UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

FORM 10-Q

______________________


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

For the quarterly period ended: July ~~3, 2022~~2, 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: 001-40345

______________________

SkyWater Technology, Inc.

(Exact name of registrant as specified in its charter)

______________________


Delaware			37-1839853
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

2401 East 86th Street, Bloomington, Minnesota 55425

(Address of registrant’s principal executive offices and zip code)

Registrant’s telephone number, including area code: (952) 851-5200

______________________

Securities registered under Section 12(b) of the Exchange Act:

Title of Each Class

Trading
Symbol

Name of Each Exchange
on Which Registered

Common stock, par value $0.01 per share

SKYT

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. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted 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 and post such files). x 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 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

¨x

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 17(a)(2)(B) of the Securities Act. ¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

On August ~~8, 2022,~~7, 2023, the number of shares of common stock, $0.01 par value, outstanding was ~~40,454,685.~~46,283,552.

Table of Contents

SkyWater Technology, Inc.

TABLE OF CONTENTS


		Page No.

Forward-Looking Statements		3

PART I. FINANCIAL INFORMATION		4

Item 1.	Condensed Consolidated Financial Statements (unaudited)	4

	Condensed Consolidated Balance Sheets	4

	Condensed Consolidated Statements of Operations	5

	Condensed Consolidated Statements of Shareholders’ Equity ~~(Deficit)~~	76

	Condensed Consolidated Statements of Cash Flows	8

	Notes to Condensed Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2724

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3833

Item 4.	Controls and Procedures	3833

PART II. OTHER INFORMATION		3934

Item 1.	Legal Proceedings	3934

Item 1A.	Risk Factors	4035

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4035

Item 3.	Defaults Upon Senior Securities	4035

Item 4.	Mine Safety Disclosures	4035

Item 5.	Other Information	4035

Item 6.	Exhibits	4036

Table of Contents

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains statements that ~~we believe~~SkyWater Technology, Inc. ("SkyWater," the "Company," "we," "us" or "it") believes to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q, including, without limitation, ~~our~~the Company's expectations regarding ~~our~~its business, results of operations, financial condition and prospects, are forward-looking statements. When used in this Quarterly Report on Form 10-Q, words such as “may,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “target,” “seek,” “potential,” “believe,” “will,” “could,” “should,” “would” and “project” or the negative thereof or variations thereon or similar words or expressions that convey the uncertainty of future events or outcomes are generally intended to identify forward-looking statements.

~~Our forward-looking~~Forward-looking statements are subject to a number of risks, uncertainties and assumptions. Key factors that may affect ~~our~~the Company's results include, among others, the following:

•~~our~~its goals and strategies;

•~~our~~its future business development, financial condition and results of operations;

•~~our~~its ability to continue operating ~~our~~its sole semiconductor foundry at full capacity;

•~~our~~its ability to appropriately respond to changing technologies on a timely and cost-effective basis;

•~~our~~its customer relationships and ~~our~~its ability to retain and expand ~~our~~its customer relationships;

•~~our~~its ability to accurately predict ~~our~~its future revenues for the purpose of appropriately budgeting and adjusting ~~our~~its expenses;

•~~our~~its expectations regarding dependence on ~~our~~ largest customers;

•~~our~~its ability to diversify ~~our~~its customer base and develop relationships in new markets;

•the performance and reliability of ~~our~~its third-party suppliers and manufacturers;

•~~our~~its ability to procure tools, materials, and chemicals amid industry-wide supply chain shortages;

•~~our~~its ability to control costs, including ~~our~~its operating and capital expenses;

•the size and growth potential of the markets for ~~our~~its solutions, and ~~our~~its ability to serve and expand ~~our~~its presence in those markets;

•the level of demand in ~~our~~its customers’ end markets;

•~~our~~its ability to attract, train and retain key qualified personnel in a competitive labor market;

•adverse litigation judgments, settlements or other litigation-related costs;

•changes in trade policies, including the imposition of tariffs;

•~~our~~its ability to raise additional capital or financing;

•~~our~~its ability to accurately forecast demand;

•~~the impact of the coronavirus 2019,~~changes in local, regional, national and international economic or ~~COVID-19, pandemic on our business, results of operations~~political conditions, including those resulting from rising inflation and ~~financial condition and our customers, suppliers and workforce;~~

•~~the impact of the COVID-19 pandemic on the global economy;~~interest rates, a recession, or intensified international hostilities;

•the level and timing of USU.S. government program funding;

•~~our~~its ability to maintain compliance with certain USU.S. government contracting requirements;

•regulatory developments in the United States and foreign countries;

•~~our~~its ability to protect ~~our~~its intellectual property rights; and

•other factors disclosed in the section entitled “Risk Factors” and elsewhere in ~~our~~the Company's Annual Report on Form 10-K for the year ended January ~~2, 2022.~~1, 2023 and this Quarterly Report on Form 10-Q.

Moreover, ~~our~~SkyWater's business, results of operations, financial condition and prospects may be affected by new risks that could emerge from time to time. In light of these risks, uncertainties and assumptions, the forward-looking events and outcomes discussed in this Quarterly Report on Form 10-Q may not occur and ~~our~~SkyWater's actual results could differ materially and adversely from those expressed or implied in ~~our~~the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should not rely on forward-looking statements as predictions of future events or outcomes. Although ~~we believe~~SkyWater believes that the expectations reflected in the forward-looking statements are reasonable, the results, levels of activity, performance or events and circumstances reflected in the forward-looking statements may not be achieved or occur.

The forward-looking statements in this Quarterly Report on Form 10-Q represent ~~our~~SkyWater's views only as of the date hereof. ~~We anticipate~~SkyWater anticipates that subsequent events and developments will cause ~~our~~its views to change. However, ~~we undertake~~SkyWater undertakes no obligation to update publicly any forward-looking statements to conform such statements to changes in ~~our~~its expectations or to ~~our~~its actual results, or for any other reason, except as required by law. You should therefore not rely on these forward-looking statements as representing ~~our~~the Company's views as of any date subsequent to the date hereof.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SKYWATER TECHNOLOGY, INC.

Condensed Consolidated Balance Sheets

(Unaudited)


		July 3, 2022		January 2, 2022			July 2, 2023		January 1, 2023

		(in thousands, except share data)					(in thousands, except share data)
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	10,974	$	12,917	Cash and cash equivalents	$	16,178	$	30,025
Accounts receivable, net	Accounts receivable, net	49,906		39,381		Accounts receivable, net	77,085		62,670
Inventories	Inventories	11,866		17,500		Inventories	16,024		13,397
Prepaid expenses and other current assets	Prepaid expenses and other current assets	6,077		3,854		Prepaid expenses and other current assets	9,069		10,290
Income tax receivable	Income tax receivable	744		745		Income tax receivable	107		169
Total current assets	Total current assets	79,567		74,397		Total current assets	118,463		116,551
Property and equipment, net	Property and equipment, net	187,141		180,475		Property and equipment, net	169,540		179,915
Intangible assets, net	Intangible assets, net	6,576		3,891		Intangible assets, net	5,216		5,608
Other assets	Other assets	3,363		4,835		Other assets	5,517		3,690
Total assets	Total assets	$	276,647	$	263,598	Total assets	$	298,736	$	305,764
Liabilities and Shareholders’ Equity
Liabilities and shareholders' equity						Liabilities and shareholders' equity
Current liabilities:	Current liabilities:					Current liabilities:
Current portion of long-term debt	Current portion of long-term debt	$	1,042	$	1,021	Current portion of long-term debt	$	1,964	$	1,855
Accounts payable	Accounts payable	13,848		7,637		Accounts payable	14,182		21,102
Accrued expenses	Accrued expenses	25,094		17,483		Accrued expenses	32,112		25,212
Short-term financing, net of unamortized debt issuance costs						Short-term financing, net of unamortized debt issuance costs	54,233		55,817

Current portion of contingent consideration		441		816
Deferred revenue - current	Deferred revenue - current	24,339		20,808		Deferred revenue - current	27,943		28,186
Total current liabilities	Total current liabilities	64,764		47,765		Total current liabilities	130,434		132,172
Long-term liabilities:	Long-term liabilities:					Long-term liabilities:
Long-term debt, less current portion and unamortized debt issuance costs		77,190		58,428
Long-term debt, less current portion and net of unamortized debt issuance costs						Long-term debt, less current portion and net of unamortized debt issuance costs	34,778		35,181

Long-term incentive plan	Long-term incentive plan	3,636		4,039		Long-term incentive plan	—		1,643
Deferred revenue - long-term	Deferred revenue - long-term	79,392		88,094		Deferred revenue - long-term	59,839		67,967
Deferred income tax liability, net	Deferred income tax liability, net	858		995		Deferred income tax liability, net	1,202		1,239
Other long-term liabilities	Other long-term liabilities	13,178		4,350		Other long-term liabilities	9,601		13,585
Total long-term liabilities	Total long-term liabilities	174,254		155,906		Total long-term liabilities	105,420		119,615
Total liabilities	Total liabilities	239,018		203,671		Total liabilities	235,854		251,787
Commitments and contingencies		0		0
Commitments and contingencies (Note 11)						Commitments and contingencies (Note 11)
Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Preferred stock, $0.01 par value per share (80,000,000 shares authorized; zero issued and outstanding)	Preferred stock, $0.01 par value per share (80,000,000 shares authorized; zero issued and outstanding)	—		—		Preferred stock, $0.01 par value per share (80,000,000 shares authorized; zero issued and outstanding)	—		—
Common stock, $0.01 par value per share (200,000,000 shares authorized; 40,449,776 and 39,836,038 shares issued and outstanding)		404		398
Common stock, $0.01 par value per share (200,000,000 shares authorized; 45,399,761 and 43,704,876 shares issued and outstanding)						Common stock, $0.01 par value per share (200,000,000 shares authorized; 45,399,761 and 43,704,876 shares issued and outstanding)	454		437
Additional paid-in capital	Additional paid-in capital	121,697		115,208		Additional paid-in capital	166,179		147,304
Accumulated deficit	Accumulated deficit	(84,090)		(54,479)		Accumulated deficit	(107,310)		(94,072)
Total shareholders’ equity, SkyWater Technology, Inc.	Total shareholders’ equity, SkyWater Technology, Inc.	38,011		61,127		Total shareholders’ equity, SkyWater Technology, Inc.	59,323		53,669
Non-controlling interests		(382)		(1,200)
Noncontrolling interests						Noncontrolling interests	3,559		308
Total shareholders’ equity	Total shareholders’ equity	37,629		59,927		Total shareholders’ equity	62,882		53,977
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	276,647	$	263,598	Total liabilities and shareholders’ equity	$	298,736	$	305,764

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

SKYWATER TECHNOLOGY, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

Three Months Ended Six Months Ended
July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021
(in thousands, except share, unit and per share and unit data)
Revenue $ 47,407 $ 41,189 $ 95,528 $ 89,290
Cost of revenue 45,327 39,377 94,388 78,312
Gross profit 2,080 1,812 1,140 10,978
Research and development 2,361 3,339 4,643 5,266
Selling, general and administrative expenses 10,795 15,415 22,485 24,018
Change in fair value of contingent consideration — (942) — (886)
Operating loss (11,076) (16,000) (25,988) (17,420)
Other (expense) income:
Paycheck Protection Program loan forgiveness — 6,453 — 6,453
Interest expense (1,040) (912) (2,069) (1,970)
Total other (expense) income (1,040) 5,541 (2,069) 4,483
Loss before income taxes (12,116) (10,459) (28,057) (12,937)
Income tax expense (benefit) 63 (4,237) (131) (4,662)
Net loss (12,179) (6,222) (27,926) (8,275)
Less: net income attributable to non-controlling interests 826 757 1,685 1,515
Net loss attributable to SkyWater Technology, Inc. $ (13,005) $ (6,979) $ (29,611) $ (9,790)
Net loss per share attributable to common shareholders, basic and diluted: $ (0.32) $ (0.20) $ (0.74) $ (0.54)
Weighted average shares used in computing net loss per common share, basic and diluted: 40,203,050 34,707,758 40,031,615 18,884,051


	Three Months Ended				Six Months Ended
	July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022

	(in thousands, except share and per share data)
Revenue	$	69,811	$	47,407	$	135,905	$	95,528
Cost of revenue	53,144		45,327		102,770		94,388
Gross profit	16,667		2,080		33,135		1,140
Research and development	2,396		2,361		5,063		4,643
Selling, general and administrative expense	17,820		10,795		32,716		22,485

Operating income (loss)	(3,549)		(11,076)		(4,644)		(25,988)


Interest expense	(2,950)		(1,040)		(5,421)		(2,069)

Income (loss) before income taxes	(6,499)		(12,116)		(10,065)		(28,057)
Income tax expense (benefit)	25		63		25		(131)
Net income (loss)	(6,524)		(12,179)		(10,090)		(27,926)
Less: net income attributable to noncontrolling interests	2,066		826		2,773		1,685
Net income (loss) attributable to SkyWater Technology, Inc.	$	(8,590)	$	(13,005)	$	(12,863)	$	(29,611)
Net income (loss) per share attributable to common shareholders, basic and diluted:	$	(0.19)	$	(0.32)	$	(0.29)	$	(0.74)
Weighted average shares used in computing net income (loss) per common share, basic and diluted:	44,743,269		40,203,050		44,280,343		40,031,615

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

SKYWATER TECHNOLOGY, INC.

Condensed Consolidated Statements of Shareholders’ Equity ~~(Deficit)~~

For the Three Months Ended July ~~3, 2022~~2, 2023 and July ~~4, 2021~~3, 2022

(dollars ~~units~~ and shares in thousands)

(Unaudited)
Class A Units Class B Units Common Units Preferred Stock Common Stock Additional Paid-in Capital Retained
Earnings
(Accumulated Deficit) Total
Shareholders’ Equity (Deficit),
SkyWater Technology, Inc. Non-controlling
Interests Total Shareholders’
Equity (Deficit)
Units Amount Units Amount Units Amount Shares Amount Shares Amount
Balance at April 4, 2021 — $ — 18,000 $ — 2,106 $ 3,772 — $ — — $ — $ — $ (6,594) $ (2,822) $ (1,791) $ (4,613)
Corporate Conversion — — (18,000) — (2,106) (3,772) — — 31,056 311 3,461 — — — —
Issuance of common stock sold in initial public offering, net of issuance costs — — — — — — — — 8,004 80 100,082 — 100,162 — 100,162
Stock-based compensation — $ — — $ — — $ — — $ — — $ — $ 6,539 $ — $ 6,539 $ — $ 6,539
Balance at Distribution to VIE member — $ — — $ — — $ — — $ — — $ — $ — $ — $ — $ (392) $ (392)
Balance at Net income (loss) — $ — — $ — — $ — — $ — — $ — $ — $ (6,979) $ (6,979) $ 757 $ (6,222)
Balance at July 4, 2021 — — — — — — — — 39,060 391 110,082 (13,573) 96,900 (1,426) 95,474
Balance at April 3, 2022 — $ — — $ — — $ — — $ — 39,905 $ 399 $ 118,873 $ (71,085) $ 48,187 $ (678) $ 47,509
Issuance of common stock pursuant to stock-based compensation awards and ESPP — — — — — — — — 545 5 781 — 786 — 786
Stock-based compensation — — — — — — — — — — 2,043 — 2,043 — 2,043
Distribution to VIE member — — — — — — — — — — — — — (530) (530)
Net income (loss) — — — — — — — — — — — (13,005) (13,005) 826 (12,179)
Balance at July 3, 2022 — $ — — $ — — $ — — $ — 40,450 $ 404 $ 121,697 $ (84,090) $ 38,011 $ (382) $ 37,629


	Preferred Stock	Common Stock		Additional Paid-in Capital			Retained Earnings (Accumulated Deficit)	Total Shareholders’ Equity, SkyWater Technology, Inc.			Noncontrolling Interests		Total Shareholders’ Equity
			Shares			Amount				Shares					Amount
Balance at April 3, 2022			—	$	—		39,905	$	399		$	118,873	$	(71,085)		$	48,187	$	(678)	$	47,509
Issuance of common stock pursuant to equity compensation plans			—	—			545	5			781		—			786		—		786
Stock-based compensation			—	—			—	—			2,043		—			2,043		—		2,043
Net distribution to VIE member			—	—			—	—			—		—			—		(530)		(530)
Net income (loss)			—	—			—	—			—		(13,005)			(13,005)		826		(12,179)
Balance at July 3, 2022			—	$	—		40,450	$	404		$	121,697	$	(84,090)		$	38,011	$	(382)	$	37,629

Balance at April 2, 2023			—	$	—		44,280	$	443		$	154,764	$	(98,720)		$	56,487	$	985	$	57,472



Issuance of common stock			—	—			911	9			9,448		—			9,457		—		9,457
Issuance of common stock pursuant to equity compensation plans			—	—			209	2			—		—			2		—		2
Stock-based compensation			—	—			—	—			1,967		—			1,967		—		1,967
Net contribution from VIE member			—	—			—	—			—		—			—		508		508
Net income (loss)			—	—			—	—			—		(8,590)			(8,590)		2,066		(6,524)
Balance at July 2, 2023			—	$	—		45,400	$	454		$	166,179	$	(107,310)		$	59,323	$	3,559	$	62,882

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

SKYWATER TECHNOLOGY, INC.

Condensed Consolidated Statements of Shareholders’ Equity (Deficit)

For the Six Months Ended July ~~3, 2022~~2, 2023 and July ~~4, 2021~~3, 2022

(dollars ~~units~~ and shares in thousands)

(Unaudited)

Class A Units Class B Units Common Units Preferred Stock Common Stock Additional Paid-in Capital Retained
Earnings
(Accumulated Deficit) Total
Shareholders’ Equity (Deficit),
SkyWater Technology, Inc. Non-controlling
Interests Total Shareholders’
Equity (Deficit)
Units Amount Units Amount Units Amount Shares Amount Shares Amount
Balance at January 3, 2021 — $ — 18,000 $ — 2,108 $ 3,767 — $ — — $ — $ — $ (3,783) $ (16) $ (1,568) $ (1,584)
Unit-based compensation — — — — — 5 — — — — — — 5 — 5
Other — — — — (2) — — — — — — — — — —
Corporate Conversion — — (18,000) — (2,106) (3,772) — — 31,056 311 3,461 — — — —
Issuance of restricted common units — — — — — — — — 8,004 80 100,082 — 100,162 — 100,162
Stock-based compensation — — — — — — — — — — 6,539 — 6,539 — 6,539
Distribution to VIE member — — — — — — — — — — — — — (1,373) (1,373)
Net income (loss) — — — — — — — — — — — (9,790) (9,790) 1,515 (8,275)
Balance at July 4, 2021 — $ — — $ — — $ — — $ — 39,060 $ 391 $ 110,082 $ (13,573) $ 96,900 $ (1,426) $ 95,474
Balance at January 2, 2022 — $ — — $ — — $ — — $ — 39,836 $ 398 $ 115,208 $ (54,479) $ 61,127 $ (1,200) $ 59,927
Issuance of common stock pursuant to equity compensation plans — — — — — — — — 614 6 1,439 — 1,445 — 1,445
Stock-based compensation — — — — — — — — — — 5,050 — 5,050 — 5,050
Distribution to VIE member — — — — — — — — — — — — — (867) (867)
Net income (loss) — — — — — — — — — — — (29,611) (29,611) 1,685 (27,926)
Balance at July 3, 2022 — $ — — $ — — $ — — $ — 40,450 $ 404 $ 121,697 $ (84,090) $ 38,011 $ (382) $ 37,629


	Preferred Stock	Common Stock		Additional Paid-in Capital			Accumulated Deficit	Total Shareholders’ Equity, SkyWater Technology, Inc.			Noncontrolling Interests		Total Shareholders’ Equity
			Shares			Amount				Shares					Amount
Balance at January 2, 2022			—	$	—		39,836	$	398		$	115,208	$	(54,479)		$	61,127	$	(1,200)	$	59,927





Issuance of common stock pursuant to equity compensation plans			—	—			614	6			1,439		—			1,445		—		1,445
Stock-based compensation			—	—			—	—			5,050		—			5,050		—		5,050
Net distribution to VIE member			—	—			—	—			—		—			—		(867)		(867)
Net income (loss)			—	—			—	—			—		(29,611)			(29,611)		1,685		(27,926)
Balance at July 3, 2022			—	$	—		40,450	$	404		$	121,697	$	(84,090)		$	38,011	$	(382)	$	37,629

Balance at January 1, 2023			—	—			43,705	437			147,304		(94,072)			53,669		308		53,977

Adoption of new accounting principle			—	—			—	—			—		(375)			(375)		—		(375)

Issuance of common stock			—	—			1,156	12			12,141		—			12,153		—		12,153
Issuance of common stock pursuant to equity compensation plans			—	—			539	5			2,914		—			2,919		—		2,919
Stock-based compensation			—	—			—	—			3,820		—			3,820		—		3,820
Net contribution from VIE member			—	—			—	—			—		—			—		478		478
Net income (loss)			—	—			—	—			—		(12,863)			(12,863)		2,773		(10,090)
Balance at July 2, 2023			—	$	—		45,400	$	454		$	166,179	$	(107,310)		$	59,323	$	3,559	$	62,882

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

SKYWATER TECHNOLOGY, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


		Six Months Ended					Six Months Ended
		July 3, 2022		July 4, 2021			July 2, 2023		July 3, 2022

