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What changed in SkyWater Technology, Inc's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of SkyWater Technology, Inc's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+347 added−345 removedSource: 10-K (2023-03-15) vs 10-K (2022-03-10)

Top changes in SkyWater Technology, Inc's 2023 10-K

347 paragraphs added · 345 removed · 220 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

63 edited+8 added−11 removed108 unchanged
Biggest changeAs previously discussed, our facilities also have been accredited as a Category 1A Trusted Fab for fabrication, design and testing of DoD Trusted Microelectronics. Our facilities are currently pursuing OHSAS 18001 certification, which recognizes compliance with international occupational health and safety standards that provide guidance on how to achieve an effective health and safety management system.
Biggest changeOur facilities are ISO 9001 certified, an international quality standard that provides guidance to achieve an effective quality management system. In addition, our facilities are TS16949 certified. As previously discussed, our facilities also have been accredited as a Category 1A Trusted Fab for fabrication, design and testing of DoD Trusted Microelectronics.
Wafer Services We offer semiconductor manufacturing services for a wide variety of silicon-based analog and mixed-signal, power discrete, MEMS and rad-hard ICs. It is our opinion that our focus on the differentiated analog and mixed-signal and complementary metal-oxide-semiconductor, or CMOS, space supports long product life-cycles and requirements that value performance over cost efficiencies.
Wafer Services We offer semiconductor manufacturing services for a wide variety of silicon-based analog and mixed-signal, power discrete, MEMS and rad-hard ICs. It is our opinion that our focus on the differentiated analog and mixed-signal complementary metal-oxide-semiconductor, or CMOS, space supports long product life-cycles and requirements that value performance over cost efficiencies.
Of those suppliers, we are one of only sixteen companies that have DMEA Category 1A Trusted Foundry accreditation through the DoD.
Of those suppliers, we are one of only sixteen foundry companies that have DMEA Trusted Category 1A accreditation through the DoD.
This capability has been developed within our organization over decades as the site was previously the center for Cypress process development and volume manufacturing. A unique operational model also has been developed for fab asset-tracking and equipment ownership to ensure efficient operations despite, at times, competing interests within the fab.
This capability has been developed within our organization over decades as the site was previously the center for Cypress process development and volume manufacturing. A unique operational model also has been developed for fab asset-tracking and equipment ownership to ensure efficient operations despite, at times, competing interests within the fab. Equipment .
Our marketing efforts are focused on increasing industry awareness of our corporate value proposition and our product offerings, customer engagement and ultimately converting need into demand that can be captured by the sales team.
Marketing . Our marketing efforts are focused on increasing industry awareness of our corporate value proposition and our product offerings, customer engagement and ultimately converting need into demand that can be captured by the sales team.
We also support customers developing superconducting microelectronics for non-quantum devices for supercomputing applications where the use of zero-resistance architectures can significantly reduce the staggering amount of energy consumption used by today’s supercomputers and data centers. 3DSoC & Carbon Nanotube Transistors In 2018, DARPA awarded the largest contract in the agency’s ERI program to a team consisting of us, MIT and Stanford University, for the 3DSoC program.
We also support customers developing superconducting microelectronics for 13 non-quantum devices for supercomputing applications where the use of zero-resistance architectures can significantly reduce the staggering amount of energy consumption used by today’s supercomputers and data centers. 3DSoC & Carbon Nanotube Transistors In 2018, DARPA awarded the largest contract in the agency’s ERI program to a team consisting of us, MIT and Stanford University, for the 3DSoC program.
We also specialize in developing advanced processes for emerging technologies such as silicon photonics, superconducting and quantum computing, CMOS image sensing and DNA sequencing, among others. Our Advanced Technology Services provide us with a competitive advantage by offering significant technical expertise and customized engineering practices required for the creation and delivery 9 of scalable specialty applications.
We also specialize in developing advanced processes for emerging technologies such as silicon photonics, superconducting and quantum computing, CMOS image sensing and DNA sequencing, among others. Our Advanced Technology Services provide us with a competitive advantage by offering significant technical expertise and customized engineering practices required for the creation and delivery of scalable specialty applications.
This has resulted in significant unmet need at a time when demand for these specialty ICs continues to grow due to demand from the A&D, automotive and transportation, advanced computation, bio-health, consumer and industrial/IoT applications. Rad-hard electronics enable electronic devices to be resistant to malfunctions caused by electromagnetic or particle radiation.
This has resulted in significant unmet need at a time when demand for these specialty ICs continues to 7 grow due to demand from the A&D, automotive and transportation, advanced computation, bio-health, consumer and industrial/IoT applications. Rad-hard electronics enable electronic devices to be resistant to malfunctions caused by electromagnetic or particle radiation.
The ERI funding program is focused on restoring U.S. leadership in semiconductor manufacturing technologies. The 3DSoC initiative is focused on transitioning technology concepts demonstrated at MIT into a commercial foundry environment at SkyWater and create a multilayer stackup of logic and memory that is interconnected with fine-pitch vias that are only possible with monolithic fabrication.
The ERI funding program is focused on restoring U.S. leadership in semiconductor manufacturing technologies. The 3DSoC initiative was focused on transitioning technology concepts demonstrated at MIT into a commercial foundry environment at SkyWater and create a multilayer stackup of logic and memory that is interconnected with fine-pitch vias that are only possible with monolithic fabrication.
The technological capabilities of our foundry shorten design cycles to create an expedited path for our customers’ products to reach the market. • Optimized manufacturing environment for highly-engineered projects . Customers in our end markets value high performance and are willing to pay a premium for the Advanced Technology Services needed for the development of specialized products.
The technological capabilities of our foundry shorten design cycles to create an expedited path for our customers’ products to reach the market. 10 • Optimized manufacturing environment for highly-engineered projects . Customers in our end markets value high performance and are willing to pay a premium for the Advanced Technology Services needed for the development of specialized products.
Our multi-year foundry services agreement with Cypress, which ended in June 2020, created a runway for us to operate the foundry at a high utilization rate while continuing to expand and diversify the customer base transferred by Cypress. Cypress was acquired in April 2020 by Infineon Technologies AG, or Infineon.
Our multi-year foundry services agreement with Cypress, which ended in June 2020, created a runway for us to operate the foundry at a high utilization rate while continuing to expand and diversify the customer base initially transferred by Cypress. Cypress was acquired in April 2020 by Infineon Technologies AG, or Infineon.
We are one of only sixteen companies that have DMEA Category 1A Trusted Foundry accreditation through the DoD. We believe most foundries are not positioned to partner with the USG because of the Trusted Foundry’s security requirements, stringent government contract provisions and small lot manufacturing typical of government contracts.
We are one of only sixteen companies that have DMEA Category 1A Trusted Foundry accreditation through the DoD. We believe most foundries are not positioned to deeply partner with the USG because of the Trusted Foundry’s security requirements, stringent government contract provisions and small lot manufacturing typical of government contracts.
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.
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 and sensing, integrated photonics, carbon nanotube technologies, or CNTs, microelectromechanical systems, or MEMS, technologies for biomedical and imaging applications, and advanced packaging.
This combination of technologies, which tightly integrates memory with digital logic, is predicted to overcome the performance “memory wall” which is currently slowing device 12 performance gains. The technology has disruptive potential due to facilitating leading-edge computing performance at a fraction of leading-edge costs, along with improved power and performance.
This combination of technologies, which tightly integrates memory with digital logic, is predicted to overcome the performance “memory wall” which is currently slowing device performance gains. The technology has disruptive potential due to facilitating leading-edge computing performance at a fraction of leading-edge costs, along with improved power and performance.
In addition, the nature of our business-to-business relationships provides for a unique customer purchase process in which numerous stakeholders participate. These stakeholders usually represent various parts of the 14 customer’s business and engage with different parts of our organization.
In addition, the nature of our business-to-business relationships provides for a unique customer purchase process in which numerous stakeholders participate. These stakeholders usually represent various parts of the customer’s business and engage with different parts of our organization.
Raw materials . As a manufacturer of high precision products, we maintain critical supplier relationships to ensure high quality starting materials are available to be used in our processing activities.
As a manufacturer of high precision products, we maintain critical supplier relationships to ensure high quality starting materials are available to be used in our processing activities.
Furthermore, this S90RH platform uses the already- proven 90 nm fully depleted silicon-on insulator, or FDSOI, frontend process licensed from MIT-Lincoln Laboratory, where the FDSOI architecture provides improved radiation tolerance, higher transistor speed, and lower power operation. This contract also includes an option for the DoD to fund enhancements and extensions to this technology.
Furthermore, this RH90 platform uses the already- proven 90 nm fully depleted silicon-on insulator, or FDSOI, frontend process licensed from MIT-Lincoln Laboratory, where the FDSOI architecture provides improved radiation tolerance, higher transistor speed, and lower power operation. This contract also includes an option for the DoD to fund enhancements and extensions to this technology.
Our sales staff members possess significant technical competence and well-developed interpersonal skills to win and maintain customer relationships. This differentiates our front-end business organization from conventional foundries. Our highly technical staff members serve in customer-facing roles early and often in engagements in order to communicate the value of these services during a customer’s decision process.
Our sales and business development staff members possess significant technical competence and well-developed interpersonal skills to win and maintain customer relationships. This differentiates our front-end business organization from conventional foundries. Our highly technical 15 staff members serve in customer-facing roles early and often in engagements in order to communicate the value of these services during a customer’s decision process.
Analog and Mixed-Signal Based Technologies Our S90 (90 nm gate), S130 (130 nm gate) and CMOS process flows (greater than 130 nm) are the foundation of our business. These process flows have collectively produced a multitude of devices at our fab for products across a range of applications including IoT, memory, automotive, consumer wearables, and vision systems.
Analog and Mixed-Signal Based Technologies 12 Our S90 (90 nm gate length), S130 (130 nm) and CMOS process flows (greater than 130 nm) are the foundation of our business. These process flows have collectively produced a multitude of devices at our fab for products across a range of applications including IoT, memory, automotive, consumer wearables, and vision systems.
In our technology as a service model, we leverage a strong foundation of proprietary technology to co-develop process technology 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 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.
This is an important defining characteristic of our pure-play technology foundry model. 8 Our Competitive Strengths We believe we are a leader in technology innovation services, and believe that we have significant points of differentiation that will enable us to continue to succeed in the pure-play technology foundry industry.
This is an important defining characteristic of our pure-play technology foundry model. 9 Our Competitive Strengths We believe we are a leader in technology innovation services, and believe that we have significant points of differentiation that will enable us to continue to succeed in the pure-play technology foundry industry.
Operational Capabilities . Managing the technology foundry’s signature high-mix manufacturing operation requires special competencies with respect to the manner by which the volume production activities flow through the fab, while experimental and development efforts are interspaced on the same equipment sets.
Managing the technology foundry’s signature high-mix manufacturing operation requires special competencies with respect to the manner by which the volume production activities flow through the fab, while experimental and development efforts are interspaced on the same equipment sets.
Our combined business model also takes advantage of amortizing costs of the production facility across the production business, which allows us to have access to production-grade tooling and systems without significant capital and operating costs. 7 Advanced Technology Services We deliver Advanced Technology Services to co-create advanced technologies with our customers by providing engineering and process development support.
Our combined business model also takes advantage of amortizing costs of the production facility across the entire business, which allows us to have access to production-grade tooling and systems without significant capital and operating costs. 8 Advanced Technology Services We deliver Advanced Technology Services to co-create advanced technologies with our customers by providing engineering and process development support.
In our Wafer Services category for mixed-signal technologies, the base design IP portfolio for S130 technologies originating from Cypress was licensed via a technology license agreement in 2017.
In our Wafer Services category for mixed-signal technologies, the base design IP portfolio for S130 and S90 technologies originating from Cypress was licensed via a technology license agreement in 2017.
Our core strengths include the following: • Our status as a publicly-traded, U.S.-based, U.S. investor-owned pure-play technology foundry partner with DMEA Category 1A accreditation from the DoD . Our status as a publicly-traded U.S.-based and U.S. investor-owned pure-play technology foundry with DMEA accreditation provides us with a strong position to service the aerospace and defense market.
Our core strengths include the following: • Our status as a publicly-traded, U.S.-based pure-play technology foundry partner with DMEA Category 1A accreditation from the DoD . This status provides us with a strong position to service the aerospace and defense market.
We plan to continue to invest significantly in research and development activities in order to develop advanced process technologies for new applications. Our research and development expenses were approximately $8.7 million and $4.2 million for the years ended January 2, 2022 and January 3, 2021, respectively.
We plan to continue to invest significantly in research and development activities in order to develop advanced process technologies for new applications. Our research and development expenses were approximately $9.4 million, $8.7 million, and $4.2 million, for the years ended January 1, 2023, January 2, 2022, and January 3, 2021, respectively.
The DoD established the Trusted Foundry Program in 2007 to provide secure access to leading-edge semiconductor technology and to ensure a trusted microelectronics supply chain for sensitive government programs with national security interests. As of January 2, 2022, there were 81 suppliers designated as “Trusted” under this program by the USG.
The DoD established the Trusted Foundry Program in 2007 to provide secure access to leading-edge semiconductor technology and to ensure a trusted microelectronics supply chain for sensitive government programs with national security interests. As of January 1, 2023, there were 81 suppliers designated as “Trusted” under this program by the USG.
These raw materials include silicon wafers, high-purity compressed gases, high-purity metals for film deposition processes, high-purity acid, base, and cleaning solutions for various wet processing steps, and semiconductor grade photoresist and developer for photolithography. Our principal suppliers for these materials are: • GlobalWafers Singapore Pte. Ltd. (silicon wafers) • SEH America, subsidiary of Shin-Etsu Handotai, Ltd.
These raw materials include silicon wafers, high-purity compressed gases, high-purity metals for film deposition processes, high-purity acid, base, and cleaning solutions for various wet processing steps, and semiconductor grade photoresist and developer for photolithography. Our principal suppliers for these materials are: • Globalwafers Co. LTD. (silicon wafers) • SEH America Inc, subsidiary of Shin-Etsu Handotai, Ltd.
Our Business We offer a unique pure-play technology foundry model that enables our customers through Technology-as-a-Service, or TaaS (see following figure), providing innovation as a service through Advanced Technology Services and 200 mm volume wafer manufacturing capabilities through Wafer Services.
Our Business We offer a unique, pure-play technology foundry model through Technology-as-a-Service, or TaaS (see following figure), providing innovation to our customers through Advanced Technology Services and 200 mm volume wafer manufacturing capabilities through Wafer Services.
Earlier in 2020, we added deep-trench etching capability which enables us to serve a variety of MEMS customers. This expansion yields new opportunities for revenue growth by allowing us to address a new market. Manufacturing Process Technologies .
In 2020, we added deep-trench etching capability which enables us to serve a variety of MEMS customers. This expansion has yielded new opportunities for revenue growth by allowing us to address a new market. Manufacturing Process Technologies .
MEMS We have supported MEMS fabrication since 2013 for microfluidic applications for DNA sequencing applications and have co-developed a process flow for a highly sensitive infrared imager. The infrared imager was so well-received that many subsequent USG-funded and customer-funded enhancements have pushed the performance of infrared imaging performance to its limits.
