UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

FORM 10-Q

______________________

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

For the quarterly period ended: ~~April 4,~~October 3, 2021

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

For the transition period from ________ to ________

Commission file number: 001-40345

______________________

SkyWater Technology, Inc.

(Exact name of registrant as specified in its charter)

______________________

Delaware

37-1839853

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

2401 East 86th Street, Bloomington, Minnesota 55425

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

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

______________________

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

Title of Each Class

Trading

Symbol

Name of Each Exchange

on Which Registered

Common stock, par value $0.01 per share

SKYT

The Nasdaq Stock Market LLC

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer

☐

Accelerated filer

☐¨

Non-accelerated filer

☒

Smaller reporting company

☒x

Emerging growth company

☒x

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 ~~May 14,~~November 4, 2021, the number of shares of common stock, $0.01 par value, outstanding was 39,059,743.

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SkyWater Technology, Inc.

TABLE OF CONTENTS


Forward-Looking Statements					3

~~Explanatory Note~~		4

~~PART I. FINANCIAL INFORMATION~~		5

Explanatory Note			5

PART I. FINANCIAL INFORMATION			6

Item 1.			Condensed Financial Statements (unaudited)			5	6

			Condensed Consolidated Balance Sheets ~~as of April 4, 2021 and January 3, 2021~~			5	6

			Condensed Consolidated Statements of Operations ~~for the Three Months ended April 4, 2021 and March 29, 2020~~			6	7

			Condensed Consolidated Statements of ~~Members’~~Shareholders’ Equity ~~(Deficit) for the Three Months ended April 4, 2021 and March 29, 2020~~			7	8

			Condensed Consolidated Statements of Cash Flows ~~for the Three Months ended April 4, 2021 and March 29, 2020~~			8	10

			Notes to Condensed Consolidated Financial Statements			9	12

Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			23	30

Item 3.			Quantitative and Qualitative Disclosures About Market Risk			32	42

Item 4.			Controls and Procedures			33

~~PART II. OTHER INFORMATION~~43		34

~~Item 1.~~ PART II. OTHER INFORMATION				~~Legal Proceedings~~44			34

Item ~~1A.~~ 1.	Legal Proceedings		~~Risk Factors~~44			34

Item 1A.	Risk Factors		44

Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			34	44

Item 3.			Defaults Upon Senior Securities			34	45

Item 4.			Mine Safety Disclosures			34	45

Item 5.			Other Information			34	45

Item 6.			Exhibits			34	45

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FORWARD-LOOKING STATEMENTS

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

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

•our goals and strategies;

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

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

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

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

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

•our expectations regarding dependence on our largest customers;

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

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

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

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

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

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

•our ability to attract, train and retain key qualified ~~personnel;~~

personnel in a competitive labor market;

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

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

•our ability to raise additional capital or financing;

•our ability to accurately forecast demand;

•the impact of the COVID-19 pandemic on our business, results of operations and financial ~~condition;~~

condition and our customers, suppliers and workforce;

•the impact of the COVID-19 pandemic on the global economy;

•the level and timing of US government program funding;

•our ability to maintain compliance with certain US government contracting requirements;

•regulatory developments in the United States and foreign countries;

•our ability to protect our intellectual property rights; and

•other factors disclosed in the section entitled “Risk Factors” and elsewhere in our IPO prospectus filed with the Securities and Exchange Commission on April 22, 2021 and in this Quarterly Report on Form 10-Q.

Moreover, our business, results of operations, financial condition and prospects may be affected by new risks that could emerge from time to time. In light of these risks, uncertainties and assumptions, the forward-looking events and outcomes discussed in this Quarterly Report on Form 10-Q may not occur and our actual results could differ materially and adversely from those expressed or implied in our forward-looking statements. No forward-looking statement is a guarantee of future

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performance. You should not rely on forward-looking statements as predictions of future events or outcomes. Although we believe that the expectations reflected in the forward-looking statements are reasonable, the results, levels of activity, performance or events and circumstances reflected in the forward-looking statements may not be achieved or occur.

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

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EXPLANATORY NOTE

On April 14, 2021, CMI Acquisition, LLC, a Delaware limited liability company, converted into SkyWater Technology, Inc., a Delaware corporation, as described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Corporate Conversion and Initial Public Offering.” We refer to this transaction herein as the “corporate conversion.” As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to the “Company,” “SkyWater,” “we,” “us,” or “our” refer to CMI Acquisition, LLC, a Delaware limited liability company, and its subsidiaries for periods beginning as of March 1, 2017 and ending immediately before the completion of our corporate conversion and to SkyWater Technology, Inc., a Delaware corporation and its subsidiaries for periods beginning with the completion of our corporate conversion and thereafter. In the corporate conversion, 18,000,000 Class B preferred units of CMI Acquisition, LLC converted into 27,995,400 shares of common stock of SkyWater Technology, Inc. using an approximate one-to-1.56 conversion ratio and 2,105,936 ~~Common Units~~common units of CMI Acquisition, LLC converted into 3,060,343 shares of common stock of SkyWater Technology, Inc. using an approximate one-to-1.45 conversion ratio.

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PART I. FINANCIAL INFORMATION

~~Item 1.~~

~~Financial Statements~~

~~CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as~~

Item 1. Financial Statements

SKYWATER TECHNOLOGY, INC.)

Condensed Consolidated Balance Sheets

(Unaudited)

   April 4, 2021 January 3, 2021
   (in thousands, except unit data)
Assets

Current assets:

Cash and cash equivalents
   $ 4,216 $ 7,436
Accounts receivable, net
   26,730 29,995
Inventories
   31,230 27,169
Prepaid expenses and other current assets
   8,009 11,972


Total current assets
   70,185 76,572


Property and equipment, net
   173,174 178,078
Intangible assets, net
   4,345 4,561
Other assets
   4,607 3,998


Total assets
   $ 252,311 $ 263,209


Liabilities and Members’ Equity (Deficit)

Current liabilities:

Current portion of long-term debt
   $ 3,853 $ 2,772
Accounts payable
   15,845 16,792
Accrued expenses
   22,107 25,496
Income taxes payable
   4,517 1,710
Current portion of contingent consideration
   6,641 8,904
Deferred revenue - current
   22,537 30,653


Total current liabilities
   75,500 86,327


Long-term liabilities:

Long-term debt, less current portion and unamortized debt issuance costs
   81,688 69,828
Contingent consideration, less current portion
   959 1,996
Long-term incentive plan
   3,415 3,185
Deferred revenue - long-term
   89,001 95,399
Deferred income tax liability, net
   6,361 8,058


Total long-term liabilities
   181,424 178,466


Total liabilities
   256,924 264,793


Commitments and contingencies

Members’ equity (deficit):

Class A Preferred Units (2,000,000 Class A Preferred Units authorized; none issued and outstanding)
   —   —
Class B Preferred Units (18,000,000 Class B Preferred Units authorized; 18,000,000 Units issued and outstanding)
   —   —
Common Units (5,000,000 Common Units authorized; 3,057,344 Units issued and 2,105,936 and 2,107,452 outstanding at April 4, 2021 and January 3, 2021, respectively)
   3,772 3,767
Retained deficit
   (6,594 ) (3,783 )


Total members’ deficit, CMI Acquisition, LLC
   (2,822 ) (16 )
Non-controlling interests
   (1,791 ) (1,568 )


Total members’ deficit
   (4,613 ) (1,584 )


Total liabilities and members’ deficit
   $ 252,311 $ 263,209


	October 3, 2021		January 3, 2021

	(in thousands, except share and unit data)
Assets
Current assets:
Cash and cash equivalents	$	8,458	$	7,436
Accounts receivable, net	35,086		29,995
Inventories	30,906		27,169
Prepaid expenses and other current assets	3,875		11,972
Total current assets	78,325		76,572
Property and equipment, net	184,142		178,078
Intangible assets, net	4,018		4,561
Other assets	5,200		3,998
Total assets	$	271,685	$	263,209
Liabilities and Shareholders’ Equity (Deficit)
Current liabilities:
Current portion of long-term debt	$	1,012	$	2,772
Accounts payable	12,213		16,792
Accrued expenses	15,109		25,496
Income taxes payable	382		1,710
Current portion of contingent consideration	1,700		8,904
Deferred revenue - current	24,772		30,653
Total current liabilities	55,188		86,327
Long-term liabilities:
Long-term debt, less current portion and unamortized debt issuance costs	34,589		69,828
Contingent consideration, less current portion	—		1,996
Long-term incentive plan	3,902		3,185
Deferred revenue - long-term	85,449		95,399
Deferred income tax liability, net	3,216		8,058
Other long-term liabilities	4,284		—
Total long-term liabilities	131,440		178,466
Total liabilities	186,628		264,793
Commitments and contingencies	0		0
Shareholders’ equity (deficit):
Preferred stock, $0.01 par value per share (80,000,000 and zero shares authorized; zero issued and outstanding)	—		—
Common stock, $0.01 par value per share (200,000,000 and zero shares authorized; 39,059,743 and zero shares issued and outstanding)	391		—
Additional paid-in capital	113,223		—
Class A preferred units (zero and 2,000,000 units authorized; zero issued and outstanding)	—		—
Class B preferred units (zero and 18,000,000 units authorized; zero and 18,000,000 units issued and outstanding)	—		—
Common units (zero and 5,000,000 units authorized; zero and 3,057,344 units issued; zero and 2,107,452 outstanding)	—		3,767
Accumulated deficit	(27,443)		(3,783)
Total shareholders’ equity (deficit), SkyWater Technology, Inc.	86,171		(16)
Non-controlling interests	(1,114)		(1,568)
Total shareholders’ equity (deficit)	85,057		(1,584)
Total liabilities and shareholders’ equity	$	271,685	$	263,209

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

~~CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as~~

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SKYWATER TECHNOLOGY, INC.)

Condensed Consolidated Statements of Operations

(Unaudited)

   Three Months Ended
   April 4, 2021 March 29, 2020
   (in thousands, except unit and
per unit data)
Net sales
   $ 48,101 $ 36,904
Cost of sales
   38,935 30,480


Gross profit
   9,166 6,424
Research and development
   1,927 662
Selling, general and administrative expenses
   8,603 5,633
Change in fair value of contingent consideration
   56 841


Operating loss
   (1,420 ) (712 )
Other expense:

Change in fair value of warrant liability
   —   (141 )
Interest expense
   (1,058 ) (1,462 )


Total other expense
   (1,058 ) (1,603 )


Loss before income taxes
   (2,478 ) (2,315 )
Income tax benefit
   (425 ) (943 )


Net loss
   (2,053 ) (1,372 )
Less: net income attributable to non-controlling interests
   758 —


Net loss attributable to CMI Acquisition, LLC
   $ (2,811 ) $ (1,372 )


Net loss per unit attributable to Common Unitholders, basic and diluted:
   $ (1.04 )


Net loss per unit attributable to Class B Preferred Unitholders, basic and diluted:
   $ (0.08 )


Weighted average units used in computing net loss per Common Unit, basic and diluted:
   3,060,343


Weighted average units used in computing net loss per Class B Preferred Unit, basic and diluted:
   18,000,000


	Three Months Ended				Nine Months Ended
	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020

	(in thousands, except share, unit and per share and unit data)
Revenue	$	35,025	$	33,003	$	124,315	$	100,666
Cost of revenue	36,852		25,725		115,164		81,502
Gross profit (loss)	(1,827)		7,278		9,151		19,164
Research and development	2,253		1,088		7,519		2,536
Selling, general and administrative expenses	9,626		5,765		33,644		18,319
Change in fair value of contingent consideration	(1,670)		(200)		(2,556)		1,353
Operating income (loss)	(12,036)		625		(29,456)		(3,044)
Other income (expense):
Paycheck Protection Program loan forgiveness	—		—		6,453		—
Change in fair value of warrant liability	—		(660)		—		(900)
Interest expense	(733)		(1,303)		(2,703)		(4,087)
Total other expense	(733)		(1,963)		3,750		(4,987)
Loss before income taxes	(12,769)		(1,338)		(25,706)		(8,031)
Income tax expense (benefit)	194		316		(4,468)		288
Net loss	(12,963)		(1,654)		(21,238)		(8,319)
Less: net income attributable to non-controlling interests	907		—		2,422		—
Net loss attributable to SkyWater Technology, Inc.	$	(13,870)	$	(1,654)	$	(23,660)	$	(8,319)
Net loss per share attributable to common shareholders, basic and diluted:	$	(0.36)			$	(0.94)
Net loss per unit attributable to Class B preferred unitholders, basic and diluted:			$	(0.09)			$	(0.46)
Weighted average shares used in computing net loss per common share, basic and diluted:	39,059,743				25,609,281
Weighted average units used in computing net loss per Class B preferred unit, basic and diluted:			18,000,000				18,000,000

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

~~CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as~~

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SKYWATER TECHNOLOGY, INC.)

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

For the Three Months Ended October 3, 2021 and September 27, 2020

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

(Unaudited)

                  Total
                  Retained
Earnings
(Deficit) Members’ Equity
(Deficit), CMI
Acquisition, LLC Total Members’
Equity (Deficit)
   Class A Units    Class B Units    Common Units Non-controlling
   Units    Amount    Units    Amount    Units Amount Interests
Members’ equity—December 29, 2019
   —      $ —      18,000    $ —      —   $ 7,333    $ 16,834 $ 24,167 $ —   $ 24,167
Unit-based compensation
   —      —      —      —      —   488    —   488 —   488
Net loss
   —      —      —      —      —   —      (1,372 ) (1,372 ) —   (1,372 )












Members’ equity—March 29, 2020
   —      $ —      18,000    $ —      —   $ 7,821    $ 15,462 $ 23,283 $ —   $ 23,283












Members’ equity (deficit)—January 3, 2021
   —      $ —      18,000    $ —      2,108 $ 3,767    $ (3,783 ) $ (16 ) $ (1,568 ) $ (1,584 )
Unit-based compensation
   —      —      —      —      —   5    —   5 —   5
Other
   —      —      —      —      (2 ) —      —   —   —   —
Distribution to VIE member
   —      —      —      —      —   —      —   —   (981 ) (981 )
Net income (loss)
   —      —      —      —      —   —      (2,811 ) (2,811 ) 758 (2,053 )












Members’ equity (deficit)—April 4, 2021
   —      $ —      18,000    $ —      2,106 $ 3,772    $ (6,594 ) $ (2,822 ) $ (1,791 ) $ (4,613 )


	Class A Units			Class B Units			Common Units			Preferred Stock			Common Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Total Shareholders’ Equity (Deficit), SkyWater Technology, Inc.		Non-controlling Interests		Total Shareholders’ Equity (Deficit)
	Units	Amount		Units	Amount		Units	Amount		Shares	Amount		Shares	Amount
Balance at June 28, 2020	—	$	—	18,000	$	—	—	$	7,821	—	$	—	—	$	—	$	—	$	10,169	$	17,990	$	—	$	17,990

Net loss	—	—		—	—		—	—		—	—		—	—		—		(1,654)		(1,654)		—		(1,654)
Balance at September 27, 2020	—	$	—	18,000	$	—	—	$	7,821	—	$	—	—	$	—	$	—	$	8,515	$	16,336	$	—	$	16,336

Balance at July 4, 2021	—	$	—	—	$	—	—	$	—	—	$	—	39,060	$	391	$	110,082	$	(13,573)	$	96,900	$	(1,426)	$	95,474



Stock-based compensation	—	—		—	—		—	—		—	—		—	—		3,141		—		3,141		—		3,141

Distribution to VIE member	—	—		—	—		—	—		—	—		—	—		—		—		—		(595)		(595)
Net income (loss)	—	—		—	—		—	—		—	—		—	—		—		(13,870)		(13,870)		907		(12,963)
Balance at October 3, 2021	—	$	—	—	$	—	—	$	—	—	$	—	39,060	$	391	$	113,223	$	(27,443)	$	86,171	$	(1,114)	$	85,057

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

~~CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as~~

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SKYWATER TECHNOLOGY, INC.)