		(in thousands)					(in thousands)
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net loss		$	(27,926)	$	(8,275)
Adjustments to reconcile net loss to net cash flows (used in) provided by operating activities:
Net income (loss)						Net income (loss)	$	(10,090)	$	(27,926)
Adjustments to reconcile net income (loss) to net cash flows used in operating activities:						Adjustments to reconcile net income (loss) to net cash flows used in operating activities:
Depreciation and amortization	Depreciation and amortization	13,657		13,336		Depreciation and amortization	14,559		13,657
Gain on Paycheck Protection Program loan forgiveness		—		(6,453)

Amortization of debt issuance costs included in interest expense	Amortization of debt issuance costs included in interest expense	348		320		Amortization of debt issuance costs included in interest expense	876		348
Long-term incentive and stock-based compensation	Long-term incentive and stock-based compensation	5,334		7,008		Long-term incentive and stock-based compensation	3,820		5,334

Change in fair value of contingent consideration		—		(886)

Cash paid for contingent consideration in excess of initial valuation	Cash paid for contingent consideration in excess of initial valuation	(375)		(6,114)		Cash paid for contingent consideration in excess of initial valuation	—		(375)
Deferred income taxes	Deferred income taxes	(137)		(5,191)		Deferred income taxes	(37)		(137)
Non-cash revenue related to customer equipment		—		(2,481)

Cash paid for operating leases						Cash paid for operating leases	(12)		—
Cash paid for interest on finance leases						Cash paid for interest on finance leases	(415)		—
Provision for credit losses						Provision for credit losses	3,602		—

Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(1,024)		(3,401)		Accounts receivable	(17,425)		(1,024)
Inventories	Inventories	(3,865)		(1,998)		Inventories	(2,627)		(3,865)
Prepaid expenses and other assets	Prepaid expenses and other assets	(751)		5,672		Prepaid expenses and other assets	(606)		(751)
Accounts payable and accrued expenses	Accounts payable and accrued expenses	6,047		(4,482)		Accounts payable and accrued expenses	(1,344)		6,047

Deferred revenue	Deferred revenue	(5,170)		(16,695)		Deferred revenue	(8,371)		(5,170)
Income tax payable and receivable		—		(1,171)
Income tax receivable and payable						Income tax receivable and payable	62		—
Net cash used in operating activities	Net cash used in operating activities	(13,862)		(30,811)		Net cash used in operating activities	(18,008)		(13,862)
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchase of software and licenses	Purchase of software and licenses	(400)		(357)		Purchase of software and licenses	(612)		(400)

Purchases of property and equipment	Purchases of property and equipment	(5,463)		(12,898)		Purchases of property and equipment	(2,608)		(5,463)
Net cash used in investing activities	Net cash used in investing activities	(5,863)		(13,255)		Net cash used in investing activities	(3,220)		(5,863)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from issuance of common stock pursuant to the initial public offering, net of underwriting discounts and commissions		—		104,212
Net proceeds on Revolver		18,946		382
Proceeds from the issuance of common stock pursuant to the employee stock purchase plan and a long term incentive plan		1,128		—
Cash paid for offering costs		—		(1,205)

Draws on revolving line of credit						Draws on revolving line of credit	121,350		—
Paydowns of revolving line of credit						Paydowns of revolving line of credit	(123,810)		—
Net proceeds on Revolver						Net proceeds on Revolver	—		18,946

Cash paid for capital leases		(416)		(288)

Distributions to VIE member		(867)		(1,373)
Cash paid on license technology obligations		(500)		—
Repayment of Financing		(509)		(495)
Net cash provided by financing activities		17,782		101,233
Net change in cash and cash equivalents		(1,943)		57,167
Cash and cash equivalents - beginning of period		12,917		7,436
Cash and cash equivalents - end of period		$	10,974	$	64,603
Net proceeds from tool financing						Net proceeds from tool financing	496		—
Repayment of VIE financing						Repayment of VIE financing	(791)		(509)

Cash paid for principal on finance leases						Cash paid for principal on finance leases	(456)		(416)

Proceeds from the issuance of common stock pursuant to the employee stock purchase plan						Proceeds from the issuance of common stock pursuant to the employee stock purchase plan	1,276		1,128
Proceeds from the issuance of common stock, net of commissions						Proceeds from the issuance of common stock, net of commissions	12,144		—

Cash paid on license technology obligations						Cash paid on license technology obligations	(2,350)		(500)

Net contributions (distributions) from (to) noncontrolling interest						Net contributions (distributions) from (to) noncontrolling interest	(478)		(867)
Net cash provided by financing activities						Net cash provided by financing activities	7,381		17,782
Net uses of cash and cash equivalents						Net uses of cash and cash equivalents	(13,847)		(1,943)
Cash and cash equivalents - beginning of period						Cash and cash equivalents - beginning of period	30,025		12,917
Cash and cash equivalents - end of period						Cash and cash equivalents - end of period	$	16,178	$	10,974

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SKYWATER TECHNOLOGY, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


		Six Months Ended					Six Months Ended
		July 3, 2022		July 4, 2021			July 2, 2023		July 3, 2022

		(in thousands)					(in thousands)
Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Cash paid during the period for:
Cash paid (received) during the period for:						Cash paid (received) during the period for:
Interest	Interest	$	1,857	$	1,635	Interest	$	3,825	$	1,857
Income taxes	Income taxes	3		1,701		Income taxes	—		3
Noncash investing and financing activity:	Noncash investing and financing activity:					Noncash investing and financing activity:
Property and equipment acquired, not yet paid		$	6,972	$	11,444
Common stock issuance costs incurred, not yet paid		—		662
Capital expenditures incurred, not yet paid						Capital expenditures incurred, not yet paid	$	2	$	6,972

Equipment acquired through capital lease obligations	Equipment acquired through capital lease obligations	9,008		2,603		Equipment acquired through capital lease obligations	1		9,008
Intangible assets acquired, not yet paid	Intangible assets acquired, not yet paid	2,562		—		Intangible assets acquired, not yet paid	—		2,562

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SKYWATER TECHNOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except share ~~unit~~ and per share ~~and unit~~ data)

Note 1 Nature of Business

SkyWater Technology, Inc., together with its consolidated subsidiaries (collectively, ~~“we”~~"SkyWater", ~~“us”~~the "Company", ~~“our”~~“it”, or ~~“SkyWater”~~“its”), is a ~~U.S. investor-owned,~~U.S.-based, independent, pure-play technology foundry that offers advanced semiconductor development and manufacturing services from ~~our~~its fabrication facility, or fab, in Minnesota and advanced packaging services from ~~our~~its Florida facility. ~~In our technology as a service~~SkyWater's technology-as-a-service model ~~we leverage~~leverages a strong foundation of proprietary technology to co-develop process technology intellectual property with ~~our~~its customers that enables disruptive concepts through ~~our~~its Advanced Technology Services for diverse microelectronics (integrated circuits, or ICs) and related micro- and nanotechnology applications. In addition to these differentiated technology development services, ~~we support~~SkyWater supports customers with volume production of ICs for high-growth markets through ~~our~~its Wafer Services.

~~Emerging Growth Company Status~~

~~We are~~SkyWater is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012.

~~Corporate Conversion and Initial Public Offering~~

Effective April 14, 2021, we converted into a Delaware corporation pursuant to a statutory conversion and changed our name to SkyWater Technology, Inc. Previously, we operated as a Delaware limited liability company under the name CMI Acquisition, LLC. As a result of the corporate conversion, the holders of the different series of units of CMI Acquisition, LLC, became holders of common stock and options to purchase common stock of SkyWater Technology, Inc. The number of shares of common stock that holders of Class B preferred units and common units were entitled to receive in the corporate conversion was determined in accordance with a plan of conversion, which was based upon the terms of the CMI Acquisition, LLC operating agreement, and varied depending on which class of Units a holder owned. See Note 8 – ~~Shareholders’ Equity~~.

~~On April 23, 2021, we completed our initial public offering (“IPO”) and issued~~ ~~8,004,000~~ ~~shares of common stock. Shares of common stock began trading on the Nasdaq Stock Market on April 21, 2021 under the symbol “SKYT”.~~

Note 2 Basis of Presentation and Principles of Consolidation

The condensed consolidated financial statements as of July ~~3, 2022,~~2, 2023, and for the three and six months ended July ~~3, 2022~~2, 2023 and July ~~4, 2021,~~3, 2022, are presented in thousands of U.S. dollars (except share and per share information), are unaudited, and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all financial information and disclosures required by U.S. GAAP for complete financial statements. These unaudited interim condensed consolidated financial statements should be read in conjunction with ~~our~~SkyWater's audited consolidated financial statements and the related notes thereto as of January ~~2, 2022.~~1, 2023 and for the year then ended. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments, which include normal and recurring adjustments that are, in the opinion of management, necessary for the fair presentation of ~~our~~the Company's financial position as of July ~~3, 2022, our~~2, 2023 and results of operations, shareholders' equity, ~~(deficit)~~ and cash flows for the three and six months ended July ~~3, 2022~~2, 2023 and July ~~4, 2021.~~3, 2022.

The results of operations for the three and six months ended July ~~3, 2022~~2, 2023 are not necessarily indicative of the results of operations to be expected for the year ending ~~January 1,~~December 31, 2023, or for any other interim period, or for any other future year.

Principles of Consolidation

~~Our~~The condensed consolidated financial statements include ~~our~~the Company's assets, liabilities, revenues, and expenses, as well as the assets, liabilities, revenues, and expenses of the Company's subsidiaries in which ~~we have~~it has a controlling financial interest, SkyWater Technology Foundry, Inc. (“SkyWater Technology Foundry”), SkyWater Federal, LLC (“SkyWater Federal”), ~~and~~ SkyWater Florida, Inc. (“SkyWater Florida”), and Oxbow Realty Partners, LLC ("Oxbow Realty"), a variable interest ~~entities~~entity (“VIE”) for which ~~we are~~SkyWater is the primary ~~beneficiary.~~beneficiary and an affiliate of the Company's principal shareholder, CMI Oxbow Partners, LLC ("Oxbow"). All intercompany accounts and transactions have been eliminated in consolidation.

The condensed consolidated statements of operations, shareholders’ equity (deficit) and cash flows are for the three and six months ended July 3, 2022 and July 4, 2021, each of which consisted of 13 weeks.

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~~SKYWATER TECHNOLOGY, INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited in thousands, except share, unit and per share and unit data)~~

Liquidity and Cash Requirements

The accompanying ~~Condensed Consolidated Financial Statements~~condensed consolidated financial statements have been prepared on the basis of the realization of assets and the satisfaction of liabilities and commitments in the normal course of business and do not include any adjustments to the recoverability and classifications of recorded assets and liabilities as a result of uncertainties.

For the three and six months ended July ~~3, 2022, we have~~2, 2023, the Company incurred losses of ~~$13,005~~$8,590 and ~~$29,611,~~$12,863, respectively. As of July ~~3, 2022, we~~2, 2023, the Company had cash and cash equivalents of ~~$10,974.~~$16,178.

~~Our~~SkyWater's ability to execute ~~our~~its operating strategy is dependent on ~~our~~its ability to maintain liquidity and continue to access capital through ~~our~~the Revolver (as defined in Note 6 – Debt) and other sources of financing. ~~Our~~The current business plans indicate that ~~we will~~the Company may require additional liquidity to continue ~~our operations~~to operate for the next 12 months from the issuance of the condensed consolidated financial statements. ~~In response to this, we plan to pursue additional debt and equity financing, and are implementing a plan~~The Company has identified specific actions that can be taken to reduce operating costs toand improve cash flow, ~~which includes a reduction~~including reductions in spending and ~~a delayed increase~~delays in ~~personnel, and~~hiring certain personnel. If such actions are taken, it may require usthe Company to decrease ~~our~~its level of investment in new products and technologies, or discontinue further expansion of ~~our business, or scale back our existing operations. Additionally, the~~its business. The Company also obtained a support letter from Oxbow Industries, LLC ("Oxbow Industries"), an affiliate of ~~our principal stockholder,~~Oxbow, to provide funding in an amount up to $12,500, if necessary, to enable the Company to meet its obligations as they become due through at least one year ~~and a day~~ beyond the issuance of these financial ~~statements on August 17, 2022. Management believes that based~~statements. Based upon SkyWater's operating forecasts, its ~~operational forecasts,~~ cash and cash equivalents on hand, available borrowings on ~~our~~the Revolver, potential cost

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SKYWATER TECHNOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except share and per share data)

reduction measures it could undertake, and the support letter from ~~an affiliate of our principal stockholder,~~Oxbow Industries, as needed, management believes SkyWater will ~~provide~~have sufficient liquidity to fund its operations for the next 12twelve months from the issuance of the condensed consolidated financial statements.

Additionally, the Company could raise additional capital through the ATM Program (as defined below) and seek additional equity or debt financing, including a refinancing and/or expansion of the Revolver, however it cannot provide any assurance that additional funds will be available when needed or, if available, will be available on terms that are acceptable to the Company. See Note 8 – Shareholders’ Equity for information regarding the ATM Program.

~~The Company~~SkyWater has based this estimate on assumptions that may prove to be wrong, and its operating plan may change as a result of many factors currently unknown to it. To the extent that ~~our~~the Company's current resources and plans to potentially reduce expenses are insufficient to satisfy ~~our~~the Company's cash requirements, weit may need to seek additional equity or debt financing. ~~Our~~The Company's ability to do so depends on prevailing economic conditions and other factors, many of which are beyond ~~our~~SkyWater's control.

Use of Estimates

The preparation of ~~our~~the condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Management evaluates these estimates and judgments on an ongoing basis and bases its estimates on experience, current and expected future conditions, third-party evaluations and various other assumptions that management believes are reasonable under the circumstances. Actual results could differ from those estimates.

~~COVID-19~~

In March 2020, the World Health Organization declared the novel coronavirus 2019 (“COVID-19”) outbreak a global pandemic. The COVID-19 pandemic has spread throughout the United States and the world, with the continued potential for significant impact. Our business has been adversely affected by the effects of the COVID-19 pandemic. We implemented modifications to employee travel and employee work locations, as required in some cases by federal, state and local authorities, which has had a negative impact on employee productivity. Because we have manufacturing operations, we may be vulnerable to an outbreak of a new coronavirus or other contagious diseases. Although we have not experienced a shutdown of our manufacturing facilities, the effects of such an outbreak could include the temporary shutdown of our operations or the operations of our customers, disruptions or restrictions on the ability to ship our products to our customers as well as disruptions that may affect our suppliers. Any disruption of our ability to manufacture or distribute our products, the ability of our suppliers to deliver key components on a timely basis, or our customers’ ability to order and take delivery of our products could have a material adverse effect on our revenue and operating results. The future broader implications of the pandemic remain uncertain and will depend on certain future developments, including the duration, scope and severity of the pandemic, the effectiveness of vaccines and the impact of vaccine mandates on our workforce.

Net Loss Per Share

~~We calculate basic and diluted~~Basic net loss per common share in conformity with the two-class method required for companies with participating securities. Our previously outstanding Class B preferred units met the criteria of a participating security as they contained the rights to an 8% ~~“preferred return” on the deemed original equity value of each such Class B~~

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~~SKYWATER TECHNOLOGY, INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited in thousands, except share, unit and per share and unit data)~~

preferred unit (accrued daily since the date of issuance of each such Class B preferred unit). Under the two-class method, income or losses are allocated between the common shareholders and the Class B preferred unitholders. The two-class method includes an allocation formula that determines income or loss per unit for each class according to preferred dividends and undistributed earnings or losses for the period. Our reported net loss for the six months ended July 4, 2021 is increased by the amount allocated to the Class B preferred units to arrive at the loss allocated to common shareholders for purposes of calculating net loss per share. As a result of our April 2021 corporate conversion and IPO, the number of common shares used to compute net loss per common share for the six months ended July 4, 2021 was retrospectively adjusted to reflect the conversion akin to a split-like situation.

~~Basic net loss per~~ share is calculated by dividing the net loss by the weighted-average number of shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per common share is computed by dividing the net loss by the weighted-average number of shares and potentially dilutive securities outstanding for the period determined using the treasury-stock method. Because wethe Company reported a net loss for the three and six months ended July ~~3, 2022~~2, 2023 and July ~~4, 2021,~~3, 2022, the number of shares used to calculate diluted net loss per common share is the same as the number of shares used to calculate basic net loss per common share because the potentially dilutive shares would have been anti-dilutive if included in the calculation. At July ~~3, 2022~~2, 2023 and July ~~4, 2021,~~3, 2022, there were restricted stock units and stock options totaling ~~2,526,000~~2,483,000 and ~~3,966,000~~,2,526,000, respectively, excluded from the computation of diluted weighted-average shares outstanding because their inclusion would have been anti-dilutive.

The following table sets forth the computation of basic and diluted net loss per common share for the three and six months ended July ~~3, 2022~~2, 2023 and July ~~4, 2021:~~3, 2022:

Three Months Ended Six Months Ended
July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021
(in thousands, except per share data) (in thousands, except per share data)
Numerator:
Net loss attributable to SkyWater Technology, Inc. $ (13,005) $ (6,979) $ (29,611) $ (9,790)
Undistributed preferred return to Class B preferred unitholders — (39) — (398)
Net loss attributable to common shareholders $ (13,005) $ (7,018) $ (29,611) $ (10,188)
Denominator:
Weighted-average common shares outstanding, basic and diluted (1) 40,203,050 34,707,758 40,031,615 18,884,051
Net loss per common share, basic and diluted $ (0.32) $ (0.20) $ (0.74) $ (0.54)

~~__________________~~

~~(1)The weighted-average common shares outstanding for the six months ended July 4, 2021 reflects the retrospective adjustment for the April 14, 2021 corporate conversion of~~ ~~2,105,936~~ ~~common units into~~ ~~3,060,343~~ ~~shares of common stock.~~


	Three Months Ended				Six Months Ended
	July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022

	(in thousands, except per share data)
Numerator:
Net loss attributable to SkyWater Technology, Inc.	$	(8,590)	$	(13,005)	$	(12,863)	$	(29,611)


Denominator:
Weighted-average common shares outstanding, basic and diluted	44,743		40,203		44,280		40,032
Net loss per common share, basic and diluted	$	(0.19)	$	(0.32)	$	(0.29)	$	(0.74)

Operating Segment Information

Operating segments are identified as components of an enterprise about which separate financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. ~~We view our operations~~SkyWater operates and ~~manage our~~manages its business as 1a single operating segment.

Note 3 Summary of Significant Accounting Policies

Our audited consolidated financial statements include an additional discussion of the significant accounting policies and estimates used in the preparation of our condensed consolidated financial statements. There were no material changes to our significant accounting policies and estimates during the three and six months ended July 3, 2022, except with respect to the

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SKYWATER TECHNOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except share ~~unit~~ and per share ~~and unit~~ data)

~~adoption~~The audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended January 1, 2023 include an additional discussion of the significant accounting policies and estimates used in the preparation of the condensed consolidated financial statements. The Company made no material changes to its significant accounting policies and estimates during the three and six months ended July 2, 2023. However, the Company adopted the provision of the new credit loss accounting standard as discussed below.

Recently Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board ~~(“FASB”~~("FASB") issued Accounting Standards Update ("ASU") ~~2016-2, Leases (“Topic 842”).~~

~~Recently Issued~~No. 2016-02, "Leases", later codified in FASB Accounting Standards

~~In February 2016,~~ Codification ("ASC") Topic 842, "Leases" ("Topic 842"). Topic 842 was effective for public business entities for fiscal years beginning after December 15, 2018. As an emerging growth company, SkyWater adopted Topic 842 on January 3, 2022 for the ~~FASB issued Topic 842.~~year ending January 1, 2023. The guidance in ~~this ASU~~Topic 842 supersedes the ~~leasing~~ guidance in ASC Topic 840, ~~Leases.~~"Leases". Under ~~the new guidance,~~Topic 842, lessees are required to recognize lease right of use assets and lease liabilities on the balance ~~sheet for all leases with terms longer than 12 months.~~sheet. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. The ~~standard is effective~~Company adopted Topic 842, and all related amendments using the "Comparatives Under 840 Option" transition approach. Under this transition approach, the Company did not restate prior periods, nor restate prior lease disclosures. The Company also elected certain practical expedients allowed by Topic 842 which, among other things, allowed it to carry forward historical lease classification conclusions previously made under Topic 840 and to exclude from the scope of its application of Topic 842 lease arrangements with terms less than twelve months. The most significant impact of adopting Topic 842 was the recognition of lease right-of-use assets and lease liabilities for ~~public business entities for fiscal years beginning after December 15, 2018. As an emerging growth company, we adopted the new standard on January 3, 2022 for our year ending January 1, 2023.~~operating leases. The adoption of Topic 842 ~~did not have a material impact on our condensed consolidated financial statements as disclosed~~resulted in ~~Note 15 –~~ ~~Leases~~.the recognition of an initial right-of-use asset of $184 and an initial lease liability of $184 for its operating leases. The Company's accounting for finance leases has remained substantially unchanged.

In June 2016, the FASB issued ~~a new credit loss accounting standard,~~ ASU No. 2016-13, ~~Current Expected~~"Measurement of Credit Losses (“on Financial Instruments", later codified in Topic ~~326”~~326, "Financial Instruments – Credit Losses" ("Topic 326"). ~~This guidance~~Topic 326 replaces the ~~current allowance for loan~~preexisting guidance that only required the recognition of credit losses when losses were probable and ~~lease loss accounting standard and focuses~~estimable. Topic 326 now requires recognition of credit losses based on ~~estimation~~SkyWater's expectation of ~~expected~~ losses ~~over~~to be incurred while the ~~life of the loans instead of relying on incurred losses. The standard~~financial instrument is held. Topic 326 was effective for ~~certain~~most public business entities for fiscal years beginning after December 15, 2019. As an emerging growth company, ~~we intend to adopt the new standard~~SkyWater adopted Topic 326 on January 2, 2023 using the modified retrospective approach. Upon adoption, the Company increased its accumulated deficit by $375 for ~~our year ending December 31,~~the effects of increasing its allowance for credit losses as of January 2, 2023. ~~However if we lose our emerging growth company status prior~~All other impacts to ~~our intended adoption date, we may be required to adopt the new standard in the year we lose such status. We do not expect adopting Topic 326 will have a material impact on our condensed consolidated~~SkyWater's financial ~~statements.~~position, results of operations and cash flows were immaterial.

