VICOR CORPORATION

Part I – Financial Information

Item 1 – Financial Statements

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

June 30, 2019

December 31, 2018

Assets

Current assets:

Cash and cash equivalents
$
71,482
$
70,557

Accounts receivable, less allowance of $102 in 2019 and $224 in 2018

38,537

43,673

Inventories, net

54,572

47,370

Other current assets

5,054

3,460

Total current assets

169,645

165,060

Long-term deferred tax assets, net

241

265

Long-term investments, net

2,565

2,526

Property, plant and equipment, net

55,285

50,432

Other assets

2,867

2,785

Total assets
$
  230,603
$
  221,068

Liabilities and Equity

Current liabilities:

Accounts payable
$
10,819
$
16,149

Accrued compensation and benefits

11,144

10,657

Accrued expenses

2,228

2,631

Operating lease liabilities

1,660

—

Sales allowances

640

548

Accrued severance and other charges

—

234

Income taxes payable

85

710

Deferred revenue

6,581

5,069

Total current liabilities

33,157

35,998

Long-term deferred revenue

196

232

Contingent consideration obligations

306

408

Long-term income taxes payable

236

238

Long-term operating lease liabilities

2,392

102

Total liabilities

36,287

36,978

Commitments and contingencies (Note 12)
Equity:

Vicor Corporation stockholders’ equity:

Class B Common Stock

118

118

Common Stock

403

402

Additional
paid-in
capital

196,698

193,457

Retained earnings

135,849

129,000

Accumulated other comprehensive loss

(278
)
(394
)
Treasury stock, at cost

(138,927
)
(138,927
)

Total Vicor Corporation stockholders’ equity

193,863

183,656

Noncontrolling interest

453

434

Total equity

194,316

184,090

Total liabilities and equity
$
  230,603
$
  221,068


	March 31, 2020			December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	82,751		$	84,668
Accounts receivable, less allowance of $102 in 2020 and $59 in 2019		41,279			38,115
Inventories, net		53,352			49,187
Other current assets		7,808			7,096

Total current assets		185,190			179,066
Long-term deferred tax assets, net		206			205
Long-term investments, net		2,557			2,510
Property, plant and equipment, net		56,879			56,952
Other assets		1,893			1,994

Total assets	$	246,725		$	240,727

Liabilities and Equity
Current liabilities:
Accounts payable	$	13,440		$	9,005
Accrued compensation and benefits		10,081			10,410
Accrued expenses		2,761			2,690
Short-term lease liabilities		1,370			1,520
Sales allowances		781			741
Income taxes payable		34			57
Short-term deferred revenue and customer prepayments		6,753			5,507

Total current liabilities		35,220			29,930
Long-term deferred revenue		974			1,054
Contingent consideration obligations		362			451
Long-term income taxes payable		571			567
Long-term lease liabilities		2,601			2,855

Total liabilities		39,728			34,857
Commitments and contingencies (Note 1 0 )
Equity:
Vicor Corporation stockholders’ equity:
Class B Common Stock		118			118
Common Stock		407			405
Additional paid-in capital		204,020			201,251
Retained earnings		141,363			143,098
Accumulated other comprehensive loss		(300	)		(383	)
Treasury stock, at cost		(138,927	)		(138,927	)

Total Vicor Corporation stockholders’ equity		206,681			205,562
Noncontrolling interest		316			308

Total equity		206,997			205,870

Total liabilities and equity	$	246,725		$	240,727

See accompanying notes.

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Table of Contents

VICOR CORPORATION

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended March 31,
	2020			2019
Net revenues	$	63,401		$	65,725
Cost of revenues		36,070			34,639

Gross margin		27,331			31,086
Operating expenses:
Selling, general and administrative		16,369			15,373
Research and development		13,335			11,220

Total operating expenses		29,704			26,593

(Loss) income from operations		(2,373	)		4,493
Other income (expense), net:
Total unrealized gains on available-for-sale securities, net		47			20
Less: portion of gains recognized in other comprehensive income		(46	)		(19	)

Net credit gains recognized in earnings		1			1
Other income (expense), net		147			238

Total other income (expense), net		148			239

(Loss) income before income taxes		(2,225	)		4,732
Less: (Benefit) provision for income taxes		(494	)		426

Consolidated net (loss) income		(1,731	)		4,306
Less: Net income attributable to noncontrolling interest		4			20

Net (loss) income attributable to Vicor Corporation	$	(1,735	)	$	4,286

Net (loss) income per common share attributable to Vicor Corporation:
Basic	$	(0.04	)	$	0.11
Diluted	$	(0.04	)	$	0.10
Shares used to compute net (loss) income per common share attributable to Vicor Corporation:
Basic		40,635			40,229
Diluted		40,635			41,029

See accompanying notes.

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Table of Contents

VICOR CORPORATION

~~Condensed Consolidated Statements of Operations~~

~~(In thousands, except per share amounts)~~

~~(Unaudited)~~

Three Months Ended
June 30,

Six Months Ended
June 30,

2019

2018

2019

2018

Net revenues
$
  63,355
$
  74,196
$
  129,080
$
  139,465

Cost of revenues

34,238

38,313

68,877

73,371

Gross margin

29,117

35,883

60,203

66,094

Operating expenses:

Selling, general and administrative

15,030

15,814

30,403

31,213

Research and development

11,706

11,403

22,926

22,529

Severance and other charges

—

350

—

350

Total operating expenses

26,736

27,567

53,329

54,092

Income from operations

2,381

8,316

6,874

12,002

Other income (expense), net:

Total unrealized gains on
available-for-sale
securities, net

19

33

39

56

Less: portion of gains recognized in other comprehensive income

(18
)
(31
)
(37
)
(52
)

Net credit gains recognized in earnings

1

2

2

4

Other income (expense), net

287

(46
)
525

382

Total other income (expense), net

288

(44
)
527

386

Income before income taxes

2,669

8,272

7,401

12,388

Less: Provision for income taxes

113

363

539

497

Consolidated net income

2,556

7,909

6,862

11,891

Less: Net (loss) income attributable to noncontrolling interest

(7
)
49

13

88

Net income attributable to Vicor Corporation
$
2,563
$
7,860
$
6,849
$
11,803

Net income per common share attributable to Vicor Corporation:

Basic
$
0.06
$
0.20
$
0.17
$
0.30

Diluted
$
0.06
$
0.19
$
0.17
$
0.29

Shares used to compute net income per common share attributable to Vicor Corporation:

Basic

40,275

39,709

40,252

39,594

Diluted

41,081

40,646

41,055

40,406

~~See accompanying notes.~~

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~~Table of Contents~~

~~VICOR CORPORATION~~

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

Three Months Ended
June 30,

Six Months Ended
June 30,

2019

2018

2019

2018

Consolidated net income
$
  2,556
$
  7,909
$
  6,862
$
  11,891

Foreign currency translation gains (losses) , net of tax (1)

151

(215
)
85

27

Unrealized gains on
available-for-sale
securities, net of tax (1)

18

31

37

52

Other comprehensive income (loss)

169

(184
)
122

79

Consolidated comprehensive income

2,725

7,725

6,984

11,970

Less: Comprehensive income attributable to noncontrolling interest

4

32

19

90

Comprehensive income attributable to Vicor Corporation
$
  2,721
$
  7,693
$
  6,965
$
  11,880


	Three Months Ended March 31,
	2020			2019
Consolidated net (loss) income	$	(1,731	)	$	4,306
Foreign currency translation gains (losses), net of tax (1)		46			(66	)
Unrealized gains on available-for-sale securities, net of tax (1)		41			19

Other comprehensive income (loss)		87			(47	)

Consolidated comprehensive (loss) income		(1,644	)		4,259
Less: Comprehensive income attributable to noncontrolling interest		8			15

Comprehensive (loss) income attributable to Vicor Corporation	$	(1,652	)	$	4,244

(1)

The deferred tax assets associated with cumulative foreign currency translation gains and cumulative unrealized gains on

available-for-sale

securities are completely offset by a tax valuation allowance as of ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019. Therefore, there is no0 income tax benefit (provision) recognized for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019.

See accompanying notes.

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VICOR CORPORATION

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Six Months Ended
June 30,

2019

2018

Operating activities:

Consolidated net income
$
6,862
$
  11,891

Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Depreciation and amortization

4,998

4,539

Stock-based compensation expense, net

1,539

1,916

(Benefit) provision for doubtful accounts

(117
)
65

Decrease in long-term income taxes payable

(2
)
—

Increase in other long-term liabilities

—

5

Decrease in long-term deferred revenue

(36
)
(36
)
Gain on disposal of equipment

(22
)
(16
)
Deferred income taxes

24

25

Credit gain on
available-for-sale
securities

(2
)
(4
)
Change in current assets and liabilities, net

(8,005
)
(9,857
)

Net cash provided by operating activities
5,239

8,528

Investing activities:

Additions to property, plant and equipment

(5,864
)
(3,558
)
Proceeds from sale of equipment

22

16

Decrease in other assets

(137
)
(67
)

Net cash used for investing activities

(5,979
)
(3,609
)
Financing activities:

Proceeds from issuance of Common Stock

1,707

4,966

Payment of contingent consideration obligations

(102
)
(172
)

Net cash provided by financing activities

1,605

4,794

Effect of foreign exchange rates on cash

60

(23
)

Net increase in cash and cash equivalents

925

9,690

Cash and cash equivalents at beginning of period

70,557

44,230

Cash and cash equivalents at end of period
$
  71,482
$
  53,920


	Three Months Ended March 31,
	2020			2019
Operating activities:
Consolidated net (loss) income	$	(1,731	)	$	4,306
Adjustments to reconcile consolidated net (loss) income to net cash used by operating activities:
Depreciation and amortization		2,711			2,445
Stock-based compensation expense, net		710			773
Provision (benefit) for doubtful accounts		43			(88	)
Increase in long-term income taxes payable		4			2
Decrease in long-term deferred revenue		(80	)		(18	)
Gain on disposal of equipment		—			(9	)
Deferred income taxes		(1	)		(1	)
Credit gain on available-for-sale securities		(1	)		(1	)
Change in current assets and liabilities, net		(2,639	)		(9,529	)

Net cash used by operating activities		(984	)		(2,120	)
Investing activities:
Additions to property, plant and equipment		(2,999	)		(3,322	)
Proceeds from sale of equipment		—			9
Decrease in other assets		75			(8	)

Net cash used for investing activities		(2,924	)		(3,321	)
Financing activities:
Proceeds from issuance of Common Stock		2,061			1,570
Payment of contingent consideration obligations		(89	)		(30	)

Net cash provided by financing activities		1,972			1,540
Effect of foreign exchange rates on cash		19			(42	)
Net decrease in cash and cash equivalents		(1,917	)		(3,943	)
Cash and cash equivalents at beginning of period		84,668			70,557

Cash and cash equivalents at end of period	$	82,751		$	66,614

See accompanying notes.

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Table of Contents

VICOR CORPORATION

Condensed Consolidated Statements of Equity

(In thousands)

(Unaudited)

Class B
Common
Stock

Common
Stock

Additional
Paid-In

Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Treasury
Stock

Total
Vicor
Corporation
Stockholders’
Equity

Noncontrolling
Interest

Total
Equity

Balance on March 31, 2019

118
$
  403
$
  195,799
$
  133,286
$
  (436
) $
  (138,927
) $
  190,243
$
  449
$
  190,692

Sales of Common Stock

137

137

137

Stock-based compensation expense

766

766

766

Other

(4
)
(4
)
(4
)
Components of comprehensive
income, net of tax:

Net income

2,563

2,563

(7
)
2,556

Other comprehensive income

158

158

11

169

Total comprehensive income

2,721

4

2,725

Balance on June 30, 2019

118
$
403
$
196,698
$
135,849
$
  (278
) $
  (138,927
) $
193,863
$
453
$
194,316

Balance on December 31, 2018
118
$
402
$
193,457
$
129,000
$
(394
) $
(138,927
)
$
183,656
$
434
$
184,090

Sales of Common Stock

428

428

428

Stock-based compensation expense

1,539

1,539

1,539

Issuances of stock through employee stock
purchase plan

1

1,278

1,279

1,279

Other

(4
)
(4
)
(4
)
Components of comprehensive
income, net of tax:

Net income

6,849

6,849

13

6,862

Other comprehensive income

116

116

6

122

Total comprehensive income

6,965

19

6,984

Balance on June 30, 2019

118
$
403
$
196,698
$
135,849
$
  (278
) $
  (138,927
) $
193,863
$
453
$
194,316

Class B
Common
Stock

Common
Stock

Additional
Paid-In

Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Treasury
Stock

Total
Vicor
Corporation
Stockholders’
Equity

Noncontrolling
Interest

Total
Equity

Balance on March 31, 2018

118
$
402
$
183,415
$
101,218
$
  (234
) $
  (138,927
) $
145,992
$
363
$
146,355

Sales of Common Stock

3

3,678

3,681

3,681

Stock-based compensation expense

1,180

1,180

1,180

Other

(6
)
3

(3
)
(3
)
Components of comprehensive
    income, net of tax:

Net income

7,860

7,860

49

7,909

Other comprehensive loss

(167
)
(167
)
(17
)
(184
)

Total comprehensive income

7,693

32

7,725

Balance on June 30, 2018

118
$
399
$
188,276
$
109,078
$
  (401
) $
  (138,927
) $
158,543
$
395
$
158,938

Balance on December 31, 2017

118
$
401
$
181,395
$
93,605
$
  (478
) $
  (138,927
) $
136,114
$
305
$
136,419

Sales of Common Stock

3

4,036

4,039

4,039

Stock-based compensation expense

1,916

1,916

1,916

Issuances of stock through employee stock purchase plan

1

926

927

927

Cumulative effect of adoption of new accounting principle (Topic 606)

3,670

3,670

3,670

Other

(6
)
3

(3
)
(3
)
Components of comprehensive income, net of tax:

Net income

11,803

11,803

88

11,891

Other comprehensive income

77

77

2

79

Total comprehensive income

11,880

90

11,970

Balance on June 30, 2018

118
$
399
$
188,276
$
109,078
$
  (401
) $
  (138,927
) $
158,543
$
395
$
158,938


Three months ended March 31, 2020	Class B Common Stock		Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Vicor Corporation Stockholders’ Equity			Noncontrolling Interest			Total Equity
Balance on December 31, 2019	$	118	$	405	$	201,251	$	143,098		$	(383	)	$	(138,927	)	$	205,562		$	308		$	205,870
Sales of Common Stock				1		788											789						789
Stock-based compensation expense						710											710						710
Issuances of stock through employee stock purchase plan				1		1,271											1,272						1,272
Components of comprehensive income, net of tax:
Net income								(1,735	)								(1,735	)		4			(1,731	)
Other comprehensive income											83						83			4			87

Total comprehensive income																	(1,652	)		8			(1,644	)

Balance on March 31, 2020	$	118	$	407	$	204,020	$	141,363		$	(300	)	$	(138,927	)	$	206,681		$	316		$	206,997


Three months ended March 31, 2019	Class B Common Stock		Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Vicor Corporation Stockholders’ Equity			Noncontrolling Interest			Total Equity
Balance on December 31, 2018	$	118	$	402	$	193,457	$	129,000		$	(394	)	$	(138,927	)	$	183,656		$	434		$	184,090
Sales of Common Stock						291											291						291
Stock-based compensation expense						773											773						773
Issuances of stock through employee stock purchase plan				1		1,278											1,279						1,279
Components of comprehensive income, net of tax:
Net income								4,286									4,286			20			4,306
Other comprehensive loss											(42	)					(42	)		(5	)		(47	)

Total comprehensive income																	4,244			15			4,259

Balance on March 31, 2019	$	118	$	403	$	195,799	$	133,286		$	(436	)	$	(138,927	)	$	190,243		$	449		$	190,692

See accompanying notes.

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Table of Contents

VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

~~June 30, 2019~~

March 31, 2020

(unaudited)

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of Vicor Corporation and its consolidated subsidiaries (collectively, the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, these interim financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three ~~and six~~ months ended ~~June 30, 2019~~ March

2020

are not necessarily indicative of the results that may be expected for any other interim period or the year ending December

31 ~~2019.~~

2020

. The balance sheet at December

31 ~~2018~~

2019

presented herein has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form

10-K

for the year ended December

31 ~~2018~~

2019

filed by the Company with the Securities and Exchange Commission on February

2020

(“

2019 ~~(“2018~~

Form

10-K”).

~~Recently Adopted Accounting Standard~~Inventories

In February 2016, the FASB issued new guidance for lease accounting, which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. The new guidance establishes a

~~right-of-use~~

model (“ROU”) that requires a lessee to recognize a ROU asset and a lease liability on the balance sheet for all leases with a term longer than twelve months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. For lessors, the guidance modifies the classification criteria and accounting for sales-type and direct financing leases.

The Company adopted the new standard as of January 1, 2019, using the effective date as the date of initial application. As a result, financial information has not been updated and the disclosures required under the new standard have not been provided for dates and periods before January 1, 2019. The Company elected the ‘package of practical expedients’, which permits companies to not reassess under the new standard lease identification, lease classification and initial direct costs. The Company did not elect the

~~use-of-hindsight~~

~~or the practical expedient pertaining to land easements, the latter not being applicable.~~

The adoption of the standard resulted in the recognition of ROU assets and lease liabilities of approximately $4,329,000 and $4,455,000, respectively, as of January 1, 2019. There was no cumulative effect of adopting this new guidance, and the standard did not have a material impact on the Company’s consolidated statements of operations or cash flows for the three and six months ended June 30, 2019.

~~Inventories~~

Inventories are valued at the lower of cost (determined using the

first-in,

first-out

method) or net realizable value. Fixed production overhead is allocated to the inventory cost per unit based on the normal capacity of the production facilities. Abnormal production costs, including fixed cost variances from normal production capacity, if any, are charged to cost of revenues in the period incurred. All shipping, handling and ~~handling~~customs (e.g., tariff) costs incurred in connection with the sale of products are included in cost of revenues.

~~The Company provides reserves for inventories~~Inventory that is estimated to be excess, obsolete or ~~unmarketable.~~unmarketable is written down to net realizable value. The Company’s estimation process for assessing net realizable value is based upon ~~its known~~forecasted future usage which is derived based on backlog, ~~projected future demand,~~ historical consumption and expected market conditions. If the Company’s estimated demand and/or market expectation were to change or if product sales were to decline, the Company’s estimation process may cause larger inventory reserves to be recorded, resulting in larger charges to cost of revenues.

~~-6-~~

~~Table of Contents~~

~~VICOR CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~June 30, 2019~~

~~(unaudited)~~

Inventories were as follows (in thousands):


	June 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Raw materials	$	36,925	$	37,696	$	38,758	$	35,901
Work-in-process		6,052		4,740		7,705		5,184
Finished goods		11,595		4,934		6,889		8,102

Net balance	$	54,572	$	47,370	$	53,352	$	49,187

4.3.

Long-Term Investments

As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company held one auction rate security with a par value of $3,000,000, purchased through and held in custody by a broker-dealer affiliate of Bank of America, N.A., that has experienced failed auctions (the “Failed Auction Security”) since February 2008. The Failed Auction Security held by the Company is Aaa/AA+ rated by major credit rating agencies, is collateralized by student loans, and is guaranteed by the U.S. Department of Education under the Federal Family Education Loan Program. Management is not aware of any reason to believe the issuer of the Failed Auction Security is presently at risk of default. Through ~~June 30, 2019,~~March 31, 2020, the Company has continued to receive interest payments on the Failed Auction Security in accordance with the terms of its indenture. Management believes the Company ultimately should be

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Table of Contents

VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

March 31, 2020

(unaudited)

able to liquidate the Failed Auction Security without significant loss primarily due to the overall quality of the issue held and the collateral securing the substantial majority of the underlying obligation. However, current conditions in the auction rate securities market have led management to conclude the recovery period for the Failed Auction Security exceeds 12 months. As a result, the Company continued to classify the Failed Auction Security as long-term as of ~~June 30, 2019.~~March 31, 2020.

The following is a summary of the

available-for-sale

~~securities~~security (in thousands):

June 30, 2019

Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair
Value

Failed Auction Security
$
3,000
$
—
$
435
$
2,565


			Gross		Gross		Estimated
			Unrealized		Unrealized		Fair
March 31, 2020	Cost		Gains		Losses		Value
Failed Auction Security	$	3,000	$	—	$	443	$	2,557

December 31, 2018

Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair
Value

Failed Auction Security
$
3,000
$
—
$
474
$
2,526


			Gross		Gross		Estimated
			Unrealized		Unrealized		Fair
December 31, 2019	Cost		Gains		Losses		Value
Failed Auction Security	$	3,000	$	—	$	490	$	2,510

As of ~~June 30, 2019,~~March 31, 2020, the Failed Auction Security had been in an unrealized loss position for greater than 12 months.

~~-7-~~

~~Table of Contents~~

~~VICOR CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~June 30, 2019~~

~~(unaudited)~~

The amortized cost and estimated fair value of the Failed Auction Security on ~~June 30, 2019,~~March 31, 2020, by contractual maturity,

are shown below (in thousands):

Cost

Estimated
Fair Value

Due in twenty to forty years
$
3,000
$
2,565


			Estimated
	Cost		Fair Value
Due in twenty to forty years	$	3,000	$	2,557

Based on the fair value measurements described in Note 5,4, the fair value of the Failed Auction Security on ~~June 30, 2019,~~March 31, 2020, with a par value of $3,000,000, was estimated by the Company to be approximately ~~$2,565,000.~~$2,557,000. The gross unrealized loss of ~~$435,000~~$443,000 on the Failed Auction Security consists of two types of estimated loss: an aggregate credit loss of ~~$39,000~~$36,000 and an aggregate temporary impairment of ~~$396,000.~~$407,000. In determining the amount of credit loss, the Company compared the present value of cash flows expected to be collected to the amortized cost basis of the security, considering credit default risk probabilities and changes in credit ratings as significant inputs, among other ~~factors (See Note 5).~~factors.

-7-

Table of Contents

VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

March 31, 2020

(unaudited)

The following table represents a rollforward of the activity related to the credit loss recognized in earnings on the Failed Auction Security for the ~~six~~three months ended ~~June 30~~March 31 (in thousands):

2019

2018

Balance at the beginning of the period
$
41
$
48

Reductions in the amount related to credit gain for which other-than-temporary impairment was not previously recognized

(2
)
(4
)

Balance at the end of the period
$
39
$
44


	2020			2019
Balance at the beginning of the period	$	37		$	41
Reductions in the amount related to credit gain for which other-than-temporary impairment was not previously recognized		(1	)		(1	)

Balance at the end of the period	$	36		$	40

At this time, the Company has no intent to sell the impaired Failed Auction Security and does not believe it is more likely than not the Company will be required to sell this security. If current market conditions deteriorate further, the Company may be required to record additional unrealized losses. If the credit rating of the security deteriorates, the Company may be required to adjust the carrying value of the investment through impairment charges recorded in the Condensed Consolidated Statements of Operations, and any such impairment adjustments may be material.

Based on the Company’s ability to access cash and cash equivalents and its expected operating cash flows, management does not anticipate the current lack of liquidity associated with the Failed Auction Security held will affect the Company’s ability to execute its current operating plan.

5.4.

Fair Value Measurements

The Company accounts for certain financial assets at fair value, defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions market participants would use in pricing an asset or liability. A three-level hierarchy is used to show the extent and level of judgment used to estimate fair value measurements.

~~-8-~~

~~Table of Contents~~

~~VICOR CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~June 30, 2019~~

~~(unaudited)~~

Assets and liabilities measured at fair value on a recurring basis included the following as

of ~~June 30, 2019~~March 31, 2020 (in thousands):


	Using											Using
	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total Fair Value as of June 30, 2019			Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total Fair Value as of March 31, 2020
Cash equivalents:
Money market funds	$	9,538	$	—	$	—		$	9,538		$	9,665	$	—	$	—		$	9,665
Long-term investments:
Failed Auction Security		—		—		2,565			2,565			—		—		2,557			2,557
Liabilities:
Contingent consideration obligations		—		—		(306	)		(306	)		—		—		(362	)		(362	)

-8-

Table of Contents

VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

March 31, 2020

(unaudited)

Assets and liabilities measured at fair value on a recurring basis included the following as of December 31, ~~2018~~2019 (in thousands):

Using

Quoted Prices
in Active
Markets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total Fair
Value as of
December 31, 2018

Cash equivalents:

Money market funds
$
9,433
$
—
$
—
$
9,433

Long-term investments:

Failed Auction Security

—

—

2,526

2,526

Liabilities:

Contingent consideration obligations

—

—

(408
)
(408
)


	Using
	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total Fair Value as of December 31, 2019
Cash equivalents:
Money market funds	$	9,630	$	—	$	—		$	9,630
Long-term investments:
Failed Auction Security		—		—		2,510			2,510
Liabilities:
Contingent consideration obligations		—		—		(451	)		(451	)

As of ~~June 30, 2019,~~March 31, 2020, there was insufficient observable auction rate security market information available to determine the fair value of the Failed Auction Security using Level 1 or Level 2 inputs. As such, the Company’s investment in the Failed Auction Security was deemed to require valuation using Level 3 inputs. Management, after consulting with advisors, valued the Failed Auction Security using analyses and pricing models similar to those used by market participants (i.e., buyers, sellers, and the broker-dealers responsible for execution of the Dutch auction pricing mechanism by which each issue’s interest rate was set). Management utilized a probability weighted discounted cash flow (“DCF”) model to determine the estimated fair value of this security as of ~~June 30, 2019.~~March 31, 2020. The major assumptions used in preparing the DCF model were similar to those described in Note 5 –

—

Fair Value Measurements in the Notes to the Consolidated Financial Statements contained in the Company’s ~~2018~~2019 Form

10-K.

Quantitative information about Level 3 fair value measurements as of March 31, 2020 is as follows (dollars in thousands):


	Fair Value		Valuation Tech nique	Unobservable Input	Weighted Average
Failed Auction Security	$	2,557	Discounted cash flow	Cumulative probability of earning the maximum rate until maturity		0.11	%
				Cumulative probability of principal return prior to maturity		93.98	%
				Cumulative probability of default		5.91	%
				Liquidity risk premium		5.00	%
				Recovery rate in default		40.00	%

~~-9-~~

-9-

Table of Contents

VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

~~June 30, 2019~~March 31, 2020

(unaudited)

~~Quantitative information about Level 3 fair value measurements as of June 30, 2019 is as follows (dollars in thousands):~~

Fair Value

Valuation
Technique

Unobservable
Input

Weighted
Average

Failed Auction Security
$
2,565

Discounted cash flow

Cumulative probability of earning the maximum rate until maturity

  0.08
%

Cumulative probability of principal return prior to maturity

94.34
%

Cumulative probability of default

  5.58
%

Liquidity risk premium

  5.00
%

Recovery rate in default

40.00
%

The change in the estimated fair value calculated for the investment valued on a recurring basis utilizing Level 3 inputs (i.e., the Failed Auction Security) for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 was as follows (in thousands):


Balance at the beginning of the period	$	2,526	$	2,510
Credit gain on available-for-sale securities included in Other income (expense), net		2
Credit gain on available-for-sale securit y included in Other income (expense), net				1
Gain included in Other comprehensive income		37		46

Balance at the end of the period	$	2,565	$	2,557

The Company has classified its contingent consideration obligations as Level 3 because the fair value for these liabilities was determined using unobservable inputs. The liabilities were based on estimated sales of legacy products over the period of royalty payments at the royalty rate, discounted using the Company’s estimated cost of capital.

The change in the estimated fair value calculated for the liabilities valued on a recurring basis utilizing Level 3 inputs (i.e., the Contingent consideration obligations) for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 was as follows (in thousands):


Balance at the beginning of the period	$	451
Payments		(89	)

Balance at the end of the period	$	362

~~Balance at the beginning of the period~~

~~408~~

~~Payments~~

~~(102~~

)

~~Balance at the end of the period~~

~~306~~

There were no0 transfers between Level 1 and Level 2 of the fair value hierarchy during the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020.

-10-

Table of Contents

VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

6.March 31, 2020

(unaudited)

Revenues

Revenue from the sale of Advanced Products represents the sum of third-party sales of the products sold under the Advanced Products line, which were sold under the former Picor and VI Chip operating segments ~~for~~during periods prior to the second quarter of 2019. Revenue from the sale of Brick Products represents the sum of third-party ~~revenues~~sales of the products sold under the Brick Products line, which were also sold under the former Brick Business Unit operating segment, inclusive of such sales of our Vicor Custom Power and Vicor Japan Company, Ltd. subsidiaries. ~~See Note 14 for a discussion of changes to the Company’s segment reporting.~~

~~-10-~~

~~Table of Contents~~

~~VICOR CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~June 30, 2019~~

~~(unaudited)~~

The following tables present the Company’s net revenues disaggregated by geography based on the ~~location~~locati

n of the customer, by product line (in thousands):


	Three Months Ended June 30, 2019						Three Months Ended March 31, 2020
	Brick Products		Advanced Products		Total		Brick Products		Advanced Products		Total
United States	$	25,732		5,323	$	31,055	$	25,970	$	7,597	$	33,567
Europe		6,374		1,642		8,016		4,568		879		5,447
Asia Pacific		15,287		7,843		23,130		13,656		9,376		23,032
All other		612		542		1,154		1,323		32		1,355

	$	48,005	$	15,350	$	63,355	$	45,517	$	17,884	$	63,401


	Six Months Ended June 30, 2019
	Brick Products		Advanced Products		Total
United States	$	48,024		12,272	$	60,296
Europe		12,383		2,628		15,011
Asia Pacific		32,398		18,743		51,141
All other		1,825		807		2,632

	$	94,630	$	34,450	$	129,080


	Three Months Ended March 31, 2019
	Brick Products		Advanced Products		Total
United States	$	22,292	$	6,949	$	29,241
Europe		6,009		986		6,995
Asia Pacific		17,111		10,900		28,011
All other		1,213		265		1,478

	$	46,625	$	19,100	$	65,725

Three Months Ended June 30, 2018
Brick Products Advanced Products Total
United States $ 18,295 8,124 $ 26,419
Europe 4,877 1,275 6,152
Asia Pacific 23,876 16,387 40,263
All other 1,301 61 1,362

$ 48,349 $ 25,847 $ 74,196

Six Months Ended June 30, 2018
Brick Products Advanced Products Total
United States $ 35,286 16,756 $ 52,042
Europe 9,602 1,923 11,525
Asia Pacific 42,087 31,532 73,619
All other 2,011 268 2,279

$ 88,986 $ 50,479 $ 139,465

-11-

Table of Contents

VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

~~June 30, 2019~~March 31, 2020

(unaudited)

The following tables present the Company’s net revenues disaggregated by the category of revenue, by product line (in thousands):


	Three Months Ended June 30, 2019						Three Months Ended March 31, 2020
	Brick Products		Advanced Products		Total		Brick Products		Advanced Products		Total
Direct customers, contract manufacturers and non-stocking distributors	$	40,843		12,184	$	53,027	$	35,739	$	14,767	$	50,506
Stocking distributors, net of sales allowances		7,111		2,918		10,029		9,622		3,062		12,684
Non-recurring engineering		51		230		281		156		37		193
Royalties		—		—		—
Other		—		18		18		—		18		18

	$	48,005	$	15,350	$	63,355	$	45,517	$	17,884	$	63,401


	Six Months Ended June 30, 2019						Three Months Ended March 31, 2019
	Brick Products		Advanced Products		Total		Brick Products		Advanced Products		Total
Direct customers, contract manufacturers and non-stocking distributors	$	80,791		26,950	$	107,741	$	39,948	$	14,766	$	54,714
Stocking distributors, net of sales allowances		13,228		6,083		19,311		6,117		3,166		9,283
Non-recurring engineering		599		1,355		1,954		548		1,125		1,673
Royalties		12		24		36		12		24		36
Other		—		38		38		—		19		19

	$	94,630	$	34,450	$	129,080	$	46,625	$	19,100	$	65,725

Three Months Ended June 30, 2018
Brick Products Advanced Products Total
Direct customers, contract manufacturers and non-stocking
distributors $ 43,404 23,130 $ 66,534
Stocking distributors, net of sales allowances 4,735 2,208 6,943
Non-recurring engineering 197 465 662
Royalties 13 26 39
Other — 18 18

$ 48,349 $ 25,847 $ 74,196

~~-12-~~

~~Table of Contents~~

~~VICOR CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~June 30, 2019~~

~~(unaudited)~~

Six Months Ended June 30, 2018
Brick Products Advanced Products Total
Direct customers, contract manufacturers and non-stocking
distributors $ 78,878 44,416 $ 123,294
Stocking distributors, net of sales allowances 9,698 5,151 14,849
Non-recurring engineering 372 800 1,172
Royalties 38 76 114
Other — 36 36

$ 88,986 $ 50,479 $ 139,465

The following table presents the changes in certain contract assets and (liabilities) (in thousands):


	June 30, 2019			December 31, 2018			Increase (decrease)			March 31, 2020			December 31, 2019			Change
Accounts receivable	$	38,537		$	43,673		$	(5,136	)	$	41,279		$	38,115		$	3,164
Deferred revenue		(5,232	)		(3,820	)		(1,412	)
Short-term deferred revenue and customer prepayments											(6,753	)		(5,507	)		(1,246	)
Long-term deferred revenue											(974	)		(1,054	)		80
Deferred expenses		1,216			501			715			2,023			1,897			126
Customer prepayments		(1,349	)		(1,250	)		(99	)
Sales allowances		(640	)		(548	)		(92	)		(781	)		(741	)		(40	)

The ~~decrease~~increase in accounts receivable was primarily due to ~~a decrease~~an increase in net revenues of approximately $5,634,000 in ~~the second quarter of 2019~~March 2020 compared to ~~the fourth quarter of 2018.~~

~~Deferred expenses are included in Other current assets, and customer prepayments are included in Deferred revenue, in the accompanying Condensed Consolidated Balance Sheets, respectively.~~

~~Product Warranties~~

The Company generally offers a two-year warranty for all of its products, though it has extended the warranty period to three years for certain military grade products sold after January 1, 2017. The Company is party to a limited number of supply agreements with certain customers contractually committing the Company to warranty and indemnification requirements exceeding those to which the Company has been exposed in the past. The Company provides for the estimated cost of product warranties at the time product revenue is recognized. Factors influencing the Company’s warranty reserves include the number of units sold, historical and anticipated rates of warranty returns, and the cost per return. The Company periodically assesses the adequacy of warranty reserves and adjusts the amounts as necessary. Warranty obligations are included in “Accrued expenses” in the accompanying Condensed Consolidated Balance Sheets.

December 2019.

~~-13-~~

-12-

Table of Contents

VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

~~June 30, 2019~~March 31, 2020

(unaudited)

Deferred expenses are included in Other current assets in the accompanying Condensed Consolidated Balance Sheets.

~~Product warranty activity~~The Company records deferred revenue, which represents a contract liability, when cash payments are received or due in advance of performance under a contract with a customer. The Company recognized revenue of approximately $36,000 for the three months ended March 31, 2020, and $0 for the three months ended March 31, 2019, respectively, that was ~~as follows (in thousands):~~included in deferred revenue at the beginning of each respective period.

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
Balance at the beginning of the period $ 231 $ 346 $ 268 $ 290
Accruals for warranties for products sold in the period 56 10 85 133
Fulfillment of warranty obligations (17 ) (20 ) (83 ) (77 )
Revisions of estimated obligations — (10 ) — (20 )

Balance at the end of the period $ 270 $ 326 $ 270 $ 326

Stock-Based Compensation

The Company uses the Black-Scholes option pricing model to calculate the fair value of stock option awards, whether they possess time-based vesting provisions or performance-based vesting provisions, and awards granted under the Vicor Corporation 2017 Employee Stock Purchase Plan (“ESPP”), as of their grant date.

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


									Three Months Ended
	Three Months Ended June 30,				Six Months Ended June 30,				March 31,
	2019		2018		2019		2018		2020		2019
Cost of revenues	$	73	$	59	$	142	$	115	$	119	$	69
Selling, general and administrative		506		957		1,025		1,499		437		519
Research and development		187		164		372		302		154		185

Total stock-based compensation	$	766	$	1,180	$	1,539	$	1,916	$	710	$	773

Compensation expense by type of award was as follows (in thousands):

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
Stock options $ 509 $ 1,005 $ 1,042 $ 1,598
ESPP 257 175 497 318

Total stock-based compensation $ 766 $ 1,180 $ 1,539 $ 1,916


	Three Months Ended
	March 31,
	2020		2019
Stock options	$	506	$	533
ESPP		204		240

Total stock-based compensation	$	710	$	773

~~-14-~~

~~Table of Contents~~

Rental Income

~~VICOR CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~June 30, 2019~~

~~(unaudited)~~

~~Leases~~

~~All of~~Income, net under the Company’s ~~leases are classified as~~ operating leases. The majority of the Company’s leases are for office and manufacturing space, along with several automobiles and certain equipment. Leases with initial terms of less than twelve months are not recorded on the balance sheet. Expense for these leases is recognized on a straight-line basis over the lease term. The Company’s leases have remaining terms of less than one year to just over six years. The majority of the Company’s leases do not have options to renew, although several have renewal terms to extend the lease for one five-year term, and one lease contains two five-year renewal options. None of the renewal options are included in determining the term of the lease, used for calculating the associated lease liabilities. None of the Company’s leases include variable payments, residual value guarantees or restrictive covenants. A number of the Company’s leases for office and manufacturing space include provision for common area maintenance (“CAM”). The Company accounts for CAM separately from lease payments, and therefore costs for CAM are not included in the determination of lease liabilities. The Company is a party to one arrangement as the lessor,agreement for its ~~former Westcor~~leased facility ~~located in Sunnyvale, California,~~ with a third ~~party. The lessee under this lease has one option to renew the lease for a term of five years.~~

~~As of June 30, 2019, the balance of ROU assets~~party in California was approximately $3,933,000, and the balances of current and long-term lease liabilities were approximately $1,660,000 and $2,392,000, respectively. For the three and six months ended June 30, 2019, the Company recorded operating lease cost, including short-term lease cost, of approximately $480,000 and $937,000, respectively. The ROU assets are included in “Property, plant and equipment, net” in the accompanying Condensed Consolidated Balance Sheets.

~~The maturities of the Company’s lease liabilities are as follows (in thousands):~~

2019
$
911

2020

1,461

2021

756

2022

453

2023

357

Thereafter

413

Total lease payments
$
4,351

Less: Imputed interest

299

Present value of lease liabilities
$
4,052

As of June 30, 2019, the weighted-average remaining lease term was 3.5 years and the weighted-average discount rate was 3.83% for the Company’s operating leases. The Company developed the discount rates used based on a London Interbank Offered Rate (“LIBOR”) over a term approximating the term of the related lease, plus an additional interest factor, which was generally 1.375%.

~~For the three and six months ended June 30, 2019, the Company paid~~ approximately ~~$42,000 and $63,000, respectively, for amounts included in the measurement of lease liabilities through operating cash flows, and obtained approximately $56,000 and $462,000 in ROU assets~~$198,000 for the three ~~and six~~ months ended ~~June 30, 2019, respectively, in exchange for new operating lease liabilities.~~

~~-15-~~

March 31, 2020 and 2019.

~~Table of Contents~~

~~VICOR CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~June 30, 2019~~

~~(unaudited)~~

~~The maturities of the lease payments to be received by the Company under its leased facility in California are as follows (in thousands):~~

2019 $ 429
2020 874
2021 901
2022 928
2023 955
Thereafter 402

Total lease payments to be received $ 4,489

~~For the three and six months ended June 30, 2019, the Company recorded lease income under this lease of approximately $214,000 and $428,000, respectively.~~

~~10.~~.

Income Taxes

The tax (benefit) provision is based on the estimated annual effective tax rate for the year, which includes estimated federal, state and foreign income taxes on the Company’s projected

pre-tax

income.

-13-

Table of Contents

VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

March 31, 2020

(unaudited)

The (benefit) provision for income taxes and the effective income tax rates were as follows (dollars in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
Provision for income taxes	$	113		$	363		$	539		$	497
(Benefit) provision for income taxes													$	(494	)	$	426
Effective income tax rate		4.2	%		4.4	%		7.3	%		4.0	%		(22.2	)%		9.0	%

The effective tax rates were lower than the statutory tax rates for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ due primarily to the utilization of tax credits in 2020 and the combination of utilizing net operating loss carryforwards and tax ~~credits.~~ credits in 2019.

The ~~provisions~~(benefit) provision for income taxes in the three months

ended March 31, 2020 and ~~six months ended June 30,~~ 2019 ~~and 2018~~ also included estimated foreign income taxes and estimated state taxes in jurisdictions in which the Company does not have net operating loss carryforwards.

As of ~~June 30, 2019,~~March 31, 2020, the Company has a valuation allowance of approximately ~~$30,031,000~~ $30,363,000

against all domestic ~~net~~ deferred tax assets, for which realization cannot be considered more likely than not at this time. Management assesses the need for the valuation allowance on a quarterly basis. In assessing the need for a valuation allowance, the Company considers all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and past financial performance. While ~~recent~~ positive operating results in 2018 and 2019 caused the Company to be in a cumulative income position as of ~~June 30, 2019, it~~March 31, 2020, its overall profitability has been declining since the third quarter of 2018 and the Company recorded an operating loss in ~~such a position~~the first quarter of 2020, primarily due to overall reduced bookings for ~~only a limited number~~both Advanced and Brick products, reflecting U.S.-China trade/tariff dynamics and elements of ~~quarters.~~macro uncertainty. In addition, ~~some uncertainty in economic conditions that could potentially~~the uncertain impact of the

COVID-19

pandemic on the ~~Company~~Company’s supply chain, and certain process issues with the production of Advanced Products are contributing to near-term uncertainty. As a result, management has ~~led management to conclude~~concluded a full valuation allowance against all net domestic ~~net~~ deferred tax assets is still warranted as of ~~June 30, 2019.~~March 31, 2020. The valuation allowance against these deferred tax assets may require adjustment in the future based on changes in the mix of temporary differences, changes in tax laws, and operating performance. If the positive quarterly earnings resume and then continue, and the Company’s concerns about industry uncertainty and world events, the impact of the

COVID-19

pandemic on the Company’s supply chain, and process issues with the production of Advanced Products are resolved, and order volumes are alleviated to the point that the Company believes future profits can be more reliably forecasted, the Company may release all or a portion of the valuation allowance in the near-term. Certain state tax credits, though, will likely continue to require a valuation allowance. If and when the Company determines the valuation allowance should be released (i.e., reduced), the adjustment would result in a tax benefit reported in that period’s Consolidated Statements of Operations, the effect of which would be an increase in reported net income.

~~-16-~~

-14-

Table of Contents

VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

~~June 30, 2019~~March 31, 2020

(unaudited)

~~11.~~.

Net

(

Loss

)

Income per Share

The following table sets forth the computation of basic and diluted net (loss) income per share (in thousands, except per share amounts):

Three Months Ended
June 30,

Six Months Ended
June 30,

2019

2018

2019

2018

Numerator:

Net income attributable to Vicor Corporation
$
2,563
$
7,860
$
6,849
$
11,803

Denominator:

Denominator for basic net income per share-weighted
average shares (1)

40,275

39,709

40,252

39,594

Effect of dilutive securities:

Employee stock options (2)

806

937

803

812

Denominator for diluted net income per share – adjusted weighted-average shares and assumed conversions
41,081

40,646

41,055

40,406

Basic net income per share
$
0.06
$
0.20
$
0.17
$
0.30

Diluted net income per share
$
0.06
$
0.19
$
0.17
$
0.29


	Three Months Ended March 31,
	2020			2019
Numerator:
Net (loss) income attributable to Vicor Corporation	$	(1,735	)	$	4,286

Denominator:
Denominator for basic net (loss) income per share-weighted average shares (1)		40,635			40,229
Effect of dilutive securities:
Employee stock options (2)		—			800

Denominator for diluted net (loss) income per share – adjusted weighted-average shares and assumed conversions		40,635			41,029

Basic net (loss) income per share	$	(0.04	)	$	0.11

Diluted net (loss) income per share	$	(0.04	)	$	0.10

(1)	Denominator represents weighted average number of shares of Common Stock and Class B Common Stock outstanding.

(2)

Options to purchase ~~142,817 and 128,018~~2,615,335 shares of Common Stock for the three ~~and six~~ months ended ~~June 30, 2019, respectively,~~March 31, 2020, and ~~44,793 and 79,857~~134,535 shares of Common Stock for the three ~~and six~~ months ended ~~June 30, 2018, respectively,~~March 31, 2019, were not included in the ~~calculation~~calculations of net income per share as the effect would have been antidilutive.

~~12.~~.

Commitments and Contingencies

At ~~June 30, 2019,~~March 31, 2020, the Company had approximately ~~$3,367,000~~ $4,041,000

of capital expenditure ~~commitments.~~commitments, principally for manufacturing equipment.

The Company is the defendant in a patent infringement lawsuit originally filed on January 28, 2011 by SynQor, Inc. (“SynQor”) in the U.S. District Court for the Eastern District of Texas (the “Texas Action”). The complaint, as amended, ~~in September 2011,~~ alleges that the Company’s products, including but not limited to, unregulated bus converters used in intermediate bus architecture power supply systems, infringe SynQor’s U.S. patent numbers 7,072,190, 7,272,021, 7,564,702, and 8,023,290 (“the ‘190 patent”, “the ‘021 patent”, “the ‘702 patent”, and “the ‘290 patent”, respectively). SynQor’s ~~complaint~~compl

int sought an injunction against further infringement and an award of unspecified compensatory and enhanced damages, interest, costs and attorney fees. The Company has denied that its products infringe any of the SynQor patents, and has asserted that the SynQor patents are invalid ~~and asserted that the ‘290 patent is unenforceable due to inequitable conduct by SynQor~~ and/or ~~its agents during the examination of the ‘290 patent at the United States Patent and Trademark Office (“USPTO”).~~unenforceable. The Company has also asserted counterclaims seeking damages ~~against~~

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~~Table of Contents~~

~~VICOR CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~June 30, 2019~~

~~(unaudited)~~

from SynQor for deceptive trade practices and tortious interference with prospective economic advantage arising from SynQor’s attempted enforcement of its patents against the Company.

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VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

March 31, 2020

(unaudited)

On May 23, 2016, after extensive discovery, the Texas Action was stayed by the court pending completion of certain inter partes reexamination (“IPRx”) proceedings at the ~~USPTO~~United States Patent and Trademark Office (“USPTO”) (including any appeals from such proceedings to the Federal Circuit (as defined below)) concerning the SynQor patents, which are described below. ~~On November 2, 2018, SynQor filed a motion to lift the~~That stay of the Texas Action. On January 3, 2019, the magistrate judge issued an order denying the motion and reaffirming the Court’s original decision that the stay should remain at least until the conclusion of all pending inter partes reexaminations and related appeals. On January 17, 2019, SynQor filed objections to the magistrate judge’s order, and sought reconsideration of that order by the district court judge. The district court judge has not yet ruled on SynQor’s objections.remains in force.

In 2011, in response to the filing of the Texas Action, the ~~Company initiated inter partes reexamination~~Company’s IPRx proceedings at the USPTO ~~challenging~~challenged the validity of ~~certain claims of the SynQor patents asserted in the Texas Action, including~~ all claims that were asserted against the Company by SynQor. The current status of these proceedings is as follows. Regarding the ‘190 patent IPRx, the United States Court of Appeals for the Federal Circuit (the “Federal Circuit”) issued a decision on March 13, 2015, determining that certain claims were invalid and remanding the matter to the Patent Trial and Appeal Board (“PTAB”) of the USPTO for further proceedings. On ~~May 2, 2016,~~February 20, 2019, the PTAB issued a decision ~~affirming the examiner’s original rejection of~~finding that all ~~but one~~ of the remaining challenged claims ~~of the ‘190 patent, and identifying a new basis for rejecting the remaining claim (“claim 34”), which had been added by~~were unpatentable. SynQor during the reexamination. SynQor then requested further examination of claim 34 by the examiner, pursuant to 37 C.F.R. § 41.77(b)(1). On June 22, 2017, the examiner issued a determination under 37 C.F.R. § 41.77(d), finding claim 34 was unpatentable. That decision was affirmed by the PTAB on February 20, 2019. SynQor subsequentlyhas appealed that decision to the Federal Circuit, and ~~that~~the appeal ~~is currently~~remains pending. On May 2, 2016, the PTAB also issued decisions finding all challenged claims of SynQor’s ‘021 patent invalid and upholding the validity of all challenged claims of SynQor’s ‘702 and ‘290 patents. On August 30, 2017, the Federal Circuit issued rulings with regard to ~~those decisions.~~the IPRx proceedings for the ’021, ‘702 and ‘290 patents. With respect to the ‘021 patent, the Federal Circuit affirmed the PTAB’s determination that all of the challenged claims of the ‘021 patent were invalid. The Federal Circuit remanded the case to the PTAB for further consideration of the patentability of certain claims that had been added by amendment during the reexamination. On February 20, 2019, the PTAB issued a decision affirming the examiner’s rejections of all challenged claims. SynQor has filed an appeal of that decision in the Federal Circuit, and that appeal remains pending. With respect to the ‘702 patent, the Federal Circuit affirmed the PTAB’s determination that all of the challenged claims of the ‘702 patent were patentable. With respect to the ‘290 patent, the Federal Circuit vacated the PTAB’s decision upholding the patentability of the ‘290 patent claims, and remanded the case to the PTAB for further consideration. On February 20, 2019, the PTAB issued a decision reversing its prior affirmance of the examiner’s

non-adoption

of rejections with respect to the ‘290 patent, and entering rejections of all of the claims of the ‘290 patent. On May 20, 2019, as permitted by USPTO rules, SynQor requested the USPTO to reopen prosecution of this proceeding to address the new rejections made by the PTAB. While prosecution was reopened, the examiner has yet to issue a further substantive ruling.

On October 31, 2017, the Company filed a request with the USPTO for ex parte reexamination (“EPRx”) of the asserted claims of the ‘702 patent, based on different prior art references than had been at issue in the previous ~~inter partes reexamination~~IPRx of the ‘702 patent. On ~~December 6, 2017, the USPTO issued~~September 12, 2018, a ~~decision initiating ex parte reexamination of the ‘702~~ patent ~~after finding~~examiner found that ~~the Company’s request had raised a substantial new question of patentability of the challenged claims. On March 21, 2018, the examiner issued a non-final office action finding~~ all of the ~~challenged~~asserted claims ~~of the ‘702 patent to be unpatentable. On May 14, 2018,~~were invalid. SynQor ~~filed a petition requesting the USPTO to vacate its prior decision granting the Company’s request for ex parte reexamination. No action~~ has been taken on the petition to date. On September 12, 2018, the examiner issued a final office action finding all of the challenged claims of the ‘702 patent to be unpatentable. On October 26, 2018, SynQor filed a notice of appeal appealing the examiner’s final rejectionappealed that ruling to the ~~PTAB. On December 3, 2018,~~PTAB, where the ~~USPTO denied SynQor’s petition to vacate the decision initiating the ex parte reexamination. On January 25, 2019, SynQor appealed the examiner’s final rejection to the PTAB. That~~ appeal isremains pending. ~~The Company continues to monitor the progress of this proceeding.~~

On August 6, 2018, the Company filed a request with the USPTO for ~~ex parte reexamination~~EPRx of the asserted claims of the ‘190 patent, based on different prior art references than had been at issue in the previous ~~inter partes reexamination~~IPRx of the ‘190 patent. On September 11, 2018, SynQor filed a petition asking the USPTO to reject the Company’s request on the ground that it presented substantially the same prior art or arguments presented to the USPTO in the prior inter partes reexamination of the ‘190 patent. On December 3, 2018, the USPTO denied SynQor’s petition to reject the Company’s ex parte reexamination request. On December 4, 2018, the USPTO instituted ex parte reexamination of the ‘190 patent after finding that the Company’s request had raised a substantial new question affecting the patentability of the challenged claims. On March 15,August 9, 2019, the USPTO issued a ~~non-final~~final rejection of all of the asserted claims of the ‘190 patent. SynQor has appealed that ruling to the PTAB, where the appeal remains pending.

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~~Table of Contents~~

~~VICOR CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~June 30, 2019~~

~~(unaudited)~~

On January 23, 2018, the

20-year

terms of the ‘190 patent, the ‘021 patent, ~~and~~ the ‘702 patent ~~expired. The 20-year term of~~and the ‘290 patent ~~expired on July 16, 2018.~~expired. As a consequence of these expirations, the Company cannot be liable under any of the SynQor patents for allegedly infringing activities occurring after the patents’ respective expiration dates. In addition, any amended claims that may issue as a result of any of the still-pending reexamination proceedings will have no effective term and cannot be the basis for any liability by the Company.

The Company continues to believe none of its products, including its unregulated bus converters, infringe any valid claim of the asserted SynQor patents, either alone or when used in an intermediate bus architecture implementation. The Company believes SynQor’s claims lack merit and, therefore, it continues to vigorously defend itself against SynQor’s patent infringement allegations. The Company does not believe a loss is probable for this matter. If a loss were to be incurred, however, the Company cannot estimate the amount of possible loss or range of possible loss at this time.

In addition to the SynQor matter, the Company is involved in certain other litigation and claims incidental to the conduct of its business. While the outcome of lawsuits and claims against the Company cannot be predicted with certainty, management does not expect any current litigation or claims will have a material adverse impact on the Company’s financial position or results of operations.

~~13.~~

~~VI Chip Merger~~

On June 28, 2019, the Company’s Board of Directors unanimously approved the merger of VI Chip Corporation (“VI Chip”), a subsidiary of Vicor, fully consolidated for financial reporting purposes, with and into the Company. The merger was completed as of June 28, 2019, at which time the separate corporate existence of VI Chip ceased. To effect the merger, holders of VI Chip Common Stock and VI Chip stock options received an equivalent value of Vicor Common Stock and Vicor stock options, respectively, pursuant to the assumption of the VI Chip Corporation Amended and Restated 2007 Stock Option and Incentive Plan, and options outstanding thereunder, by the Company. There was no net impact on the Company’s consolidated financial statements for the three and six months ended June 30, 2019 as a result of the merger.

~~14.~~

~~Segment Information~~

In the second quarter of 2019, management determined the Company would report as one segment, rather than under the three segment approach employed since 2007. Given the growth profiles of the markets the Company serves with Advanced Products and Brick Products, the Company’s strategy has evolved with a transition in organizational focus, emphasizing investment in Advanced Products, targeting high growth market segments with a low-mix, high-volume operational model, while maintaining a profitable business in mature market segments we serve with Brick Products with a high-mix, low-volume operational model. The Company’s Board of Directors and Dr. Vinciarelli, the Chief Operating Decision Maker (“CODM”), authorized the mergers of our VI Chip and Picor Corporation (“Picor”) subsidiaries, based on the development and evolution of the aforementioned strategy. Dr. Vinciarelli and management began to make incremental changes in management practices and organizational structure based on a management plan established in 2018 for the definitive reconfiguration of the three business units into one business focused on the Advanced Products and Brick Products product line categorizations, including three significant changes: the merger of Picor with and into Vicor, which was completed on May 30, 2018; the reconfiguration of the Company’s internal reporting systems, which was completed on December 31, 2018; and the merger of VI Chip with and into Vicor, which, as stated, was completed on June 28, 2019. Our CODM now determines the allocation of resources of the Company based upon the two product line groupings, which constitute one segment. Both product lines are built in the Company’s manufacturing facility in Andover, Massachusetts employing similar processing and production techniques, and are supported by the same sales and marketing organizations. As such, the Company has conformed the segment reporting to the new reporting structure utilized by the CODM. Accordingly, three-segment information for prior periods has not been presented, to conform with the new presentation.

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VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

~~June 30, 2019~~March 31, 2020

(unaudited)

~~15.~~

Impact of Recently Issued Accounting Standards

In ~~August 2018,~~ December 2019,

the Financial Accounting Standards Board (“FASB”) issued guidance designed to simplify the accounting for income taxes by eliminating certain exceptions to the general principles in

Topic 740, Income Taxes, and also improve consistent application of and simplify U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This new guidance will be effective for the Company for its fiscal year beginning after December 15, 2020, with early adoption permitted. The Company has not yet determined the impact this new guidance will have on its consolidated financial statements and disclosures.

In August 2018, the FASB issued guidance which modifies the disclosure requirements on fair value measurements under Topic 820,

Fair Value Measurements,

including the consideration of costs and ~~benefits~~

benefits. The new guidance is effective for all entities for annual and interim periods in fiscal years beginning after December 15, 2019, with early adoption permitted. It is required to be applied on a retrospective approach with certain elements being adopted prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. The Company ~~has not yet determined~~adopted the ~~impact this~~ new guidance ~~will~~as of January 1, 2020. The adoption did not have a material impact on ~~its~~the Company’s consolidated financial statements and ~~related~~ disclosures.

In June 2016, the FASB issued new guidance which will require measurement and recognition of expected credit losses on certain types of financial instruments. It also modifies the impairment model for

available-for-sale

debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. It is required to be applied on a modified-retrospective approach with certain elements being adopted prospectively. The Company ~~does not expect the adoption of~~adopted the new guidance ~~will~~as of January 1, 2020. The adoption did not have a material impact on ~~its~~the Company’s consolidated financial statements and ~~related~~ disclosures.

Other new pronouncements issued but not effective until after ~~June 30, 2019~~March 31, 2020 are not expected to have a material impact on the Company’s consolidated financial statements.

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Table of Contents

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

~~June 30, 2019~~March 31, 2020

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

The Company’s consolidated operating results are affected by a wide variety of factors that could materially and adversely affect revenues and profitability, including the risk factors described in the Company’s Annual Report on Form

10-K

for the year ended December 31, ~~2018.~~ 2019 and the risk factor described in this Quarterly Report on Form

10-Q.

As a result of these and other factors, the Company may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect its business, consolidated financial condition, and operating results, and the share price of its listed common stock. This document and other documents filed by the Company with the Securities and Exchange Commission (“SEC”) include forward-looking statements regarding future events and the Company’s future results that are subject to the safe harbor afforded under the Private Securities Litigation Reform Act of 1995 and other safe harbors afforded under the Securities Act of 1933 and the Securities Exchange Act of 1934. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Forward-looking statements are based on our current beliefs, expectations, estimates, forecasts, and projections for the future performance of the Company. Forward-looking statements are identified by the use of the words denoting uncertain, future events, such as “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “future,” “if,” “intend,” “may,” “plan,” “potential,” “project,” “prospective,” “seek,” “should,” “target,” “will,” or “would,” as well as similar words and phrases, including the negatives of these terms, or other variations thereof. Forward-looking statements also include statements regarding: our expectations that the Company has adequate resources to respond to financial and operational risks associated with the novel coronavirus “COVID-19,” and our ability to effectively conduct business during the pandemic; ongoing development of power conversion architectures, switching topologies, materials, packaging, and products; the ongoing transition of our business strategically, organizationally, and operationally from serving a large number of relatively low volume customers across diversified markets and geographies to serving a small number of relatively large volume customers; our intent to enter new market segments; the levels of customer orders overall and, in particular, from large customers and the delivery lead times associated therewith; the financial and operational impact of customer changes to shipping schedules; the derivation of a portion of our sales in each quarter from orders booked in the same quarter; our intent to expand the percentage of revenue associated with licensing our intellectual property to third parties; our plans to invest in expanded manufacturing capacity and the timing, location, and funding thereof; our belief cash generated from operations and the total of our cash and cash equivalents will be sufficient to fund operations and capital investments for the foreseeable future; our outlook regarding tariffs and the impact thereof on our business; our belief that we have limited exposure to currency risks; our intentions regarding the declaration and payment of cash dividends; our intentions regarding protecting our rights under our patents; and our expectation that no current litigation or claims will have a material adverse impact on our financial position or results of operations. These forward-looking statements are based upon our current expectations and estimates associated with prospective events and circumstances that may or may not be within our control and as to which there can be no assurance. Actual results could differ materially from those implied by forward-looking statements as a result of various factors, including but not limited to those described in the Company’s Annual Report on Form

10-K

for the year ended December 31, ~~2018~~2019 under Part I, Item 1 — “Business,” under Part I, Item 1A — “Risk Factors,” under Part I, Item 3 — “Legal Proceedings,” and under Part II, Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” and those described in this Quarterly Report on Form

10-Q,

particularly under Part I, Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A – “Risk Factors.” The discussion of our business contained herein, including the identification and assessment of factors that may influence actual results, may not be exhaustive. Therefore, the information presented should be read together with other documents we file with the SEC from time to time, including our Annual Reports on Form

10-K,

our Quarterly Reports on Form

10-Q

and our Current Reports on Form

8-K,

which may supplement, modify, supersede, or update the factors discussed in this Quarterly Report on Form

10-Q.

We do not undertake any obligation to update any forward-looking statements as a result of future events or developments, except as required by law.

Overview

We design, develop, manufacture, and market modular power components and power systems for converting electrical power for use in electrically-powered devices. Our competitive position is supported by innovations in product design and achievements in product performance, largely enabled by our focus on the research and development of advanced technologies and processes, often implemented in proprietary semiconductor circuitry, materials, and packaging. Many of our products incorporate patented or proprietary implementations of high-frequency switching topologies enabling power system solutions that are more efficient and much smaller than conventional alternatives. Our strategy emphasizes demonstrable product differentiation and a value proposition based on competitively superior solution performance, advantageous design flexibility, and a compelling total cost of ownership. ~~We consider our core competencies to be associated with 48V distribution, which offers numerous inherent cost and performance advantages over lower distribution voltages, although~~While we ~~offer products addressing other voltage standards (e.g., 28V for defense electronics applications) and a broad range of customer voltage requirements.~~

~~-21-~~

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VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

~~June 30, 2019~~March 31, 2020

offer a wide range of alternating current (“AC”) and direct current (“DC”) power conversion products, we consider our core competencies to be associated with 48V DC distribution, which offers numerous inherent cost and performance advantages over lower distribution voltages. However, we also offer products addressing other DC voltage standards (e.g., 380V for power distribution in data centers, 110V for rail applications, 28V for military and avionics applications, and 24V for industrial automation).

Based on design, performance, and form factor considerations, as well as the range of evolving applications for which our products are appropriate, we categorize our product portfolios as either “Advanced Products” or “Brick Products.” The Advanced Products category consists of our more recently introduced products, which are largely used to implement our proprietary Factorized Power Architecture

TM™

(“FPA”), an innovative power distribution architecture enabling flexible, rapid power system design using individual components optimized to perform a specific conversion ~~stage (i.e., function).~~function. The Brick Products category largely consists of our broad and well-established families of integrated power converters, incorporating multiple conversion stages, used in conventional ~~distributed~~ power systems architectures.

Given the growth profiles of the markets we serve with our Advanced Products line and our Brick Products line, our strategy involves a transition in organizational focus, emphasizing investment in our Advanced Products line and targeting high growth market segments with a

low-mix,

high-volume operational model, while maintaining a profitable business in the mature market segments we serve with our Brick Products line with a

high-mix,

low-volume

operational model.

On June 28, 2019, our subsidiary, VI Chip Corporation (“VI Chip”), was merged with and into Vicor (the “Merger”), and the corporate existence of VI Chip ceased. (See Note 13 to the Condensed Consolidated Financial Statements for further details). In connection with the Merger, the VI Chip Corporation Amended and Restated 2007 Stock Option and Incentive Plan (the “VI Chip Plan”) was amended and restated, and Vicor assumed the VI Chip Plan and each outstanding option to acquire the common stock of VI Chip (each “VI Chip Option”), whether vested or unvested, awarded under the VI Chip Plan. Each VI Chip Option was, immediately following the Merger, deemed to constitute an option (a “Company Option”) to purchase, on the same terms and conditions as were applicable to the VI Chip Option prior to the Merger, a number of shares of our Common Stock, $0.01 par value, equal to the product of (i) the number of shares of the common stock of VI Chip subject to the VI Chip Option multiplied by (ii) 0.1418, which was the exchange ratio used in the Merger (the “Exchange Ratio”). The exercise price per share of each Company Option immediately following the Merger was determined by dividing (x) the exercise price per share of the VI Chip Option by (y) the Exchange Ratio.

The VI Chip Plan, which was previously approved by our stockholders at the 2017 Annual Meeting of Stockholders, was amended and restated in connection with the Merger to (i) provide that awards granted under the VI Chip Plan will be settled in shares of our common stock, (ii) adjust the number of shares that are issuable under the VI Chip Plan to reflect the Merger, (iii) provide that no new awards may be granted under the VI Chip Plan after the completion of the Merger, (iv) permit cashless broker-assisted net exercises of Company Options pursuant to the terms of the assumed VI Chip Plan, and (v) make other conforming and administrative changes to reflect the VI Chip Plan’s assumption by the Company and the effect of the Merger.

In the second quarter of 2019, management determined we would report as one segment, rather than under the three segment approach employed since 2007. Given the growth profiles of the markets we serve with Advanced Products and Brick Products, our strategy has evolved with a transition in organizational focus, emphasizing investment in Advanced Products, targeting high growth market segments with a

~~low-mix,~~

~~high-volume operational model, while maintaining a profitable business in mature market segments we serve with Brick Products with a~~

~~high-mix,~~

~~low-volume~~

operational model. Our Board of Directors and Dr. Vinciarelli, our Chief Operating Decision Maker (“CODM”), authorized the mergers of our VI Chip and Picor subsidiaries, based on the development and evolution of the aforementioned strategy. Dr. Vinciarelli and management began to make incremental changes in management practices and organizational structure based on a management plan established in 2018 for the definitive reconfiguration of the three business units into one business focused on the Advanced Products and Brick Products product line categorizations, including three significant changes: the merger of Picor with and into Vicor, which was completed on May 30, 2018; the reconfiguration of our internal reporting systems, which was completed on December 31, 2018; and the merger of VI Chip with and into Vicor, which was completed on June 28, 2019, noted above. Our CODM now determines the allocation of our resources based upon the two product line groupings, which constitute one segment. Both product lines are built in our manufacturing facility in Andover, Massachusetts employing similar processing and production techniques, and are supported by the same sales and marketing organizations. As such, we have conformed our segment reporting to the new reporting structure utilized by the CODM.

Revenue from the sale of Advanced Products represents the sum of third-party sales of our former Picor and VI Chip operating segments for periods prior to the second quarter of 2019. Revenue from the sale of Brick Products represents the sum of third-party revenue of the former Brick Business Unit operating segment, inclusive of such sales of our Vicor Custom Power and Vicor Japan Company, Ltd. (“VJCL”) subsidiaries. When reporting such revenue on a consolidated basis, intra-segment revenues are eliminated.

The applications in which our Advanced Products and Brick Products are used are typically in the higher-performance, higher-power segments of the market segments we serve. With our Advanced ~~Product lines,~~Products, we generally serve large Original Equipment Manufacturers (“OEMs”), Original Design Manufacturers (“ODMs”), and their contract manufacturers, with sales currently concentrated ~~within~~in the ~~server, server rack,~~data center and ~~datacenter infrastructure~~hyperscaler segments of ~~the~~enterprise computing, ~~market, although we~~in which our products are used for voltage distribution on server motherboards, in server racks, and across datacenter infrastructure. We also target ~~customers and~~ applications in aerospace and aviation, defense electronics, industrial automation, instrumentation, test equipment, solid state lighting, telecommunications and networking infrastructure, and vehicles (notably in the autonomous driving, ~~applications,~~ electric ~~vehicles,~~vehicle, and hybrid ~~electric~~ vehicle niches of the vehicle segment). With our Brick ~~Product lines,~~Products, we generally serve a fragmented base of large and small customers, concentrated in aerospace and defense electronics, industrial automation, industrial equipment, instrumentation and test equipment, and ~~transportation.~~transportation (notably in rail and heavy equipment applications). With our strategic emphasis on larger, high-volume customers, we expect to experience over time a greater concentration of sales among relatively fewer customers.

Summary of First Quarter 2020 Financial Performance

Total revenue for the first quarter of 2020 sequentially increased 0.4%, compared to total revenue for the fourth quarter of 2019, as shipments of Advanced Products sequentially increased 9.8%, while shipments of Brick Products sequentially declined 2.8%. An increase in domestic shipments of both Advanced Products and Brick Products was offset by a decline in shipments to China and Hong Kong, resulting from the influence of tariffs and other trade-related matters on prior period bookings. Shipments to other Asian countries also declined, largely due to gaps in scheduling for certain Advanced Product backlog delivery schedules. European shipments for the first quarter of 2020 also declined, as compared to shipments during the fourth quarter of 2019, reflecting prior period bookings patterns and the ongoing weakness of regional business conditions. Revenue fell short of forecast, as certain supply chain constraints caused manufacturing delays, which, in turn, caused a reduction in shipments, and production inefficiencies, which, in turn, caused an increase in costs. We experienced a small number of customer requests to postpone shipments due to the

COVID-19

pandemic, but the impact of such postponed shipments on revenue for the first quarter of 2020 was immaterial.

Our gross margin as a percentage of revenue declined sequentially, to 43.1% for the first quarter of 2020 from 47.1% for the fourth quarter of 2019, primarily due to the aforementioned influence of supply chain constraints experienced during the first quarter of 2020. Gross margin as a percentage of revenue for the first quarter of 2020 also was influenced by an unfavorable change in product mix shipped (i.e., a sequentially higher percentage of lower margin products were produced and shipped during the quarter), lower volume-related absorption of manufacturing overhead expenses, a sequential quarterly increase in tariff charges.

~~-22-~~

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VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

~~June 30, 2019~~March 31, 2020

~~Summary~~We recorded an operating loss of ~~Second Quarter 2019 Financial Performance~~

~~Our consolidated financial performance for~~$(2,373,000), as operating expenses increased 2.9% compared to the ~~second~~fourth quarter of 2019, ~~declined sequentially from~~primarily due to a 9.7% sequential quarterly rise in research and development expenses, an increase largely associated with increased prototype development costs for the first quarter of 2019, as shipments declined, reflecting slowed bookings during the second half of 2018 and the first quarter of 2019. Total revenue sequentially declined approximately 3.6%. Shipments of Advanced Products declined 19.6%, as certain customers rescheduled delivery of products originally scheduled to be shipped in the second quarter. Shipments of Brick Products rose 3.0% sequentially, with steady volumes delivered for industrial and defense electronics applications. Our gross margin as a percentage of revenue declined sequentially, to 46.0% from the prior quarter’s 47.3%, which is largely attributable to higher tariff charges and lower absorption of manufacturing overhead expenses. While operating expenses were steady sequentially, our consolidated operating margin as a percentage of revenue declined to 3.8% from 6.8%, largely because of the sequential decline in revenue. 2020.

Net ~~income~~loss attributable to Vicor Corporation (i.e., after net income or loss attributable to a noncontrolling interest) for the ~~second~~first quarter of ~~2019 declined sequentially to $2,563,000,~~2020 was $(1,735,000), representing ~~earnings~~a loss per share ~~for the second quarter~~ of ~~2019 of $0.06, in contrast to the corresponding figures of $4,286,000 and $0.10~~$(0.04) for the first quarter of 2020, in contrast to net income of $1,312,000 or $0.03 per diluted share for the fourth quarter of 2019.

~~Second quarter 2019 bookings declined approximately 9.6% sequentially from~~Bookings for the first quarter of 2020 decreased 8.8%, compared to the fourth quarter of 2019, with increased domestic activity, primarily associated with Brick Product orders, offset by further declines in orders for export, largely associated with the challenging conditions in the markets we serve with Advanced Products, which are used principally in computing products assembled in China and other Asian countries. We also experienced a decline inas orders for Brick Products ~~from China, reflecting~~declined 3.1% sequentially, primarily as a result of the ~~imposition~~impact of ~~additional tariffs by~~the

COVID-19

pandemic on business activity across Asia, while orders for Advanced Products decreased 16.1% sequentially. Advanced Products order volume for the ~~Chinese government on our products.~~first quarter of 2020 met expectations. The sequential 8.8% decline reflects the composition of the prior quarter’s bookings, which included a large, year-long program for

high-end

commercial lighting. Absent that single large order, Advanced Product bookings rose 23.2% sequentially and were almost entirely associated with customers in Artificial Intelligence applications.

Our quarterly consolidated operating results can be difficult to forecast and have been subject to significant fluctuations. We plan our production and inventory levels based on management’s estimates of customer demand, based on customer forecasts and based on other information sources. Customer forecasts, particularly those of OEM, ODM, and contract manufacturing customers to which we supply Advanced Products in high volumes, are subject to scheduling changes on short notice, contributing to operating inefficiencies and excess costs. In addition, external factors such as ~~global~~supply chain uncertainties, often associated with cyclicality of the electronics industry, regional macroeconomic ~~conditions~~ and ~~supply-chain conditions~~trade-related circumstances, and

force majeure

, most recently evidenced by the

COVID-19

pandemic, have caused our operating results to vary meaningfully. Our quarterly gross margin as a percentage of revenue may vary, depending on production volumes, average selling prices, average unit costs, the mix of products sold that quarter, and the level of importation of raw materials. Our quarterly operating margin as a percentage of revenue also may vary with changes in revenue and product level profitability, but our operating costs are largely associated with compensation and related employee costs, which are not subject to sudden or significant changes.

Impact of

COVID-19

Pandemic

~~We believe~~On January 30, 2020, the ~~following considerations may influence~~World Health Organization designated the

COVID-19

outbreak a “Public Health Emergency of International Concern” (i.e., a health emergency requiring coordinated action by the governments of effected countries). On January 31, 2020, the U.S. Department of Health and Human Services declared a public health emergency for the entire United States, thereby facilitating nationwide public health response. On March 11, 2020,

COVID-19

was declared a pandemic by the World Health Organization, an indication of its global severity. Governments worldwide have responded with measures intended to contain the further spread of

COVID-19,

including mandatory closures of businesses, schools, and organizations.

On March 23, 2020, the Commonwealth of Massachusetts ordered

non-essential

businesses closed and prohibited gatherings of more than 10 people, extending the emergency declaration of March 10, 2020. Our headquarters offices and primary manufacturing facility are located in Massachusetts. However, the Company is designated as essential by the U.S. Department of Homeland Security, given our role in supporting industrial sectors considered “critical infrastructure.” As such, we have continued to operate at, or close to, full manufacturing capacity, although there can be no assurance we will be able to continue to operate at such levels of manufacturing capacity.

Widespread uncertainty associated with the

COVID-19

pandemic has contributed to reduced business activity worldwide. As described above, our financial performance ~~over~~for the ~~remainder~~first quarter of ~~2019:~~2020 was not materially influenced by the

COVID-19

~~Operational Considerations~~

~~We operate~~pandemic, although there can be no assurance our financial performance will not be materially negatively influenced in future quarters, given the continued uncertainty. Since early March 2020, we have taken actions intended to protect the health and safety of our employees, customers, business partners, and suppliers. Following guidance from the U.S. Centers for Disease Control and Prevention, the U.S. Occupational Health and Safety Administration, state and local health authorities, and existing crisis management policies, we developed and implemented comprehensive health and safety measures at all of our locations, including: establishing a ~~highly automated electronics manufacturing facility in Andover, Massachusetts,~~central response team; distributing information and ~~our profitability is closely aligned with production unit volumes. We have invested significantly in~~

~~state-of-the-art~~

systems, equipment, and robotics, which allow us to generate relatively higher profitability when operating at or near factory capacity, even with a high mix of products produced. However, periods of low volume production and/or brief, low volume production runs contribute to lower profitability, largely due to lower absorption of relatively high manufacturing overhead costs associated with our manufacturing model. While direct labor and associated variable costs generally correlate with volume, manufacturing overhead costs are inflexible and, therefore, problematic during periods of low volume or brief production runs.

carrying out education initiatives; implementing social distancing requirements;

We continue to invest in the production capacity to meet our internal volume projections, and believe these projections are reasonable and our investment will be adequate. However, if sustained, uniform, high volume production levels are not achieved, notably in Advanced Products, our product-level profitability likely will not reach the levels necessary to cover our fixed spending, consisting of manufacturing overhead costs and operating costs.

Current capital investments are focused on the expansion of manufacturing capacity for the production of Advanced Products at our Andover facility. Based on our long-term forecast of production levels, we anticipate substantial additional capacity will be required to meet expected requirements. We believe the most appropriate manner of meeting our long-term capacity requirements will be to initially expand the production area of our Andover facility by approximately 87,100 square feet,

~~-23-~~

-20-

Table of Contents

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

~~June 30, 2019~~March 31, 2020

distributing breathing masks, disposable gloves, and thermometers to employees who must be physically on premises to perform their work; implementing temperature checks at the entrances to our manufacturing facility; extensive and frequent disinfecting of our workspaces; modifying our meal services to minimize physical contact; requiring and enabling work-from-home for those employees who do not need to be physically on premises to perform their work effectively; and suspending travel. We expect to maintain these measures until we determine the

COVID-19

through the addition of a two story wing. We have completed the design and permitting phase for this project, have entered into an agreement to acquire approximately three acres adjacent to our facility, and plan to break ground on this addition to our existing plant in 2019 and take occupancy in 2020. We also are proceeding with the evaluation of alternative projects for the addition of another, larger manufacturing facility, should we anticipate the need based on our forecasts for capacity beyond 2021. Construction activity can be difficult to schedule, and construction sites can present management and operational challenges. As such, given the proximity of the addition to our existing operations, this construction activity has the potential to disrupt our current operations, which could cause production to be delayed and costs to increase.

pandemic is adequately contained for purposes of our business, and we may take further actions we consider to be in the best interests of our employees, customers, business partners, and suppliers or in response to government mandate or requirement.

While our facilities currently are operational, the further spread of

COVID-19

and the measures set forth above may negatively influence our operations, as well as those of our customers, business partners, and suppliers. As described above, we experienced certain supply chain constraints associated with

COVID-19

during the first quarter of 2020, and such constraints contributed to lower revenue, higher costs, and reduced productivity, although we do not consider the cumulative impact of such constraints to have had a material influence on our financial performance. However, there can be no assurance that future circumstances associated with the

COVID-19

pandemic will not have a material negative influence on our operations and, in turn, our financial performance.

We have experienced absenteeism associated with employee self-quarantine due to exposure to

COVID-19,

although as of the date of this report we continue to operate with three shifts in our factory, and our engineering, sales, and administrative departments continue to function. However, the productivity of our factory may be reduced further if absenteeism increases or if an employee is diagnosed with

COVID-19,

which likely would require further restrictive health and safety measures, including factory closure, to be implemented.

We have not yet experienced significant disruption of our supply chain due to the

COVID-19

pandemic. During the period when China was under strict

shelter-in-place

restrictions, we did experience delays in delivery of certain raw materials, but these delays did not materially influence our operational or financial performance for the first quarter of 2020. We are closely monitoring the performance and financial health of our business partners and suppliers, but an extended period of operational constraints brought about by

COVID-19

could cause financial hardship within our supply chain, thereby potentially disrupting our access to raw materials. Additionally, restrictions or disruptions of transportation, such as reduced availability of cargo transport by ship or air could result in higher costs and inbound and outbound delays.

Although there is uncertainty regarding the extent to which

COVID-19

will continue to influence our operational and financial results, in the future, the Company’s high level of liquidity, flexible operational model, existing raw material inventories, and increased use of second-sources for critical raw materials support management’s belief the Company will be able to effectively conduct business until the

COVID-19

pandemic passes.

We are monitoring the rapidly changing circumstances, and may take additional actions to address

COVID-19

risks as they evolve, particularly if federal and state governments so require. Because much of the potential negative influence of

COVID-19

is associated with risks outside of our control, we cannot estimate the extent of such influence on our financial or operational performance, or when such influence might occur.

Please refer to Item 1A, “Risk Factors” below for updates to our risk factors associated with the

COVID-19

pandemic.

Please refer to the Company’s Annual Report on Form

10-K

for the year ended December 31, 2019 for a summary of the Company’s critical accounting policies and estimates.

Three Months Ended March 31, 2020, Compared to Three Months Ended March 31, 2019

The following summarizes our financial performance for the first quarter of 2020, compared to the first quarter of 2019:

Net revenues decreased 3.5% to $63,401,000 for the first quarter of 2020, from $65,725,000 for the first quarter of 2019, despite a 5.2% increase in bookings in the first three months of 2020 compared to the first three months of 2019.Advanced Products revenues decreased 6.4% and Brick Products revenues decreased 2.4% in each case compared to the first quarter of 2019.

Our ability to achieve sustained, high volume production levels is tied to our ability to forecast manufacturing requirements for, and the availability of, a range of inputs, notably raw material inventories. Because we utilize a number of components and other materials of proprietary design, our ability to sustain targeted production schedules and meet customer delivery requirements has been vulnerable to delays or shortages of such inventories, which often cause prices of these components and materials to rise. With the implementation in 2018 of Section 301 Tariffs on certain Chinese goods imported into the United States, we are now exposed to potentially higher costs on certain electronic components and devices we import from China for use in the manufacture of our products. For the second quarter of 2019, costs associated with duties and tariffs totaled approximately $1,304,000. We continue to assess the impact of these costs and are actively evaluating alternative sources of raw materials. We also have engaged a consultant to assist us with implementing a “duty drawback” process, by which we may file with U.S. Customs and Border Protection for the recovery of tariffs paid on raw materials used to produce products we subsequently exported. At this time, we are not able to estimate the amount of such recovery or the timing thereof.

To mitigate supply chain risks, we focus on identifying and reducing potential vulnerabilities to stock-outs, vendor shortages, and similar disruptions. We maintain safety-stock programs for certain critical components and materials, and these programs recently have contributed to increased levels of raw material inventory primarily for Advanced Products. We also have established second-source supply relationships, in order to reduce exposure to material shortages. Although the global electronics supply chain has generally stabilized, we continue to experience lengthened lead times for certain product categories, and our product-level profitability and overall performance could be negatively influenced by an unplanned shortage of a particular component or material. We anticipate availability of certain commodity components will remain uncertain through 2019.

~~Market and Macroeconomic Considerations~~-21-

~~We continue to believe the transition from 12V to 48V distribution architectures is accelerating and will be sustained, as an increasing number of customers are evaluating our FPA components. Our~~

~~Power-on-Package~~

solution powering graphics processing units (“GPUs”) and application-specific integrated circuits (“ASICs”) used in Artificial Intelligence applications has received strong customer interest, and we have secured significant design wins for our laterally mounted and vertically mounted solutions. We also have entered into a collaboration with a significant vendor of advanced processor packaging solutions. As previously disclosed, we believe customer interest in the application of 48V distribution to server racks and datacenter infrastructure is accelerating. As such, we are facing a more complex competitive landscape, with additional challenges and competitors. We continue to believe our new products will be adopted in volume by multiple leading customers, as the level of engagement with OEMs, ODMs, hyperscalers, and cloud services providers remains high. However, we cannot control the actions by, or the timing of, our customers, their contract manufacturers, or the significant vendors also participating in the market. Many of these vendors possess resources far greater than our resources and have operational and financial flexibility we do not. Notably, our outlook for bookings and shipments of Advanced Product solutions for the remainder of 2019 has been influenced by the limited visibility of our primary customers for those solutions. Sustained uncertainty in the datacenter market may cause orders from new and existing customers to be delayed, potentially influencing our financial results and capacity expansion plans.

~~-24-~~

Table of Contents

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

~~June 30, 2019~~March 31, 2020

We anticipate aggregate demand for the mature markets we serve with our Brick Products will grow over the long-term at the rate of the overall industrial economy (i.e., in the United States, for example, at the rate of growth approximating that of the industrial segments of gross domestic product). Given our long-term customer relationships and the status of our Brick Products in long-standing customer applications, we anticipate maintaining our share in many of these mature markets. While we are pursuing opportunities to replace many Brick Products used in existing customers’ applications with Advanced Products, when appropriate, and, similarly, to replace competitors’ products in existing applications, we believe such opportunities may not cumulatively contribute to expanding, in 2019, our share of the mature markets we serve with our Brick Products.

~~Financial Highlights~~

Net revenues decreased 14.6% to $63,355,000 for the second quarter of 2019, from $74,196,000 for the second quarter of 2018, primarily due to an overall 31.1% decrease in bookings in the second quarter of 2019, compared to the second quarter of 2018.

Net revenues for the six months ended June 30, 2019 decreased by 7.4% to $129,080,000 from $139,465,000 for the six months ended June 30, 2018, primarily due to an overall 25.1% decrease in bookings for the six months ended June 30, 2019, compared to the six months ended June 30, 2018.

Export sales, as a percentage of total revenues, represented approximately ~~51.0%~~47.1% in the ~~second~~first quarter of ~~2019~~2020 and ~~64.2%~~55.5% in the ~~second~~first quarter of ~~2018. Export sales, as a percentage of total revenues, for the six months ended June 30, 2019 and 2018 were approximately 53.3% and 62.6%, respectively.~~

2019.

Gross margin decreased to ~~$29,117,000~~$27,331,000 for the ~~second~~first quarter of ~~2019~~2020 from ~~$35,883,000~~$31,086,000 for the ~~second~~first quarter of ~~2018,~~2019, and gross margin, as a percentage of net revenues, decreased to ~~46.0%~~43.1% for the ~~second~~first quarter of ~~2019~~2020 from ~~48.4%~~47.3% for the ~~second~~first quarter of ~~2018, both primarily due to the decrease in net revenues.~~

Gross margin decreased to $60,203,000 for the six months ended June 30, 2019 from $66,094,000 for the six months ended June 30, 2018, and gross margin, as a percentage of revenues, decreased to 46.6% for the six months ended June 30, 2019, compared to 47.4% for the six months ended June 30, 2018, both primarily due to the decrease in net revenues.

2019.

Backlog, representing the total of orders for products received for which shipment is scheduled within the next 12 months, was approximately ~~$100,665,000~~$110,832,000 at the end of the ~~second~~first quarter of ~~2019,~~2020, as compared to $103,832,000 at the end of the first quarter of 2019 and ~~$102,963,000~~$104,164,000 at the end of ~~2018. The decrease was primarily due to~~ the ~~lower bookings.~~

fourth quarter of 2019.

Operating expenses for the ~~second~~first quarter of 2020 increased $3,111,000, or 11.7%, to $29,704,000 from $26,593,000 for the first quarter of 2019, ~~decreased $831,000, or 3.0%, to $26,736,000 from $27,567,000 for the second quarter of 2018,~~ due to ~~a decrease in selling, general, and administrative expenses of $784,000, partially offset by~~ an increase in research and development expense of $303,000. In addition, we recorded a severance charge of $350,000 during the second quarter of 2018 in connection with the planned closure of one of our Vicor Custom Power subsidiaries, Granite Power Technologies, Inc. (“GPT”), as part of our ongoing initiative to streamline operations$2,115,000 and ~~improve our cost structure.~~

~~Operating expenses for the six months ended June 30, 2019 decreased $763,000, or 1.4%, to $53,329,000 from $54,092,000 for the six months ended June 30, 2018, due to decreases~~an increase in selling, general, and administrative expenses of ~~$810,000 and the severance charge noted above, partially offset by a increase in research and development expense of $397,000.~~

$996,000.

We reported a net ~~income~~loss for the ~~second~~first quarter of ~~2019~~2020 of ~~$2,563,000,~~$(1,735,000), or ~~$0.06~~$(0.04) per ~~diluted~~ share, compared to net income of ~~$7,860,000,~~$4,286,000, or ~~$0.19~~$0.10 per diluted share, for the ~~second~~first quarter of ~~2018.~~

2019.

~~We reported net income~~For the three months ended March 31, 2020, depreciation and amortization totaled $2,711,000, and capital additions totaled $2,999,000, compared to $2,445,000 and $3,322,000, respectively, for the ~~six~~three months ended ~~June 30, 2019, of $6,849,000, or $0.17 per diluted share, compared to net income of $11,803,000, or $0.29 per diluted share, for the six months ended June 30, 2018.~~

March 31, 2019.

Inventories increased by approximately $4,165,000, or 8.5%, to $53,352,000 at March 31, 2020, compared to $49,187,000 at December 31, 2019.

Consolidated net revenues for the first quarter of 2020 were $63,401,000, a decrease of $2,324,000, or 3.5%, as compared to $65,725,000 for the first quarter of 2019, and an increase of $276,000, or 0.4%, on a sequential basis from $63,125,000 for the fourth quarter of 2019. Net revenues, by product line, for the three months ended March 31, 2020 and 2019 were as follows (dollars in thousands):


					Decrease
	2020		2019		$			%
Brick Products	$	45,517	$	46,625	$	(1,108	)		(2.4	)%
Advanced Products		17,884		19,100		(1,216	)		(6.4	)%

Total	$	63,401	$	65,725	$	(2,324	)		(3.5	)%

~~-25-~~

The decrease in consolidated net revenues for the three months ended March 31, 2020, from the three months ended March 31, 2019, reflected a lower level of backlog scheduled for shipment during the first quarter of 2020, primarily a consequence of the extended delivery schedules of prior period bookings from Advanced Product customers in the data center market.

Gross margin for the first quarter of 2020 decreased $3,755,000, or 12.1%, to $27,331,000, from $31,086,000 for the first quarter of 2019. Gross margin as a percentage of net revenues decreased to 43.1% for the first quarter of 2020 compared to 47.3% for the first quarter of 2019. The absolute and percentage decreases for the first quarter of 2020, relative to the first quarter of 2019, were primarily associated with the decrease in net revenues, and certain supply chain constraints associated with the COVID-19 pandemic, which caused both manufacturing delays, which in turn caused a reduction in shipments, and production inefficiencies, which, in turn, caused an increase in costs.

-22-

Table of Contents

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

~~June 30, 2019~~March 31, 2020

~~For the six months ended June 30, 2019, depreciation~~Selling, general, and ~~amortization totaled $4,998,000, and capital additions totaled $5,864,000, compared to $4,539,000 and $3,558,000, respectively,~~administrative expenses were $16,369,000 for the ~~six months ended June 30, 2018.~~

Inventories increased by approximately $7,202,000, or 15.2%, to $54,572,000 at June 30, 2019, compared to $47,370,000 at December 31, 2018. The increase was primarily in finished goods, as certain customers requested delays of scheduled shipments.

~~Critical Accounting Policies and Estimates~~

~~Please refer to the Company’s Annual Report on Form~~

~~10-K~~

~~for the year ended December 31, 2018 for a summary of the Company’s critical accounting policies and estimates.~~

~~See Note 2 to the Condensed Consolidated Financial Statements pertaining to the adoption of the new accounting standard for lease accounting.~~

~~Three months ended June~~

~~30, 2019, compared to three months ended June~~

~~30, 2018~~

~~See Note 14,~~

~~Segment Information~~

~~, to the Condensed Consolidated Financial Statements for a discussion of our change to segment reporting in the second~~first quarter of ~~2019.~~

~~Consolidated net revenues for the second quarter~~2020, an increase of ~~2019 were $63,355,000, a decrease of $10,841,000,~~$996,000, or ~~14.6%~~6.5%, ~~as compared to $74,196,000 for the second quarter of 2018, and a decrease of $2,370,000, or 3.6%, on a sequential basis~~ from ~~$65,725,000~~$15,373,000 for the first quarter of 2019. ~~Net~~Selling, general, and administrative expenses as a percentage of net revenues ~~by product line,~~increased to 25.8% for the ~~three months ended June 30,~~first quarter of 2020 from 23.4% for the first quarter of 2019, primarily due to the decrease in net revenues. The components of the $996,000 increase in selling, general and ~~2018~~administrative expenses for the first quarter of 2020 from the first quarter of 2019 were as follows (dollars in thousands):

Decrease

2019

2018

$

%

Brick Products
$
48,005
$
48,349
$
(344
)
(0.7
)%
Advanced Products

15,350

25,847

(10,497
)
(40.6
)%

Total
$
63,355
$
74,196
$
(10,841
)
(14.6
)%


	Increase (decrease)
Legal fees	$	564		161.6	%(1)
Compensation		456		4.6	%(2)
Bad debt expense		131		148.9	%
Depreciation and amortization		118		18.4	%
Outside services		101		23.8	%
Travel expense		(145	)	(21.9	)%(3)
Business taxes and bank fees		(164	)	(58.6	)%(4)
Other, net		(65	)	(2.0	)%

	$	996		6.5	%

(1)	Increase primarily attributable to an increase in outside legal services associated with the December 2019 ransomware incident.

The overall decreases in consolidated net revenues for the three months ended June 30, 2019 from the three months ended June 30, 2018 were primarily due to an overall 31.1% decrease in bookings for the three months ended June 30, 2019, with a decline of 63.2% in bookings for Advanced Products and a decline of 11.3% in bookings for Brick Products. In addition, revenues for Advanced Products also declined due to certain orders originally scheduled to ship in the second quarter of 2019 which were rescheduled into the third and fourth quarters of 2019.

(2)	Increase primarily attributable to annual compensation adjustments in May 2019 and an increase in headcount.

Gross margin for the second quarter of 2019 decreased $6,766,000, or 18.9%, to $29,117,000, from $35,883,000 for the second quarter of 2018. Gross margin as a percentage of net revenues decreased to 46.0% for the second quarter of 2019 compared to 48.4% for the second quarter of 2018. Both decreases were primarily due to the decrease in net revenues and higher tariff charges of approximately $1,304,000 and lower absorption of manufacturing overhead expenses in the second quarter of 2019.

(3)	Decrease primarily attributable to decreased travel by our sales and marketing personnel, notably due to the COVID-19 pandemic.

(4)	Decrease primarily attributable to a decrease in certain business taxes.

~~-26-~~-23-

Table of Contents

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

~~June 30, 2019~~March 31, 2020

Selling, general, and administrative expenses were $15,030,000 for the second quarter of 2019, a decrease of $784,000, or 5.0%, from $15,814,000 for the second quarter of 2018. Selling, general, and administrative expenses as a percentage of net revenues increased to 23.7% for the second quarter of 2019 from 21.3% for the second quarter of 2018 due to the decrease in net revenues.

~~The components of the $784,000 decrease in selling, general and administrative expenses for the second quarter of 2019 from the second quarter of 2018 were as follows (dollars in thousands):~~

Increase (decrease)

Compensation
$
(617
)
(6.1
)%(1)
Legal fees

(236
)
(40.5
)%(2)
Audit, tax, and accounting fees

(143
)
(30.0
)%
Advertising expenses

174

26.6
%
Facilities allocations

102

32.1
%
Other, net

(64
)
(1.8
)%

$
(784
)
(5.0
)%

~~(1)~~

Decrease primarily attributable to decreased stock-based compensation expense, partially offset by annual compensation adjustments in May 2019. The decrease in stock-based compensation expense was due to increased expense in the second quarter of 2018 for certain Vicor stock options held by a

~~non-employee.~~

~~(2)~~

~~Decrease attributable to a decrease in corporate legal matters.~~

~~-27-~~

~~Table of Contents~~

~~VICOR CORPORATION~~

~~Management’s Discussion and Analysis of~~

~~Financial Condition and Results of Operation~~

~~June 30, 2019~~

Research and development expenses were ~~$11,706,000~~$13,335,000 for the ~~second~~first quarter of 2020, an increase of $2,115,000, or 18.9%, compared to $11,220,000 for the first quarter of 2019, ~~an increase of $303,000, or 2.7%, compared~~primarily due to ~~$11,403,000 for the second quarter of 2018.~~increased prototype development costs. As a percentage of net revenues, research and development expenses increased to ~~18.5%~~21.0% for the ~~second~~first quarter of 2020 from 17.1% for the first quarter of 2019, ~~from 15.4% for the second quarter of 2018~~primarily due to the decrease in net revenues.

The components of the ~~$303,000~~$2,115,000 increase in research and development expenses were as follows (dollars in thousands):

Increase (decrease)

Compensation
$
265

3.3
%(1)
Project and
pre-production
materials

181

12.4
%
Facilities allocations

136

25.8
%
Supplies expense

(129
)
(28.5
)%
Deferred costs

(211
)
(79.5
)%(2)
Other, net

61

5.2
%

$
303

2.7
%


	Increase (decrease)
Project and pre-production materials	$	970	61.6	%(1)
Compensation		575	6.9	%(2)
Deferred costs		364	74.9	%(3)
Overhead absorption		89	29.3	%
Supplies expense		87	40.8	%
Other, net		30	1.5	%

	$	2,115	18.9	%

(1)	Increase primarily attributable to increased prototype development costs for Advanced Products.

(2)	Increase primarily attributable to annual compensation adjustments in May ~~2019.~~2019 and an increase in headcount.

~~(2)~~(3)

~~Decrease~~Increase primarily attributable to ~~an increase~~a decrease in deferred costs capitalized for certain

non-recurring

engineering projects for which the related revenues have been deferred.

In May 2018, the Company’s management authorized the closure of GPT, which was completed by the end of 2018. GPT was one of three Vicor Custom Power (“VCP”) entities, located in Manchester, N.H. Certain of GPT’s products continue to be manufactured and sold by the two remaining VCP entities. As a result, we recorded a

~~pre-tax~~

~~charge of $350,000 in the second quarter of 2018, for the cost of severance and other employee-related costs involving cash payments based on each employee’s respective length of service.~~

The significant components of ~~‘‘Other~~“Other income (expense), ~~net’’~~net” for the three months ended ~~June 30,~~March 31, and the changes between the periods were as follows (in thousands):

2019

2018

Increase
(decrease)

Rental income
$
198
$
198
$
—

Interest income

79

53

26

Gain on disposals of equipment

13

3

10

Foreign currency losses, net

(2
)
(312
)
310

Credit gains on
available-for-sale
securities

1

2

(1
)
Other, net

(1
)
12

(13
)

$
288
$
(44
) $
332


	2020			2019			Increase (decrease)
Rental income	$	198		$	198		$	—
Interest income		53			83			(30	)
Gain on disposals of equipment		—			9			(9	)
Foreign currency losses, net		(121	)		(58	)		(63	)
Other, net		18			7			11

	$	148		$	239		$	(91	)

~~-28-~~

~~Table of Contents~~

~~VICOR CORPORATION~~

~~Management’s Discussion and Analysis of~~

~~Financial Condition and Results of Operation~~

~~June 30, 2019~~

Our exposure to market risk fluctuations in foreign currency exchange rates relates to the operations of ~~VJCL,~~Vicor Japan Company, Ltd. (“VJCL”), for which the functional currency is the Japanese Yen, and all other subsidiaries in Europe and Asia, for which the functional currency is the U.S. Dollar. These other subsidiaries in Europe and Asia experienced more unfavorable foreign currency exchange rate fluctuations in ~~2019~~2020 compared to ~~2018.~~2019. Interest income increased due to an increase in interest rates.

~~Income~~(Loss) income before income taxes was ~~$2,669,000~~$(2,225,000) for the ~~second~~first quarter of ~~2019,~~2020, as compared to ~~$8,272,000~~$4,732,000 for the ~~second~~first quarter of ~~2018.~~2019.

-24-

Table of Contents

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

March 31, 2020

The ~~provisions~~(benefit) provision for income taxes and the effective income tax rates for the three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ were as follows (dollars in thousands):

2019

2018

Provision for income taxes
$
113
$
363

Effective income tax rate

4.2
%
4.4
%


	2020			2019
(Benefit) provision for income taxes	$	(494	)	$	426
Effective income tax rate		(22.2	)%		9.0	%

The effective tax rates were lower than the statutory tax rates for the three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ due primarily to the utilization of tax credits in 2020 and the combination of utilizing net operating loss carryforwards and tax ~~credits.~~credits in 2019. The ~~provisions~~(benefit) provision for income taxes in the three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ also included estimated foreign income taxes and estimated state taxes in jurisdictions in which the Company does not have net operating loss carryforwards.

See Note 108 to the Condensed Consolidated Financial Statements for disclosure regarding our current assessment of the valuation allowance against all domestic ~~net~~ deferred tax assets, and the possible release (i.e., reduction) of the allowance in the future.

~~Net~~We reported a net loss for the first quarter of 2020 of $(1,735,000), or $(0.04) per share, compared to net income of $4,286,000, or $0.10 per diluted share, ~~attributable to Vicor Corporation was $0.06~~ for the ~~second~~first quarter of ~~2019 and $0.19 for the second quarter of 2018.~~2019.

~~Six months ended June 30, 2019, compared to six months ended June 30, 2018~~Liquidity and Capital Resources

~~Consolidated net revenues for the six~~

As of March 31, 2020, we had $82,751,000 in cash and cash equivalents. The ratio of total current assets to total current liabilities was 5.3:1 as of March 31, 2020 and 6.0:1 as of December 31, 2019. Working capital, defined as total current assets less total current liabilities, increased $834,000 to $149,970,000 as of March 31, 2020 from $149,136,000 as of December 31, 2019.

~~months ended June 30,~~The changes in working capital from December 31, 2019 were $129,080,000, a decrease of $10,385,000, or 7.4%, from $139,465,000 for the six months ended June 30, 2018. Net revenues, by product line, for the six months ended June 30, 2019 and the six months ended June 30, 2018to March 31, 2020 were as follows ~~(dollars in~~(in thousands):

Increase (decrease)

2019

2018

$

%

Brick Products
$
94,630
$
88,986
$
5,644

6.3
%
Advanced Products

34,450

50,479

(16,029
)
(31.8
)%

Total
$
129,080
$
139,465
$
(10,385
)
(7.4
)%


	Increase (decrease)
Cash and cash equivalents	$	(1,917	)
Accounts receivable		3,164
Inventories, net		4,165
Other current assets		712
Accounts payable		(4,435	)
Accrued compensation and benefits		329
Accrued expenses		(71	)
Short-term lease liabilities		150
Sales allowances		(40	)
Income taxes payable		23
Short-term deferred revenