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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q10-Q/A
(Amendment No. 1)
______________________
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: July 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 Logo.jpg
SkyWater Technology, Inc.
(Exact name of registrant as specified in its charter)
______________________
Delaware37-1839853
(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 ClassTrading
Symbol		Name of Each Exchange
on Which Registered
Common stock, par value $0.01 per shareSKYTThe 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 filerxSmaller reporting companyx
Emerging growth companyx
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 7, 2023, the number of shares of common stock, $0.01 par value, outstanding was 46,283,552.


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EXPLANATORY NOTE

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FORWARD-LOOKING STATEMENTS
This Amendment No. 1 to the Quarterly Report on Form 10-Q contains statements that(this “Amendment”) of SkyWater Technology, Inc. ("SkyWater,"(the “Company” or “we”) amends 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 thisCompany’s Quarterly Report on Form 10-Q including, without limitation,for the Company's expectations regarding its business, results of operations, financial conditionquarter ended July 2, 2023, which was originally filed with the U.S. Securities and prospects,Exchange Commission (the “SEC”) on August 11, 2023 (the “Original Q2 Form 10-Q”).We are forward-looking statements. When used infiling 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.
Forward-looking statements are subject to a number of risks, uncertainties and assumptions. Key factors that may affect the Company's results include, among others, the following:
•its goals and strategies;
•its future business development, financial condition and results of operations;
•its ability to continue operating its sole semiconductor foundry at full capacity;
•its ability to appropriately respond to changing technologies on a timely and cost-effective basis;
•its customer relationships and its ability to retain and expand its customer relationships;
•its ability to accurately predict its future revenuesAmendment for the purpose of appropriately budgeting and adjusting its expenses;
•its expectations regarding dependence on largest customers;
•its ability to diversify its customer base and develop relationships in new markets;
•the performance and reliability of its third-party suppliers and manufacturers;
•its ability to procure tools, materials, and chemicals amid industry-wide supply chain shortages;
•its ability to control costs, including its operating and capital expenses;
•the size and growth potentialfiling revised certifications required under Section 302 of the markets for its solutions, and its ability to serve and expand its presence in those markets;
•the level of demand in its customers’ end markets;
•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;
•its ability to raise additional capital or financing;
•its ability to accurately forecast demand;
•changes in local, regional, national and international economic or political conditions, including those resulting from rising inflation and interest rates, a recession, or intensified international hostilities;
•the level and timing of U.S. government program funding;
•its ability to maintain compliance with certain U.S. government contracting requirements;
•regulatory developments in the United States and foreign countries;
•its ability to protect its intellectual property rights; and
•other factors disclosed in the section entitled “Risk Factors” and elsewhere in the Company's Annual Report on Form 10-K for the year ended January 1, 2023 and this Quarterly Report on Form 10-Q.
Moreover, 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 SkyWater's actual results could differ materially and adversely from those expressed or implied in 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 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 SkyWater's views only as of the date hereof. SkyWater anticipates that subsequent events and developments will cause its views to change. However, SkyWater undertakes no obligation to update publicly any forward-looking statements to conform such statements to changes in its expectations or to 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 the Company's views as of any date subsequent to the date hereof.
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PART I. FINANCIAL INFORMATION
Item 1.    Financial Statements
SKYWATER TECHNOLOGY, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
July 2, 2023January 1, 2023
(in thousands, except share data)
Assets
Current assets:
Cash and cash equivalents$16,178 $30,025 
Accounts receivable, net77,085 62,670 
Inventories16,024 13,397 
Prepaid expenses and other current assets9,069 10,290 
Income tax receivable107 169 
Total current assets118,463 116,551 
Property and equipment, net169,540 179,915 
Intangible assets, net5,216 5,608 
Other assets5,517 3,690 
Total assets$298,736 $305,764 
Liabilities and shareholders' equity
Current liabilities:
Current portion of long-term debt$1,964 $1,855 
Accounts payable14,182 21,102 
Accrued expenses32,112 25,212 
Short-term financing, net of unamortized debt issuance costs54,233 55,817 
Deferred revenue - current27,943 28,186 
Total current liabilities130,434 132,172 
Long-term liabilities:
Long-term debt, less current portion and net of unamortized debt issuance costs34,778 35,181 
Long-term incentive plan— 1,643 
Deferred revenue - long-term59,839 67,967 
Deferred income tax liability, net1,202 1,239 
Other long-term liabilities9,601 13,585 
Total long-term liabilities105,420 119,615 
Total liabilities235,854 251,787 
Commitments and contingencies (Note 11)
Shareholders’ equity:
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; 45,399,761 and 43,704,876 shares issued and outstanding)454 437 
Additional paid-in capital166,179 147,304 
Accumulated deficit(107,310)(94,072)
Total shareholders’ equity, SkyWater Technology, Inc.59,323 53,669 
Noncontrolling interests3,559 308 
Total shareholders’ equity62,882 53,977 
Total liabilities and shareholders’ equity$298,736 $305,764 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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SKYWATER TECHNOLOGY, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months EndedSix Months Ended
July 2, 2023July 3, 2022July 2, 2023July 3, 2022
(in thousands, except share and per share data)
Revenue$69,811 $47,407 $135,905 $95,528 
Cost of revenue53,144 45,327 102,770 94,388 
Gross profit16,667 2,080 33,135 1,140 
Research and development2,396 2,361 5,063 4,643 
Selling, general and administrative expense17,820 10,795 32,716 22,485 
Operating income (loss)(3,549)(11,076)(4,644)(25,988)
Interest expense(2,950)(1,040)(5,421)(2,069)
Income (loss) before income taxes(6,499)(12,116)(10,065)(28,057)
Income tax expense (benefit)25 63 25 (131)
Net income (loss)(6,524)(12,179)(10,090)(27,926)
Less: net income attributable to noncontrolling interests2,066 826 2,773 1,685 
Net income (loss) attributable to SkyWater Technology, Inc.$(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.
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SKYWATER TECHNOLOGY, INC.
Condensed Consolidated Statements of Shareholders’ Equity
For the Three Months Ended July 2, 2023 and July 3, 2022
(dollars and shares in thousands)
(Unaudited)
Preferred StockCommon StockAdditional Paid-in CapitalRetained
Earnings
(Accumulated Deficit)		Total
Shareholders’ Equity,
 SkyWater Technology, Inc.		Noncontrolling
Interests		Total Shareholders’
Equity
SharesAmountSharesAmount
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.
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SKYWATER TECHNOLOGY, INC.
Condensed Consolidated Statements of Shareholders’ Equity (Deficit)
For the Six Months Ended July 2, 2023 and July 3, 2022
(dollars and shares in thousands)
(Unaudited)
Preferred StockCommon StockAdditional Paid-in CapitalAccumulated DeficitTotal
Shareholders’ Equity,
 SkyWater Technology, Inc.		Noncontrolling
Interests		Total Shareholders’
Equity
SharesAmountSharesAmount
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 $62,882 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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SKYWATER TECHNOLOGY, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
July 2, 2023July 3, 2022
(in thousands)
Cash flows from operating activities:
Net income (loss)$(10,090)$(27,926)
Adjustments to reconcile net income (loss) to net cash flows used in operating activities:
Depreciation and amortization14,559 13,657 
Amortization of debt issuance costs included in interest expense876 348 
Long-term incentive and stock-based compensation3,820 5,334 
Cash paid for contingent consideration in excess of initial valuation— (375)
Deferred income taxes(37)(137)
Cash paid for operating leases(12)— 
Cash paid for interest on finance leases(415)— 
Provision for credit losses3,602 — 
Changes in operating assets and liabilities:
Accounts receivable(17,425)(1,024)
Inventories(2,627)(3,865)
Prepaid expenses and other assets(606)(751)
Accounts payable and accrued expenses(1,344)6,047 
Deferred revenue(8,371)(5,170)
Income tax receivable and payable62 — 
Net cash used in operating activities(18,008)(13,862)
Cash flows from investing activities:
Purchase of software and licenses(612)(400)
Purchases of property and equipment(2,608)(5,463)
Net cash used in investing activities(3,220)(5,863)
Cash flows from financing activities:
Draws on revolving line of credit121,350 — 
Paydowns of revolving line of credit(123,810)— 
Net proceeds on Revolver— 18,946 
Net proceeds from tool financing496 — 
Repayment of VIE financing(791)(509)
Cash paid for principal on finance leases(456)(416)
Proceeds from the issuance of common stock pursuant to the employee stock purchase plan1,276 1,128 
Proceeds from the issuance of common stock, net of commissions12,144 — 
Cash paid on license technology obligations(2,350)(500)
Net contributions (distributions) from (to) noncontrolling interest(478)(867)
Net cash provided by financing activities7,381 17,782 
Net uses of cash and cash equivalents(13,847)(1,943)
Cash and cash equivalents - beginning of period30,025 12,917 
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
July 2, 2023July 3, 2022
(in thousands)
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Interest$3,825 $1,857 
Income taxes— 3 
Noncash investing and financing activity:
Capital expenditures incurred, not yet paid$2 $6,972 
Equipment acquired through capital lease obligations1 9,008 
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 and per share data)
Note 1 Nature of Business
SkyWater Technology, Inc., together with its consolidated subsidiaries (collectively, "SkyWater", the "Company", “it”, or “its”), is a U.S.-based, independent, pure-play technology foundry that offers advanced semiconductor development and manufacturing services from its fabrication facility, or fab, in Minnesota and advanced packaging services from its Florida facility. SkyWater's technology-as-a-service model leverages a strong foundation of proprietary technology to co-develop process technology intellectual property with its customers that enables disruptive concepts through 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, SkyWater supports customers with volume production of ICs for high-growth markets through its Wafer Services.
SkyWater is an emerging growth company, as defined in the Jumpstart Our Business StartupsSarbanes-Oxley Act of 2012.2002 by the Company’s principal executive officer and principal financial officer, as Exhibits 31.1 and 31.2 herewith (the “Exhibits”), to correct an inadvertent omission of certain language regarding internal control over financial reporting required to be included in such certifications by Item 601(b)(31)(i) of Regulation S-K.
Note 2 Basis of Presentation and Principles of Consolidation
The condensed consolidated financial statements as of July 2, 2023, and for the three and six months ended July 2, 2023 and July 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 SkyWater's audited consolidated financial statements and the related notes thereto as of January 1, 2023 and for the year then ended. The unaudited interim condensed consolidatedBecause no 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 the Company's financial position as of July 2, 2023 and results of operations, shareholders' equity, and cash flows for the three and six months ended July 2, 2023 and July 3, 2022.
The results of operations for the three and six months ended July 2, 2023 are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2023, or for any other interim period, or for any other future year.
Principles of Consolidation
The condensed consolidated financial statements include the Company's assets, liabilities, revenues, and expenses, as well as the assets, liabilities, revenues, and expenses of the Company's subsidiaries in which it has a controlling financial interest, SkyWater Technology Foundry, Inc. (“SkyWater Technology Foundry”), SkyWater Federal, LLC (“SkyWater Federal”), SkyWater Florida, Inc. (“SkyWater Florida”), and Oxbow Realty Partners, LLC ("Oxbow Realty"), a variable interest entity (“VIE”) for which SkyWater is the primary 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.