Note 4 Revenue

Wafer Services Contract

In March 2022, wethe Company signed a ~~new~~ contract with a significant wafer services customer. ~~Under~~Per the terms of the contract, orders placed by the customer are non-cancellable and ~~we have~~SkyWater has an enforceable right ~~to complete the orders and~~ to payment for any finished or in-process wafers plus a reasonable margin. The wafers produced for that customer are highly customized and have no alternative ~~use to us.~~use. Control of these wafers is deemed to transfer to the customer over time during the fabrication process, using the same measure of progress toward satisfying the promise to deliver the units to the customer. ~~Consequently, the transaction~~The contract price is recognized as revenue over time based on actual costs incurred in the fabrication process to date relative to total expected costs to produce all ~~wafers beginning in March 2022.~~wafers. The contract terms and pricing is applicable to all in-process and future wafers. WeThe Company recorded revenue of $8,230 in the ~~first six~~three months ofended April 3, 2022 to account for recognition of wafer services activities in ~~process at~~process.

Revenue Recognition of Advanced Technology Services Contract

Revenue on fixed price contracts is recognized over time as work progresses using either the input or output method based upon which method the Company believes represents the best indication of the overall progress toward satisfying each performance obligation. Over time revenue recognition using the output method relies on performance completed to date or contractual milestones if they correlate directly with the progress to satisfy the Company's performance obligations. Over time revenue recognition using the input method is based on costs incurred to date compared to estimated total cost required to complete each performance obligation as of the reporting date. The Company measures progress by comparing total costs incurred to date to the total estimated costs of each performance obligation, and record that proportion of the contract ~~was signed.~~price allocated to that performance obligation as revenue. Costs include labor, manufacturing costs, materials and other direct costs related to the customer contract. During the third quarter of 2022 and first quarter of 2023, the Company signed contracts with a

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SKYWATER TECHNOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except share and per share data)

significant Advanced Technology Services customer for which revenue is recognized based upon the input method using a cost-based measure of progress.

Disaggregated Revenue

The following ~~table discloses~~tables disclose revenue for the three and six months ended July 2, 2023 and July 3, 2022 by product type and the timing of recognition of revenue for transfer of goods and services to customers:


		Three Months Ended July 3, 2022									Three Months Ended July 2, 2023
		Topic 606 Revenue									Topic 606 Revenue
		Point-in-Time		Over Time		Lease Revenue		Total Revenue			Point-in-Time		Over Time		Lease Revenue		Total Revenue
Wafer Services	Wafer Services	$	3,519	$	14,065	$	—	$	17,584	Wafer Services	$	3,238	$	13,564	$	—	$	16,802
Advanced Technology Services	Advanced Technology Services									Advanced Technology Services
T&M		—		20,000		—		20,000
Fixed Price		—		8,656		—		8,656
Time & materials contracts										Time & materials contracts	—		27,914		—		27,914
Fixed price contracts										Fixed price contracts	—		23,928		—		23,928
Other	Other	—		—		1,167		1,167		Other	—		—		1,167		1,167
Total Advanced Technology Services		—		28,656		1,167		29,823
Total Advanced Technology Services 1										Total Advanced Technology Services 1	—		51,842		1,167		53,009
Total revenue	Total revenue	$	3,519	$	42,721	$	1,167	$	47,407	Total revenue	$	3,238	$	65,406	$	1,167	$	69,811

__________________

1 Total Advanced Technology Services revenue includes $936 of tool revenue.


	Three Months Ended July 3, 2022
	Topic 606 Revenue
	Point-in-Time		Over Time		Lease Revenue		Total Revenue
Wafer Services	$	3,519	$	14,065	$	—	$	17,584
Advanced Technology Services
Time & materials contracts	—		20,000		—		20,000
Fixed price contracts	—		8,656		—		8,656
Other	—		—		1,167		1,167
Total Advanced Technology Services 1	—		28,656		1,167		29,823
Total revenue	$	3,519	$	42,721	$	1,167	$	47,407

__________________

1 Total Advanced Technology Services revenue includes $313 of tool revenue.

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SKYWATER TECHNOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except share ~~unit~~ and per share ~~and unit~~ data)


		Three Months Ended July 4, 2021									Six Months Ended July 2, 2023
		Topic 606 Revenue									Topic 606 Revenue
		Point-in-Time		Over Time		Lease Revenue		Total Revenue			Point-in-Time		Over Time		Lease Revenue		Total Revenue
Wafer Services	Wafer Services	$	14,312	$	—	$	—	$	14,312	Wafer Services	$	7,188	$	27,401	$	—	$	34,589
Advanced Technology Services	Advanced Technology Services									Advanced Technology Services
T&M		—		10,692		—		10,692
Fixed Price		—		15,018		—		15,018
Time & materials contracts										Time & materials contracts	—		55,746		—		55,746
Fixed price contracts										Fixed price contracts	—		43,236		—		43,236
Other	Other	—		—		1,167		1,167		Other	—		—		2,334		2,334
Total Advanced Technology Services		—		25,710		1,167		26,877
Total Advanced Technology Services 1										Total Advanced Technology Services 1	—		98,982		2,334		101,316
Total revenue	Total revenue	$	14,312	$	25,710	$	1,167	$	41,189	Total revenue	$	7,188	$	126,383	$	2,334	$	135,905

Six Months Ended July 3, 2022
Topic 606 Revenue
Point-in-Time Over Time Lease Revenue Total Revenue
Wafer Services $ 16,724 $ 22,406 $ — $ 39,130
Advanced Technology Services
T&M — 38,908 — 38,908
Fixed Price — 15,156 — 15,156
Other — — 2,334 2,334
Total Advanced Technology Services — 54,064 2,334 56,398
Total revenue $ 16,724 $ 76,470 $ 2,334 $ 95,528
__________________

Six Months Ended July 4, 2021
Topic 606 Revenue
Point-in-Time Over Time Lease Revenue Total Revenue
Wafer Services $ 24,331 $ — $ — $ 24,331
Advanced Technology Services
T&M — 21,484 — 21,484
Fixed Price — 41,141 — 41,141
Other — — 2,334 2,334
Total Advanced Technology Services — 62,625 2,334 64,959
Total revenue $ 24,331 $ 62,625 $ 2,334 $ 89,290
1 Total Advanced Technology Services revenue includes $1,472 of tool revenue.


	Six Months Ended July 3, 2022
	Topic 606 Revenue
	Point-in-Time		Over Time		Lease Revenue		Total Revenue
Wafer Services	$	16,724	$	22,406	$	—	$	39,130
Advanced Technology Services
Time & materials contracts	—		38,908		—		38,908
Fixed price contracts	—		15,156		—		15,156
Other	—		—		2,334		2,334
Total Advanced Technology Services 1	—		54,064		2,334		56,398
Total revenue	$	16,724	$	76,470	$	2,334	$	95,528

__________________

1 Total Advanced Technology Services revenue includes $1,297 of tool revenue.

The following table discloses revenue for the three and six months ended July 2, 2023 and July 3, 2022 by country as determined based on customer address:


		Three Months Ended				Six Months Ended					Three Months Ended				Six Months Ended
		July 3, 2022		July 4, 2021		July 3, 2022		July 4, 2021			July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022
United States	United States	$	38,550	$	36,612	$	80,908	$	80,233	United States	$	59,920	$	38,550	$	118,122	$	80,908
Hong Kong										Hong Kong	2,983		2,104		6,002		$	3,040
Canada										Canada	2,117		1,864		4,506		3,534
United Kingdom	United Kingdom	1,443		2,367		3,224		4,453		United Kingdom	3,770		1,443		3,874		$	3,224
Canada		1,864		1,547		3,534		3,156
All others	All others	5,550		663		7,862		1,448		All others	1,021		3,446		3,401		4,822
		$	47,407	$	41,189	$	95,528	$	89,290		$	69,811	$	47,407	$	135,905	$	95,528

~~Deferred Contract Costs~~

~~We recognized amortization~~The following customers accounted for 10% or more of ~~deferred contract costs in our condensed consolidated statements of operations totaling $399 and $426~~revenue for the three ~~months ended July 3, 2022~~ and ~~July 4, 2021, respectively, and $594 and $977 for the~~ six months ended July ~~3, 2022~~2, 2023 and July ~~4, 2021, respectively.~~3, 2022:

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SKYWATER TECHNOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except share ~~unit~~ and per share data)


	Three Months Ended				Six Months Ended
	July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022
Customer A	21	%	21	%	20	%	20	%
Customer B	18	%	28	%	19	%	34	%

Customer E	13	%	*		14	%	*
	52	%	49	%	53	%	54	%

__________________

* Represents less than 10% of revenue.

The loss of a major customer could adversely affect the Company's operating results and ~~unit data)~~financial condition.

Deferred Contract Costs

The Company recognized accretion of deferred contract costs in its condensed consolidated statements of operations totaling $32 for the three months ended July 2, 2023. The Company recognized amortization of deferred contract costs of $399 for the three months ended July 3, 2022, and $715 and $594 for the six months ended July 2, 2023 and July 3, 2022, respectively.

Contract Assets

Contract assets ~~are $26,005~~were $28,572 and ~~$16,303~~$34,625 at July ~~3, 2022~~2, 2023 and January ~~2, 2022,~~1, 2023, respectively, and are included in accounts receivable, net in ~~our~~the Company's condensed consolidated balance sheets. ~~The contract assets balance at July 3, 2022 includes the impact from the new wafer services contract described above, in which we recorded revenue and contract assets of $8,230 for in-process wafers.~~

Contract Liabilities

The contract liabilities and other significant components of deferred revenue are as follows:


		July 3, 2022						January 2, 2022							July 2, 2023						January 1, 2023
		Contract Liabilities		Deferred Lease Revenue		Total Deferred Revenue		Contract Liabilities		Deferred Lease Revenue		Total Deferred Revenue			Contract Liabilities		Deferred Lease Revenue		Total Deferred Revenue		Contract Liabilities		Deferred Lease Revenue		Total Deferred Revenue
Current	Current	$	19,673	$	4,666	$	24,339	$	16,141	$	4,667	$	20,808	Current	$	23,276	$	4,667	$	27,943	$	23,519	$	4,667	$	28,186
Long-term	Long-term	70,448		8,944		79,392		76,816		11,278		88,094		Long-term	55,561		4,278		59,839		61,356		6,611		67,967
Total	Total	$	90,121	$	13,610	$	103,731	$	92,957	$	15,945	$	108,902	Total	$	78,837	$	8,945	$	87,782	$	84,875	$	11,278	$	96,153

The decrease in contract liabilities from January ~~2, 2022~~1, 2023 to July ~~3, 2022~~2, 2023 was primarily the result of completion of specific performance obligations for ~~our~~the Company's customers. ~~Approximately 8% of our~~Of the Company's total contract liabilities at January 1, 2023, 12% have been recognized in revenue during the six months ended July 2, 2023. Of the Company's total contract liabilities at January 2, 2022, 8% were recognized in revenue induring the ~~first~~ six months ofended July 3, 2022. ~~Approximately 20% of our total contract liabilities at January 3, 2021 were recognized in revenue in the first six months of 2021.~~

Remaining Performance Obligations

As of July ~~3, 2022, we~~2, 2023, the Company had approximately ~~$88,521~~$130,707 of ~~transaction price allocated to~~ remaining performance obligations that ~~are unsatisfied (or partially satisfied)~~had not been fully satisfied on contracts with an original expected duration of one year or more, which ~~are~~were primarily related to Advanced Technology Services contracts. ~~We expect~~The Company expects to recognize those ~~remaining~~revenues as it satisfies its performance obligations, ~~as follows:~~which do not exceed 6.5 years.


~~Within one year~~	$	~~18,074~~
~~From one to two years~~	~~16,483~~
~~From two to three years~~	~~11,394~~
~~After three years~~	~~42,570~~
~~Total~~	$	~~88,521~~

~~We do~~The Company does not disclose the value of remaining performance obligations for contracts with an original expected duration of one year or less. Further, ~~we do~~the Company does not adjust the promised amount of consideration for the effects of ~~a significant~~ financing ~~component~~ if ~~we expect,~~it expects, at contract inception, that the period between when ~~we transfer~~it transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

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SKYWATER TECHNOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except share and per share data)

Note 5 Balance Sheet Information

Certain significant amounts included in ~~our~~the Company's condensed consolidated balance sheets ~~consist~~are summarized in the following tables:


	July 2, 2023		January 1, 2023
Accounts receivable:
Trade accounts receivable	$	52,908	$	29,683
Unbilled revenue (contract assets)	28,572		34,625


Allowance for credit losses	(4,395)		(1,638)
Total accounts receivable, net	$	77,085	$	62,670


	Three Months Ended				Six Months Ended
Allowance for credit losses:	July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022
Balance at beginning of period	4,167		—		1,638		—
Add
Adoption of Credit Loss Standard (Topic 326)	—		—		375		—
Provision for credit losses	1,448		—		3,602		—
Deduct
Accounts written-off	1,220		—		1,220		—
Less recoveries of accounts charged-off	—		—		—		—
Net account charge-offs (recoveries)	1,220		—		1,220		—
Balance at end of period	$	4,395	$	—	$	4,395	$	—


	July 2, 2023		January 1, 2023
Inventories:
Raw materials	$	4,352	$	3,991
Work-in-process	59		359
Supplies and spare parts	11,613		9,047
Total inventories—current	16,024		13,397
Supplies and spare parts classified as other assets	3,042		2,605
Total inventories	$	19,066	$	16,002


	July 2, 2023		January 1, 2023
Prepaid expenses and other current assets:
Prepaid expenses	$	1,828	$	2,395
Prepaid inventory	374		129
Equipment purchased for customers 1	5,669		5,669
Deferred contract costs	748		2,097

Other	450		—
Total prepaid assets and other current assets	$	9,069	$	10,290

__________________

1 The Company acquired equipment for a customer that is being installed and calibrated in its facility. Prior to the customer obtaining ownership and control of the ~~following:~~

July 3, 2022 January 2, 2022
Accounts receivable, net:
Trade accounts receivable $ 23,901 $ 23,022
Unbilled revenue (contract assets) 26,005 16,303
Other receivables — 56
Total accounts receivable, net $ 49,906 $ 39,381

~~Table of Contents~~

~~SKYWATER TECHNOLOGY, INC.~~

~~Notes~~equipment, the Company recorded costs incurred to ~~Condensed Consolidated Financial Statements~~

~~(unaudited in thousands, except share, unit~~date within prepaid expenses and ~~per share and unit data)~~

July 3, 2022 January 2, 2022
Inventories:
Raw materials $ 3,945 $ 3,340
Work-in-process 335 7,339
Supplies and spare parts 7,586 6,821
Total inventories—current 11,866 17,500
Supplies and spare parts classified as other assets 2,356 2,388
Total inventories $ 14,222 $ 19,888

July 3, 2022 January 2, 2022
Prepaid expenses and other current assets:
Prepaid expenses $ 1,881 $ 1,759
Deferred contract costs 3,680 1,579
Prepaid inventory 516 516
Total prepaid assets and other current assets $ 6,077 $ 3,854

other current assets.

July 3, 2022 January 2, 2022
Property and equipment, net:
Land $ 5,396 $ 5,396
Buildings and improvements 87,742 87,156
Machinery and equipment 179,784 143,105
Fixed assets not yet in service 11,288 29,229
Total property and equipment, at cost 284,210 264,886
Less: Accumulated depreciation (97,069) (84,411)
Total property and equipment, net $ 187,141 $ 180,475

~~Depreciation expense was $6,683 and~~ ~~$6,400~~ for the three months ended July 3, 2022 and July 4, 2021, respectively, and $12,714 and $12,447 for the six months ended July 3, 2022 and July 4, 2021, respectively. In December 2021, we completed an assessment of the useful lives of our machinery and equipment and adjusted the estimated useful life from seven years to ten years to better reflect the estimated periods during which the assets will remain in service. This change in accounting estimate was effective beginning in December of 2021 on a prospective basis for all machinery and equipment acquired after March 1, 2017, the date in which we became an independent company as part of a divestiture from Cypress. The effect of this change in estimate resulted in a $445 and $889 decrease in depreciation expense for the three and six months ended July 3, 2022, respectively.

Intangible assets consist of purchased software and license costs from our acquisition of the business in 2017. Additionally, we have entered into license agreements for third-party software and licensed technology, which also comprise intangible assets. During the six months ended July 3, 2022, we acquired third-party software and licensed technology of $3,062, which will be amortized over a weighted average estimated life of 9.3 years. Intangible assets are summarized as follows:

July 3, 2022 January 2, 2022
Intangible assets, net:
Software and licensed technology $ 10,277 $ 6,625
Customer list — 1,500
Total intangible assets, at cost 10,277 8,125
Less: Accumulated amortization (3,701) (4,234)
Total intangible assets, net $ 6,576 $ 3,891

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SKYWATER TECHNOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except share ~~unit~~ and per share ~~and unit~~ data)


	July 2, 2023		January 1, 2023
Property and equipment, net:
Land	$	5,396	$	5,396
Buildings and improvements	88,182		88,141
Machinery and equipment	193,074		187,276
Fixed assets not yet in service	7,089		9,746
Total property and equipment, at cost 1	293,741		290,559
Less: Accumulated depreciation 1	(124,201)		(110,644)
Total property and equipment, net 1	$	169,540	$	179,915

__________________

1 Includes $13,332 and $12,521 of cost and $(3,519) and $(2,781) of accumulated depreciation associated with capital assets subject to financing leases as of July 2, 2023 and January 1, 2023, respectively.

Depreciation expense was $6,700 and $6,683 for the three months ended July 2, 2023 and July 3, 2022, respectively, and $13,556 and $12,714 for the six months ended July 2, 2023 and July 3, 2022, respectively, substantially all of which was classified as cost of revenue.


	July 2, 2023		January 1, 2023
Intangible assets, net:
Software and licensed technology	$	10,889	$	10,277



Less: Accumulated amortization	(5,673)		(4,669)
Total intangible assets, net	$	5,216	$	5,608

Intangible assets consist of purchased software and license costs from the acquisition of Cypress Semiconductor Corporation in 2017. Additionally, the Company has entered into license agreements for third-party software and licensed technology, which also comprise intangible assets. During the six months ended July 2, 2023, the Company acquired third-party software and licensed technology of $612, which will be amortized over a weighted average estimated life of 3 years.

For the three months ended July ~~3, 2022~~2, 2023 and July ~~4, 2021, amortization of the customer list intangible asset charged to operations was $0 and~~ ~~$88, respectively, and~~3, 2022, amortization of software and licensed technology was $507 and $518, respectively, and ~~$366, respectively. For~~$1,003 and $943 for the six months ended July 2, 2023 and July 3, 2022, ~~and July 4, 2021, amortization of the customer list intangible asset charged to operations was $0 and $176, respectively, and amortization of software and licensed technology was $943 and $713,~~ respectively.

Remaining estimated aggregate annual amortization expense is as follows for the years ending:


		Amortization Expense			Amortization Expense
Remainder of 2022		$	1,058
2023		1,635
Remainder of 2023				Remainder of 2023	$	728
2024	2024	909		2024	1,018
2025	2025	744		2025	816
2026	2026	577		2026	590
2027				2027	308
Thereafter	Thereafter	1,653		Thereafter	1,756
Total	Total	$	6,576	Total	$	5,216

July 3, 2022 January 2, 2022
Other assets:
Supplies and spare parts $ 2,356 $ 2,388
Deferred contract costs — 1,760
Operating lease right-of-use assets 163 —
Other assets 844 687
Total other assets $ 3,363 $ 4,835

July 3, 2022 January 2, 2022
Accrued expenses:
Accrued compensation $ 5,007 $ 4,557
Licensed technology 2,500 —
Accrued commissions 242 189
Accrued fixed asset expenditures 1,728 861
Accrued royalties 3,355 1,854
Capital lease obligations 1,306 1,192
Accrued inventory 1,467 1,966
Other accrued expenses 9,489 6,864
Total accrued expenses $ 25,094 $ 17,483

~~Note 6 Debt~~

~~The components of debt outstanding at July 3, 2022 and January 2, 2022 are as follows:~~

July 3, 2022 January 2, 2022
Revolver $ 45,167 $ 26,223
Financing (by VIE) 37,341 37,850
Unamortized debt issuance costs (1) (4,276) (4,624)
Total long-term debt, including current maturities 78,232 59,449
Less: Current portion of long-term debt (1,042) (1,021)
Long-term debt, excluding current portion and unamortized debt issuance costs $ 77,190 $ 58,428


	July 2, 2023		January 1, 2023
Other assets:
Supplies and spare parts	$	3,042	$	2,605
Deferred contract costs	352		—
Operating lease right-of-use assets	119		141
Other assets	2,004		944
Total other assets	$	5,517	$	3,690

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SKYWATER TECHNOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except share ~~unit~~ and per share data)


	July 2, 2023		January 1, 2023
Accrued expenses:
Accrued compensation	$	8,172	$	5,705
Licensed technology	1,000		1,500
Accrued commissions	267		30
Accrued fixed asset expenditures	—		20
Accrued royalties	4,162		4,734
Current portion of operating lease liabilities	46		44
Current portion of finance lease liabilities	627		786
Accrued inventory	1,782		1,294
Accrued consulting fees	3,820		—
Other accrued expenses	12,236		11,099
Total accrued expenses	$	32,112	$	25,212


	July 2, 2023		January 1, 2023
Other long-term liabilities:
Finance lease obligations	$	9,525	$	9,257
Operating lease liability	76		100
Accrued customer payable	—		3,728
Licensed technology	—		500
Total other long-term liabilities	$	9,601	$	13,585

Note 6 Debt

The components of debt outstanding at July 2, 2023 and ~~unit data)~~January 1, 2023 are as follows:


	July 2, 2023		January 1, 2023
Revolver	$	57,796	$	60,093
VIE Financing	36,299		36,826
Tool financing loan	3,102		3,037
Unamortized debt issuance costs 1	(6,222)		(7,103)
Total long-term debt, including current maturities	90,975		92,853
Less: Current portion of long-term debt	(56,197)		(57,672)
Total long-term debt, excluding current portion	$	34,778	$	35,181

__________________

~~(1)~~1Unamortized debt issuance costs as of July ~~3, 2022~~2, 2023 included ~~$1,286~~$3,563 for the Revolver (as defined below) and ~~$2,990~~$2,659 for the VIE Financing (as defined below). Unamortized debt issuance costs as of January ~~2, 2022~~1, 2023 included ~~$1,471~~$4,277 for the Revolver and ~~$3,153~~$2,826 for the ~~Financing (by VIE).~~VIE Financing.

Revolver

The outstanding balance of ~~our amended and restated~~the revolving line of credit ~~agreement with Wells Fargo Bank, National Association~~ (the “Revolver”) under the Company's Loan and Security Agreement with Siena Lending Group LLC was ~~$45,167~~$57,796 as of July ~~3, 2022~~2, 2023 at an interest rate of ~~4.1%. Our~~11.6% due in December 2025. The remaining availability under the Revolver was ~~$17,551~~$34,635 as of ~~July 3, 2022. However, we must maintain availability under the Revolver of at least~~ ~~$15,000~~ ~~in order to not have to comply with the leverage ratio and fixed charge coverage ratio financial covenants contained in the Revolver with respect to the fiscal quarters ending on or prior to~~ July 2, 2023. As of July ~~3, 2022, our unused remaining availability~~2, 2023, the Company was ~~$17,551 and we were~~ in compliance with applicable financial covenants of the Revolver and expect to be in compliance with applicable financial covenants over the next twelve months.

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~~Maturities~~SKYWATER TECHNOLOGY, INC.

AsNotes to Condensed Consolidated Financial Statements

(unaudited in thousands, except share and per share data)

VIE Financing

On September 30, 2020, Oxbow Realty, our consolidated VIE (see Note 12 – Related Party Transactions and Note 13 – Variable Interest Entity), entered into a loan agreement for $39,000 (the “VIE Financing”) to finance the acquisition of ~~July 3, 2022,~~ the ~~Revolver is due~~building and land associated with SkyWater's primary operating location in ~~December 2025.~~Bloomington, Minnesota. The VIE Financing is repayable in equal monthly installments of $194 over 10 years, with the remaining balance payable at the maturity date of October 6, 2030. The interest rate under the VIE Financing is fixed at 3.44%. The VIE Financing is guaranteed by Oxbow, who is also the sole equity holder of Oxbow Realty.

The terms of the VIE Financing include provisions that grant the lender several protective rights when certain triggering events defined in the loan agreement occur, including events tied to SkyWater’s occupancy of the Bloomington, Minnesota facility and SkyWater’s financial performance. The occurrence of these triggering events do not represent events of default, nor do they result in the VIE Financing becoming callable, rather the protective rights become enforceable by the lender. Based on the level of SkyWater’s earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs relative to gross rents paid from SkyWater to Oxbow Realty, as defined in the loan agreement, a trigger event exists and the lender’s protective rights are currently enforceable. Pursuant to its protective rights, the lender has retained in a restricted account amounts paid by SkyWater to Oxbow Realty pursuant to the Company’s related party lease agreement that are in excess of the scheduled debt payments paid by Oxbow Realty to the lender. The funds held in the restricted accounts become remittable back to Oxbow Realty once the trigger event is cured. As of July 2, 2023, Oxbow Realty maintained a $4,542 receivable for the cumulative amount of excess payments held by the lender in the restricted account.

Tool Financing Loan

Between fourth quarter 2022 and first quarter 2023, SkyWater entered into an arrangement to sell a manufacturing tool to an equipment financing lender for $3,596. The agreements include bargain purchase options at the end of the lease terms which the Company intends to exercise. These transactions represent failed sale leasebacks with the manufacturing tool retained on the Company's balance sheet and the proceeds received recorded as financial obligations.

Maturities

Future principal payments of ~~our~~the Revolver, the VIE Financing, and ~~consolidated VIE’s Financing,~~tool financing loan, excluding unamortized debt issuance costs, are as follows:


Remainder of 2022		$	515
2023		1,060
Remainder of 2023				Remainder of 2023	$	58,801
2024	2024	1,094		2024	2,103
2025	2025	46,305		2025	2,185
2026	2026	1,177		2026	1,752
2027				2027	1,219
Thereafter	Thereafter	32,357		Thereafter	31,137
Total	Total	$	82,508	Total	$	97,197

Note 7 Income Taxes

The Company's effective tax rates for each of the three and six months ended July 2, 2023 and July 3, 2022 ~~and July 4, 2021~~ differ from ~~the~~its 21% statutory tax rates due to state income taxes, permanent tax differences, the tax impact of the vesting of restricted stock units and changes in ~~our~~the deferred tax asset valuation allowance. The effective tax rate in any quarter can be affected positively or negatively by adjustments that are required to be reported in the specific quarter of resolution. The effective income tax rate for the three ~~and six~~ months ended July 2, 2023 and July 3, 2022 was ~~(0.5)~~(0.4)% and ~~0.5%~~(0.5)%, respectively, and the effective income tax rate for the ~~three and~~ six months ended July ~~4, 2021 was 40.5%~~2, 2023 and ~~36.0% respectively. The income tax rate applied to our pre-tax loss was lower for the three and six months ended~~ July 3, 2022 ~~than our statutory tax rate of 21% primarily due to a deferred tax asset valuation allowance. The income tax rate applied to our pre-tax loss~~ was ~~higher for the three~~(0.2)% and ~~six months ended July 4, 2021 than our statutory tax rate of 21% primarily due to the gain realized as a result of the proceeds received from the paycheck protection loan forgiveness program.~~0.5% respectively.

Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies, and future expectations of income. Based upon this analysis, a valuation allowance of ~~$13,662~~$20,734 and $19,855 was recorded as of July ~~3, 2022~~2, 2023 and January 1, 2023, respectively, to reduce ~~our~~the net deferred tax assets to the amount that is more likely than not to be realized. ~~The valuation allowance at January 2, 2022 was $9,819.~~

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SKYWATER TECHNOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except share and per share data)

No liability has been recorded for uncertain tax positions. WeIf applicable, the Company would accrue ~~if applicable,~~ income tax related interest and penalties in income tax expense in ~~our~~its condensed consolidated statement of operations. There were no interest ~~and~~or penalties incurred during the three and six months ended July ~~3, 2022~~2, 2023 and July ~~4, 2021.~~3, 2022.

In August 2022, the U.S. enacted the Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (the "CHIPS Act"). The CHIPS Act provides incentives to semiconductor chip manufacturers in the United States, including providing a 25% manufacturing investment credit for investments in semiconductor manufacturing property placed in service after December 31, 2022, for which construction begins before January 1, 2027. Property investments qualify for the 25% credit if, among other requirements, the property is integral to the operation of an advanced manufacturing facility, defined as having a primary purpose of manufacturing semiconductors or semiconductor manufacturing equipment. Currently, management is evaluating the impact of the CHIPS Act on its business.

Note 8 Shareholders’ Equity

~~Classes of Equity Units~~

~~Table of Contents~~

~~SKYWATER TECHNOLOGY, INC.~~

~~Notes~~On September 2, 2022, SkyWater entered into an Open Market Sale Agreement with Jefferies LLC with respect to ~~Condensed Consolidated Financial Statements~~

~~(unaudited in thousands, except share, unit and per share and unit data)~~

Until our corporate conversion on April 14, 2021, we had three classes of limited liability interests, designated as Class A preferred units, Class B preferred units, and common units (collectively,an at the ~~“Unit” or “Units”~~market offering program (the "ATM Program"). ~~The Class A preferred units were authorized specifically for issuance upon exercise of warrants, of which~~ ~~none~~ ~~were issued and outstanding. Class A preferred units and common units were non-voting classes, and Class B preferred units are a voting class.~~

~~Conversion~~

~~On April 14, 2021, we completed a corporate conversion.~~ Pursuant to the ~~certificate of incorporation effected~~agreement, the Company may, from time to time, offer and sell up to $100,000 in ~~connection with the corporate conversion, our authorized capital stock consists of~~ ~~200,000,000~~ shares of ~~voting~~the Company’s common ~~stock, par value~~ ~~$0.01~~stock. During the six months ended July 2, 2023, the Company sold approximately 1,301,470 shares at an average sale price of $10.34 per share, resulting in gross proceeds of approximately $13,454 before deducting sales commissions and ~~80,000,000~~fees of approximately $404. The Company used the net proceeds to pay down the Revolver and fund its operations. Subsequent to July 2, 2023, the Company sold approximately 779,697 shares under the Open Market Sale Agreement at an average sale price of ~~preferred stock, par value~~ ~~$0.01~~$9.72 per ~~share.~~ share, resulting in gross proceeds of approximately $7,575 before deducting sales commissions and fees of approximately $227.

As of July ~~3, 2022, giving effect to the corporate conversion and our IPO, 40,449,776~~2, 2023, approximately $82,506 in shares ~~of common stock~~ were ~~issued and outstanding. No shares of our preferred stock were outstanding. On April 21, 2021, our common stock began trading on the Nasdaq Stock Market~~available for issuance under the ~~symbol “SKYT”.~~

~~Upon~~Open Market Sale Agreement. Taking into account the ~~corporate conversion, all Units were converted into an aggregate~~sales that settled subsequent to July 2, 2023, approximately $74,930 in shares are available for issuance under the ATM Program as of~~31,055,743~~ shares of our common stock. Each Class B preferred unit and common unit was converted into a number of shares of common stock determined by dividing (1) the amount that would have been distributed in respect of each such Unit in accordance with CMI Acquisition, LLC’s operating agreement if all assets of CMI Acquisition, LLC had been sold for a cash amount equal to the pre-offering value of CMI Acquisition, LLC, as such value is determined by CMI Acquisition, LLC’s board of managers based on the fair value of each share of common stock (net of any underwriting discounts, fees and expenses), by (2) such per share fair value. The amounts that would have been distributed for this purpose in respect of Class B preferred units and common units were determined by reference to the terms of CMI Acquisition, LLC’s operating agreement, with different values applicable to each series of Units. Before any distributions were made on common units, distributions were made on each Class B preferred unit in an amount equal to the sum of an 8% “preferred return” on the deemed original equity value of each such Class B preferred unit (accrued daily since the date of issuance of each such Class B preferred unit) plus the amount of such original equity value. Only after those distributions were made, the common units, together with the Class B preferred units, shared in the remainder of the distribution on a pro rata basis. For purposes of the corporate conversion, pre-offering “per share fair value” was determined taking into account an assumed initial public offering price of common stock. Accordingly, the outstanding Units were converted as follows:

•~~holders of Class B preferred units received an aggregate of~~ ~~27,995,400~~ ~~shares of common stock; and~~

•~~holders of common units received an aggregate of shares~~ ~~3,060,343~~ ~~of common stock.~~

~~Initial Public Offering~~

~~On April 23, 2021, we completed our IPO and issued~~ ~~8,004,000~~ ~~shares of common stock, including the underwriter’s exercise of their right to purchase additional shares, at an initial offering price to the public of~~ ~~$14.00~~ ~~per share. We received net proceeds from the IPO of approximately~~ ~~$100,162~~ ~~after deducting underwriting discounts and commissions of~~ ~~$7,844~~ ~~and offering costs of approximately~~ ~~$4,050~~.this report.

Note 9 Share-Based Compensation

~~2021 Equity Incentive Plan~~

In connection with our IPO, we adopted the 2021 Equity Incentive Plan (the “2021 Equity Plan”). The 2021 Equity Plan became effective upon the consummation of the IPO. As of July 3, 2022, the 2021 Equity Plan provides for the issuance of up to 5,150,000 shares of common stock to eligible individuals in the form of options, stock appreciation rights, restricted stock, restricted stock units, deferred stock units, unrestricted stock, dividend equivalent rights, other equity-based awards and cash bonus awards. The share reserve of the 2021 Equity Plan will be increased effective the first business day of each calendar year by an amount equal to the lesser of: (i) 150,000 shares of common stock; (ii) three percent (3%) of the shares of common stock outstanding on the final day of the immediately preceding calendar year; and (iii) such smaller number of shares of common stock as determined by the compensation committee.

~~Stock Options~~

During the six months ended July 3, 2022, we granted 549,000 stock options, respectively, which vest ratably on each of the first, second, third, and fourth anniversaries of the grant date and expire 10 years from the grant date. During the six months ended July 4, 2021, we granted 343,000 stock options which vest in full on the first anniversary of the grant date and expire 15

~~Table of Contents~~

~~SKYWATER TECHNOLOGY, INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited in thousands, except share, unit and per share and unit data)~~

months from the grant date; and granted 744,000 stock options which vest ratably on each of the first, second, third, and fourth anniversaries of the grant date and expire 10 years from the grant date. Share-based compensation expense related to stock option awards was $410 and $439 for the three months ended July 3, 2022 and July 4, 2021, respectively, and $832 and $444 for the six months ended July 3, 2022 and July 4, 2021, respectively. Actual forfeitures are recognized as they occur.

The fair value of each stock option is estimated on the date of grant using a Black-Scholes option-pricing model that uses assumptions noted in the following table. The risk-free interest rate used in the option valuation model was based on yields available on the grant dates for U.S. Treasury Strips with maturity consistent with the expected life assumption. The expected term of the option represents the period of time that options granted are expected to be outstanding and is based on the Securities and Exchange Commission ("SEC") Simplified Method (midpoint of average vesting time and contractual term). Expected volatility is based on an average of the historical, daily volatility of a peer group of similar companies over a period consistent with the expected life assumption ending on the grant date. We assumed no dividend yield in the valuation of the options granted as we have never declared or paid dividends on our common stock and currently intend to retain earnings for use in operations.


			~~Six Months Ended~~
			~~July 3, 2022~~
~~Expected volatility:~~			~~47.2%~~
~~Expected term (in years):~~			~~6.25~~
~~Risk-free interest rate:~~			~~1.9%~~

~~The following table summarizes our stock option activity during the six months ended July 3, 2022:~~

Number of Stock Options
(in thousands) Weighted Average
Exercise Price Per Share Aggregate Intrinsic Value
(in thousands) Weighted-Average Remaining Contractual Life
Balance outstanding as of January 2, 2022 986 $ 14.29
Granted 549 $ 11.24
Exercised — $ —
Forfeited or canceled (99) $ 13.25
Balance outstanding as of July 3, 2022 1,436 $ 13.22 $ — 7.03 years
Balance vested and exercisable as of July 3, 2022 435 $ 14.00 $ — 5.49 years

The weighted average grant-date fair value of options granted in the six months ended July 3, 2022 was $5.37. As of July 3, 2022, total unrecognized compensation cost related to stock options was $4,939 and is expected to be recognized over a weighted average period of approximately 3.21 years.

~~Restricted Common Stock Units~~

During the six months ended July 3, 2022, we granted 115,000 restricted common stock units to our directors which vest in full on May 31, 2023. In addition, during the six months ended July 3, 2022, we granted 294,000 restricted common stock units, which vest ratably on each of the first, second and third anniversaries of the grant date. During the six months ended July 4, 2021, we granted 441,000 restricted common stock units to eligible employees and directors which vest in full on the first anniversary of the grant date and granted 205,000 restricted common stock units which vest ratably on each of the first, second and third anniversaries of the grant date. The grantee has no rights as a common stockholder until the common stock related to the restricted common stock units is issued upon vesting of the restricted units.

Share-based compensation expense related to restricted common stock unit awards was $1,411 and $6,100 for the three months ended July 3, 2022 and July 4, 2021, respectively, and $3,791 and $6,100 for the six months ended July 3, 2022 and July 4, 2021, respectively. Actual forfeitures are recognized as they occur. As of July 3, 2022, total unrecognized compensation cost related to restricted common stock units was $6,585 and is expected to be recognized over a weighted average period of approximately 1.68 years. The estimated fair value of restricted common stock units is based on the grant date closing price of our common stock for time-based vesting awards. During the six months ended July 3, 2022, 991,000 restricted common stock units vested. No restricted common stock units vested during the six months ended July 4, 2021.

~~Table of Contents~~

~~SKYWATER TECHNOLOGY, INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited in thousands, except share, unit and per share and unit data)~~

~~The following table summarizes our restricted common stock unit activity during the six months ended July 3, 2022:~~

Number of Restricted Common Stock Units
(in thousands) Weighted Average Grant Date Fair Value Per Share
Balance outstanding as of January 2, 2022 1,745 $ 8.34
Granted 409 $ 9.68
Vested (991) $ 8.51
Forfeited or canceled (73) $ 14.63
Balance outstanding as of July 3, 2022 1,090 $ 8.18

~~2021 Employee Stock Purchase Plan~~

In connection with our IPO, we also adopted the 2021 Employee Stock Purchase Plan (the “2021 ESPP”). A maximum of 707,000 shares of our common stock has been reserved for issuance under the 2021 ESPP. Under the 2021 ESPP, eligible employees may purchase our common stock through payroll deductions at a discount not to exceed 15% of the lower of the fair market values of our common stock as of the beginning or end of each offering period, which may range from 6 to 27 months. Payroll deductions are limited to 15% of the employee’s eligible compensation and a maximum of 2,500 shares of our common stock may be purchased by an employee each offering period. The initial six-month offering period commenced on September 1, 2021 and 79,000 shares were purchased under the 2021 ESPP during the six months ended July 3, 2022. As of July 3, 2022 and January 2, 2022, $889 and $937, respectively, was withheld on behalf of employees for future purchases under the 2021 ESPP and recorded as accrued compensation. Share-based compensation expense related to the 2021 ESPP was $223 for the three months ended July 3, 2022 and $427 for the six months ended July 3, 2022, respectively. Actual forfeitures are recognized as they occur. As of July 3, 2022, total unrecognized compensation cost related to the 2021 ESPP was $149 and will be recognized on a straight-line basis over the six-month offering period.

The fair value of the 2021 ESPP is estimated on the date of grant using a Black-Scholes option-pricing model that uses assumptions noted in the following table. The risk-free interest rate used in the option valuation model was based on yields available on the grant dates for U.S. Treasury Strips with maturity consistent with the expected life assumption. Expected volatility is based on an average of the historical, daily volatility of a peer group of similar companies over a period consistent with the expected life assumption ending on the grant date. We assumed no dividend yield in the valuation of the options granted as we have never declared or paid dividends on our common stock and currently intend to retain earnings for use in operations.


			Six Months Ended July 3, 2022
~~Expected volatility:~~			~~47.2%~~
~~Expected term (in years):~~			~~0.50~~
~~Risk-free interest rate:~~			~~0.60%~~
~~Weighted average grant-date fair value per share~~			~~$3.20~~

~~Share-Based Compensation Expense Allocation~~

Share-based compensation expense was allocated in the condensed consolidated statements of operations as follows:

Three Months Ended Six Months Ended
July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021
Cost of revenue $ 534 $ 704 $ 1,574 $ 704
Research and development 127 1,480 333 1,480
Selling, general and administrative expenses 1,382 4,355 3,143 4,360
$ 2,043 $ 6,539 $ 5,050 $ 6,544


	Three Months Ended				Six Months Ended
	July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022
Cost of revenue	$	291	$	534	$	804	$	1,574
Research and development	217		127		379		333
Selling, general and administrative expense	1,459		1,382		2,637		3,143
	$	1,967	$	2,043	$	3,820	$	5,050

~~Table of Contents~~

~~SKYWATER TECHNOLOGY, INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited in thousands, except share, unit and per share and unit data)~~

Note 10 Fair Value Measurements

~~The FASB~~ASC Topic 820, "Fair Value Measurement and Disclosure" (Topic 820), defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ~~To determine fair value, we use a~~The Company uses the fair value hierarchy ~~categorized~~defined in Topic 820 to categorize assets and liabilities subject to fair value reporting into three levels, as follows, based on the inputs ~~used. Generally,~~used to derive the ~~three levels are as follows:~~fair value of these balances.

