 2016 and, in connection with such change in control, Mr. Misaka experienced a Qualifying Termination, we would have been obligated to pay Mr. Misaka a lump sum payment of $365,000 and the vesting and exercisability of his stock options would have accelerated on the date of termination, which stock options would have had no value as of December 31, 2016 due to the fact that the closing price per share of our common stock on December 30, 2016 (the last trading day of 2016) was $5.00, which was lower than the exercise price per share of Mr. Misaka’s stock options.

Defined Terms in Employment Agreements

For purposes of the employment agreements, “cause” is generally defined to include: (1) the executive’s willful or continued failure to substantially perform his duties with the company, or any failure to carry out, or comply with, in any material respect any lawful and reasonable directive of the Board of Directors consistent with the terms of his employment agreement, which failure continues for 15 days following the executive’s receipt of written notice from the Board of Directors, (2) the executive’s conviction of, guilty plea to, or entry of a nolo contendere plea to a felony or a crime of moral turpitude or commission of an act of fraud, embezzlement or misappropriation against us, (3) the executive’s willful or reckless misconduct that has caused or is reasonably likely to cause demonstrable and material financial injury to the company, or (4) the executive’s willful and material breach of his employment agreement, which breach remains uncured for 15 days following his receipt of written notice by the Board of Directors.

For purposes of the employment agreements, “good reason” is generally defined to include the occurrence of any of the following events without his consent: (1) a material diminution in the executive’s base compensation, (2) a material diminution in the executive’s authority, duties or responsibilities, (3) a material change in the geographic location at which the executive must perform his duties, or (4) any other action or inaction that constitutes a material breach by the company of its obligations under the employment agreement.

Release Agreements with Messrs. Norrod and Misaka

In connection with their resignations from their management roles, and Mr. Norrod’s termination of employment, Messrs. Norrod and Misaka entered into release agreements with the company. Pursuant to his release agreement, Mr. Norrod is entitled to receive a lump sum cash payment of $300,000, continued health benefits at our expense for a period of six months following his termination of employment and an extension of the period of time to exercise his vested stock options through September 11, 2018. Pursuant to his release agreement, Mr. Misaka is entitled to receive a lump sum cash payment of $232,500 and an extension of the period of time to exercise his vested stock options through September 11, 2018.

Director Compensation

Directors who are employees of the company, such as Il Yung Kim, do not receive any additional compensation for their services as directors.

On September 9, 2016, our Board of Directors adopted a new compensation program for non-employee directors. Under our new non-employee director compensation program, each non-employee director is eligible to receive an annual cash retainer of $20,000, but may elect to receive an equivalent amount of fully vested shares of our common stock, in lieu of the cash retainer, based on the fair market value of the shares on the date the cash retainer would otherwise be paid. To align the interests of directors with the long-term interests of stockholders, each non-employee director is also entitled to receive an annual equity grant in the form of a stock option to purchase 10,000 shares at an exercise price equal to the fair market value of our common stock on the date of grant. In lieu of this stock option, each non-employee director may elect to receive the annual equity grant in the form of 3,000 restricted stock units. The annual equity grant of stock options vests in 48 equal monthly installments over the course of four years. The annual equity grant of restricted stock units vests in four equal annual installments over the course of four years. In addition, the chair of the Audit Committee receives a $4,000 cash payment per committee meeting attended, and each of the other committee members receives a $2,000 cash payment per committee meeting attended. Non-employee directors are entitled to reimbursement of reasonable out-of-pocket expenses incurred attending Board and committee meetings, and in connection with Board related activities. The following table sets forth the compensation earned during the year ended December 31, 2016 by each of our non-employee directors.

Name		Fees Earned or Paid in Cash  ($) (1)			Stock Awards ($) (2)			Option Awards  ($) (3)			Non-Equity Incentive Plan Compensation ($)			Change in Pension Value and Non- Qualified Deferred Compensation Earnings ($)			All Other Compensation ($) (4)			Total ($)
Michael Connors (5)		30,000			—			42,501			—			—			—			72,501
Robert Dahl (6)		12,000			—			—			—			—			—			12,000
Morteza Ejabat (7)		—			640,000			—			—			—			—			640,000
Seong Gyun Kim (8)		24,000			17,850			—			—			—			—			41,850
C. Richard Kramlich (9)		8,000			17,850			—			—			—			—			25,850
Min Woo Nam (10)		20,000			—			37,822			—			—			—			57,822
Sung-Bin Park (11)		22,000			—			37,822			—			—			—			59,822
Mahvash Yazdi (12)		20,000			—			—			—			—			—			20,000

(1)	As described above, a director may elect to receive an equivalent amount of fully vested shares of our common stock in lieu of an annual cash retainer. The amounts in this column include the annual retainer and committee fees paid in cash. No fully vested shares of our common stock were issued to any non-employee directors in lieu of their regular cash retainer during 2016.

(2)

This column represents the grant date fair value of the equity awards granted on September 9, 2016 to each of the non-employee directors who elected to receive their annual equity grant in the form of restricted stock units during 2016 or, for Mr. Ejabat, the shares of our common stock issued to him in January 2016 as consideration for transition services, as calculated in accordance with ASC Topic 718. For these awards, the grant date fair value is calculated using the closing price of our common stock on the grant date as if these awards were vested and issued on the grant date. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For additional information on the valuation assumptions used in the calculation of these amounts, refer to Note 9 to the consolidated financial statements set forth in Part II, Item 8 of this report. Amounts presented have been adjusted to reflect the one-for-five reverse stock split effected on February 28, 2017.