Liquidity and Cash Requirements
The accompanying 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 2, 2023, the Company incurred losses of $8,590 and $12,863, respectively. As of July 2, 2023, the Company had cash and cash equivalents of $16,178.
SkyWater's ability to execute its operating strategy is dependent on its ability to maintain liquidity and continue to access capital through the Revolver (as defined in Note 6 – Debt) and other sources of financing. The current business plans indicate that the Company may require additional liquidity to continue to operate for the next 12 months from the issuance of the condensed consolidated financial statements. The Company has identified specific actions that can be taken to reduce operating costs and improve cash flow, including reductions in spending and delays in hiring certain personnel. If such actions are taken, it may require the Company to decrease its level of investment in new products and technologies, or discontinue further expansion of its business. The Company also obtained a support letter from Oxbow Industries, LLC ("Oxbow Industries"), an affiliate of 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 beyond the issuance of these financial statements. Based upon SkyWater's operating forecasts, its cash and cash equivalents on hand, available borrowings on 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 Oxbow Industries, as needed, management believes SkyWater will have sufficient liquidity to fund its operations for the next twelve 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.
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 the Company's current resources and plans to potentially reduce expenses are insufficient to satisfy the Company's cash requirements, it may need to seek additional equity or debt financing. The Company's ability to do so depends on prevailing economic conditions and other factors, many of which are beyond SkyWater's control.
Use of Estimates
The preparation of 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.
Net Loss Per Share
Basic net loss per common 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 the Company reported a net loss for the three and six months ended July 2, 2023 and July 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 2, 2023 and Julythis Amendment, paragraph 3 2022, there were restricted stock units and stock options totaling 2,483,000 and 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 2, 2023 and July 3, 2022:
Three Months EndedSix Months Ended
July 2, 2023July 3, 2022July 2, 2023July 3, 2022
(in thousands, except per share data)
Numerator:
Net loss attributable to SkyWater Technology, Inc.$(8,590)$(13,005)$(12,863)$(29,611)
Denominator:
Weighted-average common shares outstanding, basic and diluted44,743 40,203 44,280 40,032 
Net loss per common share, basic and diluted$(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. SkyWater operates and manages its business as a single operating segment.
Note 3 Summary of Significant Accounting Policies
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SKYWATER TECHNOLOGY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited in thousands, except share and per share data)
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") issued Accounting Standards Update ("ASU") No. 2016-02, "Leases", later codified in FASB Accounting Standards 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 year ending January 1, 2023. The guidance in Topic 842 supersedes the guidance in ASC Topic 840, "Leases". Under Topic 842, lessees are required to recognize lease right of use assets and lease liabilities on the balance sheet. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. The 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 operating leases. The adoption of Topic 842 resulted in 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 ASU No. 2016-13, "Measurement of Credit Losses on Financial Instruments", later codified in Topic 326, "Financial Instruments – Credit Losses" ("Topic 326"). Topic 326 replaces the preexisting guidance that only required the recognition of credit losses when losses were probable and estimable. Topic 326 now requires recognition of credit losses based on SkyWater's expectation of losses to be incurred while the financial instrument is held. Topic 326 was effective for most public business entities for fiscal years beginning after December 15, 2019. As an emerging growth company, SkyWater adopted Topic 326 on January 2, 2023 using the modified retrospective approach. Upon adoption, the Company increased its accumulated deficit by $375 for the effects of increasing its allowance for credit losses as of January 2, 2023. All other impacts to SkyWater's financial position, results of operations and cash flows were immaterial.
Note 4 Revenue
Wafer Services Contract
In March 2022, the Company signed a contract with a significant wafer services customer. Per the terms of the contract, orders placed by the customer are non-cancellable and SkyWater has an enforceable right 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. 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. 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. The contract terms and pricing is applicable to all in-process and future wafers. The Company recorded revenue of $8,230 in the three months ended April 3, 2022 to account for recognition of wafer services activities in 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 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 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 2, 2023
Topic 606 Revenue
Point-in-TimeOver TimeLease RevenueTotal Revenue
Wafer Services$3,238 $13,564 $— $16,802 
Advanced Technology Services
Time & materials contracts— 27,914 — 27,914 
Fixed price contracts— 23,928 — 23,928 
Other— — 1,167 1,167 
Total Advanced Technology Services 1
— 51,842 1,167 53,009 
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-TimeOver TimeLease RevenueTotal 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 and per share data)
Six Months Ended July 2, 2023
Topic 606 Revenue
Point-in-TimeOver TimeLease RevenueTotal Revenue
Wafer Services$7,188 $27,401 $— $34,589 
Advanced Technology Services
Time & materials contracts— 55,746 — 55,746 
Fixed price contracts— 43,236 — 43,236 
Other— — 2,334 2,334 
Total Advanced Technology Services 1
— 98,982 2,334 101,316 
Total revenue$7,188 $126,383 $2,334 $135,905 
__________________
1 Total Advanced Technology Services revenue includes $1,472 of tool revenue.

Six Months Ended July 3, 2022
Topic 606 Revenue
Point-in-TimeOver TimeLease RevenueTotal 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 EndedSix Months Ended
July 2, 2023July 3, 2022July 2, 2023July 3, 2022
United States$59,920 $38,550 $118,122 $80,908 
Hong Kong2,983 2,104 6,002 $3,040 
Canada2,117 1,864 4,506 3,534 
United Kingdom3,770 1,443 3,874 $3,224 
All others1,021 3,446 3,401 4,822 
$69,811 $47,407 $135,905 $95,528 

The following customers accounted for 10% or more of revenue for the three and six months ended July 2, 2023 and July 3, 2022:
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SKYWATER TECHNOLOGY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited in thousands, except share and per share data)
Three Months EndedSix Months Ended
July 2, 2023July 3, 2022July 2, 2023July 3, 2022
Customer A21 %21 %20 %20 %
Customer B18 %28 %19 %34 %
Customer E13 %*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 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 were $28,572 and $34,625 at July 2, 2023 and January 1, 2023, respectively, and are included in accounts receivable, net in the Company's condensed consolidated balance sheets.