•Level 1 – Quoted prices in active markets for identical assets or liabilities;

•Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

•Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Level 3 inputs ~~are~~were used in the valuation of ~~our~~the Company's contingent consideration obligation. The change in level 3 assets measured at fair value on a recurring basis is summarized as follows:

Six Months Ended
July 3, 2022 July 4, 2021
Beginning balance $ 816 $ 10,900
Payments (375) (6,114)
Change in fair value — (886)
Ending balance $ 441 $ 3,900

Table of Contents

SKYWATER TECHNOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except share and per share data)


	Six Months Ended
	July 2, 2023		July 3, 2022
Beginning balance	$	—	$	816
Payments	—		(375)
Change in fair value	—		—
Ending balance	$	—	$	441

Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The carrying values of accounts receivable, accounts payable, accrued liabilities, and other financial working capital items approximate fair values at July 3, 2022 and January 2, 2022 due to the short maturity of these items. The carrying values of our borrowings under our Revolver and Financing approximate their fair values due to the frequency of the floating interest rate resets on these borrowings. The fair value of the Revolver and Financing were determined based on inputs that are classified as Level 2 in the fair value hierarchy.

~~Our non-financial~~Non-financial assets, such as property and equipment and intangible assets, are initially recorded at acquisition cost when acquired, or at fair value ~~upon acquisition and~~if acquired via a business combination. Non-financial assets are remeasured at fair value only if ~~an impairment charge~~it is ~~recognized. As of July 3, 2022~~determined the net cost basis is not recoverable pursuant to ASC Topic 360, "Property, Plant and ~~January 2, 2022, we did not have any assets or liabilities measured at fair value on a non-recurring basis.~~Equipment."

Note 11 Commitments and Contingencies

Litigation

From time to time, ~~we are~~the Company is involved in legal proceedings and subject to claims arising in the ordinary course of ~~our~~its business. Although the results of litigation and claims cannot be predicted with certainty, wethe Company currently ~~believe~~believes that the resolution of these ordinary-course matters will not have a material adverse effect on ~~our~~its business, operating results, financial condition or cash flows. Even if any particular litigation is resolved in a manner that is favorable to ~~our~~the Company's interests, such litigation can have a negative impact on usits results because of defense and settlement costs, diversion of management resources from ~~our~~its business and other factors.

Capital Expenditures

~~We have~~The Company has various contracts outstanding with third parties which primarily relate to the completion of a building expansion project to increase manufacturing capacity at ~~our~~its Minnesota facility. ~~We have~~The Company has approximately ~~$12~~$8.6 million of contractual commitments outstanding as of July ~~3, 2022~~2, 2023.

Center for NeoVation

On January 25, 2021, the Company entered into a technology and economic development agreement (the “TED Agreement”), and a lease agreement (the “CfN Lease”) with the government of Osceola County, Florida (“Osceola”) and ICAMR, Inc., a Florida non-profit corporation (“BRIDG”), to lease and operate the Center for NeoVation (the “CfN”), a semiconductor research and development and manufacturing facility that ~~we expect~~serves as its primary operating location in Kissimmee, Florida. Under the CfN Lease, the Company agrees to ~~be paid~~bring the plant to full production capacity within 5 years, and then to operate the plant at full capacity for an additional 15 years. At the end of the lease, SkyWater will take ownership of the facility. The Company is responsible for taxes, utilities, insurance, maintenance, operation of the assets, and making capital investments in the ~~remainder~~facility to bring it to full production capacity. Investments and costs required to bring the facility to full capacity will be substantial. The Company may terminate the TED Agreement and CfN Lease with 18 months' notice. In the event the Company terminates the agreements, it is required to continue to operate the CfN until the earlier of either a replacement operator is found, or the 18-month notice period expires, and it may be required to make a payment of up to $15,000 to Osceola.

Build Back Better Grant

In third quarter 2022, the U.S. Department of Commerce Economic Development Administration granted funds to Osceola and BRIDG for continued development of Central Florida’s Semiconductor Cluster for Broad-Based Prosperity through ~~cash on hand~~the Build Back Better Regional Challenge, a portion of which is committed to the expansion of the CfN clean room and ~~operating cash flows.~~

~~Note 12 Major Customers~~purchase and ~~Concentration Risk~~

~~The following customers accounted for 10% or more~~installation of ~~revenue for~~tools and machinery in the ~~three and six months ended July 3, 2022 and July 4, 2021:~~CfN. In February 2023, SkyWater committed to contributing a 20% “matching share” of the project costs to Osceola totaling approximately $9,100. SkyWater's commitment to fund this matching contribution is limited to $1,000 in any single calendar quarter.

2221

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SKYWATER TECHNOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except share ~~unit~~ and per share ~~and unit~~ data)

Three Months Ended Six Months Ended
July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021
Customer A 21 % 19 % 20 % 28 %
Customer B 28 % 28 % 34 % 23 %
Customer C * 15 % * 11 %
49 % 62 % 54 % 62 %

~~__________________~~

* Represents less than 10% of revenue.

~~The loss of a major customer could adversely affect our operating results and financial condition.~~

Note 1312 Related Party Transactions

In August 2022, weSkyWater entered into an agreement with Oxbow Industries ~~LLC (“Oxbow”), an affiliate of our principal stockholder, CMI Oxbow Partners, LLC,~~ to provide funding in an amount up to $12,500, if necessary, to enable the Company to meet its obligations as they become ~~due~~due. In March 2023, the agreement was amended to extend the term through ~~October 18, 2022.~~

~~Professional Services~~

Oxbow, an affiliate of our principal stockholder, CMI Oxbow Partners, LLC, provided management and financial consulting services to us prior to our IPO. We incurred management fees to Oxbow of $0 and $55 of during the three months ended July 3, 2022 and July 4, 2021, respectively, and $0 and $215 for the six months ended July 3, 2022 and July 4, 2021, respectively, whichMarch 2025. No amounts have been ~~expensed and included in general and administrative expenses in our condensed consolidated statements of operations.~~

~~A member of our board of directors~~ provided ~~legal and professional services~~ to ~~us prior to our IPO. We incurred fees of $0 and $1 for~~ the three months ended July 3, 2022 and July 4, 2021, respectively, and $0 and $117 for the six months ended July 3, 2022 and July 4, 2021, respectively, which have been expensed and included in general and administrative expenses in our condensed consolidated statements of operations.Company under this agreement.

Sale-Leaseback Transaction

On September 29, 2020, weSkyWater entered into an agreement to sell the land and building representing ~~our~~its primary operating location in Bloomington, Minnesota to ~~an entity (“~~Oxbow ~~Realty”) controlled by our principal stockholder. We subsequently~~Realty. In the fourth quarter of 2020, SkyWater entered into an agreement to lease the land and building back from Oxbow Realty for initial payments of $394 per month over 20 years. The monthly payments are subject to a 2% increase each year during the term of the lease. ~~We are~~The Company is also required to make certain customary payments constituting "additional rent," including certain monthly reserve, insurance and tax payments, in accordance with the terms of the lease agreement. Future minimum lease commitments to Oxbow Realty as of July ~~3, 2022~~2, 2023 were as follows (such amounts are eliminated from ~~our~~the Company's condensed consolidated financial statements due to the consolidation of Oxbow Realty, see Note 1413 – Variable Interest ~~Entities~~Entity):


Remainder of 2022		$	2,426
2023		4,932
Remainder of 2023				Remainder of 2023	2,474
2024	2024	5,031		2024	5,031
2025	2025	5,132		2025	5,132
2026	2026	5,234		2026	5,234
2027				2027	5,339
Thereafter	Thereafter	84,116		Thereafter	78,776
Total lease payments	Total lease payments	106,871		Total lease payments	101,986
Less: imputed interest	Less: imputed interest	(79,382)		Less: imputed interest	(74,246)
Total	Total	$	27,489	Total	$	27,740

~~Table of Contents~~

~~SKYWATER TECHNOLOGY, INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited in thousands, except share, unit and per share and unit data)~~

Note 1413 Variable Interest ~~Entities~~Entity

Oxbow Realty was established by Oxbow for the purpose of holding real estate and facilitating real estate transactions. This included ~~facilitating~~ the purchase of ~~our~~the land and building of SkyWater's primary operating location in Bloomington, Minnesota with proceeds from a bank loan (see Note 6 – Debt) and managing the leaseback of the land and building to ~~us. We~~SkyWater (see Note 12 – Related Party Transactions). Management determined that Oxbow Realty meets the definition of a VIE under FASB Topic 810, ~~Consolidation~~"Consolidation" ("Topic 810"), because it lacks sufficient equity to finance its activities. ~~We concluded that we are~~Furthermore, the Company is the primary beneficiary of Oxbow Realty as ~~we have~~it has the power to direct ~~operation~~operating and maintenance decisions of its Bloomington, Minnesota facility during the lease term, which would most significantly affect the VIE’s economic performance. As the primary beneficiary, ~~we consolidate~~the Company consolidates the assets, liabilities and results of operations of Oxbow Realty ~~eliminate~~pursuant to Topic 810, eliminating any transactions between usthe Company and Oxbow Realty, and ~~record~~recording a ~~non-controlling~~noncontrolling interest for the economic interest in Oxbow Realty not owned by usthe Company because the owners of ~~our~~SkyWater's common stock do not legally have rights or obligations to ~~those~~the profits or ~~losses.~~losses of Oxbow Realty. In addition, the assets of Oxbow Realty can only be used to settle its liabilities, and the creditors of Oxbow Realty do not have recourse to the general credit of SkyWater.

The following table shows the carrying amounts of assets and liabilities of Oxbow Realty that are consolidated by usthe Company as of July ~~3, 2022~~2, 2023 and January ~~2, 2022.~~1, 2023. The assets and liabilities are presented prior to consolidation, and thus a portion of these assets and liabilities are eliminated in consolidation.

July 3, 2022 January 2,
2022
Cash and cash equivalents $ 282 $ 475
Prepaid expenses 341 192
Finance receivable 37,549 37,437
Other assets 256 200
Total assets $ 38,428 $ 38,304
Accounts payable $ 916 $ 1,232
Accrued expenses 607 479
Debt 37,287 37,793
Total liabilities $ 38,810 $ 39,504

The following table shows the revenue and expenses of Oxbow Realty that are consolidated by us for the three and six months ended July 3, 2022 and July 4, 2021. We have included these amounts, net of eliminations, in the corresponding tables in the notes to our condensed consolidated financial statements.

Three Months Ended Six Months Ended
July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021
Revenue $ 1,262 $ 1,159 $ 2,522 $ 2,504
General and administrative expenses 102 66 179 318
Interest expense 334 336 658 671
Total expenses 436 402 837 989
Net income $ 826 $ 757 $ 1,685 $ 1,515

~~Note 15 Leases~~

~~On January 3, 2022, we adopted ASU No. 2016-02,~~ ~~Leases~~, and all related amendments using the "Comparatives Under 840 Option" transition approach. Under this transition approach, comparative prior periods, including disclosures, were not restated. We elected the transition package of practical expedients which, among other things, allowed us to carry forward historical lease classification. We chose not to elect the hindsight practical expedient. The adoption of the standard did not have an impact on our condensed consolidated statements of operations and there was no adjustment to our retained earnings. We do not expect the adoption of the new standard to have a material impact on our operating results on an ongoing basis.

The most significant impact of the new leases standard was the recognition of right-of-use assets and lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged. On January 3, 2022, the adoption of the new standard resulted in the recognition of a right-of-use asset of ~~$184~~ ~~and a lease liability of~~ ~~$184~~.

2422

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SKYWATER TECHNOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except share ~~unit~~ and per share ~~and unit~~ data)

We lease certain property and equipment, such as our headquarters in Minnesota, our office location in Florida and certain production equipment under finance leases. We also lease our manufacturing location in Florida and warehouse space in Minnesota under operating leases. We determine if an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. On April 1, 2022, we commenced a finance lease for a new nitrogen generator. The lease has a term of ~~15 years~~ ~~for total fixed payments of approximately~~ ~~$14,000~~.


	July 2, 2023		January 1, 2023
Cash and cash equivalents	$	20	$	16
Accounts receivable	4,545		—
Prepaid expenses	21		860
Finance receivable	40,388		37,652
Other assets	746		256
Total assets	$	45,720	$	38,784
Accounts payable	$	4,280	$	117
Accrued expenses	243		1,581
Deferred revenue	1,386		—
Debt	36,252		36,778
Total liabilities	$	42,161	$	38,476

Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets are recognized at commencement date based on the present value of lease payments over the lease term. For leases that do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Some of our leases include options to extend the term, which is only included in the lease liability and right-of-use assets calculation when it is reasonably certain we will exercise that option. As of July 3, 2022, the operating lease liability and operating right-of-use assets did not include any lease extension options.

We have lease agreements with lease and non-lease components and have elected to account for these as a single lease component only for equipment leases. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

The ~~components~~following table shows the revenue and expenses of ~~lease expense are as follows:~~

Three Months Ended
July 3, 2022 Six Months Ended July 3, 2022
Operating lease cost $ 13 $ 26
Finance lease cost:
Amortization of assets 495 842
Interest on lease liabilities 234 322
Variable lease cost — —
Total net lease cost $ 742 $ 1,190

~~Short-term lease cost amounted to $70 and $140~~Oxbow Realty for the three and six months ended July ~~3, 2022, respectively.~~

~~Supplemental cash flow information related to leases are as follows:~~


	Six Months Ended July 3, 2022
~~Cash paid for amounts included in the measurement of lease liabilities:~~
~~Operating cash flows used for operating leases~~	$	12
~~Operating cash flows used for finance leases~~	~~234~~
~~Financing cash flows used for finance leases~~	~~416~~

~~Right of use assets obtained in exchange for lease liabilities:~~
~~Operating leases~~	~~184~~
~~Finance leases~~	~~9,126~~

~~The weighted average remaining lease term~~2, 2023 and ~~weighted average discount rates related to leases are as follows:~~


			~~July 3, 2022~~
~~Weighted average remaining lease term:~~
~~Operating leases~~			~~3.5 years~~
~~Finance leases~~			~~13.4 years~~
~~Weighted average discount rate:~~
~~Operating leases~~			~~4.8%~~
~~Finance leases~~			~~8.5%~~

~~Supplemental balance sheet information related to leases is as follows:~~

~~Table of Contents~~

~~SKYWATER TECHNOLOGY, INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited in thousands, except share, unit and per share and unit data)~~

~~Leases~~

~~Classification~~

~~July 3, 2022~~

~~Assets~~

~~Operating lease right-of-use assets~~

~~Other assets~~

~~163~~

~~Finance lease right-of-use assets~~

~~Property and equipment, net~~

~~10,630~~

~~Total lease right-of-use assets~~

~~10,793~~

~~Operating lease liabilities~~

~~Current portion of operating lease liabilities~~

~~Accrued expenses~~

~~Operating lease liabilities, excluding current portion~~

~~Other long-term liabilities~~

~~122~~

~~Total operating lease liabilities~~

~~164~~

~~Finance lease liabilities~~

~~Current portion of finance lease liabilities~~

~~Accrued expenses~~

~~1,306~~

~~Finance lease liabilities, excluding current portion~~

~~Other long-term liabilities~~

~~9,489~~

~~Total finance lease liabilities~~

~~10,795~~

~~Total lease liabilities~~

~~10,959~~

~~Future maturities of lease liabilities as of~~ July 3, ~~2022 are as follows:~~

Fiscal Year Operating Leases Finance Leases Total
Remainder of 2022 $ 24 $ 1,288 $ 1,312
2023 50 1,458 1,508
2024 51 1,234 1,285
2025 54 1,155 1,209
2026 — 1,157 1,157
Thereafter — 11,977 11,977
Total lease payments 179 18,269 18,448
Less imputed interest (15) (7,474) (7,489)
Total lease liabilities $ 164 $ 10,795 $ 10,959

~~With the exception~~2022. These amounts have been included, net of the future minimum lease commitments related to our lease of the land and building representing our primary operating location in Bloomington, Minnesota, which are eliminated in consolidation, we had no disclosureseliminations, in the ~~prior year period related~~notes to ~~leases.~~the condensed consolidated financial statements.


	Three Months Ended					Six Months Ended
	July 2, 2023		Three Months Ended	July 3, 2022		July 2, 2023		July 3, 2022
Revenue	$	2,631		$	1,262	$	3,949	$	2,522
General and administrative expenses	252			102		545		179
Interest expense	313			334		631		658
Total expenses	565			436		1,176		837
Net income	$	2,066		$	826	$	2,773	$	1,685

Note 14 Leases

SkyWater as the Lessor

In March 2020, weSkyWater executed a contract with a customer that includes an operating lease for the right to use of a specified portion of ~~our existing facility~~the Company's primary operating location in Bloomington, Minnesota to produce wafers using the customer’s equipment. The contractual amount that relates to revenue from an operating lease was ~~$21,000~~,$21,000, and is being recognized over the estimated lease term of 4.5 years. The total amount was prepaid by the customer and recorded as deferred ~~revenue. See~~revenue (see Note 4 – Revenue for additional information on revenue recognition and deferred revenue of the operating ~~lease. The carrying value of the facility space utilized by the lessee was approximately~~ ~~$27,000, net of accumulated depreciation of $2,248 and~~ ~~$1,558~~ ~~as of July 3, 2022 and January 2, 2022, respectively, and is included in property and equipment on our condensed consolidated balance sheets.~~lease).

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

The following discussion and analysis of ~~our~~the Company's financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and ~~our~~the Company's audited consolidated financial statements and related notes, included in ~~our~~its Annual Report on Form 10-K for the year ended January ~~2, 2022.~~1, 2023. In addition to historical financial information, the following discussion contains forward-looking statements that reflect ~~our~~the Company's current expectations, estimates and assumptions concerning events and financial trends that may affect ~~our~~the Company's future operating results or financial position. Actual results and the timing of events may differ materially from those discussed or implied in ~~our~~the Company's forward-looking statements due to a number of factors, including those described in the sections entitled “Risk Factors” and “Forward-Looking Statements” herein and elsewhere in ~~our~~its Annual Report on Form 10-K.

~~We refer~~SkyWater refers to the three-month periods ended July ~~3, 2022~~2, 2023 and July ~~4, 2021~~3, 2022 as the second quarter of ~~2022~~2023 and second quarter of ~~2021,~~2022, respectively. Each of these three-month periods includes 13 weeks. The six-month periods ended July 2, 2023 and July 3, 2022 are referred to as the first six months of 2023 and the first six months of 2022, respectively. Each of these six-month periods includes 26 weeks. All percentage amounts and ratios presented in this management’s discussion and analysis were calculated using the underlying data in thousands. Unless otherwise indicated, all changes identified for the current period results represent comparisons to results for the prior corresponding period.

For purposes of this section, the terms “we,” “us,” “our,” and “SkyWater” refer to ~~CMI Acquisition, LLC and its subsidiaries collectively before the corporate conversion discussed below and to~~ SkyWater Technology, Inc. and its subsidiaries ~~collectively after the corporate conversion.~~

~~Corporate Conversion and Initial Public Offering~~

On April 14, 2021, in connection with the IPO of our common stock, CMI Acquisition, LLC filed a certificate of conversion, whereby CMI Acquisition, LLC effected a corporate conversion from a Delaware limited liability company to a Delaware corporation and changed its name to SkyWater Technology, Inc., which we refer to as the corporate conversion. As part of the corporate conversion, holders of Class B preferred units and common units of CMI Acquisition, LLC received shares of our common stock for each unit held immediately prior to the corporate conversion using an approximate one-to-1.56 conversion ratio for Class B preferred units and one-to-1.45 conversion ratio for common units.

On April 23, 2021, we completed our IPO and issued 8,004,000 shares of common stock, including the underwriter’s exercise of their right to purchase additional shares, at an initial offering price to the public of $14.00 per share. Shares of our common stock began trading on the Nasdaq Stock Market on April 21, 2021 under the symbol “SKYT”.

~~We received net proceeds from the IPO of approximately~~ ~~$100.2 million, after deducting underwriting discounts, commissions and offering costs of approximately~~ ~~$11.9 million~~. We estimate that we utilized approximately $45 million of our IPO proceeds to pay down our revolving credit agreement, approximately $28 million of our IPO proceeds to fund capital expenditures, and approximately $27 million of our IPO proceeds to fund our operating activities.collectively.

Overview

We are a ~~U.S. investor-owned,~~U.S.-based, independent, pure-play technology foundry that offers advanced semiconductor development and manufacturing services from our fabrication facility, or fab, in Minnesota and advanced packaging services from our Florida facility. ~~In our technology as a service~~Our technology-as-a-service model ~~we leverage~~leverages a strong foundation of proprietary technology to co-develop process technology intellectual property, ~~(“IP”)~~or IP, with our customers that enables disruptive concepts through our Advanced Technology Services for diverse microelectronics (integrated circuits, or ICs) and related micro- and nanotechnology applications. In addition to differentiated technology development services, we support customers with volume production of ICs for high-growth markets through our Wafer Services.

The combination of semiconductor development and manufacturing services we provide our customers is not available to them from a conventional fab. In addition, our status as a publicly-traded, ~~U.S.- based, U.S. investor-owned~~U.S.-based pure-play technology foundry with ~~DMEA~~Defense Microelectronics Activity (DMEA) Category 1A ~~accreditation~~Trusted Accreditation from the U.S. Department of Defense, or DoD, ~~is expected to position~~positions us well to provide distinct, competitive advantages to our customers. These advantages include the benefits of enhanced IP security and easy access to a U.S. domestic supply chain. In September 2019, we entered into a contract with the DoD to receive up to $170 million to expand and upgrade our manufacturing capabilities, specifically to build next-generation rad-hard wafer solutions for the aerospace and defense sector which will have significant benefits for other commercial markets. Our fab expansion supporting this project began operations in October 2020. In January 2021, we entered into an agreement with Osceola County, Florida to take over operation of the Center for NeoVation facility in Kissimmee, Florida to accelerate pure-play advanced packaging services for differentiated technologies.