MEMS We have supported MEMS fabrication since 2013 for microfluidic applications for DNA sequencing applications and have co-developed a process flow for a highly sensitive infrared imager. The infrared imager was so well-received that many subsequent USG-funded and customer-funded enhancements have pushed the performance of infrared imaging performance to even higher levels.
We have expanded our customer base in this market to include eight companies as they develop their own proprietary superconducting technologies for both quantum computing Qubits and supercomputing applications.
We have expanded our customer base in this market to include numerous other companies as they develop their own proprietary superconducting technologies for both quantum computing, quantum sensing Qubits and supercomputing applications.
While to date we have not experienced any material adverse impact on our business from environmental regulations, we cannot provide assurance that environmental regulations will not impose expensive obligations on us in the future, or otherwise result in the incurrence of liabilities such as the following: • a requirement to increase capital or other costs to comply with such regulations or to restrict discharges; • liabilities to our employees and/or third parties; and • business interruptions as a consequence of permit suspensions or revocations, or as a consequence of the granting of injunctions requested by governmental agencies or private parties.
While to date we have not experienced any material adverse impact on our business from environmental regulations, we cannot provide assurance that environmental regulations will not impose expensive obligations on us in the future, or otherwise result in the incurrence of liabilities such as the following: • a requirement to increase capital or other costs to comply with such regulations or to restrict discharges; • liabilities to our employees and/or third parties; and • business interruptions as a consequence of permit suspensions or revocations, or as a consequence of the granting of injunctions requested by governmental agencies or private parties. 16 We have placed significant emphasis on achieving and maintaining a high standard of manufacturing quality.
In addition, our status as a publicly-traded, U.S.-based, U.S. investor-owned pure-play technology foundry with Defense Microelectronics Activity, or DMEA, Category 1A accreditation from the 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 addition, we believe our status as a publicly-traded, U.S.-based, pure-play technology foundry with Defense Microelectronics Activity, or DMEA, Category 1A accreditation from the DoD positions us well to provide distinct, competitive advantages to our customers. These advantages include the benefits of enhanced IP security and easy access to a U.S. domestic supply chain.
We also may expand our current facility or convert existing spaces into clean rooms to add to our contaminant-free manufacturing environment. We believe acquiring low-cost U.S.-based facilities will expand our scale and customer base while maintaining our domestic competitive advantage without disrupting current operations.
We also may expand our current facility or convert existing spaces into clean rooms to add to our contaminant-free manufacturing environment. We believe acquiring low-cost U.S.-based facilities will expand our scale and customer base while maintaining our domestic competitive advantage without disrupting current operations. • Expand our capabilities and capacity leveraging the CHIPS and Science Act.
In 2019, we were awarded rad-hard program by the DoD of up to $170 million to fund a facility expansion to house and develop a new 90 nm radiation hardened by process (RHBP) mixed-signal CMOS process that will be qualified for production in early 2022.
In 2019, we were awarded rad-hard program by the DoD of up to $170 million and, in 2022, we were awarded up to $99 million in additional funding to fund a facility expansion to house and develop a new 90 nm radiation hardened by process (RHBP) mixed-signal CMOS process that is expected to be qualified for production in early 2025.
Our Customers We serve a diverse array of customers, ranging from designers producing near-commodity volume chips to those requiring highly-specialized, next-wave technology solutions. Cypress accounted for 25% and 29% of our revenue for the years ended January 2, 2022 and January 3, 2021, respectively.
Our Customers We serve a diverse array of customers, ranging from designers producing near-commodity volume chips to those requiring highly-specialized, next-wave technology solutions. Infineon accounted for 28% and 25% of our revenue for the years ended January 1, 2023 and January 2, 2022, respectively.
The recent addition of our Florida facility adds unique interposer technology licensed from imec and will also accelerate our roadmaps for other key technologies in this category including hybrid bonding, fan-out wafer level packaging (FOWLP) and assembly/test.
Our Florida facility adds unique interposer technology licensed from IMEC and we expect it to also accelerate our roadmaps for other key technologies in this category including hybrid bonding, fan-out wafer level packaging (FOWLP) and assembly/test.
We have reduced our revenue concentration from Cypress to approximately 25% of our revenues for the year ended January 2, 2022 from approximately 100% of our revenues from the period of acquisition to July 1, 2017.
We have reduced our revenue concentration from Infineon to approximately 28% of our revenues for the year ended January 1, 2023 from approximately 100% of our revenues from the period of acquisition to July 1, 2017.
Given that high performance analog and mixed-signal applications do not typically benefit from the advanced node dimensions, we believe we are well-positioned to service IoT markets with high-performance analog and mixed-signal solutions on 90 nm and 130 nm process flows. We are under contract with the DoD to stand up 65 nm once the 90 nm project is qualified.
Given that high performance analog and mixed-signal applications do not typically benefit from the advanced node dimensions, we believe we are well-positioned to service IoT markets with high-performance analog and mixed-signal solutions on 90 nm and 130 nm process flows. Operational Capabilities .
ITEM 1. BUSINESS 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.
ITEM 1. BUSINESS Overview We are a U.S.-based, independent, pure-play technology foundry that offers advanced semiconductor development and manufacturing services from our fabrication facilities, or fabs, in Bloomington, Minnesota and Kissimmee, Florida.
A diverse workforce results in a broader range of perspectives, helping drive our commitment to growth. We believe that our compensation and benefit programs are appropriately designed to attract and retain qualified talent.
We are committed to fostering an environment where all employees can grow and thrive. A diverse workforce results in a broader range of perspectives, helping drive our commitment to growth. We believe that our compensation and benefit programs are appropriately designed to attract and retain qualified talent.
These mixed-signal semiconductors are developed to support the rapidly expanding applications across markets through the emergence of IoT. 6 Analog and mixed-signal microelectronics as well as derivative and adjacent technologies, such as rad-hard, discrete power devices, superconducting, photonics, MEMS and carbon nanotubes, require higher levels of customizable functionality and performance than digital devices do.
Analog and mixed-signal semiconductors as well as derivative and adjacent technologies, such as rad-hard, discrete power devices, carbon nanotubes and microelectronics, such as superconducting, photonics, and MEMS, require higher levels of customizable functionality and performance than digital devices do.
The demand for processing of these analog signals has led to the creation of a semiconductor category known as “mixed-signal,” which processes both analog signals and digital logic.
The demand for processing of these analog signals has led to the creation of a semiconductor category known as “mixed-signal,” which processes both analog signals and digital logic. These mixed-signal semiconductors are developed to support the rapidly expanding applications across markets through the emergence of IoT.
We intend to continue to engage in advanced development opportunities and leverage technologies developed to broaden our portfolio of semiconductor solutions. Access to our engineering team, production-grade technology and equipment, verified IP and trade secrets developed over several decades enable us to provide highly differentiated and customized process development and Advanced Technology Services.
Access to our engineering team, production-grade technology 11 and equipment, verified IP and trade secrets developed over several decades enable us to provide highly differentiated and customized process development and Advanced Technology Services.
One customer, other than Cypress, represented 24% of our revenue for the year ended January 2, 2022 and two customers, other than Cypress, represented 16% and 14% of our revenue for the year ended January 3, 2021.
Two customers, other than Infineon, represented 20% and 11% of our revenue for the year ended January 1, 2023. One customer, other than Infineon, represented 24% of our revenue for the year ended January 2, 2022.
With the deployment of 5G networks, we expect an increase in IoT devices leveraging 5G for smart sensors and connectivity applications with low power device capabilities.
With the deployment of 5G networks, we expect an increase in IoT devices leveraging 5G for smart sensors and connectivity applications with low power device capabilities. We offer a set of solutions for these applications with an ideal mix of digital and analog performance and a mature field of portable IP.
We offer a set of solutions for these applications with an ideal mix of digital and analog performance and a mature field of portable IP. 11 Rad-Hard CMOS Our rad-hard technology is used extensively in microelectronics and mission-critical applications across aerospace & defense and bio-health end markets. We have a long legacy of supporting rad-hard CMOS.
Rad-Hard CMOS Our rad-hard technology is used extensively in microelectronics and mission-critical applications across aerospace & defense and bio-health end markets. We have a long legacy of supporting rad-hard CMOS.
In 2018, the Defense Advanced Research Projects Agency, or DARPA, awarded the largest contract in the agency’s Electronics Resurgence Initiative, or ERI, program to a team consisting of SkyWater, MIT and Stanford University, for the 3DSoC program.
We have extensive experience working with highly-sensitive government projects that enable new capabilities and subsequently re-applying those capabilities to expand our market. In 2018, the Defense Advanced Research Projects Agency, or DARPA, awarded the largest contract in the agency’s Electronics Resurgence Initiative, or ERI, program to a team consisting of SkyWater, MIT and Stanford University, for the 3DSoC program.
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.
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.
Other competition in this market includes U.S.-based commercial IDMs and foundries, such as ON Semiconductor Corporation, Tower Semiconductor Manufacturing Company and Global Foundries Inc. Other competitors for technology services include prototype fabs/labs such as MIT Lincoln Labs. Our Advanced Technology Services category is highly distinguished, and we do not believe there is a directly competitive offering in the market today.
Other competitors for technology services may include prototype fabs/labs such as MIT Lincoln Labs, IMEC, Fraunhofer, and CEA-Leti. Our Advanced Technology Services category is highly distinguished, and we do not believe there is a directly competitive offering in the market today.
In the aerospace and design foundry market, our competition includes fabs which partner exclusively with major U.S. defense contractors. While these fabs will continue to serve the critical, but often boutique, needs of the USG, we expect the USG and defense community to gradually shift to more economical routes to serve their mission.
While these fabs will continue to serve the critical, but often boutique, needs of the USG, we expect the USG and defense community to gradually shift to more economical routes to serve their mission. Other competition in this market includes U.S.-based commercial IDMs and foundries, such as ON Semiconductor Corporation, Tower Semiconductor Manufacturing Company and Global Foundries Inc.
We maintain the equipment sets to support these processing steps and maintain a skilled internal staff to service and repair equipment to enable the 24/7 manufacturing operation. Onsite capabilities also exist for wafer testing which support our quality programs and customer required acceptance testing. As described above, government and customer programs are adding a wide variety of capabilities.
Onsite capabilities also exist for wafer testing which support our quality programs and customer required acceptance testing. As described above, government and customer programs are adding a wide variety of capabilities. Raw materials .
The health and safety standard management system assists in evaluating compliance status with all applicable health and safety laws and regulations as well as establishing preventative and control measures. We believe we are currently in compliance with all applicable health and safety laws and regulations.
Our facilities are currently pursuing ISO45001 certification, which recognizes compliance with international occupational health and safety standards that provide guidance on how to achieve an effective health and safety management system. The health and safety standard management system assists in evaluating compliance status with all applicable health and safety laws and regulations as well as establishing preventative and control measures.
In September 2019, we received a DoD contract for up to $170 million to build a next-generation rad-hard chip manufacturing capability. We believe our fab’s lower capital requirements will provide an attractive opportunity for future projects of this nature. 10 • Co-develop next-generation technologies with our customers, and grow our Advanced Technology Services .
We believe our fab’s lower capital requirements will provide an attractive opportunity for future projects of this nature. • Co-develop next-generation technologies with our customers, and grow our Advanced Technology Services . We intend to continue to engage in advanced development opportunities and leverage technologies developed to broaden our portfolio of semiconductor solutions.
We consider our employee relations to be good and we have never experienced a work stoppage. Our human capital management objectives are to acquire, engage, develop and retain our top talent. We are committed to fostering an environment where all employees can grow and thrive.
On occasion we will employ independent contractors to support our efforts. None of our employees or contractors are subject to a collective bargaining agreement. We consider our employee relations to be good and we have never experienced a work stoppage. Our human capital management objectives are to acquire, engage, develop and retain our top talent.
Many of our competitors in the conventional foundry or IDM categories have substantial production, financial, research and development and marketing resources. These competitors include the “mega” foundries such as Taiwan Semiconductor Manufacturing Company Limited, United Microelectronics Corporation and Intel Corporation, as well as specialty foundries such as Vanguard International Semiconductor Corporation, Tower Semiconductor Ltd. and XFAB Silicon Foundries SE.
These competitors include the “mega” foundries such as Taiwan Semiconductor Manufacturing Company Limited, United Microelectronics Corporation and Intel Corporation, as well as specialty foundries such as Vanguard International Semiconductor Corporation, Tower Semiconductor Ltd. and XFAB Silicon Foundries SE. In the aerospace and defense foundry market, our competition includes fabs which partner with major U.S. defense contractors.
Our Wafer Services include the manufacture of silicon-based analog and mixed-signal ICs for our end markets. Our Advanced Technology Services and Wafer Services customers include Infineon, D-Wave, L3Harris, Leonardo DRS, MGI, Rockley Photonics and Steifpower.
Our Wafer Services include the manufacture of silicon-based analog and mixed-signal ICs for our end markets. Our Advanced Technology Services and Wafer Services customers include Infineon, D-Wave, L3Harris, and Leonardo DRS. Before we began independent operations, our Minnesota fab was owned and operated by Cypress Semiconductor Corporation, or Cypress, as a captive manufacturing facility for 26 years.
(photoresist) • Air Products & Chemicals, Inc., Moses Lake (developer) Certifications . We maintain several quality certifications, including industry-specific certifications required to supply products into safety-sensitive applications.
(a subsidiary of Entegris) (process and chemical mechanical polishing chemicals) • Rohm and Haas EM LLC (a subsidiary of DuPont) (photoresist) • JSR Micro Inc. (photoresist) • Tokyo Ohka Kogyo America, Inc. (photoresist) • Moses Lake Industries Inc. (developer) Certifications . We maintain several quality certifications, including industry-specific certifications required to supply products into safety-sensitive applications.
Our goal in implementing OHSAS 18001, ISO 14001, ISO 9001 and TS16949 systems is to continually improve our environmental, health, safety and quality management systems. We are committed to environmental, social and governance best practices with a company-wide focus on sustainability through diverse initiatives and activities. 15 Human Capital Resources As of January 2, 2022, we had 590 employees.
We are committed to environmental, social and governance best practices with a company-wide focus on sustainability through diverse initiatives and activities. Human Capital Resources As of January 1, 2023, we had 706 employees. All employees reside in the United States of America. Our goal is to attract and retain highly qualified, passionate and agile personnel.
Heterogenous integration technologies are gaining traction in the advanced computing field to combine chips produced with different process technologies in order to achieve improved performance at the system level with attractive economics.
In May 2022, we announced a licensing agreement with Xperi (now Adeia) for their state of the art ZiBond® wafer bonding and DBI® hybrid wafer bonding technologies, establishing a key assembly technology for our heterogeneous integration strategy Heterogeneous integration technologies are gaining traction in the advanced computing field to combine chips produced with different process technologies in order to achieve improved performance at the system level with attractive economics.
Our current certifications include the following: 13 • ISO 9001:2015 • IATF 16949:2016 (Automotive) • ISO 14001:2015 • RoHS Directive 2011/2015 • ISO 13485 (Medical)—pending Our Competition We compete internationally and domestically with dedicated foundry service providers as well as with these IDMs which have in-house semiconductor manufacturing capacity or foundry operations.