Contract Liabilities
The contract liabilities and other significant components of deferred revenue are as follows:
 July 2, 2023January 1, 2023
Contract
Liabilities		Deferred
Lease Revenue		Total
Deferred Revenue		Contract
Liabilities		Deferred
Lease Revenue		Total
Deferred Revenue
Current$23,276 $4,667 $27,943 $23,519 $4,667 $28,186 
Long-term55,561 4,278 59,839 61,356 6,611 67,967 
Total$78,837 $8,945 $87,782 $84,875 $11,278 $96,153 
The decrease in contract liabilities from January 1, 2023 to July 2, 2023 was primarily the result of completion of specific performance obligations for the Company's customers. 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 during the six months ended July 3, 2022.
Remaining Performance Obligations
As of July 2, 2023, the Company had approximately $130,707 of remaining performance obligations that had not been fully satisfied on contracts with an original expected duration of one year or more, which were primarily related to Advanced Technology Services contracts. The Company expects to recognize those revenues as it satisfies its performance obligations, which do not exceed 6.5 years.
The Company does not disclose the value of remaining performance obligations for contracts with an original expected duration of one year or less. Further, the Company does not adjust the promised amount of consideration for the effects of financing if it expects, at contract inception, that the period between when 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 the Company's condensed consolidated balance sheets are summarized in the following tables:
July 2, 2023January 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 EndedSix Months Ended
Allowance for credit losses:July 2, 2023July 3, 2022July 2, 2023July 3, 2022
Balance at beginning of period4,167 — 1,638 — 
Add
Adoption of Credit Loss Standard (Topic 326)— — 375 — 
Provision for credit losses1,448 — 3,602 — 
Deduct
Accounts written-off1,220 — 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, 2023January 1, 2023
Inventories:
Raw materials$4,352 $3,991 
Work-in-process59 359 
Supplies and spare parts11,613 9,047 
Total inventories—current16,024 13,397 
Supplies and spare parts classified as other assets3,042 2,605 
Total inventories$19,066 $16,002 
July 2, 2023January 1, 2023
Prepaid expenses and other current assets:
Prepaid expenses$1,828 $2,395 
Prepaid inventory374 129 
Equipment purchased for customers 1
5,669 5,669 
Deferred contract costs748 2,097 
Other450 — 
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 equipment, the Company recorded costs incurred to date within prepaid expenses and other current assets.
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SKYWATER TECHNOLOGY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited in thousands, except share and per share data)
July 2, 2023January 1, 2023
Property and equipment, net:
Land$5,396 $5,396 
Buildings and improvements88,182 88,141 
Machinery and equipment193,074 187,276 
Fixed assets not yet in service7,089 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, 2023January 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 2, 2023 and July 3, 2022, amortization of software and licensed technology was $507 and $518, respectively, and $1,003 and $943 for the six months ended July 2, 2023 and July 3, 2022, respectively.
Remaining estimated aggregate annual amortization expense is as follows for the years ending:
Amortization
Expense
Remainder of 2023$728 
20241,018 
2025816 
2026590 
2027308 
Thereafter1,756 
Total$5,216 
July 2, 2023January 1, 2023
Other assets:
Supplies and spare parts$3,042 $2,605 
Deferred contract costs352 — 
Operating lease right-of-use assets119 141 
Other assets2,004 944 
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 and per share data)
July 2, 2023January 1, 2023
Accrued expenses:
Accrued compensation$8,172 $5,705 
Licensed technology1,000 1,500 
Accrued commissions267 30 
Accrued fixed asset expenditures— 20 
Accrued royalties4,162 4,734 
Current portion of operating lease liabilities46 44 
Current portion of finance lease liabilities627 786 
Accrued inventory1,782 1,294 
Accrued consulting fees3,820 — 
Other accrued expenses12,236 11,099 
Total accrued expenses$32,112 $25,212 
July 2, 2023January 1, 2023
Other long-term liabilities:
Finance lease obligations$9,525 $9,257 
Operating lease liability76 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 January 1, 2023 are as follows:
July 2, 2023January 1, 2023
Revolver$57,796 $60,093 
VIE Financing36,299 36,826 
Tool financing loan3,102 3,037 
Unamortized debt issuance costs 1
(6,222)(7,103)
Total long-term debt, including current maturities90,975 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 Unamortized debt issuance costs as of July 2, 2023 included $3,563 for the Revolver (as defined below) and $2,659 for the VIE Financing (as defined below). Unamortized debt issuance costs as of January 1, 2023 included $4,277 for the Revolver and $2,826 for the VIE Financing.
Revolver
The outstanding balance of the revolving line of credit (the “Revolver”) under the Company's Loan and Security Agreement with Siena Lending Group LLC was $57,796 as of July 2, 2023 at an interest rate of 11.6% due in December 2025. The remaining availability under the Revolver was $34,635 as of July 2, 2023. As of July 2, 2023, the Company was 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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SKYWATER TECHNOLOGY, INC.