(3)	This column represents the grant date fair value of the option awards granted on September 9, 2016 to each of the non-employee directors who elected to receive their annual equity grant in the form of stock options during 2016, as calculated

in accordance with ASC Topic 718. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For additional information on the valuation assumptions used in the calculation of these amounts, refer to Note 9 to the consolidated financial statements set forth in Part II, Item 8 of this report. Amounts presented have been adjusted to reflect the one-for-five reverse stock split effected on February 28, 2017.

(4)	The aggregate amount of perquisites and other personal benefits, securities or property provided to each non-employee director, valued on the basis of aggregate incremental cost to the company, was less than $10,000.

(5)	As of December 31, 2016, Dr. Connors had a total of 72,000 options and held no unvested stock awards.

(6)

In order to facilitate the role of Mr. Dahl as Chair of the Audit Committee prior to the Merger and to provide us with greater access to him as Chair, we provided Mr. Dahl with access to approximately 240 square feet of office space. Mr. Dahl owned and maintained separate phone, fax, server and computer systems. We did not incur any incremental costs in connection with the provision of this office space. Mr. Dahl resigned from his position as a director and Chair of the Audit Committee as of September 9, 2016. As of December 31, 2016, Mr. Dahl held no stock options or unvested stock awards.

(7)

Mr. Ejabat resigned from his position as Executive Chairman of the Board of Directors effective as of January 31, 2016. As of December 31, 2016, Mr. Ejabat had a total of 589,999 stock options. Mr. Ejabat provided transitional services to DZS for a period of one year following his resignation. In consideration of such transitional services, in February 2016, we issued to him 100,000 vested shares of our common stock. As of December 31, 2016, Mr. Ejabat held no stock options or unvested stock awards.

(8)	As of December 31, 2016, Mr. Kim held no stock options and a total of 3,000 restricted stock units.

(9)

Effective September 11, 2017, Richard Kramlich resigned from the Board of Directors to focus on his other business endeavors. As of December 31, 2016, Mr. Kramlich held a total of 30,210 stock options and 3,000 restricted stock units. In connection with Mr. Kramlich’s resignation, the Board of Directors approved the extension of time for him to exercise his vested stock options through September 11, 2018.

(10)	As of December 31, 2016, Mr. Nam held a total of 10,000 stock options and no unvested stock awards.

(11)	As of December 31, 2016, Mr. Park held a total of 10,000 stock options and no unvested stock awards.

(12)	Ms. Yazdi resigned from her position as a director of DZS as of September 9, 2016. As of December 31, 2016, Ms. Yazdi held a total of 10,000 stock options and no unvested stock awards.

ITEM 12.    

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information knownrequired by this item relating to us regardingsecurity ownership of our common stock on September 15, 2017 by (1) each person who beneficially owned more than 5% of our common stock, (2) each current director, (3) each of our named executive officerscertain beneficial owners and (4) all directors, named executive officersmanagement, and their affiliates as a group. We are not aware of any arrangements, including any pledge of our common stock that could result in a change in control.

Name of Beneficial Owner (1)		Number of Shares Beneficially Owned (2)				Percent Owned (3)
DASAN Networks, Inc.		9,493,015			(4)	57.9	%
New Enterprise Associates		956,254			(5)	5.8	%
Il Yung Kim		58,332			(6)	*
James Norrod		70,324			(7)	*
Kirk Misaka		136,472			(8)	*
Min Woo Nam		2,914			(9)	*
Michael Connors		78,802			(10)	*
Seong Gyun Kim		750			(11)	*
Sung-Bin Park		2,914			(12)	*
All directors, named executive officers and their affiliates as a group (8 persons)		10,802,025				65.1	%

*	Denotes less than 1%.

(1)	Under the rules of the SEC, a person is the beneficial owner of securities if that person has sole or shared voting or investment power. Except as indicated in the footnotes to this table and subject to applicable community property laws, to our knowledge, the persons named in the table have sole voting and investment power with respect to all

shares of common stock beneficially owned. Unless otherwise indicated, the addresssecurities authorized for each person or entity named below is c/o DASAN Zhone Solutions, Inc., 7195 Oakport Street, Oakland, California 94621.

(2)

In computing the number of shares beneficially owned by a person named in the table and the percentage ownership of that person, shares of common stock that such person had the right to acquire within 60 days after September 15, 2017 are deemed outstanding, including without limitation, upon the exercise of options or vesting of restricted stock units. These shares are not, however, deemed outstanding for the purpose of computing the percentage ownership of any other person.

(3)	For each person included in the table, percentage ownership is calculated by dividing the number of shares beneficially owned by such person by the sum of (a)16,385,455 shares of common stock outstanding on September 15, 2017 plus (b) the number of shares of common stock that such person had the right to acquire within 60 days after September 15, 2017.

(4)	The address of DASAN Networks, Inc. is DASAN Tower, 49, Daewangpangyo-ro 644 Beon-gil Budang-gu, Sungnam-si, Gyeonggi-do, 463-400, Korea.