Our Competition We compete internationally and domestically with dedicated foundry service providers as well as with these IDMs which have in-house semiconductor manufacturing capacity or foundry operations. Many of our competitors in the conventional foundry or IDM categories have substantial production, financial, research and development and marketing resources.
Our fab’s throughput capacity is up to 156,000 wafers per year (device mix dependent). Equipment . Front-end semiconductor foundry wafer manufacturing services utilize unique combinations of film process steps including photolithography, film deposition, etching and ion implantation.
Front-end semiconductor foundry wafer manufacturing services utilize unique combinations of film process steps including photolithography, film deposition, etching and ion implantation. We maintain the equipment sets to support these processing steps and maintain a skilled internal staff to service and repair equipment to enable the 24/7 manufacturing operation.
Removed
In September 2019, we entered into a contract with the DoD to receive up to $170 million to expand and upgrade our manufacturing capabilities, specifically to build next-generation rad-hard wafer solutions for the aerospace and defense sector which will have significant benefits for other commercial markets. Our fab expansion supporting this project began operations in October 2020.
Added
In September 2019, we received a DoD contract for up to $170 million and in August 2022, we received a phase II contract for up to an additional $99 million to build a next-generation rad-hard chip manufacturing capability.
Removed
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.
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On August 9, 2022, President Biden signed into law the Creating Helpful Incentives to Produce Semiconductors, or CHIPS, and Science Act, which provides $52 billion in incentives for U.S. semiconductor manufacturing, funding for research, and up to 25% in refundable tax credits for semiconductor equipment and upgrades to manufacturing facilities.
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Before we began independent operations, our Minnesota fab was owned and operated by Cypress Semiconductor Corporation, or 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.
Added
The stated goal of this legislation is to increase domestic semiconductor production, reinvigorate semiconductor research, and expand the semiconductor workforce, all with a focus on improving economic and national security.
Removed
Our Bloomington, Minnesota-based fab can produce up to 156,000 wafers per year (depending on the product mix) and has at least 517 well-maintained fab and sort tools, enabling high volume production for highly customized products. Our utilization rate for the year ended January 2, 2022 was approximately 87%.
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We believe SkyWater is well-positioned to take advantage of this landmark legislation, across both our Advanced Technology Services and Wafer Services business lines, because of our demonstrated business model of serving defense and commercial markets across development and production parts of the technology lifecycle.
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We have extensive experience working with highly-sensitive government projects that enable new capabilities and subsequently re-applying those capabilities to expand our market, such as the atomic layer deposition tool which was later used for other USG-funded programs and prototyping on typical engagements.
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In July 2022, we announced our plans to build a production and research and development facility in West Lafayette, Indiana through a public-private partnership with the State of Indiana and Purdue University. In addition, we are considering site expansions of our existing facilities in Minnesota and Florida.
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(silicon wafers) • Honeywell Electronic Materials, Inc. (metal sputter targets) • Air Products & Chemicals, Inc. (bulk and specialty gases, chemicals) • Praxair, Inc. (bulk and specialty gases) • KMG Chemicals, Inc. (chemicals) • The Dow Chemical Company (photoresist) • JSR Corporation (photoresist) • Tokyo Ohka Kogyo America, Inc.
Added
(silicon wafers) • Honeywell Electronic Materials, Inc. (metal sputtering targets) • Linde, Inc. (bulk and specialty gases) 14 • Airgas USA LLC (specialty gases) • EMD Performance Materials Corp (Versum) (specialty chemicals and gases) • CMC Chemicals, Inc.
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In order to increase geographic access to customers, the sales organization leverages an outside network of sales representatives to give us access to potential customers in key markets. These sales representatives provide us coverage in the continental United States, where our corporate value proposition gives us the greatest competitive advantage.
Added
Our current certifications for our Minnesota facility include the following: • ISO 9001:2015 • IATF 16949:2016 (Automotive) • ISO 14001:2015 • RoHS Directive 2011/2015 • ISO 13485 (Medical) • ISO9100 (Aviation, Space & Defense) Our SkyWater Florida facility has also achieved IS09001:2015 certification and we are working on expanding the certifications to meet additional customer requirements.
Removed
Plans are currently developing to increase our presence in Europe for differentiated CMOS solutions and unique next-wave process technologies. Next-wave technology offering representation in Asia is also being considered. Marketing .
Added
We believe we are currently in compliance with all applicable health and safety laws and regulations. Our goal in implementing ISO45001, ISO 14001, ISO 9001 and TS16949 systems is to continually improve our environmental, health, safety and quality management systems.
Removed
We have placed significant emphasis on achieving and maintaining a high standard of manufacturing quality. Our facilities are ISO 9001 certified, an international quality standard that provides guidance to achieve an effective quality management system. In addition, our facilities are TS16949 certified.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur credit facility contains a number of customary affirmative and negative covenants that, among other things, limit or restrict our ability to: incur additional indebtedness (including guaranty obligations); incur liens; engage in mergers, consolidations, liquidations and dissolutions (other than pursuant to transactions approved by the lender); sell or purchase assets; pay dividends and make other payments in respect of capital stock; make acquisitions, investments, loans and advances; pay and modify the terms of certain indebtedness; engage in certain transactions with affiliates; enter into negative pledge clauses and clauses restricting subsidiary distributions; enter into new lease agreements; and change our line of business, in each case, subject to certain limited exceptions.
Biggest changeOur Loan Agreement contains a number of customary affirmative and negative covenants that, among other things, limit or restrict our ability to: merge with another entity; acquire assets; enter into transactions outside the ordinary course; sell assets; make loans or investments; incur indebtedness; create liens; guaranty obligations; pay or declare dividends; repurchase our common stock; dissolve; engage in new businesses; pay amounts on subordinated debt; and enter into transactions with affiliates; change our jurisdiction of organization; amend our charter documents; enter into negative pledge agreements; and restrict subsidiary distributions, in each case, subject to certain limited exceptions.
Our certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for: • any derivative action or proceeding brought on our behalf; 31 • any action asserting a claim of breach of a fiduciary duty owed by, or other wrongdoing by, any of our directors, officers or other employees, or stockholders to us or our stockholders; • any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or as to which the Delaware General Corporation Law confers jurisdiction on the Court of Chancery of the State of Delaware; • any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or the bylaws (including any right, obligation or remedy thereunder); and • any action asserting a claim governed by the internal affairs doctrine or any other “internal corporate claim” as such term is defined in Section 115 of the Delaware General Corporation Law, in each case subject to such court’s having personal jurisdiction over the indispensable parties named as defendants.
Our certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for: • any derivative action or proceeding brought on our behalf; • any action asserting a claim of breach of a fiduciary duty owed by, or other wrongdoing by, any of our directors, officers or other employees, or stockholders to us or our stockholders; • any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or as to which the Delaware General Corporation Law confers jurisdiction on the Court of Chancery of the State of Delaware; • any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or the bylaws (including any right, obligation or remedy thereunder); and • any action asserting a claim governed by the internal affairs doctrine or any other “internal corporate claim” as such term is defined in Section 115 of the Delaware General Corporation Law, in each case subject to such court’s having personal jurisdiction over the indispensable parties named as defendants.
Conducting our operations subjects us to risks that include: • the burdens of complying with a wide variety of U.S. and international laws, regulations and legal standards, including local data privacy laws, local consumer protection laws that could regulate permitted pricing and promotion practices, and restrictions on the use, import or export of certain technologies; • the restrictions imposed on our business, operations, and additional security requirements required for compliance with United States export regulations, including ITAR and the EAR, including “deemed export” compliance which precludes foreign national access to restricted data, and export restrictions on materials and technology; • longer accounts receivable payment cycles and difficulties in collecting accounts receivable; • fluctuations in currency exchange rates; • tariffs and trade barriers and other regulatory or contractual limitations on our ability to sell or develop our solutions in some international markets; • difficulties in managing and staffing international operations; • compliance with U.S. laws that apply to our operations, including the Foreign Corrupt Practices Act, the Trading with the Enemy Act and regulations of the Office of Foreign Assets Control; 26 • changes in trade sanctions laws may restrict our business practices, including cessation of business activities in sanctioned countries or with sanctioned entities, and may result in modifications to compliance programs; • potentially adverse tax consequences and compliance costs resulting from the complexities of international tax systems and overlap of different tax regimes; • reduced or varied protection of intellectual property rights in some countries that could expose us to increased risk of infringement of our patents and other intellectual property; • global disruptions in custom spending patterns or our ability to provide service to our customers as a result of any widespread public health issues, including a pandemic such as COVID-19; and • political, social and economic instability, terrorist attacks and security concerns in general.
Conducting our operations subjects us to risks that include: • the burdens of complying with a wide variety of U.S. and international laws, regulations and legal standards, including local data privacy laws, local consumer protection laws that could regulate permitted pricing and promotion practices, and restrictions on the use, import or export of certain technologies; • the restrictions imposed on our business, operations, and additional security requirements required for compliance with United States export regulations, including ITAR and the EAR, including “deemed export” compliance which precludes foreign national access to restricted data, and export restrictions on materials and technology; • longer accounts receivable payment cycles and difficulties in collecting accounts receivable; • fluctuations in currency exchange rates; • tariffs and trade barriers and other regulatory or contractual limitations on our ability to sell or develop our solutions in some international markets; • difficulties in managing and staffing international operations; • compliance with U.S. laws that apply to our operations, including the Foreign Corrupt Practices Act, the Trading with the Enemy Act and regulations of the Office of Foreign Assets Control; • changes in trade sanctions laws may restrict our business practices, including cessation of business activities in sanctioned countries or with sanctioned entities, and may result in modifications to compliance programs; • potentially adverse tax consequences and compliance costs resulting from the complexities of international tax systems and overlap of different tax regimes; • reduced or varied protection of intellectual property rights in some countries that could expose us to increased risk of infringement of our patents and other intellectual property; • global disruptions in custom spending patterns or our ability to provide service to our customers as a result of any widespread public health issues, including a pandemic such as COVID-19; and • political, social and economic instability, terrorist attacks, wars and security concerns in general.
Although we regularly enter into non-disclosure and confidentiality agreements with employees, vendors, customers and other third parties, these agreements may be breached or otherwise fail to prevent disclosure or use of trade secrets, know-how, and other proprietary or confidential information effectively or fail to provide an adequate remedy in the event of such unauthorized disclosure or use.
Although we 28 regularly enter into non-disclosure and confidentiality agreements with employees, vendors, customers and other third parties, these agreements may be breached or otherwise fail to prevent disclosure or use of trade secrets, know-how, and other proprietary or confidential information effectively or fail to provide an adequate remedy in the event of such unauthorized disclosure or use.
This concentration of ownership may discourage, delay or prevent a change of control of our company, which could deprive our stockholders of an opportunity to receive a premium for their stock as part of a 30 sale of our company and might reduce our stock price. These actions may be taken even if they are opposed by our other stockholders.
This concentration of ownership may discourage, delay or prevent a change of control of our company, which could deprive our stockholders of an opportunity to receive a premium for their stock as part of a sale of our company and might reduce our stock price. These actions may be taken even if they are opposed by our other stockholders.
Should uninsured losses occur, they could have a material adverse effect on our operating results, financial condition and business performance. Further, we cannot be sure that any such insurance will be sufficient to cover any actual losses or that such insurance will continue to be available to us on acceptable terms, or at all.
Should uninsured losses occur, they could have a material adverse effect on our operating 22 results, financial condition and business performance. Further, we cannot be sure that any such insurance will be sufficient to cover any actual losses or that such insurance will continue to be available to us on acceptable terms, or at all.
In the event that these or other raw materials we acquire from third parties increase in price, we will be required to increase the prices we charge our customers, which could result in decreased sales, or we may not be permitted under our customer agreements to increase the cost to our customers, which could result in a loss or in decreased profits.
In the event that these or other raw materials we acquire from third parties further increase in price, we will be required to further increase the prices we charge our customers, which could result in decreased sales, or we may not be permitted under our customer agreements to increase the cost to our customers, which could result in a loss or in decreased profits.
In addition, our accreditation as a Trusted Foundry by the DMEA, our publicly-announced DARPA programs, 19 our rad-hard program with the DoD, and other USG and defense-related programs may make us a specific target for such attacks or industrial or nation-state espionage.
In addition, our accreditation as a Trusted Foundry by the DMEA, our publicly-announced DARPA programs, our rad-hard program with the DoD, and other USG and defense-related programs may make us a specific target for such attacks or industrial or nation-state espionage.
Any one or more of these events or circumstances, or the failure to obtain a license or the costs associated with any license, could harm our business and financial condition. 28 Third parties also may assert intellectual property claims against our customers relating to our products or services.
Any one or more of these events or circumstances, or the failure to obtain a license or the costs associated with any license, could harm our business and financial condition. Third parties also may assert intellectual property claims against our customers relating to our products or services.
If we inappropriately use open source technology, or if the license terms for open source technology that we use change, we may be required to re-engineer our products or services, incur additional costs, discontinue the distribution of certain products or services or the availability of certain features or capabilities of our products or services, or take other remedial actions.
If we inappropriately use open source technology, or if the license terms for open source technology that we use change, we may 30 be required to re-engineer our products or services, incur additional costs, discontinue the distribution of certain products or services or the availability of certain features or capabilities of our products or services, or take other remedial actions.
Some of our subsidiaries hold USG-issued facility security clearances and certain of our employees have qualified for and hold USG-issued personnel security clearances necessary to qualify for and ultimately perform certain USG contracts. Obtaining and maintaining security clearances for employees involves lengthy processes, and it is difficult to identify, recruit and retain employees who already hold security clearances.
Some of our subsidiaries hold USG-issued facility security clearances and certain of our employees have qualified for and hold USG-issued personnel security clearances necessary to qualify for and ultimately perform certain USG 27 contracts. Obtaining and maintaining security clearances for employees involves lengthy processes, and it is difficult to identify, recruit and retain employees who already hold security clearances.
If any audit, inquiry or investigation uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, suspension of payments, fines, and suspension or 25 debarment from doing business with the USG.
If any audit, inquiry or investigation uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, suspension of payments, fines, and suspension or debarment from doing business with the USG.
Any significant decrease in the demand for end-market devices or products may decrease the demand for our services and products. In addition, if the average selling prices of end-market devices or products decline significantly, we may be pressured to reduce our selling prices, which may reduce our revenues and margins significantly.
Any significant decrease in the demand for end-market devices or products may decrease the demand for our services and 18 products. In addition, if the average selling prices of end-market devices or products decline significantly, we may be pressured to reduce our selling prices, which may reduce our revenues and margins significantly.
Our business involves collaboration, including customization and other development of technologies and intellectual property, with and for our customers, vendors and other third parties. We frequently enter into agreements with customers, vendors and others that involve customization and other development of technologies and intellectual property.
Our business involves collaboration, including customization and other development of technologies and intellectual property, with and for our customers, vendors and other third parties. We frequently enter into agreements with 29 customers, vendors and others that involve customization and other development of technologies and intellectual property.
In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of an extended transition period provided for complying with new or revised accounting standards. In other words, an 32 “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
Any unexpected constraints on our foundry’s ability to design, manufacture or test products could result in the loss of customers or harm our reputation, and we may be unable to regain those customers in the future, all of which would materially adversely affect our business.