Notes 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 the building and land associated with SkyWater's primary operating location in 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 the Revolver, the VIE Financing, and tool financing loan, excluding unamortized debt issuance costs, are as follows:
Remainder of 2023$58,801 
20242,103 
20252,185 
20261,752 
20271,219 
Thereafter31,137 
Total$97,197 
Note 7 Income Taxes
The Company's effective tax rates for each of the threecertifications set forth in the Exhibits has been omitted and six months ended July 2, 2023 and July 3, 2022 differ from its 21% statutory tax rates duewe are not filing currently dated certifications pursuant to state income taxes, permanent tax differences, the tax impactSection 906 of the vestingSarbanes-Oxley Act of restricted stock units and changes2002. Except as specifically noted above, this Amendment does not modify or update disclosures in 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 inOriginal Q2 Form 10-Q. This Amendment does not reflect events occurring after the specific quarter of resolution. The effective income tax rate for the three months ended July 2, 2023 and July 3, 2022 was (0.4)% and (0.5)%, respectively, and the effective income tax rate for the six months ended July 2, 2023 and July 3, 2022 was (0.2)% and 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 partfiling 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 $20,734 and $19,855 was recorded as of July 2, 2023 and January 1, 2023, respectively, to reduce the net deferred tax assets to the amount that is more likely than not to be realized.
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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. If applicable, the Company would accrue income taxOriginal Q2 Form 10-Q or modify or update any related interest and penalties in income tax expense in its condensed consolidated statement of operations. There were no interest or penalties incurred during the three and six months ended July 2, 2023 and July 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
On September 2, 2022, SkyWater entered into an Open Market Sale Agreement with Jefferies LLC with respect to an at the market offering program (the "ATM Program"). Pursuant to the agreement, the Company may, from time to time, offer and sell up to $100,000 in shares of the Company’s common 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 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 $9.72 per share, resulting in gross proceeds of approximately $7,575 before deducting sales commissions and fees of approximately $227.
As of July 2, 2023, approximately $82,506 in shares were available for issuance under the Open Market Sale Agreement. Taking into account the sales that settled subsequent to July 2, 2023, approximately $74,930 in shares are available for issuance under the ATM Program as of the date of this report.
Note 9 Share-Based Compensation
Share-based compensation expense was allocated in the condensed consolidated statements of operations as follows:
Three Months EndedSix Months Ended
July 2, 2023July 3, 2022July 2, 2023July 3, 2022
Cost of revenue$291 $534 $804 $1,574 
Research and development217 127 379 333 
Selling, general and administrative expense1,459 1,382 2,637 3,143 
$1,967 $2,043 $3,820 $5,050 
Note 10 Fair Value Measurements
ASC Topic 820, "Fair Value Measurement and Disclosure" (Topic 820), defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses the fair value hierarchy defined in Topic 820 to categorize assets and liabilities subject to fair value reporting into three levels, as follows, based on the inputs used to derive the fair value of these balances.
•Level 1 – Quoted prices in active markets for identical assets or liabilities;
•Level 2 – Inputsdisclosures, other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
•Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Level 3 inputs were used in the valuation of the Company's contingent consideration obligation. The change in level 3 assets measured at fair value on a recurring basis is summarized as follows:
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SKYWATER TECHNOLOGY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited in thousands, except share and per share data)
Six Months Ended
July 2, 2023July 3, 2022
Beginning balance$— $816 
Payments— (375)
Change in fair value— — 
Ending balance$— $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.
Non-financial assets, such as property and equipment and intangible assets, are initially recorded at acquisition cost when acquired, or at fair value if acquired via a business combination. Non-financial assets are remeasured at fair value only if it is determined the net cost basis is not recoverable pursuant to ASC Topic 360, "Property, Plant and Equipment."
Note 11 Commitments and Contingencies
Litigation
From time to time, the Company is involved in legal proceedings and subject to claims arising in the ordinary course of its business. Although the results of litigation and claims cannot be predicted with certainty, the Company currently believes that the resolution of these ordinary-course matters will not have a material adverse effect on its business, operating results, financial condition or cash flows. Even if any particular litigation is resolved in a manner that is favorable to the Company's interests, such litigation can have a negative impact on its results because of defense and settlement costs, diversion of management resources from its business and other factors.
Capital Expenditures
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 its Minnesota facility. The Company has approximately $8.6 million of contractual commitments outstanding as of July 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 serves as its primary operating location in Kissimmee, Florida. Under the CfN Lease, the Company agrees to 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 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 the Build Back Better Regional Challenge, a portion of which is committed to the expansion of the CfN clean room and purchase and installation of tools and machinery in the 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 fundthose discussed herein. Accordingly, this matching contribution is limited to $1,000 in any single calendar quarter.
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SKYWATER TECHNOLOGY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited in thousands, except share and per share data)
Note 12 Related Party Transactions
In August 2022, SkyWater entered into an agreement with Oxbow Industries to provide funding in an amount up to $12,500, if necessary, to enable the Company to meet its obligations as they become due. In March 2023, the agreement was amended to extend the term through March 2025. No amounts have been provided to the Company under this agreement.