(5)

Based solely on information contained in a Schedule 13D/A filed with the SEC on April 21, 2016 (as adjusted for the one-for-five reverse stock split of our common stock effected in February 2017), consists of (a) 72,685 shares held by New Enterprise Associates VIII, Limited Partnership, (b) 51,767 shares held by New Enterprise Associates 8A, Limited Partnership, (c) 357,613 shares held by New Enterprise Associates 9, Limited Partnership and (d) 474,189 shares held by New Enterprise Associates 10, Limited Partnership. Each separate New Enterprise Associates entity disclaims beneficial ownership over shares with respect to which it is not the direct holder, except to the extent of its pecuniary interest therein. The address of the entities affiliated with New Enterprise Associates is 1954 Greenspring Drive, Suite 600, Timonium, MD 21093.

(6)	Consists of 58,332 shares subject to stock options exercisable by Mr. Kim within 60 days after September 15, 2017.

(7)	Consists of (a) 12,000 shares held by Mr. Norrod, and (b) 58,324 shares subject to options exercisable by Mr. Norrod within 60 days after September 15, 2017.

(8)	Consists of (a) 89,309 shares held by Mr. Misaka, and (b) 47,163 shares subject to options exercisable by Mr. Misaka within 60 days after September 15, 2017.

(9)	Consists of 2,914 shares subject to options exercisable by Mr. Nam within 60 days after September 15, 2017.

(10)	Consists of (a) 25,565 shares held by Dr. Connors, (b) 3,333 shares held by Suaimhneas LLC, of which Dr. Connors is the sole manager and his adult children are the owners, and (c) 49,904 shares subject to options exercisable by Dr. Connors within 60 days after September 15, 2017.

(11)	Consists of 750 shares subject to options exercisable by Mr. Kim within 60 days after September 15, 2017.

(12)	Consists of 2,914 shares subject to options exercisable by Mr. Park within 60 days after September 15, 2017.

(13)	Includes 219,551 shares subject to options exercisable within 60 days after September 15, 2017.

Equity Compensation Plan Information

The following table provides information as of December 31, 2016 with respect to shares of our common stock that may be issued under existing equity compensation plans. The table does not include information with respect to shares subject to outstanding options grantedissuance under equity compensation arrangements assumedplans is incorporated herein by us in connection with mergers and acquisitionsreference to the sections of the companies that originally granted those options.

			(a)			(b)				(c)
Plan Category			Number of securities to be issued upon exercise of outstanding options, warrants, and rights (1)(2)			Weighted average exercise price of outstanding options, warrants and rights(2)				Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))(2)
Equity compensation plans approved by security holders			910,245			$	6.84			120,104			(3)(4)
Equity compensation plans not approved by security holders			—				—			—

(1)

This column includes 9,302 shares of unvested restricted stock and/or restricted stock units outstanding as of December 31, 2016 under the 2001 Plan, and does not reflect options assumed in mergers and acquisitions where the plans governing the options will not be used for future awards. As of December 31, 2016, a total of 234,554 shares of our common stock were issuable upon exercise of outstanding options under those assumed arrangements. The weighted average exercise price of those outstanding options is $8.34 per share.

(2)	Amounts presented have been adjusted to reflect the one-for-five reverse stock split effected on February 28, 2017.

(3)	Includes shares available for future issuance under the Zhone Technologies, Inc. 2002 Employee Stock Purchase Plan. As of December 31, 2016, 113,845 shares of common stock were available for future issuance under the plan.

(4)

Under the 2001 Plan, the number of shares available for issuance under the plan will be increased automatically on January 1 of any year in which the number of shares available for issuance is less than 5% of the total number of outstanding shares on such date. In any such case, the increase is equal to an amount such that the aggregate number of shares available for issuance under the plan equals the least of (a) 5% of the total number of outstanding shares on such date, (b) 1,000,000 shares, or (c) such other number of shares as determined by the Board. The 2001 Plan expired in March 2017.

Proxy Statement entitled “Ownersh

ip of Securities” and “Executive Compensation.”

ITEM 13.    

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Review and Approval of Related Party Transactions

All relationships and transactions in which

The information required by this item is incorporated herein by reference to the company and our directors and executive officers or their immediate family members are participants are reviewed by our Audit Committee or another independent bodysection of the Board of Directors, such as the independentProxy Statement entitled “Certain Relationships and disinterested members of the Board of Directors. As set forth in the Audit Committee charter, the members of the Audit Committee, all of whom are independent directors, review and approve related party transactions for which such approval is required under applicable law, including SEC and Nasdaq rules. In the course of its review and approval or ratification of a disclosable related party transaction, the Audit Committee or the independent and disinterested members of the Board of Directors may consider:

the nature of the related person’s interest in the transaction;

the material terms of the transaction, including, without limitation, the amount and type of transaction;

the importance of the transaction to the related person;

the importance of the transaction to the company;

whether the transaction would impair the judgment of a director or executive officer to act in the best interest of the company; and

any other matters the Audit Committee deems appropriate.

Related Party Transactions

Transactions.”

As discussed above under “Corporate Governance Principles and Board Matters - Board Structure” in Part III, Item 10 of this report, and in accordance with the terms of the Merger Agreement, on September 9, 2016, we entered into a stockholder agreement with DNI (the holder of 58% of the outstanding shares of our common stock), pursuant to which DNI has agreed, on the terms set forth therein, to vote its shares of our common stock until September 9, 2018 (1) in favor of the election of each person who is nominated by the Board of Directors for election to the Board in accordance with our bylaws and (2) against the removal of any such director unless such removal is recommended by a resolution approved by the affirmative vote of at least two-thirds of the entire Board of Directors.