Any unexpected constraints on our foundries' ability to design, manufacture or test products could result in the loss of customers or harm our reputation, and we may be unable to regain those customers in the future, all of which would materially adversely affect our business.
Our purchase orders often are cancellable until shortly before the start of production, and our lack of significant backlog makes it difficult for us to forecast our revenues and margins in future periods and may cause actual revenue and results to fall short of expectations.
Certain of our purchase orders are cancellable until shortly before the start of production, and our lack of significant backlog makes it difficult for us to forecast our revenues and margins in future periods and may cause actual revenue and results to fall short of expectations.
Alternatively, if a court were to find this choice of forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, results of operations and financial condition.
Alternatively, if a court were to find this choice of forum provision inapplicable to, or unenforceable in respect of, 33 one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, results of operations and financial condition. ITEM 1B.
We also may be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition and results of operations.
We also may be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which could adversely impact our financial condition and results of operations.
We have elected to take advantage of the controlled company exemption from certain corporate governance requirements, which could make our common stock less attractive to some investors or otherwise adversely affect its trading price.
We have elected to take advantage of the controlled company exemption phase-in periods from certain corporate governance requirements, which could make our common stock less attractive to some investors or otherwise adversely affect its trading price.
If any of the foregoing events occur, we may incur significant additional costs including, among other things, loss of profits due to 16 unplanned temporary or permanent shutdowns of our foundry, cleanup costs, liability for damages or injuries, legal expenses and reconstruction expenses, which would harm our results of operations and financial condition.
If any of the foregoing events occur, we may incur significant additional costs including, among other things, loss of profits due to unplanned temporary or permanent shutdowns of our foundries, cleanup costs, liability for damages or injuries, and legal, repair and reconstruction expenses, which would harm our results of operations and financial condition.
Our foundry may be harmed or rendered inoperable by physical damage from fire, floods, tornadoes, power loss, telecommunications failures, break-ins and similar events, which may render it difficult or impossible for us to produce or test products for a considerable period of time.
Our foundry facilities or equipment may be harmed or rendered inoperable by physical damage from fire, floods, tornadoes, hurricanes, power loss, telecommunications or mechanical failures, break-ins and similar events, which may render it difficult or impossible for us to produce or test products for a considerable period of time.
In addition, the terms of any future debt agreements we may enter into may preclude us from paying dividends. If we do not pay dividends, our common stock may be less valuable because a return on investment will only occur if our stock price appreciates.
In addition, the terms of our Loan Agreement prohibit us from paying dividends and any future debt agreements we may enter into may preclude us from paying dividends. If we do not pay dividends, our common stock may be less valuable because a return on investment will only occur if our stock price appreciates.
The price of our common stock could be subject to wide fluctuations in response to the following factors, among others: • announcements of new products, services or technologies, commercial relationships or other events by us or our competitors; • regulatory or legal developments in the United States and other countries in which we operate; • developments or disputes concerning patent applications, issued patents or other proprietary rights; • the recruitment or departure of key personnel; • the level of expenses related to any of our wafers or development programs; • actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts; • operating results that fail to meet expectations of securities analysts that cover our company; • variations in our financial results or those of companies that are perceived to be similar to us; • general economic and political factors, including market conditions in our industry or the industries of our customers; • major catastrophic events; • price and volume fluctuations in the overall stock market from time to time; • significant volatility in the market price and trading volume of smaller technology companies in general and of companies in the semiconductor, microelectronics and quantum computing industries in particular; • sales of large blocks of our common stock; 29 • litigation involving us, our industry, or both, including disputes or other developments relating to our ability to patent our processes and technologies and protect our other proprietary rights; • fluctuations in the trading volume of our shares or the size of the trading market for our shares held by non-affiliates; and • the other factors described in this “Risk Factors” section.
The price of our common stock could be subject to wide fluctuations in response to the following factors, among others: • announcements of new products, services or technologies, commercial relationships or other events by us or our competitors; • regulatory or legal developments in the United States and other countries in which we operate; • developments or disputes concerning patent applications, issued patents or other proprietary rights; • the recruitment or departure of key personnel; • the level of expenses related to any of our wafers or development programs; • actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts; • operating results that fail to meet expectations of securities analysts that cover our company; • variations in our financial results or those of companies that are perceived to be similar to us; • general economic and political factors, including market conditions in our industry or the industries of our customers, inflationary pressures and interest rate fluctuations; • major catastrophic events; including those resulting natural disasters, incidents of terrorism, wars (including the war in Ukraine) or responses to these events; • price and volume fluctuations in the overall stock market from time to time; • significant volatility in the market price and trading volume of smaller technology companies in general and of companies in the semiconductor, microelectronics and quantum computing industries in particular; • sales of large blocks of our common stock; • litigation involving us, our industry, or both, including disputes or other developments relating to our ability to patent our processes and technologies and protect our other proprietary rights; • fluctuations in the trading volume of our shares or the size of the trading market for our shares held by non-affiliates; and • the other factors described in this “Risk Factors” section.
A significant natural disaster, such as an earthquake, a fire, a flood or a significant power outage, or a widespread public health issue, such as the COVID-19 pandemic, could have a material adverse effect on our business, results of operations or financial condition.
A significant natural disaster, such as an earthquake, a fire, a flood or a significant power outage (including as a result of climate change), or a widespread public health issue, such as the COVID-19 pandemic, could have a material adverse effect on our business, results of operations or financial condition.
Please refer to the section entitled “Special Note Regarding Forward Looking Statements” for more information. Risks Relating to Our Business and Our Industry If our sole semiconductor foundry is damaged or becomes inoperable, we will be unable to develop or produce wafers in a timely manner, if at all, and our business would be materially adversely affected.
Please refer to the section entitled “Special Note Regarding Forward Looking Statements” for more information. 17 Risks Relating to Our Business and Our Industry If either of our semiconductor foundries is damaged or becomes inoperable, we will be unable to develop or produce wafers in a timely manner, if at all, and our business would be materially adversely affected.
We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by our management on, among other matters, the effectiveness of our internal control over financial reporting in fiscal 2022. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting.
We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by our management on, among other matters, the effectiveness of our internal control over financial reporting. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting.
In addition, even if we add new customers, they may not require high levels of production, negatively impacting our growth strategy. 18 Our growth strategy may also be adversely affected if we are unable to enter new markets, such as the rad-hard electronic markets.
If we are unable to attract new customers, our customer revenue could remain highly concentrated. In addition, even if we add new customers, they may not require high levels of production, negatively impacting our growth strategy. Our growth strategy may also be adversely affected if we are unable to enter new markets, such as the rad-hard electronic markets.
Our operating results fluctuate and may continue to fluctuate in the future due to a variety of factors, many of which we have no control over.
Our operating results may prove unpredictable, which could negatively affect our profit. Our operating results fluctuate and may continue to fluctuate in the future due to a variety of factors, many of which we have no control over.
The incurrence of additional indebtedness or the issuance of certain equity securities could result in increased fixed payment obligations and could also include restrictive covenants, such as limitations on our ability to incur additional debt or issue additional equity, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely affect our ability to conduct our business.
The incurrence of additional indebtedness would result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business.
We currently perform all of our manufacturing services and most of our design services at our foundry in Bloomington, Minnesota. Our foundry operation and the equipment we use to manufacture wafers would be costly to replace and could require substantial lead time to repair or replace.
We currently perform our manufacturing and design services at our foundry facilities in Bloomington, Minnesota and Kissimmee, Florida. Our foundry operations and the equipment we use to manufacture wafers would be costly to replace and could require substantial lead time to repair or replace.
Factors that may cause our operating results to fluctuate significantly include: our inability to generate enough working capital from sales; the level of commercial acceptance by clients of our products; fluctuations in the demand for our service; the amount and timing of operating costs and capital expenditures relating to expansion of our business, operations and infrastructure; the timing and recognition of revenue and related expenses; adverse litigation judgment, settlements or other litigation-related costs; our ability to increase sales to existing customers and to renew contracts with our customers; the ability of our customers to obtain funding to pay for our products and services; our ability to attract new customers; changes in our pricing policies or those of our competitors; our customers obtaining the technical knowledge and other resources to complete the design and development of their technologies and changing general economic conditions.
Factors that may cause our operating results to fluctuate significantly include: our inability to generate enough working capital from sales; the level of commercial acceptance by clients of our products; fluctuations in the demand for our service; the amount and timing of operating costs and capital expenditures relating to expansion of our business, operations and infrastructure; the timing and recognition of revenue and related expenses; adverse litigation judgment, settlements or other litigation-related costs; our ability to increase sales to existing customers and to renew contracts with our customers; the ability of our customers to obtain funding to pay for our products and services; our ability to attract new customers; our ability to secure government incentives and grants, such as funding available to U.S. semiconductor manufacturers under the CHIPS and Science Act of 2022; changes in our pricing policies or those of our competitors; our ability to manage the impacts of inflationary pressures and interest rate fluctuations; our customers obtaining the technical knowledge and other resources to complete the design and development of their technologies and changing general economic conditions.
A limited number of stockholders have the ability to influence the outcome of director elections and other matters requiring stockholder approval. Oxbow and our directors and executive officers beneficially own approximately 73% of our outstanding common stock.
A limited number of stockholders have the ability to influence the outcome of director elections and other matters requiring stockholder approval. As of January 1, 2023, Oxbow and our directors and executive officers beneficially owned approximately 55% of our outstanding common stock.
Acts of terrorism or other geopolitical unrest also could cause disruptions in our business or the business of our supply chain, manufacturing vendors or logistics providers. The adverse impacts of these risks may increase if the disaster recovery plans for us and our suppliers prove to be inadequate. Our operating results may prove unpredictable which could negatively affect our profit.
Acts of terrorism, wars (including the war in Ukraine) or other geopolitical unrest also could cause disruptions in our business or the business of our supply chain, manufacturing vendors or logistics providers. The adverse impacts of these risks may increase if the disaster recovery plans for us and our suppliers prove to be inadequate.
We may not be able to maintain compliance with these covenants in the future and, if we fail to do so, we may not be able to obtain waivers from the lenders or amend the covenants, which may adversely affect our financial condition. We may need to raise additional capital or financing to continue to execute and expand our business.
We may not be able to maintain compliance with these covenants in the future and, if we fail to do so, we may not be able to obtain waivers from the lenders or amend the covenants, which may adversely affect our financial condition.
This license remains in effect and is critical to our business, and it may be terminated in the case of specified breaches or other events. 27 Parties with which we currently have license agreements, or with which we may enter into license agreements in the future, may elect not to renew those agreements or may have the right to terminate those agreements for our material breach, for convenience, or upon the occurrence of a change of control or other events or circumstances at any time, which could affect our ability to make use of material technologies or intellectual property rights.
Parties with which we currently have license agreements, or with which we may enter into license agreements in the future, may elect not to renew those agreements or may have the right to terminate those agreements for our material breach, for convenience, or upon the occurrence of a change of control or other events or circumstances at any time, which could affect our ability to make use of material technologies or intellectual property rights.
If we manufacture more wafers than are actually ordered by customers, we may be left with excess inventory that may ultimately become obsolete and must be scrapped or sold at a significant discount. Significant amounts of obsolete inventory may have a negative impact on our financial results.
If we manufacture more wafers than are actually ordered by customers, we may be left with excess inventory that may ultimately become obsolete and must be scrapped or sold at a significant discount.
As a result of COVID-19, our customers have or may in the future reduce their planned research and development expenditures with us or may experience facility shutdowns which result in delays in project milestones, in each case negatively affecting our revenues.
As a result of COVID-19, our customers have or may in the future reduce their planned research and development expenditures with us, negatively affecting our revenues.
Since shares of our common stock were sold in our IPO in April 2021 at a price of $14.00 per share, our stock price has ranged from $8.81 to $36.80 through March 1, 2022.
Since shares of our common stock were sold in our IPO in April 2021 at a price of $14.00 per share, the closing price of our common stock has ranged from $4.43 to $36.80 through January 1, 2023.
A sustained, prolonged or recurring outbreak could exacerbate the adverse impact of such measures. Earthquakes, fires, power outages, floods, terrorist attacks, public health issues, such as COVID-19, and other catastrophic events could disrupt our business and ability to serve our customers and could have a material adverse effect on our business, results of operations or financial condition.
Earthquakes, fires, power outages, floods, terrorist attacks, wars, public health issues and other catastrophic events could disrupt our business and ability to serve our customers and could have a material adverse effect on our business, results of operations or financial condition.
In 2021, we have experienced supply chain disruptions for substrates, chemicals and spare parts.
In 2021 and 2022, we experienced supply chain disruptions and increases in the prices for substrates, chemicals and spare parts.
In addition, some new technologies are relatively untested and unperfected and may not perform as expected or as desired, in which event our and our customers’ adoption of such products or technologies may cause us to lose money.
In addition, some new technologies are relatively untested and unperfected and may not perform as expected or as desired, in which event our and our customers’ adoption of such products or technologies may adversely affect our revenues, profitability and business.
Accordingly, our stockholders do not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance rules of the Nasdaq Capital Market. Our status as a controlled company could make our common stock less attractive to some investors or otherwise adversely affect its trading price.
Because our compensation committee and nominating and corporate governance committee are not composed entirely of independent directors, our stockholders do not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance rules of the Nasdaq Capital Market, which could make our common stock less attractive to some investors or otherwise adversely affect its trading price.
Either underestimating or overestimating demand could lead to insufficient, excess or obsolete inventory, which could harm our operating results, cash flow and financial condition, as well as our relationships with our customers. Vaccination or testing mandates could have a material adverse impact on our business and results of operations.
Either underestimating or overestimating demand could lead to insufficient, excess or obsolete inventory, which could harm our operating results, cash flow and financial condition, as well as our relationships with our customers.
A breach of our security systems or a cyber-attack that disrupts our operations or results in the breach of confidential information about us, our technology or our customers could harm our business and expose us to costly regulatory enforcement and other liability.
If we incur cost overruns, there is no assurance that we could obtain the financing or capital to cover them. 20 A breach of our security systems or a cyber-attack that disrupts our operations or results in the breach of confidential information about us, our technology or our customers could harm our business and expose us to costly regulatory enforcement and other liability.
If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock could drop significantly. Risks Relating to Government Regulation We are a party to several significant USG contracts, which are subject to unique risks.
If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock could drop significantly.
A significant portion of our sales comes from two customers, the loss of which would adversely affect our financial results. Cypress accounted for approximately 25% and 29% of our revenue for the years ended January 2, 2022 and January 3, 2021, respectively.
A significant portion of our sales comes from three customers, the loss of which would adversely affect our financial results. Infineon Technologies AG, or Infineon (formerly Cypress Semiconductor) accounted for 28% and 25% of our revenue for the years ended January 1, 2023 and January 2, 2022, respectively.
In addition, the USG may modify, curtail or terminate its contracts and subcontracts without prior notice at its convenience upon payment for work done and commitments made at the time of termination.
Long-term government contracts and related orders are subject to cancellation if appropriations for subsequent performance periods are not made. In addition, the USG may modify, curtail or terminate its contracts and subcontracts without prior notice at its convenience upon payment for work done and commitments made at the time of termination.
