Investment in Joint Venture

9 Months Ended

Dec. 31, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Through July 31, 2021, the Company was party to a joint venture agreement (the “JVA”), by and among Aizu Fujitsu Semiconductor Limited, Fujitsu Semiconductor Limited (“FSL”), the Company and Transphorm Aizu for the ownership and operations of AFSW. Through July 31, 2021, the Company held a 49% interest in AFSW through Transphorm Aizu, the Company’s wholly-owned subsidiary established in Japan to manage the financial transactions around AFSW. Transphorm Aizu and FSL funded AFSW based on a mutually agreed funding schedule. Any outstanding balances were reviewed upon the conclusion of the JVA effective July 31, 2021 to assess unfunded commitment to joint venture liability. During the the nine months ended December 31, 2021, the Company recognized a $1.5 million gain, in other income, upon termination of the JVA and settlement of its obligation.

On April 1, 2020, FSL exercised its put option under the JVA and notified the Company that FSL intended to exit the joint venture by selling its 51% interest in AFSW to the Company. In December 2020, the Company entered into a joint venture agreement with JCP Capital Management, LLC Limited (“JCP”) (controlling party with 75% ownership) to create GaNovation, a joint venture company in Singapore, to engage in the business of distribution, development and supply of GaN products and, upon approval of the regulatory authorities in Japan, to purchase FSL’s and Transphorm’s interests in AFSW. In July 2021, regulatory authorities in Japan approved GaNovation’s purchase of 100% of the interests in AFSW from Transphorm and FSL. On July 20, 2021, Transphorm Aizu entered into a Share Purchase Agreement (the “Purchase Agreement”) with GaNovation, pursuant to which GaNovation agreed to acquire Transphorm’s 49% interest in AFSW from Transphorm Aizu for 1 Japanese Yen. The closing of the Purchase Agreement occurred on August 1, 2021. Following the closing of the Purchase Agreement and other concurrent transactions between GaNovation and FSL, GaNovation owns 100% of AFSW and Transphorm holds a 25% interest in GaNovation.

GaNovation (through AFSW) manufactures semiconductor products exclusively for its owners under manufacturing agreements at prices estimated to cover the cost of production. GaNovation was determined to be a variable interest entity as the equity at risk was not believed to be sufficient. GaNovation depends on its owners for any additional cash. The Company extended $2.6 million to GaNovation to fund operations of GaNovation for the nine months ended December 31, 2022 and $3.8 million to GaNovation and AFSW to fund operations of GaNovation and AFSW for the nine months ended December 31, 2021. The Company’s known maximum exposure to loss approximated the carrying value of its investment balance, which included the financing. Potential future losses could be higher than the carrying amount of the Company’s investment, as the Company is liable for other future operating costs or obligations of GaNovation. In addition, because Transphorm is currently committed to purchasing GaN wafers and production-related services from AFSW at pre-agreed pricing based upon the Company’s second generation products, the Company may be required to purchase products at a higher cost for its newer generation products. Investment in GaNovation was $0.6 million and $0.1 million as of December 31, 2022 and March 31, 2022, respectively.

For the period from April 1, 2022 through March 31, 2023, JCP is responsible for 75% of the funding obligations and losses of AFSW, while Transphorm is responsible for 25% of the funding obligations and losses of AFSW. Beginning April 1, 2023, JCP will be responsible for 67.5% of the funding obligations and losses of AFSW, while Transphorm will be responsible for 32.5% of the funding obligations and losses of AFSW, except that JCP’s total funding obligations or investment shall not exceed $35 million and Transphorm’s total funding obligations or investment shall not exceed $12 million for the three-year period beginning from August 1, 2021. Transphorm had invested $4.6 million on its funding obligation as of December 31, 2022.

The Company’s investment activities in GaNovation and AFSW for the periods presented are summarized below (in thousands):


	GaNovation				GaNovation		GaNovation / AFSW (1)
	Three Months Ended December 31,				Nine Months Ended December 31,
	2022		2021		2022		2021
Beginning Balance	$	414	$	89	$	143	$	(1,866)
Investment	1,032		684		2,569		3,765
Loss	(799)		(712)		(2,065)		(3,294)
Gain	—		—		—		1,455
Effect of exchange rate change	—		—		—		1
Ending Balance	$	647	$	61	$	647	$	61

(1) Includes transactions for AFSW during the four months ended July 30, 2021.

Summarized unaudited financial information of GaNovation and AFSW for the periods indicated are as follows (in thousands):


					GaNovation
					December 31, 2022		March 31, 2022
Current assets					$	3,678	$	4,259
Long-term assets					5,870		3,690

Other current liabilities					4,282		3,799
Due to controlling owner					4		(1)
Due to Transphorm					113		—
Net surplus					5,149		4,151

	GaNovation				GaNovation		GaNovation / AFSW (1)
	For the Three Months Ended December 31,				For the Nine Months Ended December 31,
	2022		2021		2022		2021
Sales	$	3,926	$	2,262	$	9,958	$	5,957
Gross loss	(2,716)		(2,338)		(6,964)		(7,094)
Net loss	(3,197)		(2,848)		(8,351)		(9,085)

(1) Includes sales of $2.2 million, gross loss of $(3.2) million and net loss of $(4.3) million for AFSW during the four months ended July 30, 2021.