In connection with the Merger, on September 9, 2016, we also entered into a lock-up agreement with each of our directors and executive officers and certain of our significant stockholders (including DNI), pursuant to which such persons and stockholders agreed not to offer, sell or otherwise dispose of any shares of our common stock, or any options or warrants to purchase our common stock, for a period of 180 days from the effective time of the Merger (or for a period of 90 days from the effective time of the Merger, in respect of certain stockholders), subject to customary exceptions.

Also in connection with the Merger, on September 9, 2016, we entered into a registration rights agreement with DNI, which provides DNI with the right to demand that we register its shares of our common stock and also provides DNI with piggyback registration rights for its shares of our common stock. Pursuant to the registration rights agreement, upon DNI’s request, we are required to prepare and file one or more registration statements with the SEC for the offer and sale from time to time on a continuous or delayed basis of the shares of our common stock issued to DNI in connection with the Merger. Such registrations are required to be accomplished pursuant to a shelf registration statement on Form S-3 (or, if we do not satisfy the requirements for such form, on such other form as may be appropriate). Additionally, DNI has the right to demand that we effect the registration of a specified number of shares for sale within a specified period, provided that such demand may only be made twice in any 12-month period. In addition, under the registration rights agreement, if we propose to file a registration statement with respect to an offering of equity securities for sale to the public (other than registrations on Form S-4 or S-8), we are

required to provide notice to DNI of such anticipated filing and, subject to certain limitations and priorities, DNI may require us to include in such registration any of the shares of our common stock issued to it in connection with the Merger.

See Note 13 to the consolidated financial statements set forth in Part II, Item 8 of this report for information regarding other related party transactions involving DNI and its affiliates. In addition, Mr. Min Woo Nam, the Chairman of our Board of Directors, personally guarantees certain of our credit facilities.  As of December 31, 2016, the aggregate principal amount of outstanding indebtedness guaranteed by Mr. Nam under such facilities was $8.7 million.

Director Independence

See “Item 10. Directors, Executive Officers and Corporate Governance” for information regarding our Board of Directors and independence requirements.

ITEM 14.    

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

Principal Accounting Fees and Services

The followinginformation required by this item is a summaryincorporated herein by reference to the section of the fees billed by PricewaterhouseCoopers LLP (PwC) and Samil PricewaterhouseCoopers (Samil PwC) for professional services rendered to DZS and DNS, respectively, for the year ended December 31, 2016, and billed by Samil PwC to DNS for the year ended December 31, 2015:

		2016					2015
Audit Fees		$	1,893,194		(1)		$	661,144
Audit-Related Fees		60,274			(2)		116,878
Tax Fees		77,043					—
All Other Fees		—					2,244
Total		$	2,030,511				$	780,266

(1) Audit Fees for the year ended December 31, 2016 comprise $1,837,000 billed by PwC and $56,194 billed by Samil PwC.

(2) All Audit-Related Fees for the year ended December 31, 2016 were billed by Samil PwC.

Audit Fees. This category includes the auditProxy Statement entitled “Proposal 2: Ratification of our annual financial statements, reviewAppointment of financial statements, audit of our internal control over financial reporting (when applicable), review of our Form 10-Q quarterly reports, and services that are normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements. With respect to pre-Merger periods, this category includes the audit of the annual financial statements and review of financial statements of DNS only, as DNS was a wholly owned subsidiary of DNI prior to the Merger.

Audit-Related Fees. This category consists of assurance and related services provided by PwC and Samil PwC that are reasonably related to the performance of the audit or review of our financial statements, and are not reported above as “Audit Fees.Independent Registered Public Accounting Firm.” These services include accounting consultations in connection with acquisitions, and consultations concerning financial accounting and reporting standards.

Tax Fees. This category consists of professional services rendered by PwC and Samil PwC primarily in connection with tax compliance, tax planning and tax advice activities. These services include assistance with the preparation of tax returns, claims for refunds, value added tax compliance, and consultations on state, local and international tax matters.

All Other Fees. This category consists of fees for products and services other than the services reported above.

Pre-Approval Policy of the Audit Committee

The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year, is detailed as to the particular service or category of services, and is generally subject to a specific budget. The independent registered public accounting firm and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee

may also pre-approve particular services on a case-by-case basis. All audit-related fees, tax fees and other fees billed to DZS or Legacy Zhone in each of the last two fiscal years were pre-approved by the Audit Committee.

PART IV

PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

1.

1.

Financial Statements

The Index to Consolidated Financial Statements on page 42 is incorporated herein by reference as the list of financial statements required as part of this report.

Annual Report on Form 10-K.

2.	Exhibits

The Exhibit Index on page 106exhibits required to be filed by Item 601 of Regulation S-K are listed in the “Index to Exhibits” immediately preceding the exhibits hereto and such listing is incorporated herein by reference as the list of exhibits required as part of this report.

reference.

ITEM 16.

FORM 10-K SUMMARY

None.

ITEM 16.    FORM 10-K SUMMARY

INDEX TO EXHIBITS

None.