Our ability to add new customers to our Advanced Technology Services and Wafer Services businesses is subject to various elements outside of our control, such as fluctuations in demand for discrete components in both commodity and differentiated categories. If we are unable to attract new customers, our customer revenue could remain highly concentrated.
Our growth strategy depends on our ability to diversify our customer base and penetrate new markets. Our ability to add new customers to our Advanced Technology Services and Wafer Services businesses is subject to various elements outside of our control, such as fluctuations in demand for discrete components in both commodity and differentiated categories.
Planned efficiency and cost-savings initiatives could disrupt our operations or adversely affect our results of operations and financial condition, and we may not realize some or all of the anticipated benefits of such initiatives in the anticipated time frame or at all. 20 We are currently pursuing several efforts to improve profitability of our operations, including, but not limited to, efficiency improvements, cost reductions, supplier pricing negotiation and workforce reorganizations.
Planned efficiency and cost-savings initiatives could disrupt our operations or adversely affect our results of operations and financial condition, and we may not realize some or all of the anticipated benefits of such initiatives in the anticipated time frame or at all.
Existing or future customers could eventually transition their business to a competitor with a higher production capacity or lower-cost means of production. As a result of our smaller manufacturing footprint, we target opportunities that larger competitors are unable to fulfill efficiently. These contracts are typically lower volume but require higher levels of customization and engineering expertise.
As a result of our smaller manufacturing footprint, we target opportunities that larger competitors are unable to fulfill efficiently. These contracts are typically lower volume but require higher levels of customization and engineering expertise. Rapid growth in demand for a customer’s products could outpace our capacity, causing that customer to supplement or fully transition production to a higher volume foundry.
The funding of USG programs is subject to annual U.S. congressional appropriations. Many of the USG programs in which we or our customers participate may extend for several years. Long-term government contracts and related orders are subject to cancellation if appropriations for subsequent performance periods are not made.
Risks Relating to Government Regulation We are a party to several significant USG contracts, which are subject to unique risks. The funding of USG programs is subject to annual U.S. congressional appropriations. Many of the USG programs in which we or our customers participate may extend for several years.
Economic uncertainty exacerbates negative trends in these areas of spending, and may cause our customers to delay, cancel or refrain from placing orders, which may reduce our sales. Difficulties in obtaining capital and deteriorating market conditions may also lead to the inability of some customers to obtain affordable financing.
The market for the installation of wafers depends largely on commercial, customer and government capital spending. Economic uncertainty exacerbates negative trends in these areas of spending, and may cause our customers to delay, cancel or refrain from placing orders, which may reduce our sales.
If we are unable to timely and appropriately adapt to changes resulting from the difficult macroeconomic environment, our business, financial condition and results of operations may be materially and adversely affected. Our credit facility contains restrictive covenants that may impair our ability to conduct business.
If we are unable to timely and appropriately adapt to changes resulting from the difficult macroeconomic environment, our business, financial condition and results of operations may be materially and adversely affected. Our sales cycles are long and unpredictable, and our sales efforts require considerable time and expense, which could adversely affect our results of operations.
In addition, availability concerns with respect to some of our essential materials, tools and maintenance parts could also prompt a lengthy and expensive search for alternative sources which would necessitate requalification cycles and production delays. 21 We are exposed to risks associated with a potential financial crisis and weaker global economy.
For example, the increase in costs and risk of supply chain interruption could drive some of our foreign customers to overseas foundries. In addition, availability concerns with respect to some of our essential materials, tools and maintenance parts could also prompt a lengthy and expensive search for alternative sources which would necessitate requalification cycles and production delays.
If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, we may have to reduce our operations accordingly. Our inability to raise additional capital on acceptable terms in the future may limit our ability to develop and commercialize our high-margin wafers.
If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, we may have to reduce our operations accordingly, which could materially and adversely impact our business, results of operations and financial condition.
One of our non-Cypress customers accounted for 12% of our outstanding accounts receivable as of January 2, 2022, and 24% of our revenues for the year ended January 2, 2022. If we were to lose one or more of these key customers or experience a significant decrease in volume or sales prices, our financial results would be adversely affected.
If we were to lose any of these key customers or experience a significant decrease in volume or sales prices, our financial results would be adversely affected.
As one example, we received a license to certain technology and intellectual property rights in connection with our divestiture from Cypress.
As one example, we received a license to certain technology and intellectual property rights in connection with our divestiture from Cypress. This license remains in effect and is critical to our business, and it may be terminated in the case of specified breaches or other events.
We may be required to pursue sources of additional capital through various means, including joint venture projects, sale and leasing arrangements, and debt or equity financings. If we raise additional equity financing, our stockholders may experience significant dilution of their ownership interests and the per share value of our common stock could decline.
We may be required to pursue sources of additional capital through various means, including joint venture projects, strategic partnerships and alliances, licensing or sale and leasing arrangements, and debt or equity financings, including sales of our common stock under our at the market offering program.
This is exacerbated by our current manufacturing constraints which limit our ability to sell to other customers. In addition, our business is affected by competition in the markets for the end products that our customers sell, and any decline in their business could harm our business and cause our revenue to decline.
In addition, our business is affected by competition in the markets for the end products that our customers sell, and any decline in their business could harm our business and cause our revenue to decline. 19 We may not be able to successfully diversify our customer base and penetrate new markets, which would negatively impact our growth strategy.
In that regard, as we prepare for such compliance, we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. We cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
After we are no longer an “emerging growth company,” we will need to comply with auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. In that regard, as we prepare for such compliance, we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge.
The market price of our common stock may also decline in reaction to events that affect other companies in our industry, even if these events do not directly affect us. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company.
The market price of our common stock may also decline in reaction to events that affect other companies in our industry, even if these events do not directly affect us. In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies.
These efforts, if implemented successfully, are planned to have an impact on our short-term and long-term financial results.
We are currently pursuing several efforts to improve profitability of our operations, including, but not limited to, efficiency improvements, cost reductions, supplier pricing negotiation and workforce reorganizations. These efforts, if implemented successfully, are planned to have an impact on our short-term and long-term financial results.
The effects of the COVID-19 pandemic could adversely affect our business, results of operations and financial condition.
Significant amounts of obsolete inventory may have a negative impact on our financial results. 23 The ongoing COVID-19 pandemic has adversely affected and could continue to adversely affect our business, results of operations and financial condition.
We may need to raise additional capital to expand or if positive cash flow is not achieved and maintained. As of January 2, 2022, our available cash balance, not including cash held by a variable interest entity that we consolidate, was $12.4 million.
As of January 1, 2023, our available cash balance, not including cash held by a variable interest entity that we consolidate, was $30.0 million.
If realized, any of these risks could have a material adverse effect on our business, financial condition and operating results. We will incur increased costs and expenses as a result of operating as a public company and our management will be required to devote substantial time to compliance with our public company responsibilities and corporate governance practices.
If realized, any of these risks could have a material adverse effect on our business, financial condition and operating results.
The COVID-19 pandemic has led to significant disruption of normal business operations globally, as businesses, including SkyWater, have needed to implement modifications to employee travel and employee work locations, as required in some instances by federal, state and local authorities, which has had a negative impact on our employee productivity and has given rise to significant volatility in the global capital markets and financial system.
The ongoing COVID-19 pandemic has led to significant disruption of normal business operations globally, which has given rise to significant volatility in the global capital markets and financial system and caused a decline in consumer and business confidence.
The tightening of monetary policy in the United States, potential turmoil in the financial markets and a potentially weakened global economy would contribute to slowdowns in the semiconductor industry. The market for the installation of wafers depends largely on commercial, customer and government capital spending.
We are exposed to risks associated with a potential financial crisis and weaker global economy. The further tightening of monetary policy in the United States, prolonged turmoil in the financial markets and a further weakened global economy, including a recession, may contribute to slowdowns in the semiconductor industry.
Newly-issued securities may include preferences, superior voting rights and the issuance of warrants or other convertible securities that will have additional dilutive effects. We cannot provide any assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us.
Additionally, we could raise additional capital through our at the market offering program and seek additional equity or debt financing, however we cannot provide any assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us.
Litigation of this nature, if instituted against us, could cause us to incur substantial costs and divert our management’s attention and resources from our business. We do not intend to pay dividends in the future and any return on investment may be limited to the value of our common stock.
Litigation of this nature, if instituted against us, could cause us to incur substantial costs and divert our management’s attention and resources from our business. Fluctuations in our operating results and cash flow could, among other things, give rise to short-term liquidity issues.
Our current intention is to apply net earnings, if any, in the foreseeable future to increasing our capital base and contributing to our growth. Prospective investors seeking or needing dividend income or liquidity should therefore not purchase shares of our common stock.
Our current intention is to apply net earnings, if any, to finance the growth and development of our business and we do not anticipate declaring or paying any cash dividends in the foreseeable future.
Oxbow, our principal shareholder, and its affiliates own approximately 69% of our outstanding common stock, and therefore control more than a majority of the voting power of our outstanding common stock. As a result, we are “controlled company” for purposes of the marketplace rules of the Nasdaq Capital Market.
Prior to December 12, 2022, Oxbow, and its affiliates, beneficially owned shares of our common stock representing more than 50% of the combined voting power of our outstanding common stock and we therefore qualified as a “controlled company”. On December 12, 2022, we ceased to be a controlled company under the Nasdaq rules.
The resumption of normal business operations after such interruptions may be delayed or constrained by lingering effects of COVID-19 on our team members, contractors, suppliers, third-party service providers, customers or distributors. These effects, alone or taken together, could have a material adverse effect on our business, results of operations, legal exposure or financial condition.
These effects, alone or taken together, could have a material adverse effect on our business, results of operations, legal exposure or financial condition and may also heighten or exacerbate the other risk factors described in this Annual Report on Form 10-K. A sustained, prolonged or recurring outbreak could exacerbate the adverse impact of such measures.
We are required to disclose significant changes made in our internal control procedures on a quarterly basis.
We are required to disclose significant changes made in our internal control procedures on a quarterly basis. As disclosed in Item 9A. “Controls and Procedures” in our Annual Report on Form 10-K for the year ended January 1, 2023, we have material weaknesses in the Control Environment, Risk Assessment and Control Activities components of the COSO framework.
Removed
We have a limited operating history as a standalone company, and we may have difficulty accurately predicting our future revenues for the purpose of appropriately budgeting and adjusting our expenses. We were divested from Cypress in 2017.
Added
We currently have limited or no redundancy in certain of our manufacturing tooling and infrastructure equipment, and we may lose revenue and be unable to maintain our customer relationships if we lose our production capacity.
Removed
Our limited operating experience as a standalone company, the dynamic and rapidly evolving market in which we sell our products, our dependence on a limited number of customers, as well as numerous other factors beyond our control, has and may continue to impede our ability to forecast quarterly and annual revenues accurately.
Added
If our foundries become incapable of manufacturing products for any reason, including as a result of manufacturing tooling or infrastructure equipment failure, we may be unable to meet production requirements, lose revenue and not be able to maintain our relationships with our customers.
Removed
As a result, we could experience budgeting and cash flow management problems, unexpected fluctuations in our results of operations and other difficulties, any of which could make it difficult for us to gain and maintain profitability and could increase the volatility of the market price of our common stock.
Added
Without full production capacity at our foundries, we would have no other means of manufacturing products until we were able to restore the manufacturing capability at these facilities or develop one or more alternative manufacturing facilities.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe also lease office space adjacent to the Center for NeoVation in Kissimmee, Florida, which consists of approximately 6,000 square feet and our agreement for such space expires in January 2039. 32
Biggest changeWe also lease office space adjacent to the Center for NeoVation in Kissimmee, Florida, which consists of approximately 6,000 square feet and our agreement for such space expires in January 2039.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeNAME AGE POSITION Thomas Sonderman 58 President, Chief Executive Officer and Director Steve Manko 41 Chief Financial Officer Thomas Sonderman, President, Chief Executive Officer and Director Mr. Sonderman has served as our President and Chief Executive Officer since December 2020 and as a member of our board since October 2020.
Biggest changeSonderman has served as our President and Chief Executive Officer since December 2020 and as a member of our board since October 2020. He has served as the President of SkyWater Technology Foundry since October 2017. From 34 January 2014 until October 2017, Mr.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. INFORMATION ABOUT OUR EXECUTIVE OFFICERS The names of our executive officers as of March 9, 2022, together with their ages, positions and business experience are described below.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. INFORMATION ABOUT OUR EXECUTIVE OFFICERS The names of our executive officers as of March 14, 2023, together with their ages, positions and business experience are described below.
From January 2019 until June 2020, Mr. Manko was a Managing Director for Riveron Consulting, a business advisory firm, where he led the Financial Advisory Services practice in Minneapolis, assisting companies through various change events, such as acquisitions and internal process changes and optimizations. Prior to his employment at Riveron Consulting, Mr.
Manko was a Managing Director for Riveron Consulting, a business advisory firm, where he led the Financial Advisory Services practice in Minneapolis, assisting companies through various change events, such as acquisitions and internal process changes and optimizations. Prior to his employment at Riveron Consulting, Mr.
Manko has served as our Chief Financial Officer since December 2020. He has served as the Chief Financial Officer of SkyWater Technology Foundry since July 1, 2020, prior to which he served as a consultant for SkyWater Technology Foundry since early 2019 in connection with a number of finance and accounting initiatives and projects.
He has served as the Chief Financial Officer of SkyWater Technology Foundry since July 1, 2020, prior to which he served as a consultant for SkyWater Technology Foundry since early 2019 in connection with a number of finance and accounting initiatives and projects. From January 2019 until June 2020, Mr.
Sonderman is an active member of the SEMI Fab Owners Association and the Global Semiconductor Alliance. Mr. Sonderman received a Bachelor of Science in Chemical Engineering from the Missouri University of Science Technology and a Master of Science in Electrical Engineering from National Technological University. Steve Manko, Chief Financial Officer Mr.
Sonderman received a Bachelor of Science in Chemical Engineering from the Missouri University of Science Technology and a Master of Science in Electrical Engineering from National Technological University. Steve Manko, Chief Financial Officer Mr. Manko has served as our Chief Financial Officer since December 2020.
He has served as the President of SkyWater Technology Foundry since October 2017. From January 2014 until October 2017, Mr. Sonderman served as the Vice President and General Manager of the Integrated Solutions Group at Rudolph Technologies, Inc., or Rudolph Technologies, a semiconductor company that merged with Nanometrics Incorporated to form Onto Innovation Inc. At Rudolph Technologies, Mr.
Sonderman served as the Vice President and General Manager of the Integrated Solutions Group at Rudolph Technologies, Inc., or Rudolph Technologies, a semiconductor company that merged with Nanometrics Incorporated to form Onto Innovation Inc. At Rudolph Technologies, Mr. Sonderman was responsible for delivering predictable profitability for the company’s integrated hardware/software business unit.
Sonderman was responsible for delivering predictable profitability for the company’s integrated hardware/software business unit. From February 2009 until he joined Rudolph Technologies, Mr. Sonderman served as Vice President of Manufacturing for Globalfoundries, a semiconductor foundry, where he oversaw the spinout of GlobalFoundries from Advanced Micro Devices, Inc. Mr.
