tgan-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2023

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

For the transition period from __________ to __________

Commission file number: 001-41295

Transphorm, Inc.

(Exact name of registrant as specified in its charter)


Delaware		82-1858829
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
75 Castilian Drive
Goleta,	California	93117
(Address of principal executive offices)		(Zip Code)

(805) 456-1300

(Registrant’s telephone number, including area code)

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

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, par value $0.0001 per share

TGAN

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”

“accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


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

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

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

As of November 2, 2023, 62,002,968 shares of the registrant’s common stock were outstanding.

Transphorm, Inc.

FORM 10-Q

Table of Contents


Glossary of Terms and Abbreviations			4
Risk Factor Summary			5

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements			7
Unaudited Condensed Consolidated Balance Sheets as of September 30, 2023 and March 31, 2023			7
Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended September 30, 202 3 and 20 2 2			9
Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended September 30, 202 3 and 202 2			10
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended September 30, 202 3 and 202 2			11
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 202 3 and 202 2			13
Notes to Unaudited Condensed Consolidated Financial Statements			15
Note Regarding Forward-Looking Statements			28
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			29
Item 3. Quantitative and Qualitative Disclosures About Market Risk			38
Item 4. Controls and Procedures			38

PART II - OTHER INFORMATION
Item 1. Legal Proceedings			40
Item 1A. Risk Factors			40
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			59
Item 3. Defaults Upon Senior Securities			59
Item 4. Mine Safety Disclosures			59
Item 5. Other Information			59
Item 6. Exhibits			60
SIGNATURES			61

Glossary of Terms and Abbreviations

The following is a glossary of technical terms used in this Quarterly Report on Form 10-Q (this “Report”):

AC – alternating current

AEC-Q101 – Automotive Electronic Council’s electronic components stress qualification standard

AFSW – Aizu Fujitsu Semiconductor Wafer Solution Limited, the wafer fabrication facility located in Aizu Wakamatsu, Japan that is owned by GaNovation, our joint venture company

DC – direct current

Epi/Epiwafer/Epimaterials – GaN device layers grown on a substrate, from which active GaN-based devices are subsequently manufactured in a wafer fabrication facility

FET – field effect transistor, a type of switching transistor

GaN – gallium nitride

JEDEC – Joint Electron Device Engineering Council, an independent semiconductor engineering trade organization and standardization body that represents all areas of the electronics industry

MOCVD – metal organic chemical vapor deposition, a technique for layering GaN layers onto substrates such as a silicon substrate and making the starting GaN semiconductor material (i.e., an epiwafer)

Power converters / Inverters – electronic systems used to convert electricity from AC to DC (such as a charger), DC-AC (such as an inverter) or in some cases AC-AC or DC-DC within the systems converting from one voltage level to another

Risk Factor Summary

Our business is subject to significant risks and uncertainties that make an investment in us speculative and risky. Below we summarize what we believe are the principal risk factors but these risks are not the only ones we face, and you should carefully review and consider the full discussion of our risk factors in the section titled “Risk Factors,” together with the other information in this Report. If any of the following risks actually occurs (or if any of those listed elsewhere in this Report occur), our business, reputation, financial condition, results of operations, revenue, and future prospects could be seriously harmed. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business.

•We have a history of losses, anticipate increasing our operating expenses and capital expenditures in the future, and may not be able to achieve or maintain profitability.

•If we do not successfully complete the asset-based debt financing initiatives we are pursuing or raise other capital, we believe that our existing cash and cash equivalents and forecasted revenue will be sufficient to fund our operations into the first half of January 2024.

•Our strategic review process may not result in us entering into or completing a transaction, and may not lead to increased stockholder value.

•Our recurring operating losses and our current operating plans raise substantial doubt about our ability to continue as a going concern. We need to raise capital to support our business, and this capital may be unavailable on attractive terms, if at all, and could dilute your investment.

•Our joint venture arrangement involves numerous risks, including risks relating to the lack of full control of the joint venture, potential disagreements with our joint venture partner about how to manage the joint venture, conflicting interests of the joint venture, requirements to fund the joint venture and its business not being profitable.

•Our quarterly results of operations are likely to vary from period to period, which could cause the market price of our common stock to fluctuate or decline.

•We are exposed to foreign currency exchange rate fluctuations. Although we hedge certain currency risks, our hedging strategies may not be successful in mitigating our risks and changes in foreign currency exchange rates may adversely affect our financial condition, cash flows and results of operations.

•We may not be able to develop new technologies and products to satisfy changes in customer demand or industry standards, and our competitors could develop products that decrease the demand for our products.

•Our sales cycles can be long and unpredictable, and our sales efforts require considerable time and expense.

•We must commit resources to development, design and production prior to receipt of purchase commitments and could lose some or all of the associated investment.

•Unfavorable worldwide economic conditions (including inflation), may negatively affect our business, financial condition and results of operations.

•We compete in highly competitive markets, and competitive pressures from existing and new companies may adversely impact our business and operating results.

•We rely on third-party channel partners to sell our products. If our partners fail to perform, our ability to sell our products and services could be limited, and if we fail to optimize our channel partner model going forward, our operating results could be harmed.

•We rely on limited sources of wafer fabrication, packaged products fabrication and product testing, the loss of which could delay and limit our product shipments.

•We rely on third parties for supply of raw materials and parts, assembly and test services, and transportation, among other things, and we generally cannot control their availability or conditions of supply or services.