				Incorporated by Reference
Exhibit Number		Exhibit Description		Form		Exhibit		Filing Date		Filed or Furnished Herewith
2.1		Share Purchase Agreement dated as of October 5, 2018, by and between ZTI Acquisition Subsidiary III Inc. and Riverside KM Beteiligung GmbH		8-K		10.1		January 1, 2019
2.2		Agreement, dated as of December 31, 2018, by and between ZTI Acquisition Subsidiary III Inc. and Riverside KM Beteiligung GmbH		8-K		10.3		January 1, 2019
2.3		Share Transfer Agreement dated as of July 31, 2019 by and between Handysoft, Inc., as Transferor, and DASAN Zhone Solutions, Inc., as Transferee		8-K		2.1		August 5, 2019
3.1		Restated Certificate of Incorporation of DASAN Zhone Solutions, Inc., as amended through February 28, 2017		10-K		3.1		September 27, 2017
3.2		Amended and Restated Bylaws of DASAN Zhone Solutions, Inc.		8-K		3.2		September 12, 2016
4.1		Description of Capital Stock								X
10.1#		DASAN Zhone Solutions, Inc. 2017 Incentive Award Plan		8-K		10.1		January 10, 2017
10.1.1#		Amendment to DASAN Zhone Solutions, Inc. 2017 Incentive Award Plan		10-K		10.1.1		March 12, 2019
10.1.2#		Form of Stock Option Agreement for the DASAN Zhone Solutions, Inc. 2017 Incentive Award Plan		8-K		10.2		January 10, 2017
10.1.3#		Form of Restricted Stock Unit Award Agreement for the DASAN Zhone Solutions, Inc. 2017 Incentive Award Plan		10-K		10.1		September 27, 2017
10.2#		DASAN Zhone Solutions, Inc. Amended and Restated 2001 Stock Incentive Plan, as amended		8-K		10.6		September 13, 2016
10.2.1#		Form of Stock Option Agreement for the DASAN Zhone Solutions, Inc. Amended and Restated 2001 Stock Incentive Plan, as amended		8-K		10.7		September 13, 2016
10.2.2#		Form of Restricted Stock Award Agreement for the DASAN Zhone Solutions, Inc. Amended and Restated 2001 Stock Incentive Plan, as amended		8-K		10.2		May 17, 2007
10.2.3#		Form of Restricted Stock Unit Award Agreement for the DASAN Zhone Solutions, Inc. Amended and Restated 2001 Stock Incentive Plan, as amended		10-Q		10.3		November 14, 2016
10.3#		DASAN Zhone Solutions, Inc. 2018 Employee Stock Purchase Plan		S-8		10.1		November 8, 2018
10.4#		DASAN Zhone Solutions, Inc. Non-Employee Director Compensation Program		10-K		10.4		April 4, 2018

SIGNATURES

				Incorporated by Reference
Exhibit Number		Exhibit Description		Form		Exhibit		Filing Date		Filed or Furnished Herewith
10.5#		Form of Indemnity Agreement (directors and officers)		10-Q		10.20		May 14, 2004
10.6#		Amended and Restated Employment Agreement dated as of October 10, 2017 by and between DASAN Zhone Solutions, Inc. and Il Yung Kim		10-K		10.8		April 4, 2018
10.7#		Employment Agreement, dated as of December 2, 2019, by and between DASAN Zhone Solutions, Inc. and Tom Cancro		8-K		10.1		November 25, 2019
10.8#		General Release of Claims dated August 30, 2019 by and between DASAN Zhone Solutions, Inc. and Mikhail (Michael) Golomb		10-Q		10.1		November 13, 2019
10.9		Stockholder Agreement, dated as of September 9, 2016, by and among DASAN Zhone Solutions, Inc. and DASAN Networks, Inc. and the other parties thereto		8-K		10.1		September 12, 2016
10.10		Lock-Up Agreement, dated as of September 9, 2016, by and among DASAN Zhone Solutions, Inc., DASAN Networks, Inc. and the other parties thereto		8-K		10.2		September 12, 2016
10.11		Registration Rights Agreement, dated as of September 9, 2016, by and among DASAN Zhone Solutions, Inc., DASAN Networks, Inc. and the other parties thereto		8-K		10.3		September 12, 2016
10.12		Loan Agreement, dated as of September 9, 2016, by and among DASAN Zhone Solutions, Inc., DASAN Networks, Inc. and the other parties thereto		8-K		10.4		September 12, 2016
10.13		Loan Agreement, dated as of March 27, 2018, by and between DASAN Networks, Inc. and DASAN Network Solutions, Inc.		8-K		10.1		April 2, 2018
10.13.1		Amendment No. 1 to Loan Agreement dated as of February 25, 2019 by and between DASAN Network, Inc., as Lender, and DASAN Network Solutions, Inc., as Borrower		10-Q		10.3		May 10, 2019
10.14		Loan Agreement dated as of December 27, 2018 by and between DASAN Networks, Inc., as Lender, and DASAN Zhone Solutions, Inc., as Borrower		8-K		10.2		January 3, 2019
10.14.1		Amendment No. 1 to Loan Agreement dated as of February 25, 2019 by and between DASAN Network, Inc., as Lender, and DASAN Network Solutions, Inc., as Borrower		10-Q		10.4		May 10, 2019
10.15		Revolving Credit, Term Loan, Guaranty and Security Agreement dated as of February 27, 2019 by and among PNC Bank, National Association, Citibank, N.A., DASAN Zhone Solutions, Inc., and the lenders named therein		10-Q		10.1		May 10, 2019
10.16		Export-Import Revolving Credit, Guaranty and Security Agreement dated as of February 27, 2019 by and among PNC Bank, National Association, Citibank, N.A., DASAN Zhone Solutions, Inc., and the lenders named therein		10-Q		10.2		May 10, 2019