We primarily focus on serving diversified, high-growth, end users in numerous vertical markets, including (1) advanced computation, (2) aerospace and defense, or A&D, (3) automotive and transportation, (4) bio-health, (5) consumer and

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(6) industrial/internet of things, or IoT. By housing both development and manufacturing in a single operation, we rapidly and efficiently transition newly-developed processes to high-yielding volume production, eliminating the time it would otherwise take to transfer production to a third-party fab. Through our Advanced Technology Services, we specialize in co-creating with our customers advanced solutions that directly serve our end markets, such as superconducting ICs for quantum computing, integrated photonics, carbon nanotube technologies, or CNTs, microelectromechanical systems, or MEMS, technologies for biomedical and imaging applications, and advanced packaging. Our Wafer Services include the manufacture of silicon-based analog and mixed-signal ICs for our end markets. Our focus on the differentiated analog and complementary ~~metal-oxide-semiconductor,~~metal oxide semiconductor, or CMOS markets supports long product life-cycles and requirements that value performance over cost-efficiencies, and leverages our portfolio IP.

Before we began independent operations, our fab was owned and operated by Cypress Semiconductor Corporation, ~~(“Cypress”)~~or Cypress, as a captive manufacturing ~~facility.~~facility for 26 years. We have leveraged the Cypress system, manufacturing technology and process development capabilities to advance our product offerings. We became an independent company in March 2017 when we were acquired by Oxbow Industries, LLC, or Oxbow, as part of a divestiture from Cypress. Our multi-year ~~Foundry Service Agreement~~foundry services agreement with Cypress, which ended in June 2020, created a runway for us to operate the foundry at a high utilization rate while continuing to expand and diversify the customer base transferred by Cypress. Cypress was acquired in April 2020 by Infineon Technologies AG, ~~(“Infineon”).~~or Infineon.

Factors and Trends Affecting our Business and Results of Operations

The following trends and uncertainties either affected our financial performance during the first six months of ~~2022~~2023 and ~~2021~~2022 or are reasonably likely to impact our results in the future.

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•Macroeconomic and competitive conditions, including cyclicality and consolidation, as well as the global availability of significant incentives in semiconductor technology and manufacturing affecting the semiconductor industry.

■The global economic climate, including the impact on the economy from geopolitical issues and the ongoing COVID-19 pandemic. Our business has been adversely affected by the effects of the COVID-19 pandemic. We implemented modifications to employee travel and employee work locations, as required, in some cases by federal, state and local authorities, which has had a negative impact on our employee productivity. As a result of the COVID-19 pandemic, one customer reduced its research and development expenditures with us, and a second customer experienced facility shutdowns which resulted in delays in project milestones, in each case negatively affecting our revenues. Because we have a manufacturing facility, we may be vulnerable to an outbreak of a new coronavirus or other contagious diseases. The effects of such an outbreak could include the temporary shutdown of our facilities, disruptions or restrictions on the ability to ship our products to our customers, as well as disruptions that may affect our suppliers. Any disruption of our ability to manufacture or distribute our products or of the ability of our suppliers to delivery key components on a timely basis could have material adverse effect on our revenue and operating results. See “Risk Factors—The effects of the COVID-19 outbreak could adversely affect our business, results of operations, and financial condition” in our Annual Report on Form 10-K and our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for further information regarding the effects of the COVID-19 pandemic on our business.

■The impact of vaccine mandates on our workforce. In the U.S., the Food and Drug Administration issued emergency use authorization for COVID-19 vaccines and the government began extensive efforts to administer them. We have taken various steps to encourage and facilitate vaccination access for our employees, in accordance with federal guidance. We have provided flexibility for employees to get vaccinated, and strongly encouraged our workforce to take care of themselves and their colleagues. In September 2021, the White House issued an executive order and guidance from the Safer Federal Workforce Task Force broadly requiring many U.S.-based federal contractors to be fully vaccinated by December 8, 2021 (or to have an approved accommodation). In early November 2021, the federal government extended that deadline to January 18, 2022. On December 7, 2021, a federal district judge issued an order, temporarily suspending the government from enforcing the federal contractor mandate. That order is on appeal. State and local governments are also taking actions related to the pandemic, imposing additional and varying requirements on industry. We have taken, and are continuing to take, steps to encourage our employees to be fully vaccinated (or to have an approved accommodation) to protect our workplace and to position us to comply with the executive order, guidance, and related contract terms, if and as necessary, as we continue to evaluate the evolving situation and our customers’ requirements. Evolving government requirements, including regarding a vaccine mandate, along with the broader impacts of the continuing pandemic, could significantly impact our workforce and performance, as well as those of our suppliers, and result in costs that we may not be able to recover fully. We continue to take robust actions to protect the health, safety and well-being of our employees, and to serve our customers with continued

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performance. See “Risk Factors—Vaccination or testing mandates could have a material adverse impact on our business and results of operations” in our Annual Report on Form 10-K for discussion of risks associated with the potential adverse effects on our business.

■•On August 9, 2022, President Biden signed into law the Creating Helpful Incentives to Produce Semiconductors, or CHIPS, ~~for America~~and Science Act, in which the United States has committed to a renewed focus on providing incentives and funding for onshore companies to develop and advance the latest semiconductor technologies, supporting onshore manufacturing capabilities, and on strengthening key onshore supply chains. The act authorizes the U.S. Department of Commerce to enable execution of CHIPS awards and provides $52.7 billion for American semiconductor research, development, manufacturing, and workforce development, including $39 billion in financial assistance to build, expand, or modernize domestic facilities and equipment for semiconductor fabrication, assembly, testing, advanced packaging, or research and development.

■•Our overall level of indebtedness from our revolving credit agreement for up to ~~$65~~$100 million, which we refer to as the Revolver (as defined below and in Note 6 – Debt), and a $37 million financing from the sale of the land and building representing our headquarters in Minnesota, which we refer to as the VIE Financing, the corresponding interest rates charged to us by our lenders and our ability to access borrowings under the Revolver.

■•Identification and pursuit of specific product and geographic market opportunities that we find attractive both within and outside the United States. We will continue to more effectively address these opportunities through research and development and allocation of additional revenue and marketing resources.

■•Material and other cost inflation. We strive for productivity improvements, and we implement increases in selling prices to help mitigate inflation. We expect the current economic environment will result in continuing price volatility and inflation for many of our raw materials. In addition, the labor market for skilled manufacturing remains tight and our labor costs have increased as a result.

■•Supply chain disruptions impacting our business. We have experienced, and may continue to experience, supply chain disruption for substrates, chemicals and spare parts in addition to customer supply chain constraints that have negatively impacted our revenue.

Financial Performance Metrics

Our senior management team regularly reviews certain key financial performance metrics within our business, including:

■•~~revenue~~Revenue and gross profit; and

■•~~earnings~~Earnings before interest, taxes, depreciation and amortization, as adjusted, or adjusted EBITDA, which is a financial measure not prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP, that excludes certain items that may not be indicative of our core operating results, as well as items that can vary widely across different industries or among companies within the same industry. For information regarding our non-GAAP financial measure, see the section entitled “—Non-GAAP Financial Measure” below.

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Results of Operations

Second Quarter of ~~2022~~2023 Compared to the Second Quarter of ~~2021~~2022

The following table summarizes certain financial information relating to our operating results for the second quarter of ~~2022~~2023 and ~~2021.~~2022.


		Second Quarter Ended				Dollar Change					Percentage Change Favorable/(Unfavorable)			Second Quarter Ended								Dollar Change			Percentage Change Favorable/(Unfavorable)
		July 3, 2022 (1)		July 4, 2021 (1)						July 2, 2023 (1)					July 3, 2022 (1)

		(in thousands)												(in thousands)
Consolidated Statement of Operations Data:	Consolidated Statement of Operations Data:												Consolidated Statement of Operations Data:
Revenue	Revenue	$	47,407	$	41,189			$	6,218					15		%	Revenue	$	69,811		$	47,407		$	22,404		47	%
Cost of revenue	Cost of revenue	45,327		39,377		5,950					(15)	%	Cost of revenue	53,144					45,327			7,817			17	%
Gross profit	Gross profit	2,080		1,812		268					15	%	Gross profit	16,667					2,080			14,587			701	%
Research and development	Research and development	2,361		3,339		(978)					29	%	Research and development	2,396					2,361			35			1	%
Selling, general and administrative expenses		10,795		15,415		(4,620)					30	%
Change in fair value of contingent consideration		—		(942)		942					100	%
Selling, general and administrative expense													Selling, general and administrative expense	17,820					10,795			7,025			65	%
Operating income (loss)	Operating income (loss)	(11,076)		(16,000)		4,924					31	%	Operating income (loss)	(3,549)					(11,076)			7,527			68	%
Other income (expense):
Paycheck Protection Program loan forgiveness		—		6,453		(6,453)					(100)	%

Interest expense	Interest expense	(1,040)		(912)		(128)					(14)	%	Interest expense	(2,950)					(1,040)			(1,910)			(184)	%
Total other income (expense)		(1,040)		5,541		(6,581)					(119)	%
Loss before income taxes		(12,116)		(10,459)		(1,657)					(16)	%

Income (loss) before income taxes													Income (loss) before income taxes	(6,499)					(12,116)			5,617			46	%
Income tax expense (benefit)	Income tax expense (benefit)	63		(4,237)		4,300					(101)	%	Income tax expense (benefit)	25					63			(38)			(60)	%
Net loss		(12,179)		(6,222)		(5,957)					(96)	%
Less: net income attributable to non-controlling interests		826		757		69					9	%
Net loss attributable to SkyWater Technology, Inc.		$	(13,005)	$	(6,979)	$	(6,026)				(86)	%
Net income (loss)													Net income (loss)	(6,524)					(12,179)			5,655			46	%
Less: net income attributable to noncontrolling interests													Less: net income attributable to noncontrolling interests	2,066					826			1,240			150	%
Net income (loss) attributable to SkyWater Technology, Inc.													Net income (loss) attributable to SkyWater Technology, Inc.	$	(8,590)				$	(13,005)		$	4,415		34	%
Other Financial Data:	Other Financial Data:												Other Financial Data:
Adjusted EBITDA (2)	Adjusted EBITDA (2)	$	(1,602)	$	(804)	$	(798)				(99)	%	Adjusted EBITDA (2)	$	6,460				$	(1,602)		$	8,062		nm

(1)The condensed consolidated statements of operations are for the second quarter of ~~2022~~2023 and the second quarter of ~~2021.~~2022. The second quarter of ~~2022~~2023 and ~~2021~~2022 each contained 13 weeks.

(2)See “—Non-GAAP Financial Measure” for the definition of adjusted EBITDA and reconciliation to the most directly comparable GAAP measure.

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Six Months Ended July ~~3, 2022~~2, 2023 Compared to the Six Months Ended July ~~4,2021~~3, 2022

The following table summarizes certain financial information relating to ~~our~~the Company's operating results for the six months ended July 2, 2023 and July 3, 2022 ~~and for the six months ended July 4 2021.~~.


		Six Months Ended				Dollar Change					Percentage Change Favorable/(Unfavorable)			Six Months Ended								Dollar Change			Percentage Change Favorable/(Unfavorable)
		July 3, 2022 (1)		July 4, 2021 (1)						July 2, 2023 (1)					July 3, 2022 (1)

		(in thousands)												(in thousands)
Consolidated Statement of Operations Data:	Consolidated Statement of Operations Data:												Consolidated Statement of Operations Data:
Revenue	Revenue	$	95,528	$	89,290			$	6,238					7		%	Revenue	$	135,905		$	95,528		$	40,377		42	%
Cost of revenue	Cost of revenue	94,388		78,312		16,076					(21)	%	Cost of revenue	102,770					94,388			8,382			9	%
Gross profit	Gross profit	1,140		10,978		(9,838)					(90)	%	Gross profit	33,135					1,140			31,995			2,807	%
Research and development	Research and development	4,643		5,266		(623)					12	%	Research and development	5,063					4,643			420			9	%
Selling, general and administrative expenses		22,485		24,018		(1,533)					6	%
Change in fair value of contingent consideration		—		(886)		886					100	%
Operating loss		(25,988)		(17,420)		(8,568)					(49)	%
Other income (expense):
Paycheck Protection Program loan forgiveness		—		6,453		(6,453)					(100)	%
Selling, general and administrative expense													Selling, general and administrative expense	32,716					22,485			10,231			46	%

Operating income (loss)													Operating income (loss)	(4,644)					(25,988)			21,344			82	%
Interest expense	Interest expense	(2,069)		(1,970)		(99)					(5)	%	Interest expense	(5,421)					(2,069)			(3,352)			(162)	%
Total other income (expense)		(2,069)		4,483		(6,552)					(146)	%
Loss before income taxes		(28,057)		(12,937)		(15,120)					(117)	%

Income (loss) before income taxes													Income (loss) before income taxes	(10,065)					(28,057)			17,992			64	%
Income tax expense (benefit)	Income tax expense (benefit)	(131)		(4,662)		4,531					(97)	%	Income tax expense (benefit)	25					(131)			156			nm
Net loss		(27,926)		(8,275)		(19,651)					(237)	%
Less: net income attributable to non-controlling interests		1,685		1,515		170					11	%
Net income (loss)													Net income (loss)	(10,090)					(27,926)			17,836			64	%
Less: net income attributable to noncontrolling interests													Less: net income attributable to noncontrolling interests	2,773					1,685			1,088			65	%
Net loss attributable to SkyWater Technology, Inc.	Net loss attributable to SkyWater Technology, Inc.	$	(29,611)	$	(9,790)	$	(19,821)				(202)	%	Net loss attributable to SkyWater Technology, Inc.	$	(12,863)				$	(29,611)		$	16,748		57	%
Other Financial Data:	Other Financial Data:												Other Financial Data:
Adjusted EBITDA (2)	Adjusted EBITDA (2)	$	(6,437)	$	4,825	$	(11,262)				(233)	%	Adjusted EBITDA (2)	$	14,570				$	(6,437)		$	21,007		nm

(1)The condensed consolidated statements of operations are for the first six months of ~~2022~~2023 and the first six months of ~~2021.~~2022. The first six months of ~~2022~~2023 and ~~2021~~2022 each contained 26 weeks.

(2)See “—Non-GAAP Financial Measure” for the definition of adjusted EBITDA and reconciliation to the most directly comparable GAAP measure.

Revenue

Revenue was $69.8 million for second quarter 2023 compared to $47.4 million for ~~the~~ second quarter of 2022, ~~compared to $41.2~~Revenue was $135.9 million for the ~~second quarter~~first six months of ~~2021. The $6.2 million or 15% increase was primarily driven by the growth in Advanced Technology Services programs and improved pricing terms for Wafer Services. Revenue was~~2023 compared to $95.5 million for the first six months of ~~2022 and $89.3 million for the first six months of 2021.~~2022. The ~~$6.2 million or 7%~~increases in revenue were driven by an increase ~~was primarily the result of a new contract with a significant wafer services customer signed~~ in the first quarter of 2022. As a result, we recorded revenue of $8.2 million in the first quarter of 2022 to account for recognition of wafer services activities in process at the date the contract was signed.Advanced Technology Services revenues.

The following table shows revenue by ~~services~~service type for the second ~~quarters of 2022 and 2021~~quarter and the ~~first~~ six months ended July 2, 2023 and July 3, 2022:


	Second Quarter Ended				Six Months Ended
	July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022

	(in thousands)
Wafer Services	$	16,802	$	17,584	$	34,589	$	39,130
Advanced Technology Services	53,009		29,823		101,316		56,398
Total	$	69,811	$	47,407	$	135,905	$	95,528

The decrease in Wafer Services revenue of $0.8 million, or (4)%, from second quarter 2022 compared to second quarter 2023 was primarily driven by decreased activity for a consumer industry customer. For the six months ended July 2, 2023, Wafer Services revenue decreased by $4.5 million, or (12)%, primarily driven by $8.2 million of incremental one-time revenue related toa new contract signed with a customer in first quarter 2022, partially offset by $3.8 million of increases due to continued strengthening in the automotive and ~~2021:~~medical industry end markets.

Second Quarter Ended Six Months Ended
July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021
(in thousands)
Wafer Services $ 17,584 $ 14,312 $ 39,130 $ 24,331
Advanced Technology Services 29,823 26,877 56,398 64,959
Total $ 47,407 $ 41,189 $ 95,528 $ 89,290
Advanced Technology Services revenues increased $23.2 million, or 78%, from second quarter 2022 to second quarter 2023, and increased $44.9 million, or 80%, for the six months ended July 2, 2023 from the six months ended July 3, 2022. The increase in both periods was primarily due to continued momentum in U.S. government programs to bolster the domestic

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semiconductor supply chain and strengthen the defense industrial base, as well as an increase in activity in the cloud and computing end market.

Cost of revenue

Cost of revenue increased $7.8 million to $53.1 million for second quarter 2023, from $45.3 million for second quarter 2022. The increase was primarily driven by increases in ~~Wafer Services revenue~~labor costs of ~~$3.3~~$5.7 million ~~or 23% for the second quarter~~and outside services costs of ~~2022 was driven primarily by more favorable pricing and contract terms finalized with our largest customer at the end of the first quarter of 2022.~~ $1.4 million.

For the six months ended July ~~3, 2022, Wafer Services~~2, 2023, cost of revenue increased ~~$14.8~~to $102.8 million ~~or 61%, primarily as a result of more favorable pricing and contract terms finalized with our largest customer at the end of first quarter of 2022, contributing $8.2~~from $94.4 million ~~in revenue and more favorable pricing overall~~ for ~~our Wafer Services programs in 2022.~~

The increase in Advanced Technology Services revenues of $2.9 million or 11% from the second quarter of 2021 to the second quarter of 2022 was primarily due to the overall growth in our Advanced Technology Services programs. For the six months ended July 3, 2022. The increase of $8.4 million was primarily attributable to increases in labor costs of $10.3 million and outside services costs of $3.8 million, royalty expense of $0.8 million, and raw material costs of $0.3 million. In first quarter 2022, ~~Advanced Technology~~a change in contract terms with a significant Wafer Services ~~revenues decreased by $8.6~~customer resulted in an additional $10.9 million ~~or 13%, primarily as a result of a decrease~~ in ~~the amount~~cost of revenue recognized ~~related to services to qualify customer funded tool technologies. Tool revenue was $1.3 million~~ during the six months ended July 3, 2022, ~~compared to $17.8 million during the six months ended July 4, 2021. The decrease was~~ partially offset by a $4.1 million adjustment to the ~~overall growth~~net realizable value of wafer inventory, which lowered cost of goods sold in ~~our Advanced Technology Services programs in 2022.~~

~~Gross profit~~

Gross profit increased $0.3 million, or 15%, to $2.1 million for the second quarter of 2022, from $1.8 million for the second quarter of 2021. The increase was primarily due to a more favorable revenue mix, partially offset by an increase in inflationary costs related to both materials and labor. For the six months ended July 3, 2022 ~~gross profit declined~~relative to ~~$1.1 million from $11.0 million for~~ the six months ended July 4, 2021. The decrease of $9.9 million was primarily attributable to the decrease in gross profit on tool revenues, which declined by $6.5 million or 98% from the six months ended July 4, 2021. In addition, gross profit declined as a result of an increase in inflationary costs in 2022 related to both materials and labor.2, 2023.

Research and development

Research and development costs ~~decreased to $2.4 million~~remained flat for ~~the~~ second quarter ~~of 2022,~~2023 from ~~$3.4 million for the~~ second quarter of 2021. The decrease of $1.0 million, or 29%, was primarily attributable to a decrease in equity-based compensation expense of $1.4 million, partially offset by an increase of $0.5 million in personnel expense, due to our continued investment in internal personnel and external engineering support. 2022.

For the six months ended July ~~3, 2022,~~2, 2023, research and development costs ~~decreased~~increased to ~~$4.6~~$5.1 million from ~~$5.3~~$4.6 million for the six months ended July ~~4, 2021.~~3, 2022. The ~~decrease of $0.7 million~~increase was primarily attributable to ~~a decrease in equity-based compensation of $1.1 million, partially offset by $0.3 million~~an increase in ~~personnel expense~~labor costs as a result of our continued investment in internal personnel.

Selling, general and administrative ~~expenses~~expense

Selling, general and administrative ~~expenses decreased~~expense increased to $17.8 million for second quarter 2023, from $10.8 million for ~~the~~ second quarter 2022. The increase of ~~2022, from $15.4~~$7.0 million ~~for the second quarter of 2021. The decrease of $4.6 million, or 30%,~~ was primarily attributable to ~~a decrease~~increases of ~~$3.0~~$3.8 million in ~~equity-based compensation expense~~external fees, primarily consisting of management and ~~a decrease of $1.8~~operations consulting services, $1.5 million in labor ~~expense~~costs as a result of the bonus program which took place in the second quarter of 2021 related to the IPO completed during that quarter. These decreases were partially offset by an increase of $0.2 million in personnel expense as a result of ourCompany's continued investment in internal ~~personnel.~~ personnel, and $1.4 million in bad debt expense.

For the six months ended July ~~3, 2022,~~2, 2023, selling, general and administrative ~~expenses decreased~~expense increased to ~~$22.5~~$32.7 million from ~~$24.0~~$22.5 million for the six months ended July ~~4, 2021.~~3, 2022. The ~~decrease~~increase of ~~$1.5~~$10.2 million was primarily attributable to increases of $3.8 million in external fees, primarily consisting of management and operations consulting services, $2.4 million in labor costs as a ~~decrease~~result of the Company's continued investment in ~~equity-based compensation~~internal personnel, and $3.5 million in bad debt expense.

