Stock Based Compensation

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

The 2020 Equity Incentive Plan (the “2020 Plan”) was approved by Transphorm Technology’s board of directors on February 10, 2020 and Transphorm Technology’s stockholders on February 12, 2020, and became effective on the business day immediately prior to the closing of the Merger. Our stockholders approved the 2020 Plan on February 11, 2020. We assumed the 2020 Plan in connection with the Merger. As of September 30, 2020, there were 1,902,922 shares available for grant and 816,180 restricted stock units outstanding under the 2020 Plan. The 2020 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), to our employees and our parent and subsidiary corporations’ employees, and for the grant of nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance units, and performance shares to our employees, directors, and consultants and our parent and subsidiary corporations’ employees and consultants.

Subject to the adjustment provisions of the 2020 Plan, and the automatic increase described in the 2020 Plan, the maximum aggregate number of shares of our common stock that may be issued under the 2020 Plan is 5,050,000 shares of our common stock, which includes (i) 2,588,077 shares initially reserved for issuance, plus (ii) any shares of our common stock subject to issued and outstanding awards under the 2007 Plan or 2015 Plan that were assumed in the Merger and that, on or after the closing of the Merger, expire or otherwise terminate without having been exercised or issued in full, are tendered to or withheld by us for payment of an exercise price or for tax withholding obligations, or are forfeited to or repurchased by us due to failure to vest, with the maximum number of shares to be added to the 2020 Plan pursuant to this clause (ii) equal to 2,461,923 shares. Subject to the adjustment provisions of the 2020 Plan, the number of shares of common stock available for issuance under the 2020 Plan will also include an annual increase on the first day of each fiscal year beginning with our 2022 fiscal year and ending on (and including) our 2030 fiscal year, in an amount equal to the least of: 5,000,000 shares of our common stock; five percent (5%) of the outstanding shares of our common stock on the last day of the immediately preceding fiscal year; or such number of shares of our common stock as the administrator of the 2020 Plan may determine.

Stock Options

The following table summarizes stock option activity and related information for the three months ended September 30, 2020 and 2019:


	Number of Options Outstanding	Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (1) (in thousands)
Balance at July 1, 2020	2,454,687	$	4.74	6.33	$	—
Options exercised	(3,475)	$	3.80
Options canceled	(123,789)	$	5.91
Balance at September 30, 2020	2,327,423	$	4.68	6.16	$	167
Exercisable at September 30, 2020	2,211,723	$	4.74	6.08	$	111

Balance at July 1, 2019	2,342,440	$	4.84	7.16	$	—
Options granted	125,183	$	3.14
Options canceled	(13,811)	$	4.58
Balance at September 30, 2019	2,453,812	$	4.69	7.06	$	—
Exercisable at September 30, 2019	1,984,257	$	4.95	6.85	$	—

(1) Intrinsic value represents the excess of the fair value on the last trading day of the period, which was $4.00 as of September 30, 2020, over the exercise price, multiplied by the number of options.

The following table summarizes stock option activity and related information for the nine months ended September 30, 2020 and 2019:


	Number of Options Outstanding	Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (1) (in thousands)
Balance at January 1, 2020	2,473,130	$	4.67	6.84	$	—
Options authorized	—	$	—
Options exercised	(6,821)	$	3.78
Options canceled	(138,886)	$	5.72
Balance at September 30, 2020	2,327,423	$	4.68	6.16	$	167
Exercisable at September 30, 2020	2,211,723	$	4.74	6.08	$	111

Balance at January 1, 2019	2,377,180	$	4.83	7.46	$	—
Options granted	183,109	$	3.14
Options canceled	(106,477)	$	4.34
Balance at September 30, 2019	2,453,812	$	4.69	7.06	$	—
Exercisable at September 30, 2019	1,984,257	$	4.95	6.85	$	—

Restricted Stock

Restricted Stock Awards

RSAs are grants of shares of our common stock that vest in accordance with terms and conditions established by the Company’s Board of Directors. Recipients of RSAs generally will have voting and dividend rights with respect to such shares upon grant without regard to vesting, unless the RSA agreement provides otherwise. Shares of restricted stock that do not vest are subject to forfeiture. In September 2020, we granted 123,501 RSAs outside of our 2020 Plan. Seventy percent of these RSAs was vested on the date of grant and the remainder is scheduled to vest 120 days following the grant date. The following table summarizes RSA activity and related information for the three and nine months ended September 30, 2020:


	September 30, 2020
	Three Months Ended			Nine Months Ended
	Number of Shares	Weighted-Average Grant Date Fair Value Per Share		Number of Shares	Weighted-Average Grant Date Fair Value Per Share
Balance at beginning of period	—	$	—	—	$	—
Granted	123,501	$	4.00	123,501	$	4.00
Vested	(86,450)	$	4.00	(86,450)	$	4.00
Balance at end of period	37,051	$	4.00	37,051	$	4.00

Restricted Stock Units

RSUs are grants of shares of our common stock that vest in accordance with terms and conditions established by the administrator of the 2020 Plan. Subject to the provisions of the 2020 Plan, the administrator determines the terms and conditions of RSUs, including the vesting criteria. We granted 816,180 RSUs during the third quarter of 2020, 4,000 of which were fully vested on the date of grant. The remainder of the RSUs are scheduled to vest as follows: one third will vest on each of January 1, 2022, January 1, 2023 and July 1, 2023, in each case subject to the RSU holders’ continued status as a service provider to the Company through each vesting date. The following table summarizes RSU activity and related information for the three and nine months ended September 30, 2020:


	September 30, 2020
	Three Months Ended			Nine Months Ended
	Number of Shares	Weighted-Average Grant Date Fair Value Per Share		Number of Shares	Weighted-Average Grant Date Fair Value Per Share
Balance at beginning of period	—	$	—	—	$	—
Granted	816,180	$	4.00	816,180	$	4.00
Vested	(4,000)	$	4.00	(4,000)	$	4.00
Balance at end of period	812,180	$	4.00	812,180	$	4.00

Stock-Based Compensation

The accompanying condensed consolidated statement of operations and comprehensive loss includes stock-based compensation expense as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Cost of revenue	$	17	$	24	$	43	$	44
Research and development	62		60		148		146
Sales and marketing	11		8		23		24
General and administrative	494		67		606		221
Total	$	584	$	159	$	820	$	435

Unrecognized Stock-Based Compensation

Unrecognized stock-based compensation expense was as follows (in thousands):


	As of September 30, 2020			As of September 30, 2019
	Unrecognized Expense		Average Expected Recognition Period	Unrecognized Expense		Average Expected Recognition Period
Stock options	$	113	0.87 years	$	573	1.34 years
Restricted stock	$	3,297	2.64 years	—		—
Total	$	3,410	2.43 years	$	573	1.34 years