				Incorporated by Reference
Exhibit Number		Exhibit Description		Form		Exhibit		Filing Date		Filed or Furnished Herewith
10.17		Letter Agreement dated May 10, 2019 by and among PNC Bank, National Association and Citibank, N.A., as lenders, and DASAN Zhone Solutions, Inc., as borrowing agent		10-Q		10.1		August 14, 2019
10.18		Letter Agreement dated May 31, 2019 by and among PNC Bank, National Association and Citibank, N.A., as lenders, and DASAN Zhone Solutions, Inc., as borrowing agent		10-Q		10.2		August 14, 2019
10.19		Letter Agreement dated November 8, 2019 by and among PNC Bank, National Association and Citibank, N.A., as lenders, and DASAN Zhone Solutions, Inc., as borrowing agent		10-Q		10.3		November 13, 2019
10.20		Office Lease Agreement dated February 9, 2016, between Zhone Technologies, Inc. and BACM 2005-3 Bryan Dairy Industrial, LLC		8-K		10.1		February 23, 2016
10.20.1		First Amendment to Office Lease Agreement, dated June 7, 2016, between Zhone Technologies, Inc. and BACM 2005-3 Bryan Dairy Industrial, LLC		10-Q		10.1		August 9, 2016
10.21		Office Lease Agreement dated July 9, 2019, between DASAN Zhone Technologies, Inc. and Family Stations, Inc.		10-Q		10.3		August 14, 2019
10.22		Loan Agreement dated March 3, 2020 and entered into as of March 4, 2020 by and between DASAN Networks, Inc. and DASAN Network Solutions, Inc. (Korea)		8-K		10.1		March 10, 2020
10.23		Intellectual Property Pledge Agreement dated March 3, 2020 and entered into as of March 4, 2020 by and between DASAN Networks, Inc. and DASAN Network Solutions, Inc. (Korea)		8-K		10.2		March 10, 2020
10.24		Share Pledge Agreement dated March 3, 2020 and entered into as of March 4, 2020 by and among DASAN Networks, Inc., DASAN Network Solutions, Inc. (Korea) and DASAN Network Solutions, Inc. (California)		8-K		10.3		March 10, 2020
10.25		Agreement of Sublease dated February 24, 2020 by and between Huawei Technologies, Inc. and Dasan Zhone Solutions, Inc.		8-K		10.1		March 2, 2020
10.26		Agreement of Sublease dated February 24, 2020 by and between Huawei Technologies, Inc. and Dasan Zhone Solutions, Inc.		8-K		10.2		March 2, 2020
16.1		Letter from PricewaterhouseCoopers LLP to the Securities and Exchange Commission dated June 14, 2019		8-K		16.1		June 14, 2019
21.2		List of Subsidiaries								X
23.1		Consent of Grant Thornton LLP								X
23.2		Consent of PricewaterhouseCoopers LLP								X

				Incorporated by Reference
Exhibit Number		Exhibit Description		Form		Exhibit		Filing Date		Filed or Furnished Herewith
31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)								X
31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)								X
32.1		Section 1350 Certification of Chief Executive Officer and Chief Financial Officer								X
101.INS		XBRL Instance Document								X
101.SCH		XBRL Taxonomy Extension Schema								X
101.CAL		XBRL Taxonomy Extension Calculation Linkbase								X
101.DEF		XBRL Taxonomy Extension Definition Linkbase								X
101.LAB		XBRL Taxonomy Extension Label Linkbase								X
101.PRE		XBRL Taxonomy Extension Presentation Linkbase								X

#	Management contract or compensatory plan or arrangement in which one or more executive officers or directors participates.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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: September 27, 2017March 24, 2020		By:		/S/s/ IL YUNG KIM
				Il Yung Kim
				President, Chief Executive Officer and Acting Chief Financial Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature		Title		Date
Signature		Title		Date
/S/s/ IL YUNG KIM		President, Chief Executive Officer (Principal Executive Officer) and Acting Director		March 24, 2020
Il Yung Kim
/s/ THOMAS J. CANCRO		Chief Financial Officer and DirectorCorporate Treasurer (Principal Financial Officer and Principal Accounting Officer)		September 27, 2017 March 24, 2020
Il Yung Kim Thomas J. Cancro		(Principal Executive, Financial and Accounting Officer)
/S/s/ MIN WOO NAM		Chairman of the Board of Directors		September 27, 2017 March 24, 2020
Min Woo Nam
/S/    MICHAEL CONNORS		Director		September 27, 2017
Michael Connors
/S/s/ SEONG GYUN KIM		Director		September 27, 2017 March 24, 2020
Seong Gyun Kim
/S/    SUNG-BIN PARKs/ DAVID SCHOPP		Director		September 27, 2017 March 24, 2020
Sung-Bin Park David Schopp
/s/ ROLF UNTERBERGER		Director		March 24, 2020
Rolf Unterberger
/s/ JOON KYUNG KIM		Director		March 24, 2020
Joon Kyung Kim
/s/ CHOON YUL YOO		Director		March 24, 2020
Choon Yul Yoo