Interest expense

Interest expense increased to $3.0 million for second quarter 2023 from $1.0 million for second quarter 2022. The increase of ~~$1.3 million.~~$1.9 million was primarily the result of increased amounts outstanding under the Revolver and a higher interest rate in second quarter 2023 compared to second quarter 2022.

For the six months ended July 2, 2023, interest expense increased to $5.4 million from $2.1 million for the six months ended July 3, 2022. The increase of $3.4 million was primarily the result of increased amounts outstanding under the Revolver and a higher interest rate on the Revolver in 2023 compared to 2022.

Income tax expense (benefit)

Income ~~taxes increased~~tax expense decreased to ~~$0.1 million expense for the second quarter of 2022, from a benefit of $4.2~~$0.0 million for the second quarter of ~~2021.~~2023 from $0.1 million for the second quarter of 2022. The effective income tax rate for the second quarter of ~~2022~~2023 was ~~(0.5)~~(0.4)%, compared to an effective income tax rate of ~~40.5%~~(0.5)% for the second quarter of ~~2021.~~2022.

Income ~~taxes benefit decreased~~tax expense was $0.0 million for the six months ended July 2, 2023 compared to a $0.1 million benefit for the six months ended July 3, ~~2022 from a $4.7 million benefit for the six months ended July 4, 2021.~~2022. The effective income tax rate for the six months ended July ~~3, 2022~~2, 2023 was ~~0.5%~~(0.2)%, compared to an effective income tax rate of ~~36.0%~~0.5% for the six months ended July ~~4, 2021.~~3, 2022. The ~~effective~~ income tax rate applied to our pre-tax ~~loss was lower~~losses for the ~~second quarter of~~three and six months ended July 2, 2023 and July 3, 2022 ~~than our~~differs from the statutory tax rate of 21% primarily due to deferred tax asset valuation allowances. The income tax rate applied to our pre-tax loss was higher for the three and six months ended July 4, 2021 than our statutory tax rate of 21% primarily due to the gain realized as a result of the proceeds received from the paycheck protection loan forgiveness program.

Net income attributable to ~~non-controlling~~noncontrolling interests

Net income attributable to ~~non-controlling~~noncontrolling interests ~~remained flat~~increased by $1.2 million to $2.1 million for ~~the~~ second quarter of2023 from $0.8 million for second quarter 2022, and ~~2021 and~~ increased ~~slightly~~ by ~~$0.2~~$1.1 million ~~from~~to $2.8 million for the six months ended July ~~4, 2021 to~~2, 2023 from $1.7 million for the six months ended July 3, 2022. Net income attributable to ~~non-controlling~~noncontrolling interests reflects the net income of Oxbow Realty, the variable interest entity ~~or VIE,~~("VIE"), that we consolidate ~~representing~~and represents the economic interest in the

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~~economic interest in the~~ profits and losses of ~~Oxbow Realty~~the VIE that the owners of our shareholders’ equity do not legally have rights or obligations to. The increase in the net income attributable to noncontrolling interests primarily relates to increased interest income from the failed sale leaseback transaction with SkyWater.

Adjusted EBITDA

Adjusted EBITDA ~~decreased $0.8~~increased $8.1 million ~~or 99%,~~ to $6.5 million for second quarter 2023 from $(1.6) million for ~~the~~ second quarter ~~of 2022 from $(0.8) million for the second quarter of 2021.~~2022. For the six months ended July ~~3, 2022,~~2, 2023, Adjusted EBITDA ~~decreased $11.2~~increased $21.0 million to ~~$(6.4)~~$14.6 million from ~~$4.8~~$(6.4) million for the six months ended July ~~4, 2021.~~3, 2022. The ~~decrease~~increases in ~~adjusted EBITDA for~~ both periods reflects increased revenues at higher margins as a result of the ~~second quarter of 2022 and the six months ended July 3, 2022 primarily reflects decreased gross profit due to~~overall growth in our Advanced Technology Services, partially offset by increased labor and infrastructure costs as we continue to scale our business to meet the demands of our ~~customers and the requirements of being a public company.~~ customers.

For a discussion of adjusted EBITDA as well as a reconciliation to the most directly comparable U.S. GAAP measure, see the section below entitled “—Non-GAAP Financial Measure.”

Liquidity and Capital Resources

General

Our ability to execute our operating strategy is dependent on our ability to maintain liquidity and continue to access capital through our Revolver (as defined in Note 6 – Debt to the Condensed Consolidated Financial Statements) and other sources of financing. Our current business plans indicate that we ~~will~~may require additional liquidity to continue our operations for the next 12twelve months from the issuance of the consolidated financial statements. ~~In response to this,~~We have identified specific actions we ~~plan to pursue additional debt and equity financing, and are implementing a plan~~could take to reduce operating costs to improve cash flow, which ~~includes~~include a reduction in spending and a delayed increase in certain personnel, and may require us to decrease our level of planned investment in new products and technologies, or discontinue further expansion of our ~~business, or scale back our existing operations. Additionally, the Company~~business. We also obtained a support letter from Oxbow Industries, LLC ("Oxbow Industries"), an affiliate of our principal stockholder, to provide funding in an amount up to $12.5 million, if necessary, to enable ~~the Company~~us to meet ~~its~~our obligations as they become due through at least one year ~~and a day~~ beyond the issuance of these financial ~~statements on August 17, 2022. Management believes that based~~statements. Based upon ~~its~~our operational forecasts, our cash and cash equivalents on hand, our available borrowings on our Revolver, potential cost reduction measures we could take, and the support letter from ~~an affiliate of our principal stockholder,~~Oxbow Industries, as needed, we believe we will ~~provide~~have sufficient liquidity to fund ~~its~~SkyWater's operations for the next 12twelve months from the issuance of the consolidated financial statements.

~~The Company has~~Additionally, we could raise additional capital through the ATM Program (as defined in Note 8 – Shareholders’ Equity) and seek additional equity or debt financing, including a refinancing and/or expansion of the Revolver. However, we cannot provide any assurance that additional funds will be available when needed, or, if available, will be available on terms that are acceptable to us.

We have based this estimate on assumptions that may prove to be wrong, and its operating plan may change as a result of many factors currently unknown to ~~it.~~us. To the extent that our current resources and plans to reduce expenses are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing. Our ability to do so depends on prevailing economic conditions and other factors, many of which are beyond our control.

We had ~~$10.7~~$16.2 million in cash and cash equivalents, not including cash held by a ~~variable interest entity~~VIE that we consolidate, and availability under our Revolver of ~~$17.6~~$34.6 million as of July ~~3, 2022. However, we must maintain availability~~2, 2023. We are subject to certain liquidity and EBITDA covenants under our Loan Agreement, as outlined in the Indebtedness section of Item 7. Management's Discussion and Analysis below.

ATM Program

For the six months ended July 2, 2023, SkyWater sold 1.3 million shares under the Revolver of at least $15 million in order to not have to comply with the leverage ratio and fixed charge coverage ratio financial covenants contained in the Revolver with respect to the fiscal quarters ending on or prior to July 3, 2023.

~~Initial Public Offering~~

~~On April 23, 2021, we completed our IPO and issued 8,004,000 shares of common stock, including the underwriter’s exercise of their right to purchase additional shares,~~ATM Program at an ~~initial offering~~average sale price ~~to the public~~ of ~~$14.00~~$10.34 per ~~share. We received net~~share, resulting in gross proceeds ~~from the IPO~~ of ~~approximately~~ ~~$100.2~~$13.5 million~~, after~~ before deducting ~~underwriting discounts and~~sales commissions and ~~offering costs~~fees of ~~approximately~~ ~~$11.9 million. We estimate that we utilized approximately $45 million of our IPO proceeds to pay down our revolving credit agreement, approximately $28 million of our IPO~~$0.4 million. SkyWater used the net proceeds to fund ~~capital expenditures, and approximately $27 million of our IPO proceeds to fund our operating activities.~~its operations. See Note 8 – Shareholders’ Equity for information regarding the ATM Program.

Capital Expenditures

On July 26, 2021, we announced that our Board of Directors approved $56 million in strategic capital investments for expanding manufacturing capacity and technology capabilities at our Minnesota facility. The majority of this investment is targeted to expand capacity and capabilities at our Minnesota fab which is expected to increase overall output by at least 40% and to enable accelerated revenue growth. The remainder is focused on expediting our entry intoFor the gallium nitride, or GaN, market, a promising technology for electric vehicles, 5G and consumer electronics, among others due to its properties that enable higher charging efficiencies, smaller ship size, and lighter weight for many applications. We believe SkyWater can fill the need for a US-based 200 mm foundry to offer technology services for GaN-based solutions expanding the serviceable market for our technology-as-a-serviceSM ~~model. The strategic capital investment is a multi-year strategy and we invested approximately $15.8 million during 2021 and the first~~ six months ~~of 2022.~~

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~~For the first six months of 2022,~~ended July 2, 2023, we spent approximately ~~$5.9~~$5.6 million on capital expenditures, including purchases of property, equipment and software. The majority of these capital expenditures relate to our foundry expansion in Minnesota ~~as discussed below,~~ and the development of our advanced packaging capabilities at the Center for NeoVation in Florida. We anticipate our cash on hand and the availability under our Revolver will provide the funds needed to meet our customer demand and anticipated capital expenditures in ~~2022.~~the remainder of fiscal 2023.

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We have approximately ~~$12~~$8.6 million of contractual commitments relating to various anticipated capital expenditures outstanding as of July ~~3, 2022~~2, 2023 that we expect to be paid in the remainder of ~~2022,~~2023, through either cash on hand or availability under our ~~Revolver. On April 1, 2022, we commenced a finance lease for a nitrogen generator. The lease has a term of 15 years for total fixed payments of approximately $14 million.~~Revolver or other financing arrangements.

~~Contingent Consideration~~

We paid $0.4 on the remaining obligation related to our contingent consideration royalty liability in the first half of 2022. We anticipate our cash on hand and availability under our Revolver will provide the funds necessary to settle the contingent consideration royalty liability.

Working Capital

Historically, we have depended on cash on hand, funds available under our Revolver and, more recently, net proceeds from sales of our common stock pursuant to the ATM Program, and, in the future, we may need to depend on additional debt and equity financings ~~similar~~ to ~~our IPO, to finance~~fund our expansion strategy, working capital needs and capital expenditures. We believe that these sources of funds will be adequate to provide cash, as required, to support our strategy, ongoing operations, capital expenditures, lease obligations and working capital for at least the next 12twelve months. However, we cannot be certain that we will be able to obtain future debt or equity financings ~~adequate for our cash requirements~~ on commercially reasonable terms ~~or at all.~~sufficient to meet our cash requirements.

As of July ~~3, 2022, we had available aggregate undrawn borrowing capacity~~2, 2023, the outstanding balance of ~~approximately $18~~our Revolver was $57.8 million, ~~under~~and our ~~Revolver. However, we must maintain~~remaining availability under the Revolver was $34.6 million. As of ~~at least $15 million~~July 2, 2023, we were in ~~order to not have to comply~~compliance with ~~the leverage ratio and fixed charge coverage ratio~~applicable financial covenants ~~contained in~~of the Revolver and expect to be in compliance with ~~respect to~~applicable financial covenants over the fiscal quarters ending on or prior to July 2, 2023. For the periods presented, our use of cash was primarily driven by our investing activities, and specifically by our investments in capital expenditures.next twelve months.

The following table sets forth general information derived from our condensed consolidated statement of cash flows for the first six months of ~~2022~~2023 and ~~2021:~~2022:

Six Months Ended
July 3, 2022 July 4, 2021
(in thousands)
Net cash used in operating activities $ (13,862) $ (30,811)
Net cash used in investing activities $ (5,863) $ (13,255)
Net cash provided by financing activities $ 17,782 $ 101,233


	Six Months Ended
	July 2, 2023		July 3, 2022

	(in thousands)
Net cash used in operating activities	$	(18,008)	$	(13,862)
Net cash used in investing activities	$	(3,220)	$	(5,863)
Net cash provided by financing activities	$	7,381	$	17,782

Cash and Cash Equivalents

At July ~~3, 2022~~2, 2023 and January ~~2, 2022,~~1, 2023, we had ~~$11.0~~$16.2 million and ~~$12.9~~$30.0 million of cash and cash equivalents, ~~respectively, including~~respectively. The VIE we consolidate did not maintain any cash ~~of $0.3 million~~ and ~~$0.5 million, respectively, held by a variable interest entity that we consolidate.~~cash equivalents at either July 2, 2023 or July 3, 2022.

Operating Activities

Cash flow from operations is driven by changes in the working capital needs associated with the various goods and services we provide, and expenses related to the infrastructure in place to support revenue generation. Working capital is primarily affected by changes in accounts receivable, accounts payable, accrued expenses, and deferred revenue, all of which tend to be related to and are affected by, changes in the timing and volume of ~~work performed and our increased expenditures as a public company.~~activities performed. Net cash used in operating activities was ~~$13.9~~$18.0 million during the first six months of ~~2022, a decrease~~2023, an increase of ~~$16.9~~$4.1 million from ~~$30.8~~$13.9 million of cash used in operating activities during the first six months of ~~2021.~~2022. The ~~decrease~~increase in cash ~~provided by~~used in operating activities during the first six months of ~~2022~~2023 was driven primarily by ~~an increase~~increases in our ~~costs as described in~~ ~~Gross profit~~ ~~above. Our operating cash flow was additionally impacted from the change in our working capital accounts. Deferred~~accounts receivable, net and deferred revenue ~~decreased~~ during the ~~first six months of 2022 as we recognized revenue from customers who funded our building expansion during 2020.~~

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period.

Investing Activities

Capital expenditures ~~are~~comprise a significant use of our capital resources. These investments are intended to enable revenue growth in new and expanding markets, help us meet product demand and increase our manufacturing efficiencies and capacity.

Net cash used in investing activities was $3.2 million during the first six months of 2023, a decrease of $2.6 million from $5.9 million during the first six months of ~~2022, a~~2022. The decrease ~~of $7.4 million from $13.3 million~~in cash used in investing activities during the first six months of ~~2021. The decrease in cash used during the first six months of 2022~~2023 reflects decreased capital spending on property and equipment ~~as we fully complete our foundry expansion project~~compared to ~~increase manufacturing capacity at our Minnesota facility.~~the same period in 2022.

Financing Activities

Net cash provided by financing activities was ~~$17.8~~$7.4 million during the first six months of ~~2022,~~2023, a decrease of ~~$83.4~~$10.4 million from net cash provided by financing activities of ~~$101.2~~$17.8 million during the first six months of ~~2021.~~2022. The decrease in net cash provided by financing activities during the first six months of ~~2022~~2023 was primarily driven by the net pay downs of our Revolver, partially offset by proceeds ~~received~~ from the issuance of our common stock ~~pursuant to the initial public offering which occurred in the second quarter of 2021. Partially offsetting this decrease was an increase in in net proceeds on~~under our revolver, which amounted to $18.9 million during the first six months of 2022 compared to $0.4 million during the first six months of 2021. The decrease was additionally driven by a decrease in distributions to our VIEATM Program and ~~partially offset from proceeds from our~~ employee stock purchase ~~plan and our long term incentive plan.~~program.

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Indebtedness

Sale Leaseback Transaction

On September 29, 2020, we entered into an agreement to sell the land and building representing our primary operating location in Bloomington, Minnesota to Oxbow Realty, LLC or ("Oxbow ~~Realty,~~Realty"), an entity controlled by our principal stockholder, CMI Oxbow Partners, LLC, for ~~$39~~$39.0 million, less applicable transaction costs of $1.5 million and transaction services fees paid to Oxbow Realty of $2.0 million and paid a guarantee fee to our principal stockholder of $2.0 million. We subsequently entered into an agreement to ~~lease~~leaseback the land and building from Oxbow Realty for initial payments of $0.4 million per month over 20 years. The monthly payments are subject to a 2% increase each year during the term of the lease. We are also required to make certain customary payments constituting "additional rent," including certain monthly reserve, insurance and tax payments, in accordance with the terms of the ~~lease.~~lease agreement. Due to our continuing involvement in the property, we are accounting for the transactions as a failed sale leaseback (a financing transaction). Under failed sale leaseback accounting, we are deemed the owner of the property with the proceeds received recorded as a financial obligation.

Revolving Credit Agreement

On December 28, ~~2020,~~2022, we entered into ~~an amended~~a Loan and ~~restated~~Security Agreement (the “Loan Agreement”) with Siena Lending Group LLC ("Siena"). The Loan Agreement provides for a revolving line of credit ~~agreement with Wells Fargo, our Revolver,~~ of up to ~~$65~~$100 million that replaced our previous line of credit and term loan. Under the agreement, the facility is available on a revolving basis, subject to availability under a borrowing base consisting of a percentage of eligible accounts receivable, inventory and owned equipment. The Revolver is secured by a security interest in substantially all of our accounts receivable, inventory and equipment. The Revolver can be repaid and borrowed again at any time without penalty or premium until the with scheduled maturity date of December 28, ~~2025.~~2025 (the "Revolver"). The ~~Revolver~~Company incurred $4.3 million of debt issuance costs, which will be amortized as additional interest expense over the term of the Revolver. As of July 2, 2023, we had borrowings of $57.8 million under the Revolver.

Borrowing under the Loan Agreement is ~~available~~limited by a borrowing base of specified advance rates applicable to billed accounts receivable, unbilled accounts receivable, inventory and equipment, subject to various conditions, limits and any availability block as provided in the Loan Agreement. The Loan Agreement also provides for ~~issuance~~borrowing base sublimits applicable to each of ~~letters~~unbilled accounts receivable and equipment. Under certain circumstances, Siena may from time to time establish and revise reserves against the borrowing base and/or the maximum revolving facility amount.

Borrowings under the Loan Agreement bear interest at a rate that depends upon the type of ~~credit~~borrowing, whether a term secured overnight financing rate (SOFR) loan or base rate loan, plus the applicable margin. The term SOFR loan rate is a forward-looking term rate based on SOFR for a tenor of one month on the applicable day, subject to a ~~specified limit~~minimum of ~~$10 million.~~

~~Under the Revolver, we can elect the~~2.5% per annum. The base rate ~~(greatest~~is the greatest of the ~~federal~~prime rate, the Federal funds rate plus 0.5%, ~~LIBOR for a one-month period plus 1%, or the institution’s prime rate) or LIBOR for a period of one, two, three or six months as selected by us, plus a~~and 7.0% per annum. The applicable margin ~~depending~~is an applicable percentage based on the ~~amount of borrowings outstanding. We will also pay a commitment fee equal~~fix charged coverage ratio that ranges from 5.25% to ~~0.25%~~6.25% per annum for term SOFR loans and ranges from 4.25% to ~~0.375%~~5.25% per annum for base rate loans.

The Loan Agreement contains customary representations and warranties and financial and other covenants and conditions. Subject to certain cure rights, the Loan Agreement requires $10 million in minimum EBITDA (as defined in the Loan Agreement) calculated as of the ~~average commitment not utilized, depending on~~last day of each calendar month commencing April 30, 2023 for the ~~amount not utilized. Interest payments are due monthly.~~

~~On November 3, 2021, we entered into an amendment to the Revolver, effective~~preceding twelve calendar months, prohibits unfunded capital expenditures in excess of $15 million calculated as of ~~October 1, 2021, to eliminate~~ the ~~requirement~~last day of each calendar month commencing April 30, 2023 for ~~us to comply with~~ the leverage ratio financial covenant contained therein with respect to the fiscal quarters ending on or prior to July 2, 2023, so long as the remaining availability under the Revolver has equaled or exceeded $15 million. Certain financial covenants, includingpreceding twelve calendar months, and requires a minimum fixed charge coverage ratio, ~~and leverage ratio, become applicable only~~measured on a trailing 12 month basis, of not less than 1.00 to 1.00 if ~~unused remaining availability falls below~~our liquidity is less than $15 million. AsIn addition, the Loan Agreement places certain restrictions on our ability to incur additional indebtedness (other than permitted indebtedness), to create liens or other encumbrances (other than liens relating to permitted indebtedness), to sell or otherwise dispose of ~~July 3, 2022,~~assets, to merge or consolidate with other entities, and to make certain restricted payments, including payments of dividends to our ~~unused remaining availability was $18 million and we~~stockholders. We were in compliance with ~~applicable financial~~the covenants of the ~~Revolver and expect~~Loan Agreement as of July 2, 2023.

Due to a lockbox clause in the Loan Agreement, the outstanding loan balance is required to be serviced with working capital, and the debt is classified as short-term on the consolidated balance sheet in ~~compliance~~accordance with applicable financial covenants over the next twelve months. The fixed charge coverage ratio financial covenant requires us to maintain a fixed charge coverage ratio of at least 1.1 to 1.0 on a rolling twelve-month basis. The fixed charge coverage ratio included in our credit agreement is defined as (A) earnings before interest, taxes, depreciation and amortization (“EBITDA”), less unfinanced capital expenditures, divided by (B) fixed charges, which are generally defined as cash interest and income taxes, scheduled principal payments on loans and contingent consideration arrangements, and restricted payments such as dividends.

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EBITDA, as defined, includes adjustments for such items as unusual gains or losses, equity-based compensation and management fees, as well as other adjustments. The leverage ratio financial covenant requires us to maintain a leverage ratio of no greater than 3.0 to 1.0 on a rolling twelve-month basis measured quarterly. The leverage ratio included in our credit agreement is defined as our funded indebtedness as of the measurement date divided by our EBITDA for the twelve-month period as of the measurement date.