From February 2009 until he joined Rudolph Technologies, Mr. Sonderman served as Vice President of Manufacturing for GlobalFoundries, a semiconductor foundry, where he oversaw the spinout of GlobalFoundries from Advanced Micro Devices, Inc. Mr. Sonderman is an active member of the SEMI Fab Owners Association and the Global Semiconductor Alliance. Mr.
Removed
Manko is also a member of various accounting and finance committees and organizations. 33 PART II
Added
NAME AGE POSITION(S) Thomas Sonderman 59 President, Chief Executive Officer and Director Steve Manko 42 Chief Financial Officer Amanda Daniel 44 Chief People Officer Bradley Ferguson 52 Senior Vice President and Chief Government Affairs Officer Christopher Hilberg 48 Chief Legal Officer, General Counsel and Secretary Steve Kosier 56 Chief Technology Officer Mark Litecky 57 Chief Revenue Officer John Spicer 65 Chief Manufacturing Officer Thomas Sonderman, President, Chief Executive Officer and Director Mr.
Added
Manko is also a member of various accounting and finance committees and organizations. Amanda Daniel, Chief People Officer Ms. Daniel has served as our Chief People Officer since June 2021. With more than 20 years of experience in the high-tech manufacturing space, Ms. Daniel has gained critical knowledge leading high performance global HR teams.
Added
Prior to joining SkyWater, she served as Senior Vice President and Chief Human Resources Officer ("CHRO") at MTS Systems Corporation, a global supplier of test systems and industrial position sensors, from February 2019 to May 2021. Prior to MTS Systems, Ms.
Added
Daniel served as Vice President of Human Resources at Twin City Fan Companies, Ltd., a full spectrum fan manufacturer, from June 2017 to January 2019. Ms. Daniel also previously served at Equus Holdings, Inc. and Stratasys, Ltd. Ms. Daniel holds a Bachelor of Science in applied psychology from St.
Added
Cloud State University and a Master of Arts in Human Resources and Organizational Development from the University of St. Thomas. Bradley Ferguson, Senior Vice President and Chief Government Affairs Officer Mr. Ferguson has served as our Chief Government Affairs Officer since February 2021, and Senior Vice President since March 2022. Mr.
Added
Ferguson joined SkyWater as Senior Director of Sales in 2017 and has served as President of SkyWater Federal since September 2018. Mr. Ferguson previously served as Chief Technology Officer of SkyWater Technology Foundry from April 2019 to February 2021.
Added
In this role, he was responsible for developing the company’s technology roadmap and IP strategy by identifying high growth markets for SkyWater’s Technology Foundry business. Mr. Ferguson started his career in photolithography process development at Cypress Semiconductor. In 2008, he started the Cypress custom foundry business to provide differentiated solutions to technology innovators.
Added
He also drove the accreditation process to achieve Trusted Foundry status and secured many defense customers, which launched the site’s entry into the aerospace and defense market, a key component of SkyWater’s market strategy. Mr. Ferguson received a Bachelor of Science in Chemical Engineering from the University of Minnesota Twin Cities.
Added
He also received a Doctorate and Master of Science in Chemical Engineering from the University of Texas at Austin. Christopher Hilberg, Chief Legal Officer, General Counsel and Secretary Mr. Hilberg has served as our Chief Legal Officer and General Counsel since August 2022, and Secretary since April 2022. Prior to beginning his current role, Mr.
Added
Hilberg served as our Vice President, Legal and Assistant General Counsel from November 2021 to August 2022. Previously, Mr. Hilberg served as Senior Legal Director of Best Buy Co., Inc., a multinational consumer electronics retailer, from July 2017 to November 2021. Mr. Hilberg’s more than 20 years as an attorney include extensive, broad-based experience at large law firms and in-house.
Added
He routinely advised Fortune 500 companies on commercial transactions, risk management, compliance, global sourcing and supply chain functions and intellectual property strategy. Mr. Hilberg has an undergraduate degree in Physics from Carleton College, a Juris Doctorate from the University of Chicago Law School, and is a licensed patent attorney before the United States Patent and Trademark Office.
Added
Steve Kosier, Chief Technology Officer Mr. Kosier has served as our Chief Technology Officer since March 2021. His background includes 25 years of experience and successive growth in technical, marketing and business leadership positions.
Added
A founding member of PolarFab and Polar Semiconductor wafer foundries, he has developed and transferred to volume production many generations of analog, mixed-signal, and high-voltage technologies for automotive and industrial end markets. Most recently, from April 2018 to March 2021, Mr. Kosier served as President at Kanomax FMT, a nanoparticle measurement instrumentation start-up with industry-leading resolution down to 2 nm.
Added
Mr. Kosier is an adjunct professor of electrical engineering at Vanderbilt University, where his research interests include radiation effects on microelectronics and 35 semiconductor device reliability physics. Kosier holds a Bachelor of Science in Electrical Engineering from the University of Minnesota, and a Master of Science and Doctorate in Electrical Engineering from the University of Arizona.
Added
Mark Litecky, Chief Revenue Officer Mr. Litecky has served as our Chief Revenue Officer since March 2020. His 30+ years of industry expertise includes: building out revenue teams, sales, marketing, revenue generation, strategic partnerships and business development. Prior to SkyWater, Mr.
Added
Litecky served as Sales and Marketing Vice President with GCM, a provider of product design and manufacturing serving medical, aerospace and industrial markets, from September 2018 to March 2020. Previously, he held various executive leadership positions. With Interlink, he worked on transitioning the company from a component supplier to a sensor systems solutions partner. Mr.
Added
Litecky served as VP of Sales and Marketing of Soligie (Molex), a leader in printed and flexible hybrid electronics, and with August Technology (Rudolph Technologies), a provider of automated visual inspection equipment used in manufacturing semiconductors, optoelectronics and data storage. He started his career at Rosemount Inc. (Emerson) in industrial process controls and sensors. Mr.
Added
Litecky holds a Bachelor of Science in Electrical Engineering from the University of Minnesota. John Spicer, Chief Manufacturing Officer Mr. Spicer has served as our Chief Manufacturing Officer since October 2022. Prior to beginning his current role, Mr. Spicer served as our Executive Vice President of Operations from March 2021 to October 2022.
Added
His decades of semiconductor manufacturing experience include serving with ON Semiconductor, AMI Semiconductor and Advanced Micro Devices (AMD). Most recently, he served as ON Semiconductor’s Vice President of Global Fab Operations from November 2015 to March 2021.
Added
In this role, he managed six factories worldwide driving a significant increase in overall wafer fabrication capacity including the successful integration of two acquired fab operations (AMI and Fairchild) into the company. Mr.
Added
Spicer previously served as the General Manager of ON Semiconductor’s Pocatello, Idaho 200 mm wafer fabrication facility where he was responsible for directing operations and leading the site’s support functions. Mr. Spicer holds a Bachelor’s degree in Business Administration from Idaho State University.
Added
He has served as a member of the Board of Directors for the Bank of Idaho since 2012. 36 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePayment of future cash dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, outstanding indebtedness and plans for expansion and restrictions imposed by lenders, if any. Recent Sales of Unregistered Securities None.
Biggest changePayment of future cash dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, outstanding indebtedness and plans for expansion and restrictions imposed by lenders, if any.
Number of Common Stock Holders As of March 7, 2022, there were approximately three holders of record of our common stock. The actual number of holders of common stock is greater than this number of record holders and includes shareholders who are beneficial owners, but whose shares are held in street name by brokers and nominees.
Number of Common Stock Holders As of March 10, 2023, there were two holders of record of our common stock. The actual number of holders of common stock is greater than this number of record holders and includes shareholders who are beneficial owners, but whose shares are held in street name by brokers and nominees.
Removed
Use of Proceeds from Registered Securities On April 23, 2021, we issued and sold 8,004,000 of our common stock in the IPO at a public offering price of $14.00 per share, for aggregate gross proceeds of $112.1 million.
Added
Stock Performance Graph The graph below compares the cumulative total stockholder returns, since our IPO, to that of the Nasdaq Composite Index and the PHLX Semiconductor Sector Index. The graph assumes that $100 had been invested at April 21, 2021 and assumes that all dividends were reinvested.
Removed
All of the shares issued and sold in the IPO were registered under the Securities Act pursuant to a Registration Statement on Form S-1 (File No. 333-254580), which was declared effective by the SEC on April 20, 2021.
Added
The stock performance shown on the graph below is not necessarily indicative of future price performance. Recent Sales of Unregistered Securities None. Use of Proceeds from Registered Securities None. 37 Issuer Purchases of Equity Securities None. ITEM 6. [Reserved]
Removed
The net offering proceeds to us, after deducting underwriting discounts of approximately $7.8 million and offering expenses paid by us totaling approximately $4.1 million, were approximately $100.2 million.
Removed
No offering expenses were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning 10.0% or more of any class of our equity securities or to any other affiliates.
Removed
We estimate that we have utilized approximately $45 million of our IPO proceeds to pay down our revolving credit agreement, approximately $28 million of our IPO proceeds to fund capital expenditures, and approximately $27 million of our IPO proceeds to fund our operating activities. Issuer Purchases of Equity Securities None. ITEM 6. [Reserved]

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeYear Ended Dollar Change Percentage Change January 2, 2022 (1) January 3, 2021 (1) (in thousands) Consolidated Statement of Operations Data: Revenue $ 162,848 $ 140,438 $ 22,410 16 % Cost of revenue: Cost of revenue, before inventory write-down 156,878 117,746 39,132 33 % Inventory write-down (Note 16) 13,442 — 13,442 N/A Total cost of revenue 170,320 117,746 52,574 45 % Gross profit (loss) (7,472) 22,692 (30,164) (133) % Research and development 8,747 4,208 4,539 108 % Selling, general and administrative expenses 43,595 25,032 18,563 74 % Change in fair value of contingent consideration (2,710) 2,094 (4,804) (229) % Operating loss (57,104) (8,642) (48,462) (561) % Other income (expense): Paycheck Protection Program loan forgiveness 6,453 — 6,453 N/A Change in fair value of warrant liability — 780 (780) (100) % Loss on debt extinguishment — (1,434) 1,434 (100) % Interest expense (3,542) (5,499) 1,957 (36) % Total other income (expense) 2,911 (6,153) 9,064 147 % Loss before income taxes (54,193) (14,795) (39,398) (266) % Income tax expense (benefit) (6,790) 4,919 (11,709) (238) % Net loss (47,403) (19,714) (27,689) (140) % Less: net income attributable to non-controlling interests 3,293 903 2,390 N/A Net loss attributable to SkyWater Technology, Inc. $ (50,696) $ (20,617) $ (30,079) (146) % Other Financial Data: Adjusted EBITDA (2) $ (2,629) $ 14,403 $ (17,032) (118) % __________________ (1) The consolidated statements of operations are for fiscal 2021 and fiscal 2020.
Biggest changeYear Ended Dollar Change Percentage Change January 1, 2023 (1) January 2, 2022 (1) (in thousands) Consolidated Statement of Operations Data: Revenue $ 212,941 $ 162,848 $ 50,093 31 % Cost of revenue: Cost of revenue, before inventory write-down 186,974 156,878 30,096 19 % Inventory write-down (Note 17) — 13,442 (13,442) (100) % Total cost of revenue 186,974 170,320 16,654 10 % Gross profit (loss) 25,967 (7,472) 33,439 nm Research and development 9,431 8,747 684 8 % Selling, general and administrative expenses 46,303 43,595 2,708 6 % Change in fair value of contingent consideration — (2,710) 2,710 (100) % Operating loss (29,767) (57,104) 27,337 (48) % Other income (expense): Paycheck Protection Program loan forgiveness — 6,453 (6,453) (100) % Loss on debt extinguishment (1,101) — (1,101) nm Interest expense (5,194) (3,542) (1,652) 47 % Total other income (expense) (6,295) 2,911 (9,206) 316 % Loss before income taxes (36,062) (54,193) 18,131 33 % Income tax expense (benefit) 809 (6,790) 7,599 nm Net loss (36,871) (47,403) 10,532 22 % Less: net income attributable to non-controlling interests 2,722 3,293 (571) 17 % Net loss attributable to SkyWater Technology, Inc. $ (39,593) $ (50,696) $ 11,103 22 % Other Financial Data: Adjusted EBITDA (2) $ 7,717 $ (2,629) $ 10,346 nm nm - Not meaningful ______________________ (1) The consolidated statements of operations are for fiscal 2022 and fiscal 2021.
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.
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.
We define adjusted EBITDA as net income (loss) 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, fair value changes in warrants and management fees, inventory write-down, corporate conversion and IPO related costs, Paycheck Protection Program Loan forgiveness, SkyWater Florida start-up costs, net income attributable to non-controlling interests, and management transition expense.
We define adjusted EBITDA as net income (loss) before interest expense, income tax provision (benefit), depreciation and amortization, equity-based compensation and certain other items that we do not view as indicative of our ongoing performance, including fair value changes in contingent consideration, management fees, inventory write-down, corporate conversion and IPO related costs, Paycheck Protection Program Loan forgiveness, SkyWater Florida start-up costs, net income attributable to non-controlling interests, and management transition expense.
These expenses are not indicative of our ongoing costs and will be discontinued following completion of the start-up of SkyWater Florida. (4) Represents expense for the departure of our former Chief Administrative Officer, which includes primarily severance benefits. (5) Represents non-cash valuation adjustment of contingent consideration to fair market value during the period. (6) Represents non-cash equity-based compensation expense.
These expenses are not indicative of our ongoing costs and will be discontinued following completion of the start-up of SkyWater Florida. 48 (4) Represents expense for the departure of our former Chief Administrative Officer, which includes primarily severance benefits. (5) Represents non-cash valuation adjustment of contingent consideration to fair market value during the period. (6) Represents non-cash equity-based compensation expense.
Indebtedness Sale Leaseback Transaction On September 29, 2020, we entered into an agreement to sell the land and building representing our primary operating location in Bloomington, Minnesota to Oxbow Realty 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 stockholder of $2.0 million.
Indebtedness Sale Leaseback Transactions 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 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 stockholder of $2.0 million.
As a result, the non-GAAP financial measure presented in this Annual Report on Form 10-K 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.
As a result, the non-GAAP financial measure 47 presented in this Annual Report on Form 10-K 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.
We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time we prepare our consolidated financial statements. On a regular basis, management 42 reviews the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with U.S. GAAP.
We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time we prepare our consolidated financial statements. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with U.S. GAAP.
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.
We have elected to use the 45 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.
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.
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 38 production to a third-party fab.
We have no significant instances where variable consideration is constrained and not recorded at the initial time of sale. In addition, we have not experienced significant changes to our estimates and judgments related to variable consideration in our contracts.
We have no significant instances where variable consideration is 46 constrained and not recorded at the initial time of sale. In addition, we have not experienced significant changes to our estimates and judgments related to variable consideration in our contracts.
See Note 16 – Inventory Write-down in the notes to our consolidated financial statements for additional information. (2) 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.
See Note 17 – Inventory Write Down in the notes to our consolidated financial statements for additional information. (2) 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.
Our focus on the differentiated analog and 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 as a captive manufacturing facility for 20 years.
Our focus on the differentiated analog and 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 as a captive manufacturing facility for 26 years.