Sale-Leaseback Transaction
On September 29, 2020, SkyWater entered into an agreement to sell the land and building representing its primary operating location in Bloomington, Minnesota to Oxbow 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. 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 2, 2023 were as follows (such amounts are eliminated from the Company's condensed consolidated financial statements due to the consolidation of Oxbow Realty, see Note 13 – Variable Interest Entity):
Remainder of 20232,474 
20245,031 
20255,132 
20265,234 
20275,339 
Thereafter78,776 
Total lease payments101,986 
Less: imputed interest(74,246)
Total$27,740 
Note 13 Variable Interest Entity
Oxbow Realty was established by Oxbow for the purpose of holding real estate and facilitating real estate transactions. This included the purchase of 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 SkyWater (see Note 12 – Related Party Transactions). Management determined that Oxbow Realty meets the definition of a VIE under FASB Topic 810, "Consolidation" ("Topic 810"), because it lacks sufficient equity to finance its activities. Furthermore, the Company is the primary beneficiary of Oxbow Realty as it has the power to direct 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, the Company consolidates the assets, liabilities and results of operations of Oxbow Realty pursuant to Topic 810, eliminating any transactions between the Company and Oxbow Realty, and recording a noncontrolling interest for the economic interest in Oxbow Realty not owned by the Company because the owners of SkyWater's common stock do not legally have rights or obligations to the profits or 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 the Company as of July 2, 2023 and January 1, 2023. The assets and liabilities are presented prior to consolidation, and thus a portion of these assets and liabilities are eliminated in consolidation.
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SKYWATER TECHNOLOGY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited in thousands, except share and per share data)
July 2, 2023January 1, 2023
Cash and cash equivalents$20 $16 
Accounts receivable4,545 — 
Prepaid expenses21 860 
Finance receivable40,388 37,652 
Other assets746 256 
    Total assets$45,720 $38,784 
Accounts payable$4,280 $117 
Accrued expenses243 1,581 
Deferred revenue1,386 — 
Debt36,252 36,778 
    Total liabilities$42,161 $38,476 

The following table shows the revenue and expenses of Oxbow Realty for the three and six months ended July 2, 2023 and July 3, 2022. These amounts have been included, net of eliminations, in the notes to the condensed consolidated financial statements.
Three Months EndedSix Months Ended
July 2, 2023Three Months Ended
July 3, 2022July 2, 2023July 3, 2022
Revenue$2,631 $1,262 $3,949 $2,522 
General and administrative expenses252 102 545 179 
Interest expense313 334 631 658 
Total expenses565 436 1,176 837 
Net income$2,066 $826 $2,773 $1,685 
Note 14 Leases
SkyWater as the Lessor
In March 2020, SkyWater executed a contract with a customer that includes an operating lease for the right to use a specified portion of 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, 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 Note 4 – Revenue for additional information on revenue recognition and deferred revenue of the operating 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 the Company's financial condition and results of operationsAmendment should be read in conjunction with the condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report onOriginal Q2 Form 10-Q and the Company's audited consolidated financial statements and related notes, included in its Annual Report on Form 10-K forCompany’s other filings with the year ended January 1, 2023. In addition to historical financial information, the following discussion contains forward-looking statements that reflect the Company's current expectations, estimates and assumptions concerning events and financial trends that may affect 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 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 its Annual Report on Form 10-K.
SkyWater refersSEC subsequent to the three-month periods ended July 2, 2023 and July 3, 2022 as the second quarter of 2023 and second quarter of 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 SkyWater Technology, Inc. and its subsidiaries collectively.
Overview
We are a 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. Our technology-as-a-service model leverages a strong foundation of proprietary technology to co-develop process technology intellectual property, 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 pure-play technology foundry with Defense Microelectronics Activity (DMEA) Category 1A Trusted Accreditation from the U.S. Department of Defense, or DoD, 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.
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 (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, 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, or Cypress, as a captive manufacturing 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 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, 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 2023 and 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.
•On August 9, 2022, President Biden signed into law the Creating Helpful Incentives to Produce Semiconductors, or CHIPS, 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 $100 million, which we refer to as the Revolver (as defined below and in Note 6 – Debt), and a $37 million financing from the salefiling 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 and gross profit; and
•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 2023 Compared to the Second Quarter of 2022
The following table summarizes certain financial information relating to our operating results for the second quarter of 2023 and 2022.
Second Quarter EndedDollar
Change		Percentage
Change Favorable/(Unfavorable)
July 2,
2023 (1)		July 3,
2022 (1)
(in thousands)
Consolidated Statement of Operations Data:
Revenue$69,811 $47,407 $22,404 47 %
Cost of revenue53,144 45,327 7,817 17 %
Gross profit16,667 2,080 14,587 701 %
Research and development2,396 2,361 35 1 %
Selling, general and administrative expense17,820 10,795 7,025 65 %
Operating income (loss)(3,549)(11,076)7,527 68 %
Interest expense(2,950)(1,040)(1,910)(184)%
Income (loss) before income taxes(6,499)(12,116)5,617 46 %
Income tax expense (benefit)25 63 (38)(60)%
Net income (loss)(6,524)(12,179)5,655 46 %
Less: net income attributable to noncontrolling interests2,066 826 1,240 150 %
Net income (loss) attributable to SkyWater Technology, Inc.$(8,590)$(13,005)$4,415 34 %
Other Financial Data:
Adjusted EBITDA (2)$6,460 $(1,602)$8,062 nm
(1)The condensed consolidated statements of operations are for the second quarter of 2023 and the second quarter of 2022. The second quarter of 2023 and 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 2, 2023 Compared to the Six Months Ended July 3, 2022
The following table summarizes certain financial information relating to the Company's operating results for the six months ended July 2, 2023 and July 3, 2022.
Six Months EndedDollar
Change		Percentage
Change Favorable/(Unfavorable)
July 2,
2023 (1)		July 3,
2022 (1)
(in thousands)
Consolidated Statement of Operations Data:
Revenue$135,905 $95,528 $40,377 42 %
Cost of revenue102,770 94,388 8,382 9 %
Gross profit33,135 1,140 31,995 2,807 %
Research and development5,063 4,643 420 9 %
Selling, general and administrative expense32,716 22,485 10,231 46 %
Operating income (loss)(4,644)(25,988)21,344 82 %
Interest expense(5,421)(2,069)(3,352)(162)%
Income (loss) before income taxes(10,065)(28,057)17,992 64 %
Income tax expense (benefit)25 (131)156 nm
Net income (loss)(10,090)(27,926)17,836 64 %
Less: net income attributable to noncontrolling interests2,773 1,685 1,088 65 %
Net loss attributable to SkyWater Technology, Inc.$(12,863)$(29,611)$16,748 57 %
Other Financial Data:
Adjusted EBITDA (2)$14,570 $(6,437)$21,007 nm
(1)The condensed consolidated statements of operations are for the first six months of 2023 and the first six months of 2022. The first six months of 2023 and 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 second quarter of 2022, Revenue was $135.9 million for the first six months of 2023 compared to $95.5 million for the first six months of 2022. The increases in revenue were driven by an increase in Advanced Technology Services revenues.
The following table shows revenue by service type for the second quarter and the six months ended July 2, 2023 and July 3, 2022:
Second Quarter EndedSix Months Ended
July 2, 2023July 3, 2022July 2, 2023July 3, 2022
(in thousands)
Wafer Services$16,802 $17,584 $34,589 $39,130 
Advanced Technology Services53,009 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 medical industry end markets.
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 labor costs of $5.7 million and outside services costs of $1.4 million.
For the six months ended July 2, 2023, cost of revenue increased to $102.8 million from $94.4 million 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, a change in contract terms with a significant Wafer Services customer resulted in an additional $10.9 million in cost of revenue recognized during the six months ended July 3, 2022, partially offset by a $4.1 million adjustment to the net realizable value of wafer inventory, which lowered cost of goods sold in the six months ended July 3, 2022 relative to the six months ended July 2, 2023.
Research and development
Research and development costs remained flat for second quarter 2023 from second quarter 2022.
For the six months ended July 2, 2023, research and development costs increased to $5.1 million from $4.6 million for the six months ended July 3, 2022. The increase was primarily attributable to an increase in labor costs as a result of our continued investment in internal personnel.
Selling, general and administrative expense
Selling, general and administrative expense increased to $17.8 million for second quarter 2023, from $10.8 million for second quarter 2022. The increase of $7.0 million was primarily attributable to increases of $3.8 million in external fees, primarily consisting of management and operations consulting services, $1.5 million in labor costs as a result of the Company's continued investment in internal personnel, and $1.4 million in bad debt expense.
For the six months ended July 2, 2023, selling, general and administrative expense increased to $32.7 million from $22.5 million for the six months ended July 3, 2022. The increase of $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 result of the Company's continued investment in 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 $1.9 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 tax expense decreased to $0.0 million for the second quarter of 2023 from $0.1 million for the second quarter of 2022. The effective income tax rate for the second quarter of 2023 was (0.4)%, compared to an effective income tax rate of (0.5)% for the second quarter of 2022.
Income 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. The effective income tax rate for the six months ended July 2, 2023 was (0.2)%, compared to an effective income tax rate of 0.5% for the six months ended July 3, 2022. The income tax rate applied to our pre-tax losses for the three and six months ended July 2, 2023 and July 3, 2022 differs from the statutory tax rate of 21% primarily due to deferred tax asset valuation allowances.
Net income attributable to noncontrolling interests
Net income attributable to noncontrolling interests increased by $1.2 million to $2.1 million for second quarter 2023 from $0.8 million for second quarter 2022, and increased by $1.1 million to $2.8 million for the six months ended July 2, 2023 from $1.7 million for the six months ended July 3, 2022. Net income attributable to noncontrolling interests reflects the net income of Oxbow Realty, the variable interest entity ("VIE"), that we consolidate and represents the economic interest in the
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profits and losses of 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 increased $8.1 million to $6.5 million for second quarter 2023 from $(1.6) million for second quarter 2022. For the six months ended July 2, 2023, Adjusted EBITDA increased $21.0 million to $14.6 million from $(6.4) million for the six months ended July 3, 2022. The increases in both periods reflects increased revenues at higher margins as a result of the 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.
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 may require additional liquidity to continue our operations for the next twelve months from the issuance of the consolidated financial statements. We have identified specific actions we could take to reduce operating costs to improve cash flow, which 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. 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 us to meet our obligations as they become due through at least one year beyond the issuance of these financial statements. Based upon 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 Oxbow Industries, as needed, we believe we will have sufficient liquidity to fund SkyWater's operations for the next twelve months from the issuance of the consolidated financial statements.
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 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 $16.2 million in cash and cash equivalents, not including cash held by a VIE that we consolidate, and availability under our Revolver of $34.6 million as of July 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 ATM Program at an average sale price of $10.34 per share, resulting in gross proceeds of $13.5 million before deducting sales commissions and fees of $0.4 million. SkyWater used the net proceeds to fund its operations. See Note 8 – Shareholders’ Equity for information regarding the ATM Program.
Capital Expenditures
For the six months ended July 2, 2023, we spent approximately $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 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 the remainder of fiscal 2023.
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We have approximately $8.6 million of contractual commitments relating to various anticipated capital expenditures outstanding as of July 2, 2023 that we expect to be paid in the remainder of 2023, through either cash on hand or availability under our Revolver or other financing arrangements.