EXHIBIT INDEX

Exhibit Number	Exhibit Description		Incorporated by Reference								Filed or Furnished Herewith
			Form		File Number		Exhibit		Filing Date
3.1	Restated Certificate of Incorporation of DASAN Zhone Solutions, Inc., as amended through February 28, 2017										X
3.2	Amended and Restated Bylaws		8-K		000-32743		3.2		September 12, 2016
10.1#	DASAN Zhone Solutions, Inc. 2017 Incentive Award Plan		8-K		000-32743		10.1		January 10, 2017
10.1.1#	Form of Stock Option Agreement for the DASAN Zhone Solutions, Inc. 2017 Incentive Award Plan		8-K		000-32743		10.2		January 10, 2017
10.1.2#	Form of Restricted Stock Unit Award Agreement for the DASAN Zhone Solutions, Inc. 2017 Incentive Award Plan										X
10.2 #	DASAN Zhone Solutions, Inc. Amended and Restated 2001 Stock Incentive Plan, as amended		8-K		000-32743		10.6		September 13, 2016
10.2.1#	Form of Stock Option Agreement for the DASAN Zhone Solutions, Inc. Amended and Restated 2001 Stock Incentive Plan, as amended		8-K		000-32743		10.7		September 13, 2016
10.2.2#	Form of Restricted Stock Award Agreement for the DASAN Zhone Solutions, Inc. Amended and Restated 2001 Stock Incentive Plan, as amended		8-K		000-32743		10.2		May 17, 2007
10.2.3#	Form of Restricted Stock Unit Award Agreement for the DASAN Zhone Solutions, Inc. Amended and Restated 2001 Stock Incentive Plan, as amended		10-Q		000-32743		10.3		November 14, 2016
10.3#	DASAN Zhone Solutions, Inc. 2002 Employee Stock Purchase Plan		8-K		000-32743		10.1		May 17, 2006
10.5#	DASAN Zhone Solutions, Inc. Non-Employee Director Compensation Program										X
10.5#	Form of Indemnity Agreement (directors and officers)		10-Q		000-32743		10.20		May 14, 2004
10.6#	Form of Change of Control Severance Agreement		10-Q		000-32743		10.1		August 9, 2012
10.7#	Zhone Technologies, Inc. Incentive Bonus Plan		10-Q		000-32743		10.1		November 8, 2013
10.8#	Employment Agreement dated as of September 9, 2016 by and between DASAN Zhone Solutions, Inc. and Il Yung Kim		8-K		000-32743		10.1		September 13, 2016
10.9#	Amended and Restated Employment Agreement dated as of September 9, 2016 by and between DASAN Zhone Solutions, Inc. and James Norrod		8-K		000-32743		10.2		September 13, 2016

Exhibit Number	Exhibit Description		Incorporated by Reference								Filed or Furnished Herewith
			Form		File Number		Exhibit		Filing Date
10.10#	Employment Agreement dated as of September 9, 2016 by and between DASAN Zhone Solutions, Inc. and Kirk Misaka		8-K		000-32743		10.3		September 13, 2016
10.11#	Transaction Bonus Agreement, dated as of September 9, 2016, by and between DASAN Zhone Solutions, Inc. and James Norrod		8-K		000-32743		10.4		September 13, 2016
10.12#	Transaction Bonus Agreement, dated as of September 9, 2016, by and between DASAN Zhone Solutions, Inc. and Kirk Misaka		8-K		000-32743		10.5		September 13, 2016
10.13#	Letter Agreement, dated November 10, 2016, between DASAN Zhone Solutions, Inc. and Eric Presworsky		8-K		000-32743		10.1		November 14, 2016
10.14#	Stock Option Cancellation Agreement dated March 31, 2016, between Zhone Technologies, Inc. and James Norrod		8-K		000-32743		10.1		April 5, 2016
10.15#	Transition Support Service Agreement dated as of January 31, 2016 between Zhone Technologies, Inc. and Morteza Ejabat		10-K		000-32743		10.17		March 23, 2016
10.16	Stockholder Agreement, dated as of September 9, 2016, by and among DASAN Zhone Solutions, Inc. and DASAN Networks, Inc. and the other parties thereto		8-K		000-32743		10.1		September 12, 2016
10.17	Lock-Up Agreement, dated as of September 9, 2016, by and among DASAN Zhone Solutions, Inc., DASAN Networks, Inc. and the other parties thereto		8-K		000-32743		10.2		September 12, 2016
10.18	Registration Rights Agreement, dated as of September 9, 2016, by and among DASAN Zhone Solutions, Inc., DASAN Networks, Inc. and the other parties thereto		8-K		000-32743		10.3		September 12, 2016
10.19	Loan Agreement, dated as of September 9, 2016, by and among DASAN Zhone Solutions, Inc., DASAN Networks, Inc. and the other parties thereto		8-K		000-32743		10.4		September 12, 2016
10.20	Credit and Security Agreement, dated as of March 13, 2012, by and among Zhone Technologies, Inc., ZTI Merger Subsidiary III, Inc., Premisys Communications, Inc., Zhone Technologies International, Inc., Paradyne Networks, Inc., Paradyne Corporation and Wells Fargo Bank, National Association		10-K		000-32743		10.16		March 15, 2012