The estimated fair value of our long-lived assets exceeded the carrying value. As such, we did not experience an impairment of our long-lived assets despite having triggering events during fiscal 2021 and fiscal 2020. Appraisals utilize various approaches to determine fair value, including the income approach, the sales comparison approach and the cost approach.
The estimated fair value of our long-lived assets exceeded the carrying value. As such, we did not experience an impairment of our long-lived assets despite having triggering events during fiscal 2022 and fiscal 2021. Appraisals utilize various approaches to determine fair value, including the income approach, the sales comparison approach and the cost approach.
(9) 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.
(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.
Material Cash Requirements Our material cash requirements from known contractual and other obligations primarily relate to following, for which information on both a short-term and long-term basis is provided in the indicated notes to the consolidated financial statements: • Debt—Refer to Note 6. • Capital expenditure commitments—Refer to Note 13. • Capital lease commitments—Refer to Note 13. • Sale leaseback obligation—Refer to Note 15. • Tax obligations—Refer to Note 7. • Other commitments and contingencies—Refer to Note 13.
Material Cash Requirements Our material cash requirements from known contractual and other obligations primarily relate to following, for which information on both a short-term and long-term basis is provided in the indicated notes to the consolidated financial statements: • Debt—Refer to Note 6. • Capital expenditure commitments—Refer to Note 13. • Capital lease commitments—Refer to Note 16. • Sale leaseback obligation—Refer to Note 18. • Tax obligations—Refer to Note 7. • Other commitments and contingencies—Refer to Note 13.
Due to the nature of our contracts, there can be judgment involved in determining the performance obligations that are included in the related contract. We analyze each contract to conclude what enforceable rights and obligations exist between us and our customers.
Due to the nature of our contracts, there can be judgement involved in determining the performance obligations that are included in the related contract. We analyze each contract to conclude what enforceable rights and obligations exist between us and our customers.
Our multi-year foundry services agreement with Cypress, which ended in June 2020, created a runway for us to operate the foundry at a high utilization rate while continuing to expand and diversify the customer base transferred by Cypress. Cypress was acquired in April 2020 by Infineon.
Our multi-year foundry services agreement with Cypress, which ended in June 2020, created a runway for us to operate the foundry at a high utilization rate while continuing to expand and diversify the customer base transferred by Cypress. Cypress was acquired in April 2020 by Infineon Technologies AG, or Infineon.
The decrease in cash used in fiscal 2021 reflects decreased capital spending on property and equipment as we fully complete our foundry expansion project to increase manufacturing capacity at our Minnesota facility and decreased capital spending on software.
The decrease in cash used in fiscal 2022 reflects decreased capital spending on property and equipment as we fully completed our foundry expansion project in 2021 to increase manufacturing capacity at our Minnesota facility and decreased capital spending on software.
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.
Overview We are a U.S.-based, independent, pure-play technology foundry that offers advanced semiconductor development and manufacturing services from our fabrication facility, or fab, in Minnesota and advanced packaging services from our Florida facility.
We estimate that we have utilized approximately $45 million of our IPO proceeds to pay down our revolving credit agreement, approximately $28 million of our IPO proceeds to fund capital expenditures, and approximately $27 million of our IPO proceeds to fund our operating activities.
We utilized approximately $45 million of our IPO proceeds to pay down our revolving credit agreement, approximately $28 million of our IPO proceeds to fund capital expenditures, and approximately $27 million of our IPO proceeds to fund our operating activities.
The effective income tax rate applied to our pre-tax loss was lower for fiscal 2021 than our statutory tax rate of 21% primarily due to a deferred tax asset valuation allowance. The income tax benefit for fiscal 2021 included the tax impact from the gain on the PPP Loan forgiveness, which is exempt from federal income taxation.
The effective income tax rate was lower for fiscal 2022 and fiscal 2021 than our statutory tax rate of 21% primarily due to a deferred tax asset valuation allowance. The income tax benefit for fiscal 2021 included the tax impact from the gain on the PPP Loan forgiveness, which is exempt from federal income taxation.
For fiscal 2021 and 2020, we spent approximately $32.0 million and $89.9 million, respectively, on capital expenditures, including purchases of property, equipment and software. The majority of these capital expenditures relate to our foundry expansion in Minnesota, as discussed below, and the development of our advanced packaging capabilities at the Center for NeoVation in Florida.
For fiscal 2022 and 2021, we spent approximately $18.6 million and $32.0 million, respectively, on capital expenditures, including purchases of property, equipment and software. The majority of these capital expenditures relate to our foundry expansion in Minnesota, as discussed below, and the development of our advanced packaging capabilities at the Center for NeoVation in Florida.
Our fiscal year ends on the Sunday closest to the end of the calendar year. Fiscal 2021 and fiscal 2020 contained 52 and 53 weeks, respectively. (2) See “—Non-GAAP Financial Measure” for the definition of adjusted EBITDA and reconciliation to the most directly comparable GAAP measure.
Our fiscal year ends on the Sunday closest to the end of the calendar year. Fiscal 2022 and fiscal 2021 each contained 52 weeks. (2) See “—Non-GAAP Financial Measure” for the definition of adjusted EBITDA and reconciliation to the most directly comparable GAAP measure.
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 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 addition, our status as a publicly-traded, U.S.-based pure-play technology foundry with DMEA Category 1A Trusted Accreditation from the DoD, positions us well to provide distinct, competitive advantages to our customers. These advantages include the benefits of enhanced IP security and easy access to a U.S. domestic supply chain.
We refer to the fiscal years ended January 2, 2022 and January 3, 2021 as fiscal 2021 and fiscal 2020, respectively. Fiscal years 2021 and 2020 include 52 and 53 weeks, respectively. All percentage amounts and ratios presented in this management’s discussion and analysis were calculated using the underlying data in thousands.
We refer to the fiscal years ended January 1, 2023 and January 2, 2022 as fiscal 2022 and fiscal 2021, respectively. Fiscal years 2022 and 2021 each include 52 weeks. All percentage amounts and ratios presented in this management’s discussion and analysis were calculated using the underlying data in thousands.
Fiscal 2021 Compared to Fiscal 2020 The following table summarizes certain financial information relating to our operating results for the years ended January 2, 2022 and January 3, 2021.
Fiscal 2022 Compared to Fiscal 2021 The following table summarizes certain financial information relating to our operating results for the fiscal years ended January 1, 2023 and January 2, 2022.
Factors and Trends Affecting our Business and Results of Operations The following trends and uncertainties either affected our financial performance in fiscal 2021 and fiscal 2020 or are reasonably 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.
Factors and Trends Affecting our Business and Results of Operations The following trends and uncertainties either affected our financial performance in fiscal 2022 and fiscal 2021, or are reasonably likely to impact our results in the future. • Macroeconomic and competitive conditions, including cyclicality and consolidation, as well as the global availability of significant incentives in semiconductor technology and manufacturing, affecting the semiconductor industry. • The global economic climate, including the impact on the economy from geopolitical issues and the ongoing COVID-19 pandemic.
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 January 2, 2022, we had available aggregate undrawn borrowing capacity of approximately $38.6 million under our Revolver.
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 January 1, 2023, we had available aggregate undrawn borrowing capacity of approximately $22.0 million under our Revolver.
Working capital is primarily affected by changes in accounts receivable, accounts payable, accrued expenses, and deferred revenue, all of which tend to be related and are affected by changes in the timing and volume of work performed and our increased expenditures as a public company.
Working capital is primarily affected by changes in accounts receivable, accounts payable, accrued expenses, and deferred revenue, all of which tend to be related and are affected by changes in the timing and volume of work performed.
Refer to Note 7 – Income Taxes in the notes to our consolidated financial statements for further discussion of income taxes. Net income attributable to non-controlling interests Net income attributable to non-controlling interests increased to $3.3 million for fiscal 2021 from $0.9 million for fiscal 2020.
Refer to Note 7 – Income Taxes in the notes to our consolidated financial statements for further discussion of income taxes. Net income attributable to non-controlling interests Net income attributable to non-controlling interests decreased to $2.7 million for fiscal 2022 from $3.3 million for fiscal 2021.
If we make material changes to our assumptions, we may have cumulative catch-up adjustments to make in the financial statements related to revenue previously recognized. No material gross favorable or unfavorable changes to our material long-term contracts existed for fiscal 2021 or fiscal 2020. Inventory We produce inventory against specific customer purchase orders.
If we make material changes to our assumptions, we may have to make cumulative catch-up adjustments in the financial statements related to revenue previously recognized. No material gross favorable or unfavorable changes to our material long-term contracts existed for fiscal 2022 or fiscal 2021.
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 expect the current economic environment will result in continuing price volatility and inflation for many of our raw materials. In addition, the labor market for skilled manufacturing remains tight and our labor costs have increased as a result. • Supply chain disruptions impacting our business.
GAAP. 45 Year Ended January 2, 2022 January 3, 2021 Net loss attributable to SkyWater Technology, Inc. $ (50,696) $ (20,617) Interest expense 3,542 5,499 Income tax (benefit) expense (6,790) 4,919 Depreciation and amortization 27,368 18,866 EBITDA (26,576) 8,667 Inventory write-down (1) 13,442 — Paycheck Protection Program loan forgiveness (6,453) — Corporate conversion and initial public offering related costs (2) 1,934 — SkyWater Florida start-up costs (3) 1,147 — Management transition expense (4) 435 — Fair value changes in contingent consideration (5) (2,710) 2,094 Equity-based compensation (6) 12,527 2,640 Fair value changes in warrants (7) — (780) Management fees (8) 332 879 Net income attributable to non-controlling interests (9) 3,293 903 Adjusted EBITDA $ (2,629) $ 14,403 __________________ (1) Represents a full write-down for inventory which we were contracted to manufacture for a specific customer.
Year Ended January 1, 2023 January 2, 2022 Net loss attributable to SkyWater Technology, Inc. $ (39,593) $ (50,696) Interest expense (9) 6,295 3,542 Income tax (benefit) expense 809 (6,790) Depreciation and amortization 28,192 27,368 EBITDA (4,297) (26,576) Inventory write-down (1) — 13,442 Paycheck Protection Program loan forgiveness — (6,453) Corporate conversion and initial public offering related costs (2) — 1,934 SkyWater Florida start-up costs (3) 686 1,147 Management transition expense (4) — 435 Fair value changes in contingent consideration (5) — (2,710) Equity-based compensation (6) 8,606 12,527 Management fees (7) — 332 Net income attributable to non-controlling interests (8) 2,722 3,293 Adjusted EBITDA $ 7,717 $ (2,629) __________________ (1) Represents a full write-down for inventory which we were contracted to manufacture for a specific customer.
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.
(7) Represents a related party transaction with Oxbow, our principal stockholder. 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.
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. Gross profit (loss) Gross profit (loss) decreased $30.2 million, or 133%, to $(7.5) million for fiscal 2021, from $22.7 million for fiscal 2020.
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. Gross profit (loss) Gross profit (loss) increased $33.4 million, to $26.0 million for fiscal 2022, from $(7.5) million for fiscal 2021.
This can require judgment to determine the related measure of progress that will be assigned to the respective contract. The terms of a contract and historical business practices can, but generally do not, give rise to variable consideration. We estimate variable consideration at the most likely amount we will receive from customers.
The terms of a contract and historical business practices can, but generally do not, give rise to variable consideration. We estimate variable consideration at the most likely amount we will receive from customers.
Management records the effect of a tax rate or law change on our deferred tax assets and liabilities in the period of enactment. Future tax rate or law changes could have a material effect on our financial condition, results of operations or cash flows.
Management records the effect of a tax rate or law change on our deferred tax assets and liabilities in the period of enactment. Future tax rate or law changes could have a material effect on our financial condition, results of operations or cash flows. Non-GAAP Financial Measure Our audited consolidated financial statements are prepared in accordance with U.S. GAAP.
During the third and fourth quarter of fiscal 2021, our Advanced Technology Services experienced supply chain challenges, hiring constraints, and continued delays in the funding of existing United States government programs. This resulted in delayed revenue for certain Advanced Technology Services and Wafer Services programs in the amount of approximately $15 million for the third and fourth quarter of 2021.
During the third and fourth quarter of fiscal 2021, our Advanced Technology Services experienced supply chain challenges, hiring constraints, and continued delays in the funding of existing United States government programs.
We anticipate our cash on hand and the availability under the Revolver will provide the funds needed to meet our customer demand and anticipated capital expenditures in fiscal 2022. 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 anticipate our cash on hand and the availability under the Revolver will provide the funds needed to meet our customer demand and anticipated capital expenditures in fiscal 2023. We have various contracts outstanding with third parties in connection with expansion of our manufacturing capabilities at our Minnesota fab and Center for NeoVation in Florida.
Income tax expense (benefit) Income tax expense decreased to a benefit of $6.8 million for fiscal 2021 from an expense of $4.9 million for fiscal 2020. The effective income tax rate was 12.5% for fiscal 2021 compared to (33.2)% for fiscal 2020.
Income tax expense (benefit) Income tax expense increased to $0.8 million for fiscal 2022 from a benefit of $6.8 million for fiscal 2021. The effective income tax rate was (2.2)% for fiscal 2022 compared to 12.5% for fiscal 2021.
For purposes of this section, the terms “we,” “us,” “our,” “CMI Acquisition” 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. 34 Corporate Conversion and Initial Public Offering On April 14, 2021, in connection with the IPO of our common stock, CMI Acquisition, LLC filed a certificate of conversion, whereby CMI Acquisition, LLC effected a corporate conversion from a Delaware limited liability company to a Delaware corporation and changed its name to SkyWater Technology, Inc., which we refer to as the corporate conversion.
Corporate Conversion and Initial Public Offering On April 14, 2021, in connection with the IPO of our common stock, CMI Acquisition, LLC filed a certificate of conversion, whereby CMI Acquisition, LLC effected a corporate conversion from a Delaware limited liability company to a Delaware corporation and changed its name to SkyWater Technology, Inc., which we refer to as the corporate conversion.
GAAP, that excludes certain items that may not be indicative of our core operating results, as well as items 36 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.
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.
Investing Activities Capital expenditures are a significant use of our capital resources. These investments are intended to enable sales growth in new and expanding markets, help us meet product demand and increase our manufacturing efficiencies and capacity.
Our accounts payable and accrued expenses increased during fiscal 2022 due to the timing of cash payments to our suppliers and vendors. Investing Activities Capital expenditures are a significant use of our capital resources. These investments are intended to enable sales growth in new and expanding markets, help us meet product demand and increase our manufacturing efficiencies and capacity.
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.
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.
The following table sets forth general information derived from our statement of cash flows for fiscal 2021 and 2020: Year Ended January 2, 2022 January 3, 2021 (in thousands) Net cash (used in) provided by operating activities $ (55,680) $ 96,195 Net cash used in investing activities $ (29,823) $ (88,177) Net cash provided by (used in) financing activities $ 90,984 $ (5,187) 40 Cash and Cash Equivalents At January 2, 2022 and January 3, 2021, we had $12.9 million and $7.4 million of cash and cash equivalents, respectively, including cash of $0.5 million and $0.9 million held by a variable interest entity that we consolidate.