Condensed Consolidated Statements of ~~Cash Flows~~

Shareholders’ Equity

For the Nine Months Ended October 3, 2021 and September 27, 2020

(dollars, units and shares in thousands)

(Unaudited)

   Three Months Ended
   April 4, 2021 March 29, 2020
   (in thousands)
Cash flows from operating activities:

Net loss
   $ (2,053 ) $ (1,372 )
Adjustments to reconcile net loss to net cash flows provided by (used in) operating activities:

Depreciation and amortization
   6,482 4,322
Foundry services obligation
   —   (2,055 )
Gain on sale of property and equipment
   —   (223 )
Amortization of debt issuance costs included in interest expense
   160 387
Long-term incentive and unit-based compensation
   235 676
Change in fair value of warrant liability
   — �� 141
Change in fair value of contingent consideration
   56 841
Cash paid for contingent consideration in excess of initial valuation
   (3,356 ) —
Deferred income taxes
   (1,697 ) 1,146
Non-cash revenue related to customer equipment
   (2,481 ) —
Changes in operating assets and liabilities:

Accounts receivable
   3,265 13,754
Inventories
   (4,061 ) 474
Prepaid expenses and other assets
   4,546 (3,993 )
Accounts payable
   3,595 (696 )
Accrued expenses
   (1,408 ) 5,835
Deferred revenue
   (14,514 ) 33,489
Income tax payable and receivable
   2,807 (2,275 )


Net cash (used in) provided by operating activities
   (8,424 ) 50,451


Cash flows from investing activities:

Purchase of software and licenses
   (219 ) —
Proceeds from sale of property and equipment
   —   650
Purchases of property and equipment
   (5,178 ) (11,425 )


Net cash used in investing activities
   (5,397 ) (10,775 )


Cash flows from financing activities:

Repayment of term loan
   —   (1,787 )
Net repayment on line of credit
   —   (9,822 )
Net proceeds from Revolver
   13,030 —
Repayment of Financing
   (249 ) —
Cash paid for debt issuance costs
   —   (100 )
Cash paid for offering costs
   (1,199 ) —
Cash paid for contingent consideration
   —   (2,539 )
Distributions to VIE member
   (981 ) —


Net cash provided by (used in) financing activities
   10,601 (14,248 )


Net change in cash and cash equivalents
   (3,220 ) 25,428
Cash and cash equivalents - beginning of period
   7,436 4,605


Cash and cash equivalents - end of period
   $ 4,216 $ 30,033


Supplemental disclosure of cash flow information:

Cash paid (received) during the period for:

Interest
   $ 1,009 $ 1,166
Income taxes
   $ (1,534 ) $ —
Supplemental disclosures of noncash investing and financing activity:

Capital expenditures incurred, not yet paid
   $ 6,622 $ 12,853
Equipment acquired through capital lease obligations
   $ 2,470 $ —


	Class A Units			Class B Units			Common Units			Preferred Stock			Common Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Total Shareholders’ Equity (Deficit), SkyWater Technology, Inc.		Non-controlling Interests		Total Shareholders’ Equity (Deficit)
	Units	Amount		Units	Amount		Units	Amount		Shares	Amount		Shares	Amount
Balance at December 29, 2019	—	$	—	18,000	$	—	—	$	7,333	—	$	—	—	$	—	$	—	$	16,834	$	24,167	$	—	$	24,167
Unit-based compensation	—	—		—	—		—	488		—	—		—	—		—		—		488		—		488
Net loss	—	—		—	—		—	—		—	—		—	—		—		(8,319)		(8,319)		—		(8,319)
Balance at September 27, 2020	—	$	—	18,000	$	—	—	$	7,821	—	$	—	—	$	—	$	—	$	8,515	$	16,336	$	—	$	16,336

Balance at January 3, 2021	—	$	—	18,000	$	—	2,108	$	3,767	—	$	—	—	$	—	$	—	$	(3,783)	$	(16)	$	(1,568)	$	(1,584)
Unit-based compensation	—	—		—	—		—	5		—	—		—	—		—		—		5		—		5
Other	—	—		—	—		(2)	—		—	—		—	—		—		—		—		—		—
Corporate conversion	—	—		(18,000)	—		(2,106)	(3,772)		—	—		31,056	311		3,461		—		—		—		—
Issuance of common stock sold in initial public offering, net of issuance costs	—	—		—	—		—	—		—	—		8,004	80		100,082		—		100,162		—		100,162
Stock-based compensation	—	—		—	—		—	—		—	—		—	—		9,680		—		9,680		—		9,680
Distribution to VIE member	—	—		—	—		—	—		—	—		—	—		—		—		—		(1,968)		(1,968)
Net income (loss)	—	—		—	—		—	—		—	—		—	—		—		(23,660)		(23,660)		2,422		(21,238)
Balance at October 3, 2021	—	$	—	—	$	—	—	$	—	—	$	—	39,060	$	391	$	113,223	$	(27,443)	$	86,171	$	(1,114)	$	85,057

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

~~CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as~~

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SKYWATER TECHNOLOGY, INC.)

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Nine Months Ended
October 3,
2021 September 27,
2020
(in thousands)
Cash flows from operating activities:
Net loss $ (21,238) $ (8,319)
Adjustments to reconcile net loss to net cash flows (used in) provided by operating activities:
Depreciation and amortization 20,300 13,113
Gain on Paycheck Protection Program loan forgiveness (6,453) —
Foundry services obligation — (3,732)
Gain on sale of property and equipment (74) (1,124)
Amortization of debt issuance costs included in interest expense 530 1,126
Long-term incentive and stock-based compensation 10,403 1,051
Change in fair value of warrant liability — 900
Change in fair value of contingent consideration (2,556) 1,353
Cash paid for contingent consideration in excess of initial valuation (6,644) (1,255)
Deferred income taxes (4,841) (567)
Non-cash revenue related to customer equipment (2,481) —
Changes in operating assets and liabilities:
Accounts receivable (5,091) 17,545
Inventories (3,737) (7,939)
Prepaid expenses and other assets 4,713 (11,353)
Accounts payable 178 2,102
Accrued expenses (3,091) 14,005
Deferred revenue (15,831) 76,984
Income tax payable and receivable (1,328) (2,221)
Net cash (used in) provided by operating activities (37,241) 91,669
Cash flows from investing activities:
Purchase of software and licenses (819) (1,879)
Proceeds from sale of property and equipment 149 1,676
Purchases of property and equipment (29,777) (65,513)
Net cash used in investing activities (30,447) (65,716)
Cash flows from financing activities:
Proceeds from issuance of common stock pursuant to the initial public offering, net of underwriting discounts and commissions 104,212 —
Cash paid for offering costs (1,867) (1,443)
Proceeds from Paycheck Protection Program loan — 6,453
Repayment of term loan — (3,361)
Net repayment on line of credit — (9,702)
Net repayment on Revolver (30,289) —
Repayment of Financing (787) —
Cash paid for capital leases (591) —
Cash paid for debt issuance costs — (100)
Cash paid for contingent consideration — (3,998)
Distributions to VIE member (1,968) —
Net cash provided by (used in) financing activities 68,710 (12,151)
Net change in cash and cash equivalents 1,022 13,802
Cash and cash equivalents - beginning of period 7,436 4,605
Cash and cash equivalents - end of period $ 8,458 $ 18,407

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)

Nine Months Ended
October 3,
2021 September 27,
2020
(in thousands)
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 2,164 $ 4,034
Income taxes 1,897 2,600
Noncash investing and financing activity:
Capital expenditures incurred, not yet paid $ 4,997 $ 21,513
Equipment acquired through capital lease obligations 3,437 —
The accompanying notes are an integral part of these condensed consolidated financial statements.
11

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SKYWATER TECHNOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

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

Note 1 Nature of Business

~~CMI Acquisition, LLC (now known as~~

SkyWater Technology, Inc.), together with its consolidated subsidiaries (collectively, “we”, “us”, “our”, or “SkyWater”), is a U.S. investor-owned, independent, pure-play technology foundry that offers advanced semiconductor development and manufacturing services from our fabrication facility, or fab, in Minnesota and advanced packaging services from our Florida facility. In our technology as a service model, we leverage a strong foundation of proprietary technology to co-develop process technology intellectual property 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 these differentiated technology development services, we support customers with volume production of ICs for high-growth markets through our Wafer Services.

Emerging Growth Company Status

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

Corporate Conversion and Initial Public Offering

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

On April 23, 2021, we completed our initial public offering (“IPO”) and issued 8,004,000 shares of common stock, including the underwriter’s exercise of their right to purchase additional shares, at an initial offering price to the public of $14.00 per share. We received net proceeds from the IPO of approximately ~~$100,312~~$100,162 after deducting underwriting discounts and commissions of $7,844 and offering costs of approximately ~~$3,900.~~

$4,050.

Shares of common stock began trading on the Nasdaq Stock Market on April 21, 2021 under the symbol “SKYT”. The shares were registered under the Securities Act on a registration statement on Form S-1, which was declared effective by the Securities and Exchange Commission (“SEC”) on April 20, 2021.

We ~~expect~~have used or intend to use the proceeds from the IPO to pay down our Revolver, fund capital expenditures, and for working capital and other general corporate purposes, which may include financing our growth and funding additional capital expenditures. ~~We may also use~~On July 26, 2021, we announced that our Board of Directors approved $56 million in strategic capital investments for expanding manufacturing capacity and technology capabilities at our Minnesota facility. The majority of this investment is targeted to expand capacity and capabilities at our Minnesota fab which is expected to increase our output. The strategic capital investment is a ~~portion of~~multi-year strategy and we invested approximately $10,700 during the ~~proceeds from the offering for acquisitions or strategic investments in businesses or technologies, although we do not currently have any plans or commitments for any such acquisitions or investments.~~

three months ended October 3, 2021.

Note 2 Basis of Presentation and Principles of Consolidation

The condensed consolidated financial statements as of ~~April 4,~~October 3, 2021, and for the three and nine months ended ~~April 4,~~October 3, 2021 and ~~March 29,~~September 27, 2020, are presented in thousands of U.S. dollars (except ~~unit~~share and per ~~unit~~share information), are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all financial information and disclosures required by U.S. GAAP for complete financial statements. These unaudited interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the related notes thereto as of January 3, 2021. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of our financial position as of ~~April 4,~~October 3, 2021, ~~and~~ our results of operations ~~cash flows~~ and ~~members’~~shareholders' equity ~~(deficit)~~ for the three and nine months ended ~~April 4,~~October 3, 2021 and ~~March 29,~~September 27, 2020, and our cash flows for the nine months ended October 3, 2021 and September 27, 2020.

~~CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as~~

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SKYWATER TECHNOLOGY, INC.)

Notes to Condensed Consolidated Financial Statements

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

The results of operations for the three and nine months ended ~~April 4,~~October 3, 2021 are not necessarily indicative of the results of operations to be expected for the year ending January 2, 2022, or for any other interim period, or for any other future year.

Principles of Consolidation

Our condensed consolidated financial statements include our assets, liabilities, revenues, and expenses, as well as the assets, liabilities, revenues, and expenses of subsidiaries in which we have a controlling financial interest, SkyWater Technology Foundry, Inc. (“SkyWater Technology Foundry”), SkyWater Federal, LLC (“SkyWater Federal”), and SkyWater Florida, Inc. (“SkyWater Florida”), and variable interest entities (“VIE”) for which we are the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation.

The condensed consolidated statements of operations, ~~members’~~shareholders’ equity ~~(deficit)~~ and cash flows are for the three and nine months ended ~~April 4,~~October 3, 2021 and ~~March 29,~~September 27, 2020, and the condensed consolidated statement of cash flows are for the nine months ended October 3, 2021 and September 27, 2020. The three and nine months ended ~~April 4,~~October 3, 2021 and ~~March 29,~~September 27, 2020 ~~contained~~each consisted of 13 ~~weeks.~~

and 39 weeks, respectively.

Use of Estimates

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

COVID-19

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

our workforce of vaccine mandates.

Net Loss Per ~~Unit~~

We calculate basic and diluted net loss per common share in conformity with the two-class method required for companies with participating securities. Our previously outstanding Class B ~~Preferred Units contain~~preferred units met the criteria of a participating security as they contained the rights to an 8% “preferred return” on the deemed original equity value of each such Class B ~~Preferred Unit~~preferred unit (accrued daily since the date of issuance of each such Class B ~~Preferred Unit) and therefore meet the criteria of a participating security.~~preferred unit). Under the two-class method, income or losses are allocated between the ~~Common Units~~common shareholders and the Class B ~~Preferred Units.~~preferred unitholders. The two-class method includes an allocation formula that determines income or loss per unit for each class according to preferred dividends and undistributed earnings or losses for the period. Our reported net loss for the ~~three~~nine months ended ~~April 4,~~October 3, 2021 is increased by the amount allocated to the Class B ~~Preferred Units~~preferred units to arrive at the loss allocated to ~~Common Unitholders~~common shareholders for purposes of calculating net loss per ~~unit.~~share. For the three and nine months ended ~~March 29,~~September 27, 2020, we did not apply the two-class method ~~as no Common Units~~since only Class B preferred units were ~~outstanding.~~outstanding and were thus the lowest level of equity subordination. As a result of our April 2021 corporate conversion and IPO, the number of ~~units~~common shares used to compute ~~earnings~~net loss per ~~Common Unit~~common share for ~~pre-conversion~~ ~~periods~~the nine months ended October 3, 2021 were retrospectively adjusted to reflect the conversion akin to a split-like situation. Our

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SKYWATER TECHNOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

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

historical balance sheets reflect the number of ~~Common Units~~common units outstanding prior to the corporate conversion and no adjustment was made.

~~CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as SKYWATER TECHNOLOGY, INC.)~~

~~Notes to Condensed Consolidated Financial Statements~~

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

Basic net loss per ~~unit~~share is calculated by dividing the net loss by the weighted-average number of ~~units~~shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per ~~unit~~share is computed by dividing the net loss by the weighted-average number of ~~units~~shares and potentially dilutive securities outstanding for the year determined using the treasury-stock method. Because we reported a net loss for the three and nine months ended ~~April 4,~~October 3, 2021 and ~~March 29,~~September 27, 2020, the number of ~~units~~shares used to calculate diluted net loss per ~~unit~~common share is the same as the number of units used to calculate basic net loss per ~~unit~~common share because the potentially dilutive ~~units~~shares would have been anti-dilutive if included in the calculation. ~~Common Unit~~At October 3, 2021, there were restricted stock units and stock options totaling ~~3,052,672 have been~~4,072,000 excluded from the computation of diluted weighted-average ~~units outstanding for the three moths ended March 29, 2020~~ because ~~such securities~~their inclusion would have ~~an anti-dilutive impact.~~been anti-dilutive. There were no ~~Common Unit~~restricted stock units and stock options outstanding ~~during the three months ended April 4, 2021.~~

at September 27, 2020.

The following table sets forth the computation of basic and diluted net loss per ~~unit attributable to Common Unitholders~~common share for the three and nine months ended October 3, 2021:


	Three Months Ended October 3, 2021		Nine Months Ended October 3, 2021

	(in thousands, except per share data)
Numerator:
Net loss attributable to SkyWater Technology, Inc.	$	(13,870)	$	(23,660)
Undistributed preferred return to Class B preferred unitholders	—		(398)
Net loss attributable to common shareholders	$	(13,870)	$	(24,058)
Denominator:
Weighted-average common shares outstanding, basic and diluted (1)	39,060		25,609
Net loss per common share, basic and diluted	$	(0.36)	$	(0.94)

__________________

(1)The weighted-average common shares outstanding for the nine months ended October 3, 2021 reflects the retrospective adjustment for the April ~~4, 2021:~~

   Three Months Ended
   April 4, 2021
Numerator:

Net loss attributable to CMI Acquisition, LLC
   $ (2,811 )
Undistributed preferred return to Class B Preferred Unitholders
   (359 )


Net loss attributable to Common Unitholders
   $ (3,170 )


Denominator:

Weighted-average Common Units outstanding, basic and diluted (1)
   3,060,343


Net loss per unit attributable to Common Unitholders, basic and diluted
   $ (1.04 )

~~(1)~~

~~This number reflects the April 14, 2021 corporate conversion of 2,105,936 Common Units into 3,060,343 shares of common stock.~~

14, 2021 corporate conversion of 2,105,936 common units into 3,060,343 shares of common stock. The April 14, 2021 corporate conversion of 18,000,000 Class B preferred units into 27,995,400 shares of common stock is reflected prospectively on the date of conversion for the nine months ended October 3, 2021.

The following table sets forth the computation of basic and diluted net loss per unit attributable to Class B ~~Preferred Unitholders~~preferred unitholders for the three and nine months ended ~~March 29,~~September 27, 2020. There were no ~~Common Units~~common units outstanding during the period.

   Three Months Ended
   March 29, 2020
Numerator:

Net loss attributable to CMI Acquisition, LLC
   $ (1,372 )
Denominator:

Weighted-average Class B Preferred Units outstanding, basic and diluted
   18,000,000


Net loss per unit attributable to Class B Preferred Unitholders, basic and diluted
   $ (0.08 )

Three Months Ended
September 27, 2020 Nine Months Ended
September 27, 2020
(in thousands, except per unit data)
Numerator:
Net loss attributable to SkyWater Technology, Inc. $ (1,654) $ (8,319)
Denominator:
Weighted-average Class B preferred units outstanding, basic and diluted 18,000 18,000
Net loss per unit attributable to Class B preferred unitholders, basic and diluted $ (0.09) $ (0.46)

Center for NeoVation

Through our subsidiary, SkyWater Florida, we entered into several agreements on January 25, 2021 with the government of Osceola County, Florida (“Osceola”) and ICAMR, Inc., a Florida non-profit corporation (“BRIDG”), to operate the Center for NeoVation (“CfN”), a semiconductor research and development and manufacturing facility. These agreements included a technology and economic development agreement (the “TED Agreement”), a lease agreement (the “CfN Lease”) and a semiconductor line operation agreement (the “LOA”). Under the TED Agreement and the CfN Lease, we agreed to operate the

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SKYWATER TECHNOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

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

CfN, including certain semiconductor manufacturing equipment, and an advanced water treatment facility currently owned by Osceola for a period of at least 23 years for a lease payment of $1.00 per year. During the period of the CfN Lease, we are responsible for taxes, utilities, insurance, maintenance and operation of those assets. We may terminate the TED Agreement and CfN Lease with 18 months’ notice. In the event we terminate the agreements, we would be required to continue to operate the center until we find a replacement operator or the 18 months expire and may be required to make a payment of up to $15,000 to Osceola.