•Because we depend on third-party manufacturers to build portions of our products, we are susceptible to manufacturing delays and pricing fluctuations that could prevent us from shipping customer orders on time, if at all, or on a cost-effective basis, which may result in the loss of sales, income and customers.

•Our business could be adversely affected by health epidemics or pandemics.

•An earthquake, terrorist attack or other man-made natural disaster could negatively impact our business and operating results.

•The loss of one or more key employees or our inability to attract and retain qualified personnel could harm our business.

•If we fail to effectively manage our growth, our business, financial condition and results of operations would be harmed.

•We are subject to a number of risks associated with international sales and operations.

•Investments in us may be subject to U.S. foreign investment regulations which may impose conditions on or limit certain investors’ ability to purchase or hold our common stock, potentially limiting our ability to enter into or maintain strategic relationships and making our common stock less attractive to investors.

•We are subject to government regulation, including import, export and economic sanctions laws and regulations that may expose us to liability and increase our costs.

•Our sales to government customers subject us to uncertainties regarding fiscal funding approvals, renegotiations or terminations at the discretion of the government, as well as audits and investigations, which could result in litigation, penalties and sanctions including early termination, suspension and debarment.

•Any failure by us to protect our proprietary technologies or maintain the right to use certain technologies may negatively affect our ability to compete.

•If we fail to comply with our obligations under any license, collaboration or other agreements, we may be required to pay damages and could lose certain intellectual property rights.

•Any failure to maintain effective internal controls over our financial reporting could materially and adversely affect us.

•We have identified a material weakness in our internal control over financial reporting that, if not properly remediated, could result in material misstatements in our consolidated financial statements in future periods.

•Sales of substantial amounts of our common stock in the public markets, or the perception that such sales might occur, could cause the market price of our common stock to decline significantly, even if our business is doing well.

•We could be subject to certain liquidated damages pursuant to the registration rights agreements we entered into with certain holders of our securities.

•Our principal stockholders and management have substantial control over us and could delay or prevent a change in corporate control.

•Anti-takeover provisions in our charter documents could make an acquisition of us more difficult and may prevent attempts by our stockholders to replace or remove our management.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Transphorm, Inc.

Condensed Consolidated Balance Sheets (unaudited)

(in thousands, except share and per share data)


	September 30, 2023		March 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	6,152	$	15,527
Restricted cash	—		500
Accounts receivable, net of allowance for doubtful accounts of $263 and $0 at September 30, 2023 and March 31, 2023, respectively, including related parties (Note 11)	4,571		4,396
Inventory	9,776		8,406
Prepaid expenses and other current assets	1,426		1,859
Total current assets	21,925		30,688
Property and equipment, net	7,857		7,890
Operating lease right-of-use assets	2,719		3,033
Goodwill	963		1,079
Intangible assets, net	173		321
Investment in joint venture	—		715
Other assets	652		726
Total assets	$	34,289	$	44,452

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued expenses, including related parties (Note 11)	$	6,198	$	7,895
Accrued interest	—		180
Unfunded commitment in joint venture	59		—
Accrued payroll and benefits	1,557		1,458
Operating lease liabilities	525		404
Revolving credit facility	—		12,000
Total current liabilities	8,339		21,937
Operating lease liabilities, net of current portion	2,259		2,670
Other liabilities	—		230
Total liabilities	10,598		24,837
Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 5,000,000 shares authorized and none issued and outstanding as of September 30, 2023 and March 31, 2023	—		—


Common stock, $0.0001 par value; 750,000,000 shares authorized as of September 30, 2023 and March 31, 2023, and 61,981,134 and 57,047,013 shares issued and outstanding as of September 30, 2023 and March 31, 2023, respectively	6		6
Additional paid-in capital	255,249		230,272
Accumulated deficit	(229,424)		(209,236)
Accumulated other comprehensive loss	(2,140)		(1,427)
Total stockholders’ equity	23,691		19,615
Total liabilities and stockholders’ equity	$	34,289	$	44,452

See accompanying notes to unaudited condensed consolidated financial statements.

Transphorm, Inc.

Condensed Consolidated Statements of Operations (unaudited)

(in thousands, except share and per share data)


	Three Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022
Revenue, net, including related parties (Note 11)	$	5,010	$	3,670	$	10,893	$	8,826
Cost of goods sold	3,836		3,232		7,631		7,282
Gross profit	1,174		438		3,262		1,544
Operating expenses:
Research and development	3,022		1,830		5,891		3,570
Sales and marketing	1,708		1,066		3,190		2,149
General and administrative	2,942		3,044		7,458		6,361
Total operating expenses	7,672		5,940		16,539		12,080
Loss from operations	(6,498)		(5,502)		(13,277)		(10,536)
Interest expense	—		184		8		366
Loss in joint venture	721		684		1,581		1,266
Other income, net	(90)		(375)		(290)		(820)
Loss before tax expense	(7,129)		(5,995)		(14,576)		(11,348)
Tax expense	—		—		—		—
Net loss	$	(7,129)	$	(5,995)	$	(14,576)	$	(11,348)

Deemed dividend related to warrant modification and issuance of Inducement Warrants (Note 8)	—		—		5,612		—
Net loss attributable to common stockholders	$	(7,129)	$	(5,995)	$	(20,188)

SEC Form 10-Q filed by Transphorm Inc.