Exhibit Number	Exhibit Description		Incorporated by Reference								Filed or Furnished Herewith
			Form		File Number		Exhibit		Filing Date
10.21.1	First Amendment to Credit and Security Agreements, dated as of March 12, 2013, by and among Zhone Technologies, Inc., ZTI Merger Subsidiary III, Inc., Premisys Communications, Inc., Zhone Technologies International, Inc., Paradyne Networks, Inc., Paradyne Corporation and Wells Fargo Bank, National Association		10-K		000-32743		10.12.1		March 15, 2013
10.21.2	Second Amendment to Credit and Security Agreements, dated as of September 30, 2013, by and among Zhone Technologies, Inc., ZTI Merger Subsidiary III, Inc., Premisys Communications, Inc., Zhone Technologies International, Inc., Paradyne Networks, Inc., Paradyne Corporation and Wells Fargo Bank, National Association		8-K		000-32743		10.1		October 1, 2013
10.21.3	Third Amendment to Credit and Security Agreements, dated as of March 5, 2014, by and among Zhone Technologies, Inc., ZTI Merger Subsidiary III, Inc., Premisys Communications, Inc., Zhone Technologies International, Inc., Paradyne Networks, Inc., Paradyne Corporation and Wells Fargo Bank, National Association		10-K		000-32743		10.13.3		March 5, 2014
10.21.4	Fourth Amendment to Credit and Security Agreements, dated as of March 6, 2015, by and among Zhone Technologies, Inc., ZTI Merger Subsidiary III, Inc., Premisys Communications, Inc., Zhone Technologies International, Inc., Paradyne Networks, Inc., Paradyne Corporation and Wells Fargo Bank, National Association		10-K		000-32743		10.14.4		March 6, 2015
10.21.5	Fifth Amendment to Credit and Security Agreements, dated as of March 23, 2016, by and among Zhone Technologies, Inc., ZTI Merger Subsidiary III, Inc., Premisys Communications, Inc., Zhone Technologies International, Inc., Paradyne Networks, Inc., Paradyne Corporation and Wells Fargo Bank, National Association		10-K		000-32743		10.14.5		March 23, 2016
10.2.6	Sixth Amendment to Credit and Security Agreements and Consent, dated as of September 9, 2016, by and among Zhone Technologies, Inc., ZTI Merger Subsidiary III, Inc., Premisys Communications, Inc., Zhone Technologies International, Inc., Paradyne Networks, Inc., Paradyne Corporation and Wells Fargo Bank, National Association		8-K		000-32743		10.5		September 12, 2016

Exhibit Number	Exhibit Description		Incorporated by Reference								Filed or Furnished Herewith
			Form		File Number		Exhibit		Filing Date
10.21.7	Joinder and Seventh Amendment to Credit and Security Agreements, dated as of October 7, 2016, by and among DASAN Zhone Solutions, Inc., ZTI Merger Subsidiary III, Inc., Premisys Communications, Inc., Zhone Technologies International, Inc., Paradyne Networks, Inc., Paradyne Corporation, Dasan Network Solutions, Inc. and Wells Fargo Bank, National Association		10-Q		000-32743		10.15		November 14, 2016
10.21.8	Consent Memorandum, dated May 5, 2017, by and among DASAN Zhone Solutions, Inc., ZTI Merger Subsidiary III, Inc., Premisys Communications, Inc., Zhone Technologies International, Inc., Paradyne Networks, Inc., Paradyne Corporation, Dasan Network Solutions, Inc. and Wells Fargo		8-K		000-32743		10.1		May 9, 2017
10.21.9	Letter Agreement, dated July 3, 2017, by and among DASAN Zhone Solutions, Inc., ZTI Merger Subsidiary III, Inc., Premisys Communications, Inc., Zhone Technologies International, Inc., Paradyne Networks, Inc., Paradyne Corporation, Dasan Network Solutions, Inc. and Wells Fargo		8-K		000-32743		10.1		July 6, 2017
10.22	Credit and Security Agreement (Ex-Im Subfacility), dated as of March 13, 2012, by and among Zhone Technologies, Inc., ZTI Merger Subsidiary III, Inc., Premisys Communications, Inc., Zhone Technologies International, Inc., Paradyne Networks, Inc., Paradyne Corporation and Wells Fargo Bank, National Association		10-K		000-32743		10.17		March 15, 2012
10.23	Office Lease Agreement, dated February 18, 2016, between Zhone Technologies, Inc. and BACM 2005-3 Bryan Dairy Industrial, LLC		8-K		000-32743		10.1		February 23, 2016
10.23.1	First Amendment to Office Lease Agreement, dated June 7, 2016, between Zhone Technologies, Inc. and BACM 2005-3 Bryan Dairy Industrial, LLC		10-Q		000-32743		10.1		August 9, 2016
21.2	List of Subsidiaries										X
23.1	Consent of Independent Registered Public Accounting Firm										X
23.2	Consent of Independent Registered Public Accounting Firm										X
31.1	Certification of Chief Executive Officer and Acting Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)										X

Exhibit Number	Exhibit Description		Incorporated by Reference								Filed or Furnished Herewith
			Form		File Number		Exhibit		Filing Date
32.1	Section 1350 Certification of Chief Executive Officers and Acting Chief Financial Officer										X
101.INS	XBRL Instance Document										X
101.SCH	XBRL Taxonomy Extension Schema										X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase										X
101.DEF	XBRL Taxonomy Extension Definition Linkbase										X
101.LAB	XBRL Taxonomy Extension Labels Linkbase										X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase										X

#	Management contract or compensatory plan or arrangement in which one or more executive officers or directors participates.

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