We are accounting for the CfN Lease as a lease. Given the nominal minimum lease payments required under the lease, ~~($23.00),~~ no assets were initially recognized on our condensed consolidated balance sheet. As we perform under the agreements, expenses we incur and any revenue we are able to generate from the operations of CfN will be included in our condensed consolidated statements of operations as they are incurred or earned. If we are able to reach and maintain full capacity in the CfN for a minimum period of 20 years, Osceola

~~CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as SKYWATER TECHNOLOGY, INC.)~~

~~Notes to Condensed Consolidated Financial Statements~~

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

will convey the land, buildings and equipment to us for no consideration at the end of the CfN Lease. At such time that we believe the conveyance of the land, buildings and equipment is reasonably assured, we will record those assets on our condensed consolidated balance sheet at fair value and record a corresponding deferred gain. We will subsequently ~~amortize~~depreciate the ~~depreciable~~ assets over their remaining economic life and recognize an equivalent amount of income from the amortization of the deferred gain.

Operating Segment Information

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

Note 3 Summary of Significant Accounting Policies

Our audited consolidated financial statements include an additional discussion of the significant accounting policies and estimates used in the preparation of our consolidated financial statements. There were no material changes to our significant accounting policies and estimates during the three and nine months ended ~~April 4,~~October 3, 2021.

Contingent Consideration

Royalties of ~~$3,356~~$530 and ~~$2,539~~$0 were paid during the three months ended ~~April 4,~~October 3, 2021 and ~~March 29,~~September 27, 2020, respectively, and $6,644 and $5,253 during the nine months ended October 3, 2021 and September 27, 2020, respectively. During the ~~same periods,~~three months ended October 3, 2021 and September 27, 2020, we recorded royalty expense (benefit) of ~~$56~~$(1,670) and ~~$841~~$(200), respectively, to reflect the change in fair value of the contingent consideration obligation in our condensed consolidated statements of operations.

During the nine months ended October 3, 2021 and September 27, 2020, we recorded royalty expense (benefit) of $(2,556) and $1,353, respectively, to reflect the change in fair value of the contingent consideration obligation in our condensed consolidated statements of operations.

Recently Issued Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU ~~2016-02,~~2016-2, Leases (“Topic 842”). The guidance in this ASU supersedes the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. The standard is effective for public business entities for fiscal years beginning after December 15, 2018. As an emerging growth company, we intend to adopt the new standard on January 3, 2022 for our year ending January 1, 2023. ~~However if we lose our emerging growth company status prior to our intended adoption date, we may be required to adopt the new standard in the year we lose such status.~~ We do not expect adopting Topic 842 will have a material impact on our condensed consolidated financial statements.

In June 2016, the FASB issued a new credit loss accounting standard, ASU 2016-13, Current Expected Credit Losses (“Topic 326”). This guidance replaces the current allowance for loan and lease loss accounting standard and focuses on estimation of expected losses over the life of the loans instead of relying on incurred losses. The standard is effective for certain public business entities for fiscal years beginning after December 15, 2019. As an emerging growth company, we intend to adopt the new standard on January 2, 2023 for our year ending December 31, 2023. However if we lose our emerging growth

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SKYWATER TECHNOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

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

company status prior to our intended adoption date, we may be required to adopt the new standard in the year we lose such status. We do not expect adopting Topic 326 will have a material impact on our condensed consolidated financial statements.

Note 4 Revenue

BRIDG

In connection with the TED Agreement and CfN Lease as discussed in Note 2 – Basis of Presentation and Principles of Consolidation–Center forNeoVation, we executed the LOA pursuant to which we agreed to provide engineering and test wafer services as requested by BRIDG based on our standard hourly and activity-based rates, which we are accounting for as revenue over time as we perform. In addition, we agreed to provide BRIDG access to the cleanrooms in the facilities that are subject to the TED Agreement and the CfN Lease for an access fee of approximately ~~$15,000.~~$14,000. We are accounting for the access fee as a stand-ready obligation with revenue recognized ratably over 38 months, the life of BRIDG’s third-party contracts for which we are a subcontractor.

~~CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as SKYWATER TECHNOLOGY, INC.)~~

~~Notes to Condensed Consolidated Financial Statements~~

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

Disaggregated Revenue

The following table discloses revenue by service type and the timing of recognition of revenue for transfer of goods and services to customers ~~(point-in-time~~(point-in-time or over time):

   Three Months Ended April 4, 2021
   Point-in-Time    Over Time    Total
Topic
606
Revenue    Lease
Revenue    Revenue
recognized
from foundry
services
obligation    Total
Revenue
Wafer Services
   $ 10,019    $ —      $ 10,019    $ —      $ —      $ 10,019
Advanced Technology Services

T&M
   —      10,792    10,792    —      —      10,792
Fixed Price
   —      26,123    26,123    —      —      26,123
Other
   —      —      —      1,167    —      1,167












Total Advanced Technology Services
   —      36,915    36,915    1,167    —      38,082












Total revenue
   $ 10,019    $ 36,915    $ 46,934    $ 1,167    $ —    $ 48,101












   Three Months Ended March 29, 2020
   Point-in-Time    Over Time    Total
Topic
606
Revenue    Lease
Revenue    Revenue
recognized
from foundry
services
obligation    Total
Revenue
Wafer Services
   $ 12,930    $ —      $ 12,930    $ —      $ 388    $ 13,318
Advanced Technology Services

T&M
   —      19,406    19,406    —      —      19,406
Fixed Price
   —      4,180    4,180    —      —      4,180
Other
   —      —      —      —      —      —












Total Advanced Technology Services
   —      23,586    23,586    —      —      23,586












Total revenue
   $ 12,930    $ 23,586    $ 36,516    $ —    $ 388    $ 36,904


	Three Months Ended October 3, 2021
	Topic 606 Revenue
	Point-in-Time		Over Time		Lease Revenue		Total Revenue
Wafer Services	$	12,652	$	—	$	—	$	12,652
Advanced Technology Services
T&M	—		12,450		—		12,450
Fixed Price	—		8,756		—		8,756
Other	—		—		1,167		1,167
Total Advanced Technology Services	—		21,206		1,167		22,373
Total revenue	$	12,652	$	21,206	$	1,167	$	35,025


	Three Months Ended September 27, 2020
	Topic 606 Revenue
	Point-in-Time		Over Time		Total Revenue
Wafer Services	$	8,762	$	—	$	8,762
Advanced Technology Services
T&M	—		12,589		12,589
Fixed Price	—		11,652		11,652

Total Advanced Technology Services	—		24,241		24,241
Total revenue	$	8,762	$	24,241	$	33,003

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SKYWATER TECHNOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

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


	Nine Months Ended October 3, 2021
	Topic 606 Revenue
	Point-in-Time		Over Time		Lease Revenue		Total Revenue
Wafer Services	$	36,983	$	—	$	—	$	36,983
Advanced Technology Services
T&M	—		33,934		—		33,934
Fixed Price	—		49,897		—		49,897
Other	—		—		3,501		3,501
Total Advanced Technology Services	—		83,831		3,501		87,332
Total revenue	$	36,983	$	83,831	$	3,501	$	124,315


	Nine Months Ended September 27, 2020
	Topic 606 Revenue
	Point-in-Time		Over Time		Revenue recognized from foundry services obligation		Total Revenue
Wafer Services	$	32,577	$	—	$	399	$	32,976
Advanced Technology Services
T&M	—		44,543		—		44,543
Fixed Price	—		23,147		—		23,147

Total Advanced Technology Services	—		67,690		—		67,690
Total revenue	$	32,577	$	67,690	$	399	$	100,666

The following table discloses revenue by country as determined based on customer address:

   Three Months Ended
   April 4, 2021    March 29, 2020
United States
   $ 43,621    $ 31,470
Canada
   1,609    3,036
All others
   2,871    2,398




   $ 48,101    $ 36,904

Three Months Ended Nine Months Ended
October 3, 2021 September 27, 2020 October 3, 2021 September 27, 2020
United States $ 29,020 $ 28,186 $ 109,253 $ 85,983
Canada 1,454 1,802 4,610 6,886
All others 4,551 3,015 10,452 7,797
$ 35,025 $ 33,003 $ 124,315 $ 100,666

Deferred Contract Costs

We recognized amortization of deferred contract costs in our condensed consolidated statements of operations totaling ~~$551~~$274 and $0 for the three months ended ~~April 4,~~October 3, 2021 and ~~March 29,~~September 27, 2020, respectively, and $1,251 and $0 for the nine months ended October 3, 2021 and September 27, 2020, respectively.

Contract Assets

Contract assets are ~~$9,874~~$14,588 and $8,147 at ~~April 4,~~October 3, 2021 and January 3, 2021, respectively, and are included in accounts receivable, net in our condensed consolidated balance sheets.

Contract Liabilities

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

   April 4, 2021    January 3, 2021
   Contract    Deferred    Total    Contract    Deferred    Total
   Liabilities    Lease Revenue    Deferred Revenue    Liabilities    Lease Revenue    Deferred Revenue
Current
   $ 17,870    $ 4,667    $ 22,537    $ 25,986    $ 4,667    $ 30,653
Long-term
   74,223    14,778    89,001    79,455    15,944    95,399












Total
   $ 92,093    $ 19,445    $ 111,538    $ 105,441    $ 20,611    $ 126,052

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SKYWATER TECHNOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

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


	October 3, 2021						January 3, 2021
	Contract Liabilities		Deferred Lease Revenue		Total Deferred Revenue		Contract Liabilities		Deferred Lease Revenue		Total Deferred Revenue
Current	$	20,105	$	4,667	$	24,772	$	25,986	$	4,667	$	30,653
Long-term	73,005		12,444		85,449		79,455		15,944		95,399
Total	$	93,110	$	17,111	$	110,221	$	105,441	$	20,611	$	126,052

The decrease in contract liabilities from January 3, 2021 to ~~April 4,~~October 3, 2021 was primarily the result of completion of specific performance obligations for our customers. Approximately ~~15%~~21% of our total contract liabilities at January 3, 2021 were recognized in revenue in the first ~~three~~nine months of 2021.

Remaining Performance Obligations

As of ~~April 4,~~October 3, 2021, we had approximately ~~$86,765~~$88,159 of transaction price allocated to remaining performance obligations that are unsatisfied (or partially satisfied) on contracts with an original expected duration of one year or more, which are primarily related to Advanced Technology Services contracts. We expect to recognize those remaining performance obligations as follows:

~~CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as SKYWATER TECHNOLOGY, INC.)~~

~~Notes to Condensed Consolidated Financial Statements~~

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

Within one year
   $ 12,542
From one to two years
   13,921
From two to three years
   12,695
After three years
   47,607


Total
   $ 86,765

Within one year $ 15,154
From one to two years 15,217
From two to three years 11,156
After three years 46,632
Total $ 88,159

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

Note 5 Balance Sheet Information

Certain significant amounts included in our condensed consolidated balance sheets consist of the following:

Accounts receivable, net:

   April 4, 2021    January 3, 2021
Trade accounts receivable
   $ 16,372    $ 21,357
Unbilled revenue (contract assets)
   9,874    8,147
Note receivable
   230    230
Employee note receivable
   225    222
Other receivables
   29    39




Total accounts receivable, net
   $ 26,730    $ 29,995


	October 3, 2021		January 3, 2021
Trade accounts receivable	$	20,498	$	21,357
Unbilled revenue (contract assets)	14,588		8,147
Note receivable	—		230
Employee note receivable	—		222
Other receivables	—		39
Total accounts receivable, net	$	35,086	$	29,995

On December 31, 2020, we entered into a note receivable with a key employee for $222. The note ~~may be~~was repaid ~~any time prior~~in full during the three months ended October 3, 2021.

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SKYWATER TECHNOLOGY, INC.

Notes to ~~its maturity date of March 31, 2022~~Condensed Consolidated Financial Statements

(unaudited in thousands, except share, unit and ~~bears interest at 6%.~~

per share and unit data)

Inventories:

   April 4, 2021    January 3, 2021
Raw materials
   $ 1,867    $ 1,463
Work-in-process
   23,808    19,719
Supplies and spare parts
   5,555    5,987




Total inventories—current
   31,230    27,169
Supplies and spare parts classified as other assets
   2,160    1,949




Total inventories
   $ 33,390    $ 29,118


	October 3, 2021		January 3, 2021
Raw materials	$	2,862	$	1,463
Work-in-process	21,717		19,719
Supplies and spare parts	6,327		5,987
Total inventories—current	30,906		27,169
Supplies and spare parts classified as other assets	2,474		1,949
Total inventories	$	33,380	$	29,118

Prepaid expenses and other current assets:

   April 4, 2021    January 3, 2021
Prepaid expenses
   $ 2,101    $ 2,761
Equipment purchased for customers (1)
   975    5,343
Deferred contract costs
   1,459    1,647
Deferred offering costs
   3,382    2,183
Other
   92    38




Total prepaid assets and other current assets
   $ 8,009    $ 11,972

~~(1)~~

~~We acquired equipment for a customer that we will install and calibrate~~


	October 3, 2021		January 3, 2021
Prepaid expenses	$	2,177	$	2,761
Equipment purchased for customers (1)	—		5,343
Deferred contract costs	1,662		1,647
Deferred offering costs	—		2,183
Other	36		38
Total prepaid assets and other current assets	$	3,875	$	11,972

__________________

(1)We acquired equipment for a customer that we installed and calibrated in our facility. Prior ~~to the customer obtaining ownership and control of the equipment, we recorded costs incurred to date within prepaid expenses and other current assets.~~

~~CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as SKYWATER TECHNOLOGY, INC.)~~

~~Notes~~ to ~~Condensed Consolidated Financial Statements~~

~~(unaudited in thousands, except unit~~the customer obtaining ownership and ~~per unit data)~~

control of the equipment, we recorded costs incurred to date within prepaid expenses and other current assets.

Property and equipment, net:

   April 4, 2021    January 3, 2021
Land
   $ 5,396    $ 5,396
Buildings and improvements
   86,267    85,197
Machinery and equipment
   134,875    124,130
Fixed assets not yet in service
   11,930    22,602




Total property and equipment, at cost
   238,468    237,325
Less: Accumulated depreciation
   (65,294 )    (59,247 )




Total property and equipment, net
   $ 173,174    $ 178,078


	October 3, 2021		January 3, 2021
Land	$	5,396	$	5,396
Buildings and improvements	87,078		85,197
Machinery and equipment	139,963		124,130
Fixed assets not yet in service	29,861		22,602
Total property and equipment, at cost	262,298		237,325
Less: Accumulated depreciation	(78,156)		(59,247)
Total property and equipment, net	$	184,142	$	178,078

Depreciation expense was ~~$6,047~~$6,491 and ~~$4,131~~$4,127 for the three months ended ~~April 4,~~October 3, 2021 and ~~March 29,~~September 27, 2020, respectively, and $18,938 and $12,388 for the nine months ended October 3, 2021 and September 27, 2020, respectively.

Intangible assets, net:

Intangible assets consist of purchased software and license costs and a customer list from our acquisition of the business in 2017. Intangible assets are summarized as follows:

   April 4, 2021    January 3, 2021
Customer list
   $ 1,500    $ 1,500
Software and licenses
   5,627    5,408




Total intangible assets, at cost
   7,127    6,908
Less: Accumulated amortization
   (2,782 )    (2,347 )




Total intangible assets, net
   $ 4,345    $ 4,561


	October 3, 2021		January 3, 2021
Customer list	$	1,500	$	1,500
Software and licenses	6,228		5,408
Total intangible assets, at cost	7,728		6,908
Less: Accumulated amortization	(3,710)		(2,347)
Total intangible assets, net	$	4,018	$	4,561

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SKYWATER TECHNOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

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

For the three months ended ~~April 4,~~October 3, 2021 and ~~March 29,~~September 27, 2020, amortization of the customer list intangible asset charged to operations was $88 and $89, respectively, and amortization of software and licenses was ~~$347~~$385 and ~~$103,~~$258, respectively. For the nine months ended October 3, 2021 and September 27, 2020, amortization of the customer list intangible asset charged to operations was $264 and $265 and amortization of software and licenses was $1,098 and $460, respectively.