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 to 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 twelve months. However, we cannot be certain that we will be able to obtain future debt or equity financings on commercially reasonable terms sufficient to meet our cash requirements.
As of July 2, 2023, the outstanding balance of our Revolver was $57.8 million, and our remaining availability under the Revolver was $34.6 million. As of July 2, 2023, we were in compliance with applicable financial covenants of the Revolver and expect to be in compliance with applicable financial covenants over the next twelve months.
The following table sets forth general information derived from our condensed consolidated statement of cash flows for the first six months of 2023 and 2022:
Six Months Ended
July 2, 2023July 3, 2022
(in thousands)
Net cash used in operating activities$(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 2, 2023 and January 1, 2023, we had $16.2 million and $30.0 million of cash and cash equivalents, respectively. The VIE we consolidate did not maintain any cash and 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 activities performed. Net cash used in operating activities was $18.0 million during the first six months of 2023, an increase of $4.1 million from $13.9 million of cash used in operating activities during the first six months of 2022. The increase in cash used in operating activities during the first six months of 2023 was driven primarily by increases in our accounts receivable, net and deferred revenue during the period.
Investing Activities
Capital expenditures 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. The decrease in cash used in investing activities during the first six months of 2023 reflects decreased capital spending on property and equipment compared to the same period in 2022.
Financing Activities
Net cash provided by financing activities was $7.4 million during the first six months of 2023, a decrease of $10.4 million from net cash provided by financing activities of $17.8 million during the first six months of 2022. The decrease in net cash provided by financing activities during the first six months of 2023 was primarily driven by the net pay downs of our Revolver, partially offset by proceeds from the issuance of our common stock under our ATM Program and employee stock purchase 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 ("Oxbow Realty"), an entity controlled by our principal stockholder, CMI Oxbow Partners, LLC, for $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 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 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, 2022, we entered into a Loan and Security Agreement (the “Loan Agreement”) with Siena Lending Group LLC ("Siena"). The Loan Agreement provides for a revolving line of credit of up to $100 million with scheduled maturity date of December 28, 2025 (the "Revolver"). The 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 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 borrowing base sublimits applicable to each of 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 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 minimum of 2.5% per annum. The base rate is the greatest of the prime rate, the Federal funds rate plus 0.5%, and 7.0% per annum. The applicable margin is an applicable percentage based on the fix charged coverage ratio that ranges from 5.25% to 6.25% per annum for term SOFR loans and ranges from 4.25% to 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 last day of each calendar month commencing April 30, 2023 for the preceding twelve calendar months, prohibits unfunded capital expenditures in excess of $15 million calculated as of the last day of each calendar month commencing April 30, 2023 for the preceding twelve calendar months, and requires a minimum fixed charge coverage ratio, measured on a trailing 12 month basis, of not less than 1.00 to 1.00 if our liquidity is less than $15 million. In 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 assets, to merge or consolidate with other entities, and to make certain restricted payments, including payments of dividends to our stockholders. We were in compliance with the covenants of the 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 accordance with 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 onOriginal Q2 Form 10-K for the fiscal year ended January 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"). 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 are relevant at the time we 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, 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 1, 2023, except as set forth below.
Recent Accounting Pronouncements
For a description of our recently adopted accounting pronouncements and recently issued accounting standards not yet adopted, see 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 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 SkyWater Florida start-up costs, management transition expense, and net income attributable to 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.
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 EndedSix Months Ended
July 2, 2023July 3, 2022July 2, 2023July 3, 2022
(in thousands)
Net loss attributable to SkyWater Technology, Inc.$(8,590)$(13,005)$(12,863)$(29,611)
Interest expense2,950 1,040 5,421 2,069 
Income tax (benefit) expense25 63 25 (131)
Depreciation and amortization7,207 7,198 14,559 13,657 
EBITDA1,592 (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 non-cash equity-based compensation expense.
(2)Represents net income attributable to our VIE, which was formed for the purpose of purchasing the land and building of 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 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 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 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 1, 2023, we previously identified material weaknesses in our internal control over financial reporting. As of July 2, 2023, we have material weaknesses in the Control Environment, Risk Assessment and Control Activities components of the COSO 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 and we have hired certain employees that have had a limited period of time in their roles. The material weakness in Control Activities has resulted in deficiencies in the design and implementation of controls, that individually, or in the aggregate, were considered a material weakness in certain processes, including financial reporting and administration of accounting information technology primarily related to our inventory and time recording systems that impact revenue recording, as well as the operation of our controls in the expenditures process. These material weaknesses could result in a material misstatement of account balances or disclosures in the annual or interim financial statements that would not be prevented or 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 remediation plan focused on the hiring and training of accounting and finance resources with the appropriate background and experiences, including the hiring of a corporate controller or other senior accounting position, and the design and implementation of controls in the financial reporting, administration of accounting information technology, and expenditures processes.
While we believe that these efforts will improve our internal control over financial reporting, the design and implementation of our remediation plan is ongoing and will require validation and testing of the design and operating effectiveness of our internal controls over a sustained period. The actions we are taking are subject to ongoing senior management review, as well as 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 plan and evaluated the effectiveness of our internal control over financial reporting. Until these weaknesses are remediated, we will continue to perform additional analyses and other procedures to ensure that our consolidated financial statements are prepared in accordance with U.S. GAAP.
Changes in Internal Control Over Financial Reporting
There 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
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 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 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 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
3.2
10.1+
10.2+
31.1
31.2
32.1*#
32.2*#
101.INSInline 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.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
#    Previously furnished with the Original Q2 Form 10-Q
1

*    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 10,September 25, 2023By:/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)

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