For the periods presented, our use of cash was primarily driven by our operating and investing activities, and specifically by our investments in capital expenditures. 43 The following table sets forth general information derived from our statement of cash flows for fiscal 2022 and 2021: Year Ended January 1, 2023 January 2, 2022 (in thousands) Net cash used in operating activities $ (14,297) $ (55,680) Net cash used in investing activities $ (17,453) $ (29,823) Net cash provided by financing activities $ 48,858 $ 90,984 Cash and Cash Equivalents At January 1, 2023 and January 2, 2022, we had $30.0 million and $12.9 million of cash and cash equivalents, respectively, including cash of $0.0 million and $0.5 million held by a variable interest entity that we consolidate.
Research and development Research and development costs increased to $8.7 million for fiscal 2021, from $4.2 million for the fiscal 2020. The increase of $4.5 million, or 108%, was attributable to increased personnel expense of $2.4 million; increased equity-based compensation expense of $1.1 million; and increased equipment, parts and supplies expense of $0.7 million.
Research and development Research and development costs increased to $9.4 million for fiscal 2022, from $8.7 million for fiscal 2021. The increase of $0.7 million, or 8%, was attributable to increased personnel expense of $0.9 million and increased software expense of $0.7 million, partially offset by decreased equity-based compensation expense of $0.7 million.
Working Capital Historically, we have depended on cash on hand, funds available under our Revolver, funds from the sale of our land and building in Minnesota, cash flows from operations, 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.
Working Capital Historically, we have depended on cash on hand, funds available under our Revolver and, more recently, net proceeds from sales of our common stock pursuant to the ATM Program and the Offering, and in the future may depend on additional debt and equity financings to finance our expansion strategy, working capital needs and capital expenditures.
Each appraisal approach is inherently subjective and includes significant assumptions, specifically the comparability of similar properties or equipment, the potential income and expenses that would be derived or incurred to rent those long-lived assets, obsolescence factors, and capitalization and discount rates. 44 Non-GAAP Financial Measure Our audited consolidated financial statements are prepared in accordance with U.S. GAAP.
Each appraisal approach is inherently subjective and includes significant assumptions, specifically the comparability of similar properties or equipment, the potential income and expenses that would be derived or incurred to rent those long-lived assets, obsolescence factors, and capitalization and discount rates. Income Taxes In determining taxable income for financial statement purposes, we must make certain estimates and judgments.
Changes in market conditions and our assumptions may cause the actual future profitability to differ materially from our current expectation, which may require us to increase or decrease the valuation allowance. As of January 2, 2022 and January 3, 2021, our net deferred tax assets (liabilities) prior to the valuation allowance were $8.8 million and $(6.4) million, respectively.
Changes in market conditions and our assumptions may cause the actual future profitability to differ materially from our current expectation, which may require us to increase or decrease the valuation allowance. Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future.
Net cash used in operating activities was $55.7 million during fiscal 2021, a decrease of $151.9 million from $96.2 million of net cash provided by operating activities during fiscal 2020.
Net cash used in operating activities was $14.3 million during fiscal 2022, a decrease of $41.4 million from $55.7 million of net cash used in operating activities during fiscal 2021.
The Advanced Technology Services revenue increase during fiscal 2021 was driven by continued program expansion with existing customers and new program additions. Additionally, fiscal 2021 included $19.2 million of 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.
Additionally, in fiscal 2022 and fiscal 2021, Advanced Technology Services revenue included revenue of $1.5 million and $19.2 million, respectively, related to services we provide to qualify customer funded tool technologies as our customers invest in our cap abilities to expand our technology platforms.
In doing so, we determine our unit of account by identifying the promises within the contract that are both (1) considered to be distinct and (2) distinct within the context of each contract. Our performance obligations generally result in a custom product with no alternative use.
In doing so, we determine our unit of account by identifying the promises within the contract that are both (1) considered to be distinct and (2) distinct within the context of each contract Advanced Technology Services - We have both fixed price and time-and-materials contracts.
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 our Revolver with Wells Fargo of up to $65 million that replaced our previous line of credit and term loan.
Under failed sale leaseback accounting, we are deemed the owner of the property with the proceeds received recorded as a financial obligation. 44 Revolving Credit Agreement On December 28, 2022, we entered into a Loan and Security Agreement (the “Loan Agreement”) with Siena Lending Group LLC ("Siena").
We have approximately $8.2 million of contractual commitments outstanding as of January 2, 2022 that we expect to be paid in fiscal 2022 through cash on hand and operating cash flows.
We have approximately $4.8 million of contractual commitments outstanding as of January 1, 2023 that we expect to be paid in fiscal 2023 through cash on hand and operating cash flows. During 2022, the Company executed a capital lease to replace the existing nitrogen plant with a larger and more modern nitrogen generator.
Selling, general and administrative expenses Selling, general and administrative expenses increased to $43.6 million for the first twelve months of 2021, from $25.0 million for fiscal 2020.
Selling, general and administrative expenses Selling, general and administrative expenses increased to $46.3 million for fiscal 2022, from $43.6 million for fiscal 2021.
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-service SM model. The strategic capital investment is a multi-year strategy and we invested approximately $13.8 million during fiscal 2021.
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-service SM model and we are in the process of identifying a partner to commercialize this technology.
Contingent Consideration For fiscal 2021 and 2020, we made cash payments of $7.4 million and $11.3 million, respectively, related to our contingent consideration royalty liability. We expect total future cash payments to be approximately $0.8 million for contingent consideration related to this liability in the future.
The capital lease has a lease term of 15 years for total payments of $14 million. Contingent Consideration For fiscal 2022 and 2021, we made cash payments of $0.8 million and $7.4 million, respectively, related to our contingent consideration royalty liability. There are no future cash payments to be made related to this liability, as the amount has been settled.
Results of Operations This section contains an analysis of our results of operations presented in the accompanying consolidated statement of operations.
For information regarding our non-GAAP financial measure, see the section entitled “—Non-GAAP Financial Measure” below. 39 Results of Operations This section contains an analysis of our results of operations presented in the accompanying consolidated statement of operations.
In connection with our acquisition of the business from Cypress, we recorded a contingent consideration liability for the future estimated earn-out/royalties owed on Advanced Technology Services revenues. For each reporting period thereafter, we revalued future estimated earn-out payments and record the changes in fair value of the liability in our consolidated statements of operations.
The contingent consideration is based on estimated royalties owed on Advanced Technology Services revenues, with respect to which we paid a quarterly royalty through 2022. In connection with our acquisition of the 41 business from Cypress, we recorded a contingent consideration liability for the future estimated earn-out/royalties owed on Advanced Technology Services revenues.
Both legislative chambers must reach agreement on, and pass, the joint competitiveness legislation before it can be signed into law by the President. • 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.
Department of Commerce to enable execution of CHIPS awards and provides $52.7 billion for American semiconductor research, development, manufacturing, and workforce development, including $39 billion in financial assistance to build, expand, or modernize domestic facilities and equipment for semiconductor fabrication, assembly, testing, advanced packaging, or research and development. • Our overall level of indebtedness from our revolving credit agreement for up to $100 million, which we refer to as the Revolver, and a $37 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.
On June 10, 2021, our PPP loan was forgiven. • The Creating Helpful Incentives to Produce Semiconductors, or CHIPS, 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.
See “Risk Factors—The ongoing COVID-19 pandemic has adversely affected and could continue to adversely affect our business, results of operations and financial condition.” and our consolidated financial statements for further information regarding the effects of the COVID-19 pandemic on our business. • On August 9, 2022, President Biden signed into law the Creating Helpful Incentives to Produce Semiconductors, or CHIPS, and Science Act, in which the United States has committed to a renewed focus on providing incentives and funding for onshore companies to develop and advance the latest semiconductor technologies, supporting onshore manufacturing capabilities, and on strengthening key onshore supply chains.
Initial Public Offering On April 23, 2021, we completed our IPO and issued 8,004,000 shares of common stock, including the underwriter’s exercise of their right to purchase additional shares, at an initial offering price to the public of $14.00 per share.
Common Stock Offering On November 17, 2022, we completed a public offering (the “Offering”) and issued 1,916,667 shares of common stock, including the underwriter's exercise of its right to purchase additional shares, at a price per share of $9.00 to the public, less underwriting discounts and commissions.
In both cases, the revenue from our fixed price and time-and-materials contracts are recognized over time as we perform. For the majority of our fixed price contracts, revenue is recognized over time using an output method based on surveys of performance completed to date to satisfy our performance obligation.
Revenue on fixed price contracts is recognized either over time as work progresses using the input or output method based upon which method we believe represents the best indication of the overall progress toward satisfying our performance obligation. Over time revenue recognition using the output method relies on surveys of performance completed to date to satisfy our performance obligation.
We had $12.4 million in cash and cash equivalents, not including cash held by a variable interest entity that we consolidate, and availability under our Revolver of $38.6 million as of January 2, 2022.
Our ability to do so depends on prevailing economic conditions and other factors, many of which are beyond our control. We had $30.0 million in cash and cash equivalents, not including cash held by a variable interest entity that we consolidate, and availability under our Revolver of $22.0 million as of January 1, 2023.
We received net proceeds from the IPO of approximately $100.2 million, after deducting underwriting discounts and commissions and offering costs of approximately $11.9 million.
We are subject to certain liquidity and EBITDA covenants under our Loan Agreement, as outlined in the Indebtedness section of Item 7. Management's Discussion and Analysis below. 42 Initial Public Offering We received net proceeds from the IPO of approximately $100.2 million in fiscal 2021, after deducting underwriting discounts and commissions and offering costs of approximately $11.9 million.
Financing Activities Net cash provided by financing activities was $91.0 million during fiscal 2021, an increase of $96.2 million from net cash used in financing activities of $5.2 million during fiscal 2020. The increase in fiscal 2021 was driven by the proceeds from the IPO.
Financing Activities Net cash provided by financing activities was $48.9 million during fiscal 2022, a decrease of $42.1 million from net cash provided by financing activities of $91.0 million during fiscal 2021.
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.
The Company has based this estimate on assumptions that may prove to be wrong, and its operating plan may change as a result of many factors currently unknown to it. To the extent that our current resources and plans to reduce expenses are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing.
Loss on debt extinguishment In fiscal 2020, we expensed $1.4 million of unamortized debt issuance costs and fees in connection with the extinguishment of a term loan in September and December 2020. There were no such charges in fiscal 2021. Interest expense Interest expense decreased to $3.5 million for fiscal 2021, from $5.5 million for fiscal 2020.
There was no loss on debt extinguishment in 2021. Interest expense Interest expense increased to $5.2 million for fiscal 2022, from $3.5 million for fiscal 2021. The increase of $1.7 million, or 47%, was due to increases in both the average outstanding balance and the average interest rate for the Revolver from 2021 to 2022.
The increase for fiscal 2021 was driven by continued momentum in revenue for our Advanced Technology Services, primarily in the aerospace and defense industry. 37 The following table shows revenue by services type for fiscal 2021 and fiscal 2020: Year Ended January 2, 2022 January 3, 2021 (in thousands) Wafer Services $ 51,157 $ 46,418 Advanced Technology Services 111,691 94,020 Total $ 162,848 $ 140,438 The Wafer Services revenue increase for fiscal 2021 reflected the continued rebound from 2020 levels, driven primarily by demand in the IoT and automotive industries.
The following table shows revenue by services type for fiscal 2022 and fiscal 2021: 40 Year Ended Dollar Change Percentage Change January 1, 2023 January 2, 2022 (in thousands) Wafer Services $ 73,495 $ 51,157 $ 22,338 44 % Advanced Technology Services 139,446 111,691 27,755 25 % Total $ 212,941 $ 162,848 $ 50,093 31 % Wafer Services revenue increased $22.3 million, or 44%, year-over-year, from $51.2 million in fiscal 2021 to $73.5 million in fiscal 2022.
Change in fair value of contingent consideration Change in fair value of contingent consideration was $(2.7) million for fiscal 2021, compared to $2.1 million for fiscal 2020. The contingent consideration is based on estimated royalties owed on Advanced Technology Services revenues, with respect to which we pay a quarterly royalty through 2022.
These increases were partially offset by a decrease in equity-based compensation expense of $2.9 million. Change in fair value of contingent consideration Change in fair value of contingent consideration was $0.0 for fiscal 2022, compared to a decrease of $2.7 million for fiscal 2021.
Removed
In September 2019, we entered into a contract with the DoD to receive up to $170 million to expand and upgrade our manufacturing capabilities, specifically to build next-generation rad-hard wafer solutions for the aerospace and defense sector which will have significant benefits for other commercial markets. Our fab expansion supporting this project began operations in October 2020.
Added
Item 7 in this Form 10-K discusses our fiscal 2022 and fiscal 2021 results and the year-over-year comparisons between fiscal 2022 and fiscal 2021.
Removed
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.
Added
Discussion of our fiscal 2021 results and the year-over-year comparisons between fiscal 2021 and fiscal 2020 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended January 2, 2022, filed with the SEC on March 10, 2022, and incorporated by reference in this Form 10-K.
Removed
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.
Added
For purposes of this section, the terms “we,” “us,” “our,” “CMI Acquisition” 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.
Removed
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 35 affecting our revenues. Because we have a manufacturing facility, we may be vulnerable to an outbreak of a new coronavirus or other contagious diseases.
Added
Revenue Rev enue increased $50.1 million, or 31%, to $212.9 million for fiscal 2022, from $162.8 million for fiscal 2021. The increase for fiscal 2022 was driven by continued momentum in revenue for both our Wafer Services and Advanced Technology Services, primarily in the aerospace and defense industry.
Removed
See “Risk Factors—The effects of the COVID-19 outbreak could adversely affect our business, results of operations, and financial condition” and our consolidated financial statements for further information regarding the effects of the COVID-19 pandemic on our business. • The impact of vaccine mandates on our workforce.
Added
The increase was primarily driven by a $13.3 million contract modification with one of our primary customers. During the first quarter of fiscal 2022, we signed a new contract with an existing customer that included increased pricing terms and modified other terms, whereby revenue is recognized over time.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeInterest Rate Risk As of January 2, 2022, the outstanding balance of our Revolver was $26.2 million, which bears interest at a variable rate. As of January 2, 2022, the rate in effect was 4.75%, which reflects a base rate of 3.25% plus applicable margin of 1.50%.
Biggest changeInterest Rate Risk As of January 1, 2023, the outstanding balance of our Revolver was $60.1 million, which bears interest at a variable rate. As of January 1, 2023, the rate in effect was 10.50%, which reflects a base rate of 4.25% plus applicable margin of 6.25%.
We perform ongoing credit evaluations as to the financial condition of our customers with 46 respect to trade receivables. Generally, no collateral is required as a condition of sale. Our consideration of the need for an allowance for doubtful accounts is based upon current market conditions and other factors.
We perform ongoing credit evaluations as to the financial condition of our customers with respect to trade receivables. Generally, no collateral is required as a condition of sale. Our consideration of the need for an allowance for doubtful accounts is based upon current market conditions and other factors.
Based on the outstanding balance of our Revolver at January 2, 2022, a 100 basis point increase in the interest rate would increase interest expense by $0.3 million annually. 47
Based on the outstanding balance of our Revolver at January 1, 2023, a 100 basis point increase in the interest rate would increase interest expense by $0.6 million annually. 49

Other SKYT 10-K year-over-year comparisons