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

   Amortization
   Expense
Remainder of 2021
   $ 1,280
2022
   1,117
2023
   777
2024
   422
2025
   421
Thereafter
   328


Total
   $ 4,345


	Amortization Expense
Remainder of 2021	$	408
2022	1,293
2023	953
2024	545
2025	445
Thereafter	374
Total	$	4,018

Other assets:

   April 4, 2021    January 3, 2021
Supplies and spare parts
   $ 2,160    $ 1,949
Deferred contract costs
   2,028    2,049
Other assets
   419    —




Total other assets
   $ 4,607    $ 3,998


	October 3, 2021		January 3, 2021
Supplies and spare parts	$	2,474	$	1,949
Deferred contract costs	2,021		2,049
Other assets	705		—
Total other assets	$	5,200	$	3,998

Accrued expenses:

~~CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as~~
October 3, 2021 January 3, 2021 (1)
Accrued compensation $ 5,795 $ 6,315
Accrued commissions 584 5,183
Accrued fixed asset expenditures 476 6,337
Accrued royalties 1,630 2,145
Capital lease obligations 1,280 —
Other accrued expenses 5,344 5,516
Total accrued expenses $ 15,109 $ 25,496

__________________

(1)We reclassified certain January 3, 2021 amounts to conform to the current period presentation. The reclassification includes a) separate presentation of accrued royalties from other accrued expenses and b) the combination of accrued accounts payable with other accrued expenses. These reclassifications had no impact on the reported results of operations.

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SKYWATER TECHNOLOGY, INC.)

Notes to Condensed Consolidated Financial Statements

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

   April 4, 2021    January 3, 2021
Accrued compensation
   $ 6,148    $ 6,315
Accrued commissions
   2,824    5,183
Accrued fixed asset expenditures
   1,885    6,337
Accrued royalties
   1,895    2,145
Accrued customer payable
   1,119    783
Other accrued expenses
   8,236    4,733




Total accrued expenses
   $ 22,107    $ 25,496

Note 6 Debt

The components of debt outstanding are as follows:

   April 4, 2021    January 3, 2021
Revolver, net of unamortized debt issuance costs of $1,460 and $1,537
   $ 43,873    $ 30,766
Financing (by VIE), net of unamortized debt issuance costs of $3,375 and $3,458
   35,215    35,381
Paycheck Protection Program loan
   6,453    6,453




Total long-term debt
   85,541    72,600
Less: Current portion of long-term debt
   (3,853 )    (2,772 )




Long-term debt, excluding current portion and unamortized debt issuance costs
   $ 81,688    $ 69,828

October 3, 2021 January 3, 2021
Revolver $ 2,020 $ 32,303
Financing (by VIE) 38,096 38,839
Paycheck Protection Program loan — 6,453
Unamortized debt issuance costs (1) (4,515) (4,995)
Total long-term debt, including current maturities 35,601 72,600
Less: Current portion of long-term debt (1,012) (2,772)
Long-term debt, excluding current portion and unamortized debt issuance costs $ 34,589 $ 69,828

__________________

(1)Unamortized debt issuance costs as of October 3, 2021 included $1,306 for the Revolver

(as defined below) and $3,209 for the Financing (as defined below). Unamortized debt issuance costs as of January 3, 2021 included $1,537 for the Revolver and $3,458 for the Financing (by VIE).

Revolver

The outstanding balance of our amended and restated revolving credit agreement with Wells Fargo Bank, National Association (the “Revolver”) was ~~$45,333~~$2,020 as of ~~April 4,~~October 3, 2021 at an interest rate of 3%. Our remaining availability under the Revolver was ~~$19,667~~$60,593 as of ~~April 4,~~October 3, 2021.

However, we must maintain availability under the Revolver of at least $15,000 in order to not have to comply with the leverage ratio and fixed charge coverage ratio financial covenants contained in the Revolver with respect to the fiscal quarters ending on or prior to July 2, 2023.

Financing

On September 30, 2020, the VIE which we consolidate entered into a loan agreement for $39,000 (the “Financing”) at a fixed interest rate of 3.44%. The outstanding balance of the Financing was ~~$38,590~~$38,096 as of ~~April 4,~~October 3, 2021.

Paycheck Protection Program

Loan

On April 18, 2020, we received proceeds of $6,453 pursuant to a loan from TCF Bank under the Paycheck Protection Program ~~(“PPP”)~~(the “PPP” Loan). Under the terms of the loan, recipients can apply for and be granted forgiveness for all or a portion of the loan granted under the program. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. We have filed an application and supporting documentation for forgiveness in full ofOn June 10, 2021, the PPP ~~loan, however, no assurance is provided that we will obtain forgiveness~~Loan was fully forgiven and $6,453 was recorded as other income in the condensed consolidated statement of ~~the PPP loan in whole or in part. The PPP loan bears interest at a rate~~operations.

Covenants

As of ~~1% per annum. The PPP loan may be prepaid at any time prior to maturity with no prepayment penalties.~~

~~Covenants~~

~~On March 19,~~October 3, 2021, we were ~~granted a waiver from~~not in compliance with the ~~lender through an amendment to our financial covenants~~leverage ratio related to the Revolver. ~~As of April 4,~~On November 3, 2021, we ~~were in compliance~~entered into an amendment to the Revolver, effective as of October 1, 2021, to eliminate the requirement for us to comply with the ~~amended fixed charge coverage ratio and~~ leverage ratio ~~covenants. Based~~financial covenant contained therein with respect to the fiscal quarters ending on ~~these modifications,~~or prior to July 2, 2023, so long as the remaining availability under the Revolver has equaled or exceeded $15,000. Under the Revolver, as amended, we ~~are~~were in full compliance with the ~~Revolver~~ covenant ~~requirements.~~requirements as of October 3, 2021. Our VIE was in compliance with the financial covenants related to the Financing. ~~No financial covenants exist related~~

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SKYWATER TECHNOLOGY, INC.

Notes to ~~the PPP loan.~~

Condensed Consolidated Financial Statements

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

Maturities

As of ~~April 4,~~October 3, 2021, the Revolver is due in December 2025. The Financing is repayable in equal monthly installments of $194 over 10 years, with the balance payable at the maturity date of October 6, 2030. ~~If we are required to repay the PPP loan, monthly principal and interest payments of $363 begin in August 2021 and continue until July 2023.~~ Future principal payments of our Revolver ~~PPP loan~~ and consolidated VIE’s Financing, excluding unamortized debt issuance costs, are as follows:

~~CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as SKYWATER TECHNOLOGY, INC.)~~

~~Notes to Condensed Consolidated Financial Statements~~

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


Remainder of 2021	$	2,523	Remainder of 2021	$	247
2022		5,333	2022	1,024
2023		1,422	2023	1,060
2024		1,094	2024	1,094
2025		46,470	2025	3,157
Thereafter		33,534	Thereafter	33,534

Total	$	90,376	Total	$	40,116

Historically, we have addressed our liquidity needs (including funds required to make scheduled principal and interest payments, refinance debt and fund working capital, and planned capital expenditures) with operating cash flows, borrowings under credit facilities, and proceeds from the term loans. Our ability to execute our operating strategy is dependent on our ability to continue to access capital through our Revolver, public markets and other sources of financing and if we were unable to obtain financing on reasonable terms, this may impact our ability to execute our operating strategy.

Note 7 Income Taxes

The effective tax rates for the three and nine months ended ~~April 4,~~October 3, 2021 and ~~March 29,~~September 27, 2020 differ from the statutory tax rates due to state income taxes, permanent tax differences, and changes in our deferred tax asset valuation allowance. The tax rate in any quarter can be affected positively or negatively by adjustments that are required to be reported in the specific quarter of resolution. The effective income tax rate for the three and nine months ended ~~April 4,~~October 3, 2021 was ~~17.2%~~(1.5)% and 17.4%, compared to ~~40.7%~~(23.6)% and (3.6)% for the three and nine months ended ~~March 29,~~September 27, 2020. ~~Our~~The income tax benefit rate applied to our pre-tax loss was lower for the three and nine months ended ~~April 4,~~October 3, 2021 than our statutory tax rate of 21% ~~applied to our~~ ~~pre-tax~~ ~~loss~~primarily due to ~~the partial reversal of~~ a deferred tax asset valuation ~~allowance, offset by state~~allowance. The income ~~taxes.~~tax benefit for the nine months ended October 3, 2021 includes the tax impact from the gain on the PPP Loan forgiveness, which is exempt from federal income taxation. For the three and nine months ended ~~March 29,~~September 27, 2020, ~~our~~the effective income tax ~~benefit~~rate applied to our pre-tax loss was ~~higher~~lower than our statutory tax rate of 21% ~~applied~~due to ~~our~~ ~~pre-tax~~ ~~loss due to~~a deferred tax asset valuation allowance, partially offset by excess tax benefits related to ~~unit-based~~stock-based compensation ~~expense, partially offset by a deferred tax asset valuation allowance.~~

expense.

Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies, and future expectations of income. Based upon this analysis, a valuation allowance of ~~$1,401~~$7,101 was recorded as of ~~April 4,~~October 3, 2021 to reduce our net deferred tax assets to the amount that is more likely than not to be realized. The valuation allowance at January 3, 2021 was $1,609.

No liability has been recorded for uncertain tax positions. We would accrue, if applicable, income tax related interest and penalties in income tax expense in our condensed consolidated statement of operations. There were no interest and penalties incurred during the three and nine months ended ~~April 4,~~October 3, 2021 and ~~March 29,~~September 27, 2020.

Note 8 ~~Members’~~Shareholders’ Equity ~~(Deficit)~~

Classes of Equity Units

Until our corporate conversion on April 14, 2021, we had three classes of limited liability interests, designated as Class A ~~Preferred Units,~~preferred units, Class B ~~Preferred Units,~~preferred units, and ~~Common Units~~common units (collectively, the “Unit” or “Units”). There ~~are~~were 2,000,000 Class A ~~Preferred Units~~preferred units authorized specifically for issuance upon exercise of warrants, of which none were issued and outstanding at ~~April 4, 2021 and~~ January 3, 2021. There ~~are~~were 18,000,000 Class B ~~Preferred Units~~preferred units authorized, of which 18,000,000 were issued and outstanding at ~~April 4, 2021 and~~ January 3, 2021. There ~~are~~were 5,000,000 ~~Common Units~~common units authorized, of which 3,057,344 were issued asand

Table of ~~April 4, 2021 and January 3, 2021 and 2,105,936 and 2,107,452 were outstanding as of April 4, 2021 and January 3, 2021. Class A Preferred Units and Common Units are~~ ~~non-voting~~ ~~classes, and Class B Preferred Units are a voting class.~~

Contents

~~CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as~~ SKYWATER TECHNOLOGY, INC.)

Notes to Condensed Consolidated Financial Statements

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

2,107,452 were outstanding as of January 3, 2021. Class A preferred units and common units were non-voting classes, and Class B preferred units are a voting class.

Conversion

On April 14, 2021, we completed a corporate conversion. Pursuant to the certificate of incorporation effected in connection with the corporate conversion, our authorized capital stock consists of 200,000,000 shares of voting common stock, par value $0.01 per share, and 80,000,000 shares of preferred stock, par value $0.01 per share. As of ~~April 14,~~October 3, 2021, giving effect to the corporate conversion ~~31,055,743~~and our IPO, 39,059,743 shares of common stock were issued and outstanding. No shares of our preferred stock were outstanding. As discussed in Note 1 – Nature of Business, on April 21, 2021, our common stock began trading on the Nasdaq Stock Market under the symbol “SKYT”.

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

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

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

~~Restricted Common Units~~

Initial Public Offering

On November 1, 2020, we granted 4,672 restricted Common Units to two directors. Upon the corporate conversion, such restricted Common Units were converted into 6,788 shares of restricted common stock which continue to vest over a ~~one-year~~ ~~period.~~

On December 18, 2020, we granted restricted unit units to acquire up to 1,602,588 Common Units to certain key employees. Upon the corporate conversion, such restricted unit units were converted into 2,328,880 shares of restricted common stock units which continue to vest in equal amounts over a three-year period, but only in the event we complete an IPO of our stock or experience a change of control event. These restricted common stock units are issued as common stock upon vesting. The grantee has no rights as a common stockholder until the common stock related to the restricted common stock units have been issued. With our IPO completed on April 23, 2021, ~~these restricted~~we completed our initial public offering (“IPO”) and issued 8,004,000 shares of common stock, ~~units will begin vesting in accordance with~~including the underwriter’s exercise of their ~~other terms.~~

~~New~~right to purchase additional shares, at an initial offering price to the public of $14.00 per share. We received net proceeds from the IPO of approximately $100,162 after deducting underwriting discounts and commissions of $7,844 and offering costs of approximately $4,050.

Note 9 Share-Based Compensation ~~Plans~~

2021 Equity Incentive Plan

In connection with our IPO, we adopted the 2021 Equity Incentive Plan (the “2021 Equity Plan”). The 2021 Equity Plan became effective upon the consummation of the IPO and no further awards will be issued under the previous Employee Unit Option Plan. No awards remained outstanding from the Employee Unit Option Plan as of ~~April 4,~~October 3, 2021 and at the corporate conversion date. Under the 2021 Equity Plan, 5,000,000 shares of common stock are available for issuance to eligible individuals in the form of options, stock appreciation rights, restricted stock, restricted stock units, deferred stock units, unrestricted stock, dividend equivalent rights, other equity-based awards and cash bonus awards. The share reserve of the 2021 Plan will be increased effective the first business day of each calendar year commencing in 2022 by an amount equal to the lesser of: (i) 150,000 shares of common stock; (ii) three percent (3%) of the shares of common stock outstanding on the final day of the immediately preceding calendar year; and (iii) such smaller number of shares of common stock as determined by the compensation committee.

Stock Options

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SKYWATER TECHNOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

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

On April 21, 2021, we granted ~~645,747~~342,783 stock options which vest in full on the first anniversary of the grant date and expire 15 months from the grant date. On April 21, 2021 and August 6, 2021, we granted 744,374 and 19,382 stock options, respectively, which vest ratably on each of the first, second, third, and fourth anniversaries of the grant date and expire 10 years from the grant date. Share-based compensation expense related to stock option awards was $489 and $0 for the three months ended October 3, 2021 and September 27, 2020, respectively, and $933 and $488 for the nine months ended October 3, 2021 and September 27, 2020, respectively. Actual forfeitures are recognized as they occur.

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


			Nine Months Ended October 3, 2021
Expected volatility:			46.0%
Expected term (in years):			1.13 - 6.25
Risk-free interest rate:			0.09% - 1.19%

The following table summarizes our stock option activity during the nine months ended October 3, 2021:


	Number of Stock Options (in thousands)	Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value (in thousands)		Weighted-Average Remaining Contractual Life
Balance outstanding as of January 3, 2021	—	$	—
Granted	1,107	$	14.15
Exercised	—	$	—
Forfeited or canceled	(64)	$	14.00
Balance outstanding as of October 3, 2021	1,043	$	14.15	$	12,753	6.9 years
Balance vested and exercisable as of October 3, 2021	—	$	—	$	—	0.0 years

The weighted average grant-date fair value of options granted in the nine months ended October 3, 2021 was $5.31. As of October 3, 2021, total unrecognized compensation cost related to stock options was $4,629 and is expected to be recognized over a weighted average period of approximately 3.3 years.

Restricted Common Stock

On November 1, 2020, we granted 4,672 restricted common units to two directors. Upon the corporate conversion, such restricted common units were converted into 6,788 shares of restricted common stock which continue to vest over a one-year period.

Restricted Common Stock Units

On April 21, 2021, we granted 440,836 restricted common stock units ~~and 1,087,157 stock options~~ to eligible employees and ~~directors.~~

~~CMI ACQUISITION, LLC AND SUBSIDIARIES (now known~~directors which vest in full on the first anniversary of the grant date. On April 21, 2021 and August 6, 2021, we granted 204,910 and 100,993 restricted common stock units, respectively, which vest ratably on each of the first, second and third anniversaries of the grant date. The common stock relating to these restricted common stock units is issued upon vesting. The grantee has no rights as a common stockholder until the common stock related to the restricted common stock units have been issued.

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SKYWATER TECHNOLOGY, INC.)

Notes to Condensed Consolidated Financial Statements

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

On December 18, 2020, we granted restricted unit units to acquire up to 1,602,588 common units to certain key employees. Upon the corporate conversion, such restricted unit units were converted into 2,328,880 shares of restricted common stock units which continue to vest in equal amounts over a three-year period, but only in the event we complete an IPO of our stock or experience a change of control event. The common stock relating to these restricted common stock units is issued upon vesting. The grantee has no rights as a common stockholder until the common stock related to the restricted common stock units have been issued. With our IPO completed on April 23, 2021, these restricted common stock units began vesting in accordance with their other terms.

Share-based compensation expense related to restricted common stock unit awards was $2,569 and $0 for the three months ended October 3, 2021 and September 27, 2020, respectively, and $8,669 and $0 for the nine months ended October 3, 2021 and September 27, 2020, respectively. Actual forfeitures are recognized as they occur. As of October 3, 2021, total unrecognized compensation cost related to restricted common stock units was $10,979 and is expected to be recognized over a weighted average period of approximately 1.6 years. The estimated fair value of restricted common stock units is based on the grant date closing price of our common stock for time-based vesting awards. No restricted common stock units vested during the nine months ended October 3, 2021.