The Revolver contains covenants, including restrictions on indebtedness, liens, mergers, consolidations, investments, acquisitions, disposition of assets, and transactions with affiliates. Dividends, redemptions and other payments on equity (restricted payments) are limited to (1) restricted payments to the loan parties, and (2) declaring and making dividend payments or other distributions payable solely in capital stock. Customary events of default (with customary grace periods, notice and cure periods and thresholds) include payment default, breach of representation in any material respect, breach of certain covenants, default to material indebtedness, bankruptcy, ERISA violations, material judgments, change in control and termination or invalidity of guaranty or security documents.U.S. GAAP.

Contractual Obligations

There were no significant changes outside the ordinary course of business in our contractual obligations from those disclosed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Material Cash Requirements” of our Annual Report on Form 10-K for the fiscal year ended January ~~2, 2022.~~1, 2023.

JOBS Act

We qualify as an “emerging growth company” pursuant to the provisions of the Jumpstart Our Business Startups Act of 2012 ("JOBS ~~Act.~~Act"). For as long as we are an “emerging growth company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy

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statements, exemptions from the requirements of holding advisory “say-on-pay” votes on executive compensation and shareholder advisory votes on golden parachute compensation.

The JOBS Act also permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to use the extended transition period for complying with new, or revised, accounting standards and, therefore, we will not be subject to the same new, or revised, accounting standards as other public companies that comply with such new, or revised, accounting standards on a non-delayed basis.

Critical Accounting Policies and Estimates

In connection with preparing our condensed consolidated financial statements in accordance with U.S. GAAP, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue and expense, and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes ~~to be~~are relevant at the time we ~~prepare~~prepared our condensed consolidated financial statements. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our condensed consolidated financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ materially from our assumptions and estimates.

On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, valuation of long-lived assets, ~~and~~valuation of inventory, share-based compensation and income taxes. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may materially differ from these estimates under different assumptions or conditions.

There have been no material changes to our critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended January ~~2, 2022,~~1, 2023, except as set forth below.

~~Revenue Recognition of New Wafer Services Contract~~

Revenue is recognized either over time as work progresses using an output measure or at a point-in-time, depending upon contract-specific terms and the pattern of transfer of control of the product or service to the customer. Due to the nature of our contracts, there can be judgment involved in determining the performance obligations that are included in the related contract. We analyze each contract to conclude what enforceable rights and obligations exist between us and our customers. In

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~~doing so, we determine our unit of account by identifying the promises within the contract that are both (1) considered to be distinct and (2) distinct within the context of each contract.~~

In March 2022, we signed a new contract with a significant wafer services customer. Under the contract, orders are non-cancellable and we have an enforceable right to complete the orders and to payment for any finished or in-process wafers plus a reasonable margin. The wafers produced for that customer are highly customized and have no alternative use to us. Control of these wafers is deemed to transfer to the customer over time during the fabrication process, using the same measure of progress toward satisfying the promise to deliver the units to the customer. Consequently, the transaction price is recognized as revenue over time based on actual costs incurred in the fabrication process to date relative to total expected costs to produce all wafers beginning in March 2022. The contract terms and pricing is applicable to all in-process and future wafer. We recorded revenue of $8,230 in the first six months of 2022 to account for recognition of wafer services activities in process at the date the contract was signed. Additionally, this change in the timing of revenue recognition reduced our work-in-process inventory and increased our unbilled receivables (contract assets) and cost of revenue. Under the previous contract with the significant customer, we were recognizing revenue at a point-in-time under a bill and hold arrangement as disclosed in our Annual Report on Form 10-K for the year ended January 2, 2022.

Recent Accounting Pronouncements

For a description of our recently adopted accounting pronouncements and recently issued accounting standards not yet adopted, see ~~“Note~~Note 3 — Summary of Significant Accounting Policies” to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Non-GAAP Financial Measure

Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP. To supplement our condensed consolidated ~~financials~~financial statements presented in accordance with U.S. GAAP, an additional non-GAAP financial measure is provided and reconciled in the following table.

We provide supplemental non-GAAP financial information that our management utilizes to evaluate our ongoing financial performance and provide additional insight to investors as supplemental information to our U.S. GAAP results. We use adjusted EBITDA to provide a baseline for analyzing trends in our business and to exclude certain items that may not be indicative of our core operating results. The use of non-GAAP financial information should not be considered as an alternative to, or more meaningful than, the comparable U.S. GAAP measure. In addition, because our non-GAAP measure is not determined in accordance with U.S. GAAP, it is susceptible to differing calculations, and not all comparable or peer companies may calculate their non-GAAP measures in the same manner. As a result, the non-GAAP financial measure presented in this Quarterly Report on Form 10-Q may not be directly comparable to similarly titled measures presented by other companies.

This non-GAAP financial measure should not be considered as an alternative to, or more meaningful than, net income determined in accordance with U.S. GAAP.

Adjusted EBITDA

Adjusted EBITDA is not a financial measure determined in accordance with U.S. GAAP. We define adjusted EBITDA as net income before interest expense, income tax provision (benefit), depreciation and amortization, equity-based compensation and certain other items that we do not view as indicative of our ongoing performance, including ~~fair value changes in contingent consideration, management fees, inventory write-down, corporate conversion and IPO related costs, Paycheck Protection Program Loan forgiveness,~~ SkyWater Florida start-up costs, management transition expense, and net income attributable to ~~non-controlling interests, and management transition expense.~~noncontrolling interests.

We believe adjusted EBITDA is a useful performance measure because it allows for an effective evaluation of our operating performance when compared to our peers, without regard to our financing methods or capital structure. We exclude the items listed above from net income in arriving at adjusted EBITDA because these amounts can vary substantially within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets

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were acquired. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income determined in accordance with U.S. GAAP. Certain items excluded from adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are reflected in adjusted EBITDA. Our presentation of adjusted EBITDA should not be construed as an indication that our results will be unaffected by the items excluded from adjusted EBITDA. In future fiscal periods, we may exclude such items and may incur income and expenses similar to these excluded items. Accordingly, the exclusion of these items and other similar items in our non-GAAP presentation should not be interpreted as implying that these items are non-recurring, infrequent or unusual, unless otherwise expressly indicated.

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The following table presents a reconciliation of net income (loss) to adjusted EBITDA, our most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.

Second Quarter Ended Six Months Ended
July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021
(in thousands)
Net loss attributable to SkyWater Technology, Inc. $ (13,005) $ (6,979) $ (29,611) $ (9,790)
Interest expense 1,040 912 2,069 1,970
Income tax (benefit) expense 63 (4,237) (131) (4,662)
Depreciation and amortization 7,198 6,854 13,657 13,336
EBITDA (4,704) (3,450) (14,016) 854
Paycheck Protection Program loan forgiveness — (6,453) — (6,453)
Corporate conversion and initial public offering related costs — 1,521 — 1,521
SkyWater Florida start-up costs (1)
158 504 560 504
Management transition expense
— 435 — 435
Fair value changes in contingent consideration (2)
— (942) — (886)
Equity-based compensation (3)
2,118 6,768 5,334 7,003
Management fees (4)
— 56 — 332
Net income attributable to non-controlling interests (5)
826 757 1,685 1,515
Adjusted EBITDA $ (1,602) $ (804) $ (6,437) $ 4,825


	Second Quarter Ended				Six Months Ended
	July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022

	(in thousands)
Net loss attributable to SkyWater Technology, Inc.	$	(8,590)	$	(13,005)	$	(12,863)	$	(29,611)
Interest expense	2,950		1,040		5,421		2,069
Income tax (benefit) expense	25		63		25		(131)
Depreciation and amortization	7,207		7,198		14,559		13,657
EBITDA	1,592		(4,704)		7,142		(14,016)
Equity-based compensation (1)	1,967		2,118		3,820		5,334
Net income attributable to noncontrolling interests (2)	2,066		826		2,773		1,685
Management transition expense (3)	835		—		835		—
SkyWater Florida start-up costs (4)	—		158		—		560




Adjusted EBITDA	$	6,460	$	(1,602)	$	14,570	$	(6,437)

__________________

(1)Represents start-up costs associated with our 200 mm advanced packaging facility in Kissimmee, Florida, which includes legal fees, recruiting expenses, retention awards and facility start-up expenses. These expenses are not indicative of our ongoing costs and will be discontinued following completion of the start-up of SkyWater Florida.

~~(2)Represents non-cash valuation adjustment of contingent consideration to fair market value during the period.~~

~~(3)~~Represents non-cash equity-based compensation expense.

~~(4)~~Represents a related party transaction with Oxbow, our principal stockholder. As these fees are not part of the core business, did not continue after our IPO and are excluded from management’s assessment of the business, we believe it is useful to investors to view our results excluding these fees.

~~(5)~~(2)Represents net income attributable to our VIE, which was formed for the purpose of purchasing ~~our~~the land and building ~~with the proceeds~~ of ~~a bank loan.~~our Bloomington, Minnesota headquarters. Since depreciation and interest expense are excluded from net loss in our adjusted EBITDA financial measure, we also exclude the net income attributable to the VIE.

(3)Represents severance and other costs related to the reorganization of the manufacturing and operations leadership team.

(4)Represents start-up costs associated with our 200 mm heterogeneous integration facility in Kissimmee, Florida, which includes legal fees, recruiting expenses, retention awards and facility start-up expenses. These expenses are not representative of our expected ongoing costs. Effective 2023, our Kissimmee, Florida plant is up and running and no longer in its start-up phase.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss arising from adverse changes in market rates and prices. Currently, our market risks relate to potential changes in the fair value of our debt due to fluctuations in applicable market interest rates. In the future, our market risk exposure generally will be limited to those risks that arise in the normal course of business, as we do not engage in speculative, non-operating transactions, nor do we utilize financial instruments or derivative instruments for trading purposes.

Credit Risk

Financial instruments that potentially subject us to credit risk are cash and cash equivalents and accounts receivable. Cash balances are maintained in financial institutions, which at times exceed federally insured limits. We monitor the financial condition of the financial institutions in which our accounts are maintained and have not experienced any losses in such accounts. We perform ongoing credit evaluations as to the financial condition of our customers with respect to trade receivables. Generally, no collateral is required as a condition of sale. Our consideration of the need for an allowance for doubtful accounts is based upon current market conditions and other factors.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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Our management, with the participation of our President and Chief Executive Officer and our Chief Financial Officer, our principal executive officer and principal financial officer, respectively, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of July ~~3, 2022.~~2, 2023.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the ~~SEC’s~~Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our President and Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures, our President and Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of July ~~3, 2022~~2, 2023 due to the material weaknesses in our internal control over financial reporting described below. In light of this fact, our management has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstanding the material weaknesses in our internal control over financial reporting, the condensed consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.

Previously Reported Material Weaknesses in Internal Control over Financial Reporting

As disclosed in Item 9A. "Controls and Procedures" in our Annual Report on Form 10-K for the year ended January ~~2, 2022,~~1, 2023, we previously identified material weaknesses in our internal control over financial reporting. As of July ~~3, 2022,~~2, 2023, we have material weaknesses in the Control Environment, Risk Assessment and Control Activities components of the COSO ~~framework, including the~~framework. As an emerging growth company, we have limited accounting and finance resources. We continue to implement policies, procedures, and internal controls to improve our control environment and risk assessment ~~due to our~~and we have hired certain employees that have had a limited ~~accounting and finance resources, which~~period of time in their roles. The material weakness in Control Activities has resulted in ~~inappropriate preparation, review and maintenance of documentation and information that is critical to~~deficiencies in the design and ~~consistent execution~~implementation of controls, that individually, or in the aggregate, were considered a material weakness in certain processes, including financial reporting and ~~monitoring~~administration of ~~internal controls. We did not sufficiently design, implement, and maintain control activities~~accounting information technology primarily related to our inventory and time recording systems that impact revenue recording, as well as the ~~recording~~operation of ~~revenue to sufficiently assess~~our controls in the ~~obligations for proper accounting, review of the completion of performance obligations and recognition of revenue.~~expenditures process. These material weaknesses could result in a material misstatement of account balances or disclosures ~~that would result~~ in ~~a material misstatement to~~ the annual or interim financial statements that would not be prevented or ~~detected.~~detected on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

Remediation Plan

To address our material weaknesses, we have developed a ~~2022 Sarbanes-Oxley 404 Remediation Plan which includes the various timing for implementation and documentation of policies, procedures, and controls across all our various processes. In executing the~~ remediation plan ~~we have created additional roles within~~focused on the ~~financial reporting group. Certain~~hiring and training of ~~these roles have been filled~~accounting and finance resources with ~~permanent employees~~the appropriate background and ~~others with contractors while we search for permanent employees. The individuals who filled these roles have significant Sarbanes-Oxley experience. In addition, collectively, they have several years~~experiences, including the hiring of ~~experience in the public~~a corporate controller or other senior accounting ~~sector as well as working with large public companies who are compliant with Sarbanes Oxley 404.~~

~~Also, in the second quarter of 2022, we have completed~~position, and the design and implementation of ~~the internal~~ controls in the financial reporting, administration of accounting information technology, and ~~revenue accounting areas.~~ expenditures processes.

While we believe that these efforts ~~have improved~~will improve our internal control over financial reporting, the design and ~~revenue,~~implementation of our ~~remediated controls~~remediation plan is ongoing and will require ~~the~~validation and testing of the design and operating effectiveness of our internal controls over a sustained ~~period of time to conclude they are remediated.~~

period. The actions ~~that~~ we are taking are subject to ongoing senior management review, as well as ~~audit committee~~Audit Committee oversight. We will not be able to conclude whether the steps we are taking will fully remediate the material weaknesses in our internal control over financial reporting until we have completed our remediation ~~efforts~~plan and ~~subsequent evaluation~~evaluated the effectiveness of ~~their effectiveness.~~our internal control over financial reporting. Until these weaknesses are remediated, we ~~plan to~~will continue to perform additional analyses and other procedures to ensure that our ~~condensed~~ consolidated financial statements are prepared in accordance with U.S. GAAP.

Changes in Internal Control Over Financial Reporting

Other than completion of the design of the internal controls in the financial reporting and revenue accounting areas and the creation of the additional roles within the financial reporting group, as discussed above, thereThere was no change in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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We are not presently a party to any litigation the outcome of which, we believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows or financial condition.

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Item 1A. Risk ~~Factors~~Factor

This Quarterly Report on Form 10-Q should be read in conjunction with the risk factors included in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended January ~~2, 2022.~~1, 2023. There have been no material changes to the risk factors disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended January ~~2, 2022.~~1, 2023, except for the risk factor set forth below.

Recent events affecting the financial services industry could negatively impact our business, financial condition and results of operations.

The closures in early-2023 of Silicon Valley Bank, Signature Bank and Silvergate Capital Corporation, as well as acquisitions of Credit Suisse and First Republic Bank at regulators’ behest, have created bank-specific and broader financial institution liquidity risks and concerns. While we did not have deposits at any of these institutions, uncertainty remains over potential impacts of such bank closures and acquisitions on the financial markets and broader global economy, and our business, our customers and suppliers, and/or our industry as a whole may be adversely impacted in ways that we cannot predict at this time.

If other banks and financial institutions enter receivership or become insolvent in the future, our ability to access our existing cash and cash equivalents may be threatened. In addition, if our customers, suppliers or other parties with whom we conduct business are unable to access funds, such parties' ability to pay or perform their obligations to us or to enter into new commercial arrangements requiring additional payments to us could be adversely affected. Moreover, continued volatility and disruptions in the capital and credit markets could affect our ability to obtain future financing on a timely basis, on commercially reasonable terms or at all. Any of these factors could adversely affect our business, financial condition and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

The following is a list of all exhibits filed or furnished as part of this report:


Exhibit Number						Description

3.1						Certificate of Incorporation of SkyWater Technology, Inc. (incorporated by reference to the Company’s Registration Statement on Form S-1 filed with the SEC on April 12, 2021)

3.2						Bylaws of SkyWater Technology, Inc. (incorporated by reference to the Company’s Registration Statement on Form S-1 filed with the SEC on April 12, 2021)

10.1+						SkyWater Technology, Inc. 2021 Equity Incentive Plan (incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on April 25, 2023).

10.2+						SkyWater Technology, Inc. 2021 Employee Stock Purchase Plan (incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on April 25, 2023).



31.1						Certification of the Chief Executive Officer pursuant to Exchange Act Rules Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2						Certification of the Chief Financial Officer pursuant to Exchange Act Rules Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*						Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350

32.2*						Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350

101.INS						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH						XBRL Taxonomy Extension Schema Document

101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						XBRL Taxonomy Extension Definition Linkbase Document

101.LAB						XBRL Taxonomy Extension Label Linkbase Document

101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document

104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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* The certifications furnished in Exhibit 32.1 and Exhibit 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.

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

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	SkyWater Technology, Inc.

Date: August ~~17, 2022~~10, 2023	By:	/s/ Thomas Sonderman
	Thomas Sonderman President and Chief Executive Officer (Principal Executive Officer)

	By:	/s/ Steve Manko
	Steve Manko Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

4237


	Class A Units			Class B Units			Common Units			Preferred Stock			Common Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Total Shareholders’ Equity (Deficit), SkyWater Technology, Inc.		Non-controlling Interests		Total Shareholders’ Equity (Deficit)
	Units	Amount		Units	Amount		Units	Amount		Shares	Amount		Shares	Amount
Balance at April 4, 2021	—	$	—	18,000	$	—	2,106	$	3,772	—	$	—	—	$	—	$	—	$	(6,594)	$	(2,822)	$	(1,791)	$	(4,613)
Corporate Conversion	—	—		(18,000)	—		(2,106)	(3,772)		—	—		31,056	311		3,461		—		—		—		—
Issuance of common stock sold in initial public offering, net of issuance costs	—	—		—	—		—	—		—	—		8,004	80		100,082		—		100,162		—		100,162
Stock-based compensation	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—	$	6,539	$	—	$	6,539	$	—	$	6,539
Balance at Distribution to VIE member	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—	$	—	$	—	$	—	$	(392)	$	(392)
Balance at Net income (loss)	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—	$	—	$	(6,979)	$	(6,979)	$	757	$	(6,222)
Balance at July 4, 2021	—	—		—	—		—	—		—	—		39,060	391		110,082		(13,573)		96,900		(1,426)		95,474

Balance at April 3, 2022	—	$	—	—	$	—	—	$	—	—	$	—	39,905	$	399	$	118,873	$	(71,085)	$	48,187	$	(678)	$	47,509


Issuance of common stock pursuant to stock-based compensation awards and ESPP	—	—		—	—		—	—		—	—		545	5		781		—		786		—		786
Stock-based compensation	—	—		—	—		—	—		—	—		—	—		2,043		—		2,043		—		2,043

Distribution to VIE member	—	—		—	—		—	—		—	—		—	—		—		—		—		(530)		(530)
Net income (loss)	—	—		—	—		—	—		—	—		—	—		—		(13,005)		(13,005)		826		(12,179)
Balance at July 3, 2022	—	$	—	—	$	—	—	$	—	—	$	—	40,450	$	404	$	121,697	$	(84,090)	$	38,011	$	(382)	$	37,629


	Six Months Ended July 4, 2021
	Topic 606 Revenue
	Point-in-Time		Over Time		Lease Revenue		Total Revenue
Wafer Services	$	24,331	$	—	$	—	$	24,331
Advanced Technology Services
T&M	—		21,484		—		21,484
Fixed Price	—		41,141		—		41,141
Other	—		—		2,334		2,334
Total Advanced Technology Services	—		62,625		2,334		64,959
Total revenue	$	24,331	$	62,625	$	2,334	$	89,290


	July 3, 2022		January 2, 2022
Accounts receivable, net:
Trade accounts receivable	$	23,901	$	23,022
Unbilled revenue (contract assets)	26,005		16,303


Other receivables	—		56
Total accounts receivable, net	$	49,906	$	39,381


	Number of Stock Options (in thousands)	Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value (in thousands)		Weighted-Average Remaining Contractual Life
Balance outstanding as of January 2, 2022	986	$	14.29
Granted	549	$	11.24
Exercised	—	$	—
Forfeited or canceled	(99)	$	13.25
Balance outstanding as of July 3, 2022	1,436	$	13.22	$	—	7.03 years
Balance vested and exercisable as of July 3, 2022	435	$	14.00	$	—	5.49 years


	Number of Restricted Common Stock Units (in thousands)	Weighted Average Grant Date Fair Value Per Share
Balance outstanding as of January 2, 2022	1,745	$	8.34
Granted	409	$	9.68
Vested	(991)	$	8.51
Forfeited or canceled	(73)	$	14.63
Balance outstanding as of July 3, 2022	1,090	$	8.18


	July 3, 2022		January 2, 2022
Cash and cash equivalents	$	282	$	475
Prepaid expenses	341		192
Finance receivable	37,549		37,437
Other assets	256		200
Total assets	$	38,428	$	38,304
Accounts payable	$	916	$	1,232
Accrued expenses	607		479
Debt	37,287		37,793
Total liabilities	$	38,810	$	39,504


	Three Months Ended July 3, 2022		Six Months Ended July 3, 2022
Operating lease cost	$	13	$	26
Finance lease cost:
Amortization of assets	495		842
Interest on lease liabilities	234		322
Variable lease cost	—		—
Total net lease cost	$	742	$	1,190


Fiscal Year	Operating Leases		Finance Leases		Total
Remainder of 2022	$	24	$	1,288	$	1,312
2023	50		1,458		1,508
2024	51		1,234		1,285
2025	54		1,155		1,209
2026	—		1,157		1,157
Thereafter	—		11,977		11,977
Total lease payments	179		18,269		18,448
Less imputed interest	(15)		(7,474)		(7,489)
Total lease liabilities	$	164	$	10,795	$	10,959