The following table summarizes our restricted common stock unit activity during the nine months ended October 3, 2021:


	Number of Restricted Common Stock Units (in thousands)	Weighted Average Grant Date Fair Value Per Share
Balance outstanding as of January 3, 2021	2,329	$	3.87
Granted	747	$	15.12
Vested	—	$	—
Forfeited or canceled	(47)	$	14.00
Balance outstanding as of October 3, 2021	3,029	$	6.51

2021 Employee Stock Purchase Plan

In connection with our IPO, we also adopted the 2021 Employee Stock Purchase Plan (the “2021 ESPP”). A maximum of 700,000 shares of our common stock has been reserved for issuance under the 2021 ESPP. Under the 2021 ESPP, eligible employees may purchase our common stock through payroll deductions at a discount not to exceed 15% of the lower of the fair market values of our common stock as of the beginning or end of each offering period, which may range from 6 to 27 months. Payroll deductions are limited to 15% of the employee’s eligible compensation and a maximum of 2,500 shares of our common stock may be purchased by an employee each offering period.

~~Unit-Based Compensation Expense~~

~~Total unit-based~~ The initial six-month offering period commenced on September 1, 2021 and no shares have been purchased under the 2021 ESPP. As of October 3, 2021, $232 was withheld on behalf of employees for future purchases under the 2021 ESPP and recorded as accrued compensation. Share-based compensation expense ~~recorded in general and administrative expenses in our statement of operations~~related to the 2021 ESPP was ~~$5 and $488~~$83 for the three and nine months ended ~~April 4, 2021 and March 29, 2020, respectively.~~October 3, 2021. Actual forfeitures are recognized as they occur. As of ~~April 4,~~October 3, 2021, ~~there was $9,022 of~~total unrecognized compensation cost related to ~~restricted Common Units~~the 2021 ESPP was $422 and ~~restricted~~will be recognized on a straight-line basis over the six-month offering period.

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

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SKYWATER TECHNOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except share, unit ~~units.~~

and per share and unit data)


			Nine Months Ended October 3, 2021
Expected volatility:			46.3%
Expected term (in years):			0.50
Risk-free interest rate:			0.06%
Weighted average grant-date fair value per share			$8.87

Share-Based Compensation Expense Allocation

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


	Three Months Ended				Nine Months Ended
	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Cost of revenue	$	839	$	—	$	1,543	$	—
Research and development	332		—		1,812		—
Selling, general and administrative expenses	1,970		—		6,330		488
	$	3,141	$	—	$	9,685	$	488

Note 910 Fair Value Measurements

The FASB defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To determine fair value, we use a fair value hierarchy categorized into three levels based on inputs used. Generally, the three levels are as follows:

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

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

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

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

   Contingent
   Consideration
Balance at January 3, 2021
   $ 10,900
Payments
   (3,356 )
Change in fair value
   56


Balance at April 4, 2021
   $ 7,600


	Contingent Consideration
Balance at January 3, 2021	$	10,900
Payments	(6,644)
Change in fair value	(2,556)
Balance at October 3, 2021	$	1,700

The change in fair value is reflected in our condensed consolidated statements of operations.

The fair value of our contingent consideration liability at ~~April 4,~~October 3, 2021 and January 3, 2021 was determined using forecasted receipts of projected future revenues of Advanced Technology Services. The royalty is paid out quarterly through ~~2021.~~2022. The forecasted future cash flows were discounted reflecting the risk in estimating future revenues. We expect total future cash payments to be between ~~$7,600~~$1,700 and ~~$8,500.~~

$1,800.

Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The carrying values of accounts receivable, accounts payable, accrued liabilities, and other financial working capital items approximate fair values at ~~April 4,~~October 3, 2021 and January 3, 2021 due to the short maturity of these items.

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SKYWATER TECHNOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

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

The carrying values of our borrowings under our Revolver and Financing approximate their fair values due to the frequency of the floating interest rate resets on these borrowings. The fair value of the Revolver and Financing were determined based on inputs that are classified as Level 2 in the fair value hierarchy.

~~CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as SKYWATER TECHNOLOGY, INC.)~~

~~Notes to Condensed Consolidated Financial Statements~~

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

Our non-financial assets such as property and equipment and intangible assets are recorded at fair value upon acquisition and are remeasured at fair value only if an impairment charge is recognized. As of ~~April 4,~~October 3, 2021 and January 3, 2021, we did not have any assets or liabilities measured at fair value on a non-recurring basis.

Note 1011 Commitments and Contingencies

Foundry Services Agreement

Under a Foundry Services Agreement (“FSA”) which expired in June 2020, we were required to provide semiconductor wafers to our main customer over a 40-month period, beginning March 1, 2017, at contractual rates. As part of the FSA, the customer guaranteed certain levels of purchase orders for wafers. ~~Sales of~~Revenue for Wafer Services to this customer were ~~$12,545~~$8,359 and $31,836 for the three and nine months ended ~~March 29, 2020.~~

September 27, 2020, respectively.

Litigation

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

Capital Expenditures

We have various contracts outstanding with third parties which primarily relate to the completion of a building expansion project to increase manufacturing capacity at our Minnesota facility. We have approximately $10 million of contractual commitments outstanding as of October 3, 2021 that we expect to be paid in 2021, through cash on hand and operating cash flows. As of October 3, 2021, the Company had executed a capital lease that had not yet commenced. The capital lease was executed to replace the existing nitrogen plant, which is owned by the vendor, with a larger and more modern nitrogen generator. The capital lease has a lease term of 15 years for total payments of $14 million and is expected to commence during the first half of 2022.

Note 1112 Major Customers and Concentration Risk

The following customers accounted for 10% or more of ~~sales~~revenue for the three and nine months ended ~~April 4,~~October 3, 2021 and ~~March 29,~~September 27, 2020:

   Three Months Ended
   April 4, 2021 March 29, 2020
Customer A
   37 % —
Customer B
   19 % 34 %
Customer C
   10 % 27 %


   66 % 61 %


	Three Months Ended				Nine Months Ended
	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Customer A	17	%	*		25	%	*
Customer B	25	%	25	%	24	%	32	%
Customer C	*		*		10	%	*
Customer D	*		14	%	*		21	%
Customer E	10	%	16	%	*		*
	52	%	55	%	59	%	53	%

__________________

* Represents less than 10% of revenue.

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SKYWATER TECHNOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

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

We had ~~three~~four major customers that accounted for ~~24%~~19%, ~~19%~~16%, 12% and ~~17%~~10% of outstanding trade accounts receivable as of ~~April 4,~~October 3, 2021 and four major customers that accounted for 30%, 20%, 19% and 18% of outstanding trade accounts receivable as of January 3, 2021. The loss of a major customer could adversely affect our operating results and financial condition.

Note 1213 Related Party Transactions

Professional Services

Oxbow Industries, LLC (“Oxbow”), our principal owner, ~~provides~~provided management and financial consulting services to us for an annual management fee not to exceed $700. We incurred ~~$160 of~~ management fees to Oxbow of $0 and $160 of during the three months ended ~~April 4,~~October 3, 2021 and ~~March 29,~~September 27, 2020, ~~which have been expensed~~respectively, and ~~included in general~~$215 and ~~administrative expenses in our condensed consolidated statements of operations.~~

~~Members of our board of directors provide legal and professional services to us. We incurred fees of $116 and $62~~$480 for the ~~three~~nine months ended ~~April 4,~~October 3, 2021 and ~~March 29,~~September 27, 2020, respectively, which have been expensed and included in general and administrative expenses in our condensed consolidated statements of operations.

~~CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as SKYWATER TECHNOLOGY, INC.)~~

~~Notes~~A member of our board of directors provided legal and professional services to ~~Condensed Consolidated Financial Statements~~

~~(unaudited~~us. We incurred fees of $0 and $56 for the three months ended October 3, 2021 and September 27, 2020, and $117 and $164 for the nine months ended October 3, 2021 and September 27, 2020, which have been expensed and included in ~~thousands, except unit~~general and ~~per unit data)~~

administrative expenses in our condensed consolidated statements of operations.

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 an entity (“Oxbow Realty”) controlled by our principal owner. We subsequently entered into an agreement to lease the land and building 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. Future minimum lease commitments to Oxbow Realty as of ~~April 4,~~October 3, 2021 were as follows (such amounts are eliminated from our condensed consolidated financial statements due to the consolidation of Oxbow Realty, see Note 1314 – Variable Interest Entities):

Remainder of 2021
   $ 3,560
2022
   4,836
2023
   4,932
2024
   5,031
2025
   5,132
Thereafter
   89,350


Total lease payments
   112,841
Less: imputed interest
   (85,742 )


Total
   $ 27,099


Remainder of 2021	$	1,197
2022	4,836
2023	4,932
2024	5,031
2025	5,132
Thereafter	89,350
Total lease payments	110,478
Less: imputed interest	(83,207)
Total	$	27,271

Note 1314 Variable Interest Entities

Oxbow Realty was established for the purpose of holding real estate and facilitating real estate transactions. This included facilitating the purchase of our land and building with proceeds from a bank loan and managing the leaseback of the land and building to us. We determined that Oxbow Realty meets the definition of a VIE under Topic 810, Consolidation, because it lacks sufficient equity to finance its activities. We concluded that we are the primary beneficiary of Oxbow Realty as we have the power to direct operation and maintenance decisions during the lease term, which would most significantly affect the VIE’s economic performance. As the primary beneficiary, we consolidate the assets, liabilities and results of operations of Oxbow Realty, eliminate any transactions between us and Oxbow Realty, and record a non-controlling interest for the economic interest in Oxbow Realty not owned by us because the owners of our ~~Class B and Common Units~~common stock do not legally have rights or obligations to those profits or losses. 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 us as of ~~April 4,~~October 3, 2021 and January 3, 2021. The assets and liabilities are presented prior to consolidation, and thus a portion of these assets and liabilities are eliminated in consolidation.

   April 4,
2021    January 3,
2021
Cash and cash equivalents
   $ 434    $ 860
Prepaid expenses
   211    99
Finance receivable
   36,810    36,930




Total assets
   $ 37,455    $ 37,889




Accounts payable
   $ 697    $ 672
Accrued expenses
   21    9
Debt
   38,529    38,776




Total liabilities
   $ 39,247    $ 39,457

~~CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as~~

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SKYWATER TECHNOLOGY, INC.)

Notes to Condensed Consolidated Financial Statements

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


	October 3, 2021		January 3, 2021
Cash and cash equivalents	$	415	$	860
Prepaid expenses	157		99
Finance receivable	37,376		36,930
Other assets	200		—
Total assets	$38,148		$37,889
Accounts payable	$	769	$	672
Accrued expenses	450		9
Debt	38,043		38,776
Total liabilities	$39,262		$39,457

The following table shows the revenue and expenses of Oxbow Realty that are consolidated by us for the three and nine months ended ~~April 4,~~October 3, 2021, which we began consolidating on September 29, 2020. We have included these amounts, net of eliminations, in the corresponding tables in the notes to our condensed consolidated financial statements.

   Three Months Ended
   April 4, 2021
Revenue
   $ 1,345
General and administrative expenses
   252
Interest expense
   335


Total expenses
   587


Net income
   $ 758


	Three Months Ended October 3, 2021		Nine Months Ended October 3, 2021
Revenue	$	1,256	$	3,760
General and administrative expenses	11		329
Interest expense	338		1,009
Total expenses	349		1,338
Net income	$	907	$	2,422

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes, included in our prospectus filed with the Securities and Exchange Commission on April 22, 2021 (“Prospectus”) in connection with our initial public offering (“IPO”) of our common stock. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our current expectations, estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those discussed or implied in our forward-looking statements due to a number of factors, including those described in the sections entitled “Risk Factors” and “Forward-Looking Statements” herein and elsewhere in our Prospectus.

We refer to the three-month periods ended ~~April 4,~~October 3, 2021 and ~~March 29,~~September 27, 2020 as the ~~first~~third quarter of 2021 and ~~first~~third quarter of 2020, respectively. Each of these three-month periods includes 13 weeks. We refer to the nine-month periods ended October 3, 2021 and September 27, 2020 as the first nine months of 2021 and the first nine months of 2020, respectively. Each of these nine-month periods includes 39 weeks. All percentage amounts and ratios presented in this management’s discussion and analysis were calculated using the underlying data in thousands. Unless otherwise indicated, all changes identified for the current period results represent comparisons to results for the prior corresponding period.

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

Corporate Conversion and Initial Public Offering

On April 14, 2021, in connection with our IPO, CMI Acquisition, LLC filed a certificate of conversion, whereby CMI Acquisition, LLC effected a corporate conversion from a Delaware limited liability company to a Delaware corporation and changed its name to SkyWater Technology, Inc. As part of the corporate conversion, holders of Class B ~~Preferred Units~~preferred units and ~~Common Units~~common units of CMI Acquisition, LLC received shares of our common stock for each ~~Unit~~unit held immediately prior to the corporate conversion using an approximate one-to-1.56 conversion ratio for Class B ~~Preferred Units~~preferred units and one-to-1.45 conversion ratio for ~~Common Units.~~common units. In connection with this corporate conversion, we filed a certificate of incorporation. Pursuant to our certificate of incorporation, we are authorized to issue up to 200,000,000 shares of common stock, $0.01 par value per share, and 80,000,000 shares of preferred stock, $0.01 par value per share.

On April 23, 2021, we completed our IPO and issued 8,004,000 shares of common stock, including the underwriter’s exercise of their right to purchase additional shares, at an initial offering price to the public of $14.00 per share. We received net proceeds from the IPO of approximately ~~$100.3~~$100.2 million, after deducting underwriting discounts and commissions and offering costs of approximately ~~$11.7~~$11.9 million.

Shares of our common stock began trading on the Nasdaq Stock Market on April 21, 2021 under the symbol “SKYT”. The shares were registered under the Securities Act on a registration statement on Form S-1, which was declared effective by the Securities and Exchange Commission (“SEC”) on April 20, 2021.

We expect to use the proceeds from the IPO for working capital and other general corporate purposes, which may include financing our growth and funding capital expenditures. We may also use a portion of the proceeds from the offering for acquisitions or strategic investments in businesses or technologies, although we do not currently have any plans or commitments for any such acquisitions or investments.

Overview

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

The combination of semiconductor development and manufacturing services we provide our customers is not available to them from a conventional fab. In addition, our status as a publicly-traded, U.S.- based, U.S. investor-owned pure-play technology foundry with DMEA Category 1A accreditation from the U.S. Department of Defense, or DoD, is expected to position us well to provide distinct, competitive advantages to our customers. These advantages include the benefits of enhanced IP security and easy access to a U.S. domestic supply chain. In September 2019, we entered into a contract with the

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DoD to receive up to $170 million to expand and upgrade our manufacturing capabilities, specifically to build next-generation rad-hard wafer solutions for the aerospace and defense sector which will have significant benefits for other commercial markets. Our fab expansion supporting this project began operations in October 2020. In January 2021, we entered into an agreement with Osceola County, Florida to take over operation of the Center for NeoVation facility in Kissimmee, Florida to accelerate pure-play advanced packaging services for differentiated technologies.

We primarily focus on serving diversified, high-growth end users in numerous vertical markets, including (1) advanced computation, (2) aerospace and defense, or A&D, (3) automotive and transportation, (4) bio-health, (5) consumer and (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 mixed-signal 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 (“Cypress”) as a captive manufacturing facility for 20 years. We have leveraged the Cypress system, manufacturing technology and process development capabilities to advance our product offerings. We became an independent company in March 2017 when we were acquired by Oxbow Industries, LLC, or Oxbow, as part of a divestiture from Cypress. Our multi-year Foundry Service Agreement with Cypress, which ended in June 2020, created a runway for us to operate the foundry at a high utilization rate while continuing to expand and diversify the customer base transferred by Cypress. Cypress was acquired in April 2020 by Infineon Technologies AG (“Infineon”).

Factors and Trends Affecting our Business and Results of Operations

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

■Macroeconomic and competitive conditions, including cyclicality and consolidation, affecting the semiconductor industry.

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

See “Risk Factors—The effects of the COVID-19 outbreak could adversely affect our business, results of operations, and financial condition” in our Prospectus and our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for further information regarding the effects of the COVID-19 pandemic on our business.

■The impact of vaccine mandates on our workforce. On September 9, 2021, President Biden issued an executive order requiring covered employees of U.S. Government contractors to be vaccinated against COVID-19. We are taking steps to comply with the executive order and announced a requirement that all of our U.S.-based employees, contractors, and subcontractors that work on or in support of contracts with the U.S. Government be fully vaccinated or receive an approved medical or religious exemption by January 4, 2022. The executive order will require all of our U.S.-based employees, contractors, and subcontractors to be vaccinated against COVID-19, unless a religious or medical exemption applies. See Item 1A. Risk Factors in this Quarterly Report on Form 10-Q, for discussion of risks associated with the potential adverse effects of the executive order on our business.

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■On April 18, 2020, we received proceeds of $6.5 million pursuant to a loan under the Paycheck Protection Program, or PPP, under the terms of the Coronavirus Aid, Relief, and Economic Security Act. PPP loan recipients can apply for and be granted forgiveness for all or a portion of the loan granted under the program. ~~Such forgiveness will be determined, subject to limitations, based on the use of~~On June 10, 2021, our PPP loan ~~proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. We expect to obtain forgiveness of the PPP loan. See “Risk Factors—The effects of the~~ ~~COVID-19~~ outbreak could adversely affect our business, results of operations, and financial condition” in our Prospectus and our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for further information regarding the effects of the ~~COVID-19~~ ~~pandemic on our business and regarding the PPP loan.~~

was forgiven.

■The Creating Helpful Incentives to Produce Semiconductors for America 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.

However, the timing of when we may receive funding under this Act is difficult to forecast.

■Our overall level of indebtedness from our revolving credit agreement for up to $65 million, which we refer to as the Revolver, and a $39 million financing from the sale of the land and building representing our headquarters in Minnesota, which we refer to as the 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 ~~sales~~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 as the United States continues to restart the economy after the COVID-19 pandemic 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:

~~Net sales~~■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

~~First~~

Third Quarter of 2021 ~~compared~~Compared to ~~First~~Third Quarter of 2020

The following table summarizes certain financial information relating to our operating results for the ~~first~~third quarter of 2021 and for the ~~first~~third quarter of 2020.

   First Quarter Ended Dollar Percentage
(in thousands)    April 4, 2021 (1) March 29, 2020 (1) Change Change
Consolidated Statement of Operations Data:

Net sales
   $ 48,101 $ 36,904 $ 11,197 30.3 %
Cost of sales
   38,935 30,480 8,455 27.7 %


Gross profit
   9,166 6,424 2,742 42.7 %
Research and development
   1,927 662 1,265 191.1 %
Selling, general and administrative expenses
   8,603 5,633 2,970 52.7 %
Change in fair value of contingent consideration
   56 841 (785 ) (93.3 %)


Operating loss
   (1,420 ) (712 ) (708 ) 99.4 %
Other expense:

Change in fair value of warrant liability
   — (141 ) 141 (100.0 %)
Interest expense
   (1,058 ) (1,462 ) 404 (27.6 %)


Total other expense
   (1,058 ) (1,603 ) 545 (34.0 %)


Loss before income taxes
   (2,478 ) (2,315 ) (163 ) 7.0 %
Income tax benefit
   (425 ) (943 ) (518 ) 54.9 %


Net loss
   (2,053 ) (1,372 ) (681 ) 49.6 %
Less: net income attributable to non-controlling interests
   758 — 758 100.0 %


Net loss attributable to CMI Acquisition, LLC
   $ (2,811 ) $ (1,372 ) $ (1,439 ) 104.9 %


Other Financial Data:

Adjusted EBITDA (2)
   $ 5,629 $ 5,349 $ 280 5.2 %

~~(1)~~

~~The consolidated statements of operations are for the first quarter of 2021 and the first quarter of 2020. The first quarter of 2021 and 2020 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.~~

~~Net sales~~

~~Net sales~~
Third Quarter Ended Dollar
Change Percentage
Change
October 3,
2021 (1) September 27,
2020 (1)
(in thousands)
Consolidated Statement of Operations Data:
Revenue $ 35,025 $ 33,003 $ 2,022 6 %
Cost of revenue 36,852 25,725 11,127 43 %
Gross profit (loss) (1,827) 7,278 (9,105) (125) %
Research and development 2,253 1,088 1,165 107 %
Selling, general and administrative expenses 9,626 5,765 3,861 67 %
Change in fair value of contingent consideration (1,670) (200) (1,470) 735 %
Operating income (loss) (12,036) 625 (12,661) (2,026) %
Other income (expense):
Change in fair value of warrant liability — (660) 660 (100) %
Interest expense (733) (1,303) 570 (44) %
Total other income (expense) (733) (1,963) 1,230 63 %
Loss before income taxes (12,769) (1,338) (11,431) (854) %
Income tax (benefit) expense 194 316 (122) (39) %
Net loss (12,963) (1,654) (11,309) (684) %
Less: net income attributable to non-controlling interests 907 — 907 N/A
Net loss attributable to SkyWater Technology, Inc. $ (13,870) $ (1,654) $ (12,216) (739) %
Other Financial Data:
Adjusted EBITDA (2) $ (2,706) $ 5,306 $ (8,012) (151) %

__________________

(1)The consolidated statements of operations are for the third quarter of 2021 and the third quarter of 2020. The third quarter of 2021 and 2020 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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Nine Months Ended October 3, 2021 Compared to Nine Months Ended September 27, 2020

The following table summarizes certain financial information relating to our operating results for the nine months ended October 3, 2021 and for the nine months ended September 27, 2020.


	Nine Months Ended				Dollar Change		Percentage Change
	October 3, 2021 (1)		September 27, 2020 (1)

	(in thousands)
Consolidated Statement of Operations Data:
Revenue	$	124,315	$	100,666	$	23,649	23	%
Cost of revenue	115,164		81,502		33,662		41	%
Gross profit (loss)	9,151		19,164		(10,013)		(52)	%
Research and development	7,519		2,536		4,983		196	%
Selling, general and administrative expenses	33,644		18,319		15,325		84	%
Change in fair value of contingent consideration	(2,556)		1,353		(3,909)		(289)	%
Operating loss	(29,456)		(3,044)		(26,412)		(868)	%
Other income (expense):
Paycheck Protection Program loan forgiveness	6,453		—		6,453		N/A
Change in fair value of warrant liability	—		(900)		900		(100)	%
Interest expense	(2,703)		(4,087)		1,384		(34)	%
Total other income (expense)	3,750		(4,987)		8,737		175	%
Loss before income taxes	(25,706)		(8,031)		(17,675)		(220)	%
Income tax (benefit) expense	(4,468)		288		(4,756)		(1,651)	%
Net loss	(21,238)		(8,319)		(12,919)		(155)	%
Less: net income attributable to non-controlling interests	2,422		—		2,422		N/A
Net loss attributable to SkyWater Technology, Inc.	$	(23,660)	$	(8,319)	$	(15,341)	(184)	%
Other Financial Data:
Adjusted EBITDA (2)	$	2,119	$	13,117	$	(10,998)	(84)	%

__________________

(1)The consolidated statements of operations are for the first nine months of 2021 and the first nine months of 2020. The first nine months of 2021 and 2020 each contained 39 weeks.

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

Revenue

Revenue increased $2.0 million, or 6%, to ~~$48.1~~$35.0 million for the ~~first~~third quarter of 2021, from ~~$36.9~~$33.0 million for the ~~first~~third quarter of 2020. Revenue increased $23.6 million, or 23%, to $124.3 million for the nine months ended October 3, 2021, from $100.7 million for the nine months ended September 27, 2020. The increase for the third quarter of ~~$11.2 million, or 30.3%,~~2021 was driven by increased Wafer Services output, which offset the decline in Advanced Technology Services revenue. The increase for the first nine months of 2021 was driven by continued momentum in ~~sales of~~revenue for our Advanced Technology ~~Services.~~ Services, primarily in the aerospace and defense industry.

The following table shows ~~net sales~~revenue by services type for the ~~first quarter of 2021 and 2020:~~

   First Quarter Ended
(in thousands)    April 4, 2021    March 29, 2020
Wafer Services
   $ 10,019    $ 13,318
Advanced Technology Services
   36,915    23,586
Lease revenue
   1,167    —




Total
   $ 48,101    $ 36,904

~~Wafer Services sales for the first quarter~~third quarters of 2021 and 2020 ~~were partially~~and first nine months of 2021 and 2020:

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	Third Quarter Ended				Nine Months Ended
	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020

	(in thousands)
Wafer Services	$	12,652	$	8,762	$	36,983	$	32,976
Advanced Technology Services	22,373		24,241		87,332		67,690
Total	$	35,025	$	33,003	$	124,315	$	100,666

The Wafer Services revenue increase for the third quarter of 2021 reflects the continued rebound from 2020 levels, driven primarily by demand in the IoT and automotive ~~and transportation market.~~industries. The Advanced Technology Services ~~sales, which for~~revenue increase during the first ~~quarter~~nine months of 2021 was driven by continued program expansion with existing customers and new program additions. Additionally, the first nine months of 2021 included ~~$15~~$18.0 million of ~~sales~~revenue recognized related to services we provide to qualify customer funded tool technologies as our customers invest in our capabilities to expand our technology ~~platforms, were partially attributable~~platforms. Revenue for the third quarter of 2021 included $0.3 million recognized related to services to qualify customer funded tool technologies. The Advanced Technology Services revenue decrease during the ~~aerospace~~third quarter of 2021 was primarily driven by supply chain challenges, hiring constraints, and ~~defense~~continued delays in the funding of existing United States government programs. This resulted in delayed revenue for certain Advanced Technology Services and ~~advanced computing markets.~~

~~Gross profit~~

Wafer Services programs in the amount of approximately $15 million for the third and fourth quarter of 2021. This included a revised schedule for a significant complex multi-year Advanced Technology Services program originally estimated to be completed in 2021 to early 2022, causing revenue to be pushed from 2021 into 2022. The supply chain challenges related to supply chain disruption for substrates, chemicals, and spare parts in addition to constraints experienced by our customers.

Gross profit ~~increased~~(loss)

Gross profit (loss) decreased $9.1 million, or 125%, to $(1.8) million for the third quarter of 2021, from $7.3 million for the third quarter of 2020. Gross profit (loss) decreased $10.0 million, or 52%, to $9.2 million for the first nine months of 2021, from $19.2 million for the first nine months of 2020. The decreases were due to increased cost of revenue. The cost of revenue increases were driven by increased labor costs as we ramp up our Minnesota and Florida facilities, increased wafer output which typically has a lower margin than Advanced Technology Services, and investments we are making for long-term growth to build out our rad-hard and advanced packaging capabilities. The labor market for skilled manufacturing remains tight as the United States continues to restart the economy after the COVID-19 pandemic and we have increased our average starting wage in our fabs to attract the best talent in the market. The cost of revenue increases for the third quarter and first nine months of 2021 also reflect the additional depreciation expense related to our foundry expansion in Minnesota.

Research and development

Research and development costs increased to $2.3 million for the third quarter of 2021, from ~~$6.4~~$1.1 million for the ~~first~~third quarter of 2020. The increase of ~~$2.7~~$1.2 million, or 42.7%, was due to a continued shift to more profitable Advanced Technology Services sales during the first quarter of 2021 compared to a larger proportion of Wafer Services sales during the first quarter of 2020. For the first quarter of 2021 and 2020, gross profit included $3.5 million of depreciation expense related to the ~~step-up~~ ~~in basis of building and equipment, which were previously fully depreciated, as part of our acquisition of the business in March 2017.~~

~~Research and development~~

~~Research and development costs increased to $1.9 million for the first quarter of 2021, from $0.7 million for the first quarter of 2020. The increase of $1.3 million, or 191.1%~~107%, was attributable to increased personnel expense of $0.5 million from our continued investment in internal personnel and external engineering ~~support.~~

support; increased equity-based compensation expense of $0.3 million; and increased equipment, parts and supplies expense of $0.2 million. Research and development costs increased to $7.5 million for the first nine months of 2021, from $2.5 million for the first nine months of 2020. The increase of $5.0 million, or 196%, was attributable to increased equity-based compensation expense of $1.8 million; increased personnel expense of $1.8 million; and increased equipment, parts and supplies expense of $0.9 million.

Selling, general and administrative expenses

Selling, general and administrative expenses increased to ~~$8.6~~$9.6 million for the ~~first~~third quarter of 2021, from ~~$5.6~~$5.8 million for the ~~first~~third quarter of 2020. The increase of $3.9 million, or 67%, was attributable to increased equity-based compensation expense of $2.0 million; increased personnel expense of $0.7 million due to the increase in headcount due to public company requirements and build out of strategic sales and business leadership during the first three quarters of 2021; increased information technology expense of $0.4 million; increased professional fees of $0.4 million; and increased insurance expense of $0.2 million.

Selling, general and administrative expenses increased to $33.6 million for the first nine months of 2021, from $18.3 million for the first nine months of 2020. The increase of $15.3 million, or 84%, was attributable to increased equity-based compensation expense of $5.8 million; increased personnel expense of $3.0 million ~~or 52.7%, was~~ due to ~~higher~~the increase in headcount due to public company requirements and build out of strategic sales and business leadership in the first nine months of 2021; increased insurance expense of $1.9 million; corporate conversion and IPO related costs of $1.7 million, which includes bonus awards

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granted to employees upon the completion of the IPO; increased information technology expense of $1.2 million; executive transition expense of $0.4 million; and increased commission expenses of $0.3 million due to increased net sales, increased license, professional services consulting and information technology expenses, and an increase in headcount in anticipation of our IPO and hiring supplementary sales team members in the first quarter of 2021.

revenue.

Change in fair value of contingent consideration

Change in fair value of contingent consideration was ~~$0.1~~$(1.7) million for the ~~first~~third quarter of 2021, compared to $(0.2) million for the ~~$0.8~~third quarter of 2020. Change in fair value of contingent consideration was $(2.6) million for the first ~~quarter~~nine months of ~~2020, a decrease~~2021, compared to $1.4 million for the first nine months of ~~$0.7 million, or 93.3%.~~2020. We expect the revaluation of future estimated earn-out payments to Infineon and the corresponding change in fair value of the liability to remain at a lower level as we approach the end of ~~these~~the out-of-market royalty payments to Infineon for Advanced Technology Services ~~sales.~~

revenue.

Paycheck Protection Program Loan Forgiveness

On April 18, 2020, we received proceeds of $6.5 million pursuant to a loan from TCF Bank under the Paycheck Protection Program (the “PPP” Loan). Under the terms of the loan, recipients can apply for and be granted forgiveness for all or a portion of the loan granted under the program. During the second quarter of 2021, the PPP Loan was fully forgiven and $6.5 million was recorded as other income in the condensed consolidated statement of operations.

Change in fair value of warrant liability

Change in fair value of warrant liability was an expense of ~~$0.1~~$0.7 million and $0.9 million for the third quarter and first ~~quarter~~nine months of 2020. We had no similar expense ~~for the first quarter of~~during 2021 as the related warrants were repurchased in December 2020.

Interest expense

Interest expense decreased to ~~$1.1~~$0.7 million for the third quarter of 2021, from $1.3 million for the third quarter of 2020. Interest expense decreased to $2.7 million for the first ~~quarter~~nine months of 2021, from ~~$1.5~~$4.1 million for the first ~~quarter~~nine months of 2020. The ~~decrease of $0.4 million, or 27.6%, was~~decreases in interest expense were a result of lower debt balances and lower interest rates on our Revolver and the Financing during the first ~~quarter~~nine months of 2021 compared to the interest rates charged on our previous line of credit and term loan during the ~~first~~comparable prior year periods.

Income tax expense (benefit)

Income tax expense increased to $0.2 million for the third quarter of 2021, from an expense of $0.3 million for the third quarter of 2020.

~~Income tax benefit~~

The income tax benefit ~~decreased~~increased to ~~$0.4~~$4.5 million for the first ~~quarter~~nine months of 2021, from ~~a benefit~~an expense of ~~$0.9~~$0.3 million for the first ~~quarter~~nine months of 2020. The effective income tax rate for the third quarter and first ~~quarter~~nine months of 2021 was ~~a benefit of 17.2%~~(1.5)% and 17.4%, compared to ~~a benefit~~an effective income tax rate of ~~40.7%~~(23.6)% and (3.6)% for the third quarter and first ~~quarter~~nine months of 2020. ~~Our~~The effective income tax ~~benefit~~rate applied to our pre-tax loss was lower for the third quarter and first ~~quarter~~nine months of 2021 than our statutory tax rate of 21% ~~applied to our~~ ~~pre-tax~~ ~~loss~~primarily due to ~~the partial reversal of~~ a deferred tax asset valuation ~~allowance, offset by state~~allowance. The income ~~taxes.~~tax benefit for the first nine months of 2021 includes the tax impact from the gain on the PPP Loan forgiveness, which is exempt from federal income taxation. For the ~~first quarter of~~three and nine months ended September 27, 2020, ~~our~~the effective income tax ~~benefit~~rate applied to our pre-tax loss was ~~higher~~lower than our statutory tax rate of 21% ~~applied~~due to ~~our~~ ~~pre-tax~~ ~~loss due to~~a deferred tax asset valuation allowance, partially offset by excess tax benefits related to ~~unit-based~~stock-based compensation ~~expense, partially offset by a deferred tax asset valuation allowance.~~

expense.

Net income attributable to non-controlling interests

Net income attributable to non-controlling interests reflects the net income of the variable interest entity, or VIE, that we consolidate, representing the economic interest in the profits and losses of Oxbow Realty that the owners of our ~~members’~~shareholders’ equity do not legally have rights or obligations to. We began consolidating Oxbow Realty in the fourth quarter of 2020 and therefore have no similar presentation for the first ~~quarter~~three quarters of 2020.

Adjusted EBITDA

Adjusted EBITDA ~~increased $0.3~~decreased $8.0 million, or ~~5.2%~~151%, to ~~$5.6~~$(2.7) million for the ~~first~~third quarter of 2021 from $5.3 million for the ~~first~~third quarter of 2020. Adjusted EBITDA decreased $11.0 million, or 84%, to $2.1 million for the first nine months of 2021 from $13.1 million for the first nine months of 2020. The ~~increase~~decrease in adjusted EBITDA during the third quarter and first nine months of 2021 primarily reflects ~~increased~~decreased gross profit due to ~~a shift in mix to more profitable Advanced Technology Services sales, offset by~~ increased labor and infrastructure costs as we continue to scale our business to meet the demands of our customers and ~~as we prepared for our IPO.~~the requirements of being a public company, offset by a shift in mix to

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more profitable Advanced Technology Services revenue. 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

We measure liquidity in terms of our ability to fund the cash requirements of our business operations, including working capital and capital expenditure needs, contractual obligations and other commitments, with cash flows from operations and other sources of funding. Our current working capital needs relate mainly to the expansion of our operations, payment of amounts due under our contingent consideration liability, lease obligations and the normal operation of our business. Our ability to meet these working capital needs and grow our business will depend on many factors, including our future working capital needs, the evolution of our operating cash flows and our ability to secure additional sources of financing.

We had ~~$3.8~~$8.0 million in cash and cash equivalents, not including cash held by a variable interest entity that we consolidate, and availability under our Revolver of ~~$19.7~~$60.6 million as of ~~April 4,~~October 3, 2021. However, we must maintain availability under the Revolver of at least $15 million in order to not have to comply with the leverage ratio and fixed charge coverage ratio financial covenants contained in the Revolver with respect to the fiscal quarters ending on or prior to July 2, 2023. We believe our operating cash flows, together with our cash on hand ~~cash received from the completion of our IPO on April 23, 2021~~ and current availability under the Revolver ~~completed on December 28, 2020~~ will be sufficient to meet our working capital and capital expenditure requirements for a period of at least 12 months. We may, however, need additional cash resources due to changed business conditions or other developments, including significant acquisitions, strategic capital investments and competitive pressures. We expect our capital expenditures and working capital requirements to continue to increase in the immediate future, as we seek to expand our business. To the extent that our current resources, including our ability to generate operating cash flows, 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. If the needed financing is not available, or if the terms of financing are less desirable than we expect, we may be forced to decrease our level of investment in new products and technologies, discontinue further expansion of our business, or scale back our existing operations, which could have an adverse impact on our business and financial prospects.

Initial Public Offering

Capital Expenditures

On July 26, 2021, we announced that our Board of Directors approved $56 million in strategic capital investments for expanding manufacturing capacity and technology capabilities at our Minnesota facility. The majority of this investment is targeted to expand capacity and capabilities at our Minnesota fab which is expected to increase overall output by at least 40% and to enable accelerated revenue growth. The remainder is focused on expediting our entry into the gallium nitride (GaN) market, a promising technology for electric vehicles, 5G and consumer electronics, among others due to its properties that enable higher charging efficiencies, smaller ship size, and lighter weight for many applications. We believe SkyWater can fill the need for a US-based 200 mm foundry to offer technology services for GaN-based solutions expanding the serviceable market for our Technology as a ServiceSM model. The strategic capital investment is a multi-year strategy and we invested approximately $10.7 million during the three months ended October 3, 2021.

For the first ~~quarter~~nine months of 2021, we spent approximately ~~$5.4~~$30.6 million on capital expenditures, including purchases of property, equipment and software. ~~We estimate we will spend between $20 million and $25 million on capital expenditures in our fiscal year ending January 2, 2022.~~ The majority of these capital expenditures relate to our foundry expansion in Minnesota, as discussed ~~below,~~above, and the development of our advanced packaging capabilities at the Center for NeoVation in Florida. We anticipate our cash on hand, our Revolver and future cash flows from operations will provide the funds needed to meet our customer demand and anticipated capital expenditures in 2021.

We have various contracts outstanding with third parties in connection with the completion of a building expansion project to increase manufacturing capacity at our Minnesota facility. We have approximately ~~$13~~$10 million of contractual commitments outstanding as of ~~April 4,~~October 3, 2021 that we expect to be paid in 2021, through cash on hand and operating cash flows.

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Contingent Consideration

For the first ~~quarter~~nine months of 2021, we made cash payments of ~~$3.4~~$6.6 million related to our contingent consideration royalty liability. We estimate that we will pay between ~~$7.6~~$1.7 million and ~~$8.5~~$1.8 million on contingent consideration related to this liability in the future. We anticipate our cash on hand and cash flows from operations will provide the funds necessary to settle the contingent consideration royalty liability.

Working Capital

Historically, we have depended on cash flows from operations, cash on hand, funds available under our previous line of credit and term loan, funds from the sale of our land and building in Minnesota, funds from our Revolver, and in the future may depend on additional debt and equity financings, similar to our IPO, to finance 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 12 months. However, we cannot be certain that we will be able to obtain future debt or equity financings adequate for our cash requirements on commercially reasonable terms or at all.

As of ~~April 4,~~October 3, 2021, we had available aggregate undrawn borrowing capacity of approximately ~~$19.7~~$60.6 million under our Revolver. However, we must maintain availability under the Revolver of at least $15 million in order to not have to comply with the leverage ratio and fixed charge coverage ratio financial covenants contained in the Revolver with respect to the fiscal quarters ending on or prior to July 2, 2023. For the periods presented, our use of cash was primarily driven by our investing activities, and specifically by our investments in capital expenditures.

The following table sets forth general information derived from our statement of cash flows for the first ~~quarter~~nine months of 2021 and ~~the~~ first ~~quarter~~nine months of 2020:


	First Quarter Ended							Nine Months Ended
(in thousands)	April 4, 2021			March 29, 2020
								October 3, 2021		September 27, 2020

								(in thousands)
Net cash (used in) provided by operating activities	$	(8,424	)	$	50,451		Net cash (used in) provided by operating activities	$	(37,241)	$	91,669
Net cash used in investing activities	$	(5,397	)	$	(10,775	)	Net cash used in investing activities	$	(30,447)	$	(65,716)
Net cash provided by (used in) financing activities	$	10,601		$	(14,248	)	Net cash provided by (used in) financing activities	$	68,710	$	(12,151)

First ~~Quarter~~Nine Months of 2021 Compared to ~~the~~ First ~~Quarter~~Nine Months of 2020

Cash and Cash Equivalents

At ~~April 4,~~October 3, 2021 and January 3, 2021, we had ~~$4.2~~$8.5 million and $7.4 million of cash and cash equivalents, respectively, including cash of $0.4 million and ~~$0.8~~$0.9 million, respectively, held by a variable interest entity that we consolidate.

Operating Activities

Net cash used in operating activities was ~~$8.4~~$37.2 million during the first ~~quarter~~nine months of 2021, a decrease of ~~$58.9~~$128.9 million from ~~$50.5~~$91.7 million of cash provided by operating activities during the first ~~quarter~~nine months of 2020. The decrease in cash provided by operating activities induring the first ~~quarter~~nine months of 2021 was driven primarily by a change in our working capital accounts, specifically ~~accounts receivable and~~ deferred revenue and accounts receivable. Deferred revenue decreased during the first nine months of 2021 as we recognized revenue from customers who funded our building expansion during 2020. Accounts receivable increased during the first nine months of 2021 due to the timing of cash collected from ~~contracts with customers who funded our building expansion during 2020.~~

customers.

Investing Activities

Capital expenditures are a significant use of our capital resources. These investments are intended to enable ~~sales~~revenue growth in new and expanding markets, help us meet product demand and increase our manufacturing efficiencies and capacity. During 2020, we had various contracts outstanding with third parties in connection with the construction of a building expansion project to increase manufacturing capacity at our Minnesota fab, a portion of which continues into 2021.

Net cash used in investing activities was ~~$5.4~~$30.4 million during the first ~~quarter~~nine months of 2021, a decrease of ~~$5.4~~$35.3 million from ~~$10.8~~$65.7 million induring the first ~~quarter~~nine months of 2020. The decrease in cash used induring the first ~~quarter~~nine months of 2021 reflects

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decreased capital spending on property and equipment as we fully complete our ~~building~~foundry expansion project ~~offset by $0.2 million of~~to increase manufacturing capacity at our Minnesota facility and decreased capital spending on software.

Financing Activities

Net cash provided by financing activities was ~~$10.6~~$68.7 million during the first ~~quarter~~nine months of 2021, an increase of ~~$24.8~~$80.9 million from net cash used in financing activities of ~~$14.2~~$12.2 million during the first ~~quarter~~nine months of 2020. The increase in net cash provided by financing activities during the first ~~quarter~~nine months of 2021 ~~compared~~was driven by the proceeds from the IPO. The increase was partially offset by net repayments on the Revolver of $30.3 million and cash paid for offering costs and distributions to ~~the first quarter of 2020 primarily reflects draws on~~ our ~~Revolver to fund capital spending and working capital needs.~~

VIE.

Indebtedness

Off-balance sheet arrangements

As of ~~April 4,~~October 3, 2021, we had no material off-balance sheet arrangements.

Contractual Obligations

There have been no material changes to our contractual obligations as disclosed in our Prospectus.

Sale Leaseback Transaction

On September 29, 2020, we entered into an agreement to sell the land and building representing our primary operating location in Bloomington, Minnesota to Oxbow Realty, LLC, or Oxbow Realty, an entity controlled by our principal owner for $39 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 owner of $2.0 million. We subsequently entered into an agreement to lease 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.

Due to our continuing involvement in the property, we are accounting for the transactions as a failed sale leaseback (a financing transaction). Under failed sale leaseback accounting, we are deemed the owner of the property with the proceeds received recorded as a financial obligation.

Revolving Credit Agreement

On December 28, 2020, we entered into an amended and restated revolving credit agreement with Wells Fargo, our Revolver, of up to $65 million that replaced our previous line of credit and term loan. Under the agreement, the facility is available on a revolving basis, subject to availability under a borrowing base consisting of a percentage of eligible accounts receivable, inventory and owned equipment. The Revolver can be repaid and borrowed again at any time without penalty or premium until the maturity date of December 28, 2025. The Revolver is available for issuance of letters of credit to a specified limit of $10 million.

Under the Revolver, we can elect the base rate (greatest of the federal funds rate plus 0.5%, LIBOR for a one-month period plus 1%, or the institution’s prime rate) or LIBOR for a period of one, two, three or six months as selected by us, plus a margin depending on the amount of borrowings outstanding “prime rate.” We will also pay a commitment fee equal to 0.25% to 0.375% of the average commitment not utilized, depending on the amount not utilized. Interest payments are due monthly.

The Revolver includes a financial covenant that requires us to maintain a fixed charge coverage ratio of at least 1.1 to 1.0 on a rolling twelve-month basis. The fixed charge coverage ratio included in our revolving credit agreement is defined as (A) earnings before interest, taxes, depreciation and amortization, or EBITDA, less unfinanced capital expenditures, divided by (B) fixed charges, which are generally defined as cash interest and income taxes, scheduled principal payments on loans and contingent consideration arrangements, and restricted payments such as dividends. EBITDA, as defined, includes adjustments for such items as unusual gains or losses, equity-based compensation and management fees, as well as other adjustments. The Revolver also includes a financial covenant that requires us to maintain a leverage ratio of no greater than 3.5 to 1.0 on a rolling twelve-month basis measured quarterly. On January 2, 2022, the ratio decreases tofrom 3.0 to 1.0 through the remainder of the agreement. The leverage ratio included in our revolving credit agreement is defined as our funded indebtedness as of the measurement date divided by our EBITDA for the twelve-month period as of the measurement date.

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

The Revolver is secured by a security interest in substantially all of our accounts receivable, inventory and equipment. In connection with the Revolver, we repaid all outstanding amounts owed under our previous term loan totaling $28.2 million of principal, accrued interest and prepayment penalties. Amounts owed under our previous line of credit totaling $2.8 million of principal and accrued interest were rolled over into the Revolver and our previous line of credit was discontinued. On December 28, 2020, we also repurchased the warrants held by the lender of our term loan for $14 million from our cash and cash equivalents.

As of ~~January~~October 3, 2021, we were not in compliance with the ~~fixed charge coverage ratio and~~ leverage ratio ~~covenants~~ related to the Revolver. On ~~March 19,~~November 3, 2021, we ~~were granted a waiver from~~entered into an amendment to the ~~lender related~~Revolver, effective as of October 1, 2021, to ~~these~~eliminate the requirement for us to comply with the leverage ratio financial ~~covenants. The amendment modified those ratios and we are no longer in an event of default. Based~~covenant contained therein with respect to the fiscal quarters ending on ~~these modifications,~~or prior to July 2, 2023, so long as the remaining availability under the Revolver has equaled or exceeded $15 million. Under the Revolver, as amended, we were in full compliance with the Revolver covenant requirements as of ~~April 4,~~October 3, 2021.

JOBS Act

We qualify as an “emerging growth company” pursuant to the provisions of the 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(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding advisory ~~“say-on-pay”~~“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

Our discussion and analysis of financial condition and results of operations are based upon our condensed consolidated financial statements. The preparation of our financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. We base our estimates on experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Actual results may differ from those estimates, impacting our reported results of operations and financial condition.

There have been no material changes to our critical accounting policies and estimates disclosed in our Prospectus. For more information, refer to “Note 3 — Summary of Significant Accounting Policies” to the condensed consolidated financial statements included in our Prospectus.

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”~~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

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

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

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

Adjusted EBITDA

Adjusted EBITDA is not a financial measure determined in accordance with U.S. GAAP. We define adjusted EBITDA as net income before interest expense, income tax provision (benefit), depreciation and amortization, equity-based compensation and certain other items that we do not view as indicative of our ongoing performance, including fair value changes in contingent consideration, equity-based compensation, fair value changes in warrants and management ~~fees.~~

fees, corporate conversion and IPO related costs, PPP Loan forgiveness, SkyWater Florida start-up costs, and management transition expense.

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 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.

   First Quarter Ended
(in thousands)    April 4, 2021    March 29, 2020
Net loss
   $ (2,053 )    $ (1,372 )
Interest expense
   1,058    1,462
Income tax benefit
   (425 )    (943 )
Depreciation and amortization
   6,482    4,322




EBITDA
   5,062    3,469
Fair value changes in contingent consideration (1)
   56    841
Equity-based compensation (2)
   235    676
Fair value changes in warrants (3)
   —    141
Management fees (4)
   276    222




Adjusted EBITDA
   $ 5,629    $ 5,349

~~(1)~~

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

~~(2)~~

~~Represents~~ ~~non-cash~~ ~~equity-based compensation expense.~~

~~(3)~~

~~Represents~~ ~~non-cash~~ ~~valuation adjustment of warrants to fair market value during the period.~~

~~(4)~~

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

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	Third Quarter Ended				Nine Months Ended
	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020

	(in thousands)
Net loss attributable to SkyWater Technology, Inc.	$	(13,870)	$	(1,654)	$	(23,660)	$	(8,319)
Interest expense	733		1,303		2,703		4,087
Income tax (benefit) expense	194		316		(4,468)		288
Depreciation and amortization	6,964		4,477		20,300		13,113
EBITDA	(5,979)		4,442		(5,125)		9,169
Paycheck Protection Program loan forgiveness	—		—		(6,453)		—
Corporate conversion and initial public offering related costs (1)	208		—		1,729		—
SkyWater Florida start-up costs (2)	434		—		938		—
Management transition expense (3)	—		—		435		—
Fair value changes in contingent consideration (4)	(1,670)		(200)		(2,556)		1,353
Equity-based compensation (5)	3,394		188		10,397		1,051
Fair value changes in warrants (6)	—		660		—		900
Management fees (7)	—		216		332		644
Net income attributable to non-controlling interests (8)	907		—		2,422		—
Adjusted EBITDA	$	(2,706)	$	5,306	$	2,119	$	13,117

__________________

(1)Represents expenses directly associated with the corporate conversion and IPO, such as professional, consulting, legal and accounting services. This also includes bonus awards granted to employees upon the completion of the IPO. These expenses are not indicative of our ongoing costs and were discontinued following the completion of our initial public offering.

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

(3)Represents expense for the departure of our former Chief Administrative Officer, which includes primarily severance benefits.

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

(5)Represents non-cash equity-based compensation expense.

(6)Represents non-cash valuation adjustment of warrants to fair market value during the period.

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

(8)Represents net income attributable to our VIE, which was formed for the purpose of purchasing our land and building with the proceeds of a bank loan. 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.

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

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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

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 ~~April 4,~~October 3, 2021.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s 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 ~~April 4,~~October 3, 2021 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 the section titled “Risk Factors” in our Prospectus, we previously identified material weaknesses in our internal control over financial reporting. As of ~~April 4,~~October 3, 2021, we have material weaknesses in components of the COSO framework, including the control environment and risk assessment due to our limited accounting and finance resources, which resulted in inappropriate preparation, review and maintenance of documentation and information that is critical to the design and consistent execution and monitoring of internal controls. We did not sufficiently design, implement, and maintain control activities related to the recording of revenue to sufficiently capture and measure progress to complete performance obligations and recognize revenue as part of the monthly close process to support the accounting for certain contracts. These material weaknesses could result in a misstatement of account balances or disclosures that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected. 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 hired and are in the process of hiring additional qualified accounting and finance ~~personnel in addition to~~personnel. Additionally, we are formalizing documentation of policies, procedures and controls and further evolving our accounting processes related the recognition of revenue.

Additionally, we have engaged a third-party advisor to assess and test our internal controls.

While we believe that these efforts will improve our internal control over financial reporting, the design and implementation of our remediation is ongoing and will require validation and testing of the design and operating effectiveness of our internal controls over a sustained period of financial reporting cycles. The actions that 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 efforts and subsequent evaluation of their effectiveness. Until these weaknesses are remediated, we plan to continue to perform additional analyses and other procedures to ensure that our consolidated financial statements are prepared in accordance with GAAP.

Changes in Internal Control Over Financial Reporting

As part of our remediation plan discussed above, we hired ~~one~~ additional ~~resource~~resources and continued formalizing documentation of policies, procedures and controls and evaluating the implementation of new and existing controls during the quarter ended ~~April 4,~~

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October 3, 2021. Such remediation actions were changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended ~~April 4,~~October 3, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management continues to implement the comprehensive remediation program to ensure that control deficiencies contributing to the material weakness are remediated and that our controls operate effectively.

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.

Item 1A. Risk Factors

This Quarterly Report on Form 10-Q should be read in conjunction with the risk factors included in our Prospectus. ~~There~~Other than as noted below, there have been no material changes to the risk factors disclosed under the heading “Risk Factors” in our Prospectus.

The U.S. presidential executive order concerning mandatory COVID-19 vaccination of U.S.-based employees of companies that work on or in support of federal contracts could have a material adverse impact on our business and results of operations.

On September 9, 2021, President Biden issued an executive order requiring all employers with U.S. Government contracts to ensure that their U.S.-based employees, contractors, and subcontractors, that work on or in support of U.S. Government contracts, are fully vaccinated by January 4, 2022. The executive order includes on-site and remote U.S.-based employees, contractors and subcontractors and it only permits limited exceptions for medical and religious reasons. The executive order will require all of our U.S.-based employees, contractors, and subcontractors to be vaccinated against COVID-19, unless a religious or medical exemption applies.

It is currently not possible to predict with certainty the impact the executive order will have on our workforce. As a U.S. Government contractor, we are requiring all U.S. based employees, contractors and subcontractors that service or support our U.S. Government contracts to be fully vaccinated by January 4, 2022. Our implementation of these requirements may result in attrition, including attrition of critically skilled labor, and difficulty securing future labor needs, which could have a material adverse effect on our business, financial condition, and results of operations.

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

Unregistered Sales of Equity Securities

None.

Use of Proceeds from Initial Public Offering of Common Stock

On April 23, 2021, we completed our IPO in which we ~~sold~~issued 8,004,000 shares of our common stock at a public offering price of $14.00 per ~~share.~~share, which included 1,044,000 shares issued pursuant to the exercise by the underwriters of their over-allotment option (the “Over-Allotment Option”) at the IPO price, less the underwriting discount and commissions. The offer and sale of all of the shares in the IPO were registered under the Securities Act pursuant to the Company’s registration statement on Form S-1 (File No. 333-254580), as amended, which was declared effective by the SEC on April 20, 2021, and the Company’s registration statement on Form S-1 (File No. 333-255385) filed on April 20, 2021 pursuant to Rule 462(b) under the Securities Act. ~~The~~Jefferies LLC and Cowen and Company, LLC acted as the representatives of the several underwriters in our IPO.

Following the sale of the shares in connection with the April 23, 2021 closing of the IPO, the offering was terminated. We received aggregate net proceeds of $100.2 million, net of underwriting discounts and commissions of approximately $7.8 million and estimated offering expenses of approximately $4.1 million. None of such payments have been made by us to directors, officers or persons owning ten percent or more of our common stock or to their associates, or to our affiliates. Since the closing of the IPO, we estimate that we have utilized approximately $45 million of our IPO proceeds to pay down our

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Revolver, approximately $22 million of our IPO proceeds to fund capital expenditures, and approximately $21 million of our IPO proceeds to fund our operating activities. There has been no material change in the expected use of the net proceeds from our IPO ~~will be further~~as described in our ~~Quarterly Report for the second quarter of 2021.~~

registration statement on Form S-1.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~None.~~

On November 3, 2021, the Company and Wells Fargo Bank, National Association (“Wells Fargo”) entered into a Third Amendment to Amended and Restated Credit Agreement (the “Amendment”), effective as of October 1, 2021, to eliminate the requirement for the Company to comply with the leverage ratio financial covenant contained therein with respect to the fiscal quarters ending on or prior to July 2, 2023, so long as the remaining availability under the Revolver has equaled or exceeded $15 million. The foregoing description of the Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the Amendment, which is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.

Item 6. Exhibits

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


Exhibit Number			Description

~~Exhibit~~ ~~Number~~3.1		~~Description~~

~~3.1~~	Certificate of Incorporation of SkyWater Technology, Inc. (incorporated by reference)

3.2			Bylaws of SkyWater Technology, Inc. (incorporated by reference)

~~10.1+~~	~~SkyWater Technology, Inc. 2021 Equity Incentive Plan (“2021 Equity Incentive Plan”) (incorporated by reference)~~

~~10.2+~~10.1		~~Form of Nonqualified Stock Option Agreement pursuant to the 2021 Equity Incentive Plan (incorporated by reference)~~

~~10.3+~~	~~Form of Incentive Stock Option Agreement pursuant to the 2021 Equity Incentive Plan (incorporated by reference)~~

~~10.4+~~	~~Form of Restricted Stock Unit Agreement pursuant to the 2021 Equity Incentive Plan (incorporated by reference)~~

~~10.5+~~	~~Form of Restricted Stock Unit Agreement for Directors pursuant to the 2021 Equity Incentive Plan (incorporated by reference)~~

~~10.6+~~	~~SkyWater Technology, Inc. 2021 Employee Stock Purchase Plan (incorporated by reference)~~

~~10.7~~	~~Waiver, Consent and First~~Third Amendment to Amended and Restated Credit Agreement, ~~(incorporated~~dated as of November 3, 2021 , by ~~reference)~~and among Wells Fargo Bank, National Association, as administrative agent, SkyWater Technology, Inc. and SkyWater Technology Foundry, Inc.

~~10.8~~	~~Technology and Economic Development Agreement (incorporated by reference)~~

~~10.9~~31.1		~~Form of Indemnification Agreement (incorporated by reference)~~

~~10.10+~~	~~Executive Severance and Change of Control Plan (incorporated by reference)~~

~~10.11+~~	~~Non-Employee Director Compensation Policy (incorporated by reference)~~

~~10.12~~	~~Registration Rights Agreement, dated April 23, 2021, among SkyWater Technology, Inc., CMI Oxbow Partners, LLC and the individuals identified on Schedule A thereto.~~

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

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

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

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

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

101.SCH			XBRL Taxonomy Extension Schema Document

101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF			XBRL Taxonomy Extension Definition Linkbase Document

101.LAB			XBRL Taxonomy Extension Label Linkbase Document

101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document

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

*104

~~The certifications furnished~~

Cover Page Interactive Data File (formatted as Inline XBRL and contained 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.~~

101)

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

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

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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: May 19, 2021~~

Date: November 8, 2021

By:

/s/ Thomas Sonderman

Thomas Sonderman

President and Chief Executive Officer

(Principal Executive Officer)

By:

~~By:~~

/s/Steve Manko

Steve Manko

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)


	April 4, 2021			January 3, 2021
	(in thousands, except unit data)
Assets
Current assets:
Cash and cash equivalents	$	4,216		$	7,436
Accounts receivable, net		26,730			29,995
Inventories		31,230			27,169
Prepaid expenses and other current assets		8,009			11,972

Total current assets		70,185			76,572

Property and equipment, net		173,174			178,078
Intangible assets, net		4,345			4,561
Other assets		4,607			3,998

Total assets	$	252,311		$	263,209

Liabilities and Members’ Equity (Deficit)
Current liabilities:
Current portion of long-term debt	$	3,853		$	2,772
Accounts payable		15,845			16,792
Accrued expenses		22,107			25,496
Income taxes payable		4,517			1,710
Current portion of contingent consideration		6,641			8,904
Deferred revenue - current		22,537			30,653

Total current liabilities		75,500			86,327

Long-term liabilities:
Long-term debt, less current portion and unamortized debt issuance costs		81,688			69,828
Contingent consideration, less current portion		959			1,996
Long-term incentive plan		3,415			3,185
Deferred revenue - long-term		89,001			95,399
Deferred income tax liability, net		6,361			8,058

Total long-term liabilities		181,424			178,466

Total liabilities		256,924			264,793

Commitments and contingencies
Members’ equity (deficit):
Class A Preferred Units (2,000,000 Class A Preferred Units authorized; none issued and outstanding)		—			—
Class B Preferred Units (18,000,000 Class B Preferred Units authorized; 18,000,000 Units issued and outstanding)		—			—
Common Units (5,000,000 Common Units authorized; 3,057,344 Units issued and 2,105,936 and 2,107,452 outstanding at April 4, 2021 and January 3, 2021, respectively)		3,772			3,767
Retained deficit		(6,594	)		(3,783	)

Total members’ deficit, CMI Acquisition, LLC		(2,822	)		(16	)
Non-controlling interests		(1,791	)		(1,568	)

Total members’ deficit		(4,613	)		(1,584	)

Total liabilities and members’ deficit	$	252,311		$	263,209


																	Total
														Retained Earnings (Deficit)			Members’ Equity (Deficit), CMI Acquisition, LLC						Total Members’ Equity (Deficit)
	Class A Units				Class B Units				Common Units											Non-controlling
	Units		Amount		Units		Amount		Units			Amount								Interests
Members’ equity—December 29, 2019		—	$	—		18,000	$	—		—		$	7,333	$	16,834		$	24,167		$	—		$	24,167
Unit-based compensation		—		—		—		—		—			488		—			488			—			488
Net loss		—		—		—		—		—			—		(1,372	)		(1,372	)		—			(1,372	)

Members’ equity—March 29, 2020		—	$	—		18,000	$	—		—		$	7,821	$	15,462		$	23,283		$	—		$	23,283

Members’ equity (deficit)—January 3, 2021		—	$	—		18,000	$	—		2,108		$	3,767	$	(3,783	)	$	(16	)	$	(1,568	)	$	(1,584	)
Unit-based compensation		—		—		—		—		—			5		—			5			—			5
Other		—		—		—		—		(2	)		—		—			—			—			—
Distribution to VIE member		—		—		—		—		—			—		—			—			(981	)		(981	)
Net income (loss)		—		—		—		—		—			—		(2,811	)		(2,811	)		758			(2,053	)

Members’ equity (deficit)—April 4, 2021		—	$	—		18,000	$	—		2,106		$	3,772	$	(6,594	)	$	(2,822	)	$	(1,791	)	$	(4,613	)


	Three Months Ended September 27, 2020		Nine Months Ended September 27, 2020

	(in thousands, except per unit data)
Numerator:
Net loss attributable to SkyWater Technology, Inc.	$	(1,654)	$	(8,319)
Denominator:
Weighted-average Class B preferred units outstanding, basic and diluted	18,000		18,000
Net loss per unit attributable to Class B preferred unitholders, basic and diluted	$	(0.09)	$	(0.46)


	Three Months Ended April 4, 2021
	Point-in-Time		Over Time		Total Topic 606 Revenue		Lease Revenue		Revenue recognized from foundry services obligation		Total Revenue
Wafer Services	$	10,019	$	—	$	10,019	$	—	$	—	$	10,019
Advanced Technology Services
T&M		—		10,792		10,792		—		—		10,792
Fixed Price		—		26,123		26,123		—		—		26,123
Other		—		—		—		1,167		—		1,167

Total Advanced Technology Services		—		36,915		36,915		1,167		—		38,082

Total revenue	$	10,019	$	36,915	$	46,934	$	1,167	$	—	$	48,101


	Three Months Ended March 29, 2020
	Point-in-Time		Over Time		Total Topic 606 Revenue		Lease Revenue		Revenue recognized from foundry services obligation		Total Revenue
Wafer Services	$	12,930	$	—	$	12,930	$	—	$	388	$	13,318
Advanced Technology Services
T&M		—		19,406		19,406		—		—		19,406
Fixed Price		—		4,180		4,180		—		—		4,180
Other		—		—		—		—		—		—

Total Advanced Technology Services		—		23,586		23,586		—		—		23,586

Total revenue	$	12,930	$	23,586	$	36,516	$	—	$	388	$	36,904


	April 4, 2021						January 3, 2021
	Contract		Deferred		Total		Contract		Deferred		Total
	Liabilities		Lease Revenue		Deferred Revenue		Liabilities		Lease Revenue		Deferred Revenue
Current	$	17,870	$	4,667	$	22,537	$	25,986	$	4,667	$	30,653
Long-term		74,223		14,778		89,001		79,455		15,944		95,399

Total	$	92,093	$	19,445	$	111,538	$	105,441	$	20,611	$	126,052


Within one year	$	12,542
From one to two years		13,921
From two to three years		12,695
After three years		47,607

Total	$	86,765


Within one year	$	15,154
From one to two years	15,217
From two to three years	11,156
After three years	46,632
Total	$	88,159


	Amortization
	Expense
Remainder of 2021	$	1,280
2022		1,117
2023		777
2024		422
2025		421
Thereafter		328

Total	$	4,345


	October 3, 2021		January 3, 2021 (1)
Accrued compensation	$	5,795	$	6,315
Accrued commissions	584		5,183
Accrued fixed asset expenditures	476		6,337
Accrued royalties	1,630		2,145

Capital lease obligations	1,280		—
Other accrued expenses	5,344		5,516
Total accrued expenses	$	15,109	$	25,496


	April 4, 2021			January 3, 2021
Revolver, net of unamortized debt issuance costs of $1,460 and $1,537	$	43,873		$	30,766
Financing (by VIE), net of unamortized debt issuance costs of $3,375 and $3,458		35,215			35,381
Paycheck Protection Program loan		6,453			6,453

Total long-term debt		85,541			72,600
Less: Current portion of long-term debt		(3,853	)		(2,772	)

Long-term debt, excluding current portion and unamortized debt issuance costs	$	81,688		$	69,828


	Contingent
	Consideration
Balance at January 3, 2021	$	10,900
Payments		(3,356	)
Change in fair value		56

Balance at April 4, 2021	$	7,600


Remainder of 2021	$	3,560
2022		4,836
2023		4,932
2024		5,031
2025		5,132
Thereafter		89,350

Total lease payments		112,841
Less: imputed interest		(85,742	)

Total	$	27,099


	April 4, 2021		January 3, 2021
Cash and cash equivalents	$	434	$	860
Prepaid expenses		211		99
Finance receivable		36,810		36,930

Total assets	$	37,455	$	37,889

Accounts payable	$	697	$	672
Accrued expenses		21		9
Debt		38,529		38,776

Total liabilities	$	39,247	$	39,457


	First Quarter Ended						Dollar			Percentage
(in thousands)	April 4, 2021 (1)			March 29, 2020 (1)			Change			Change
Consolidated Statement of Operations Data:
Net sales	$	48,101		$	36,904		$	11,197			30.3	%
Cost of sales		38,935			30,480			8,455			27.7	%

Gross profit		9,166			6,424			2,742			42.7	%
Research and development		1,927			662			1,265			191.1	%
Selling, general and administrative expenses		8,603			5,633			2,970			52.7	%
Change in fair value of contingent consideration		56			841			(785	)		(93.3	%)

Operating loss		(1,420	)		(712	)		(708	)		99.4	%
Other expense:
Change in fair value of warrant liability		—			(141	)		141			(100.0	%)
Interest expense		(1,058	)		(1,462	)		404			(27.6	%)

Total other expense		(1,058	)		(1,603	)		545			(34.0	%)

Loss before income taxes		(2,478	)		(2,315	)		(163	)		7.0	%
Income tax benefit		(425	)		(943	)		(518	)		54.9	%

Net loss		(2,053	)		(1,372	)		(681	)		49.6	%
Less: net income attributable to non-controlling interests		758			—			758			100.0	%

Net loss attributable to CMI Acquisition, LLC	$	(2,811	)	$	(1,372	)	$	(1,439	)		104.9	%

Other Financial Data:
Adjusted EBITDA (2)	$	5,629		$	5,349		$	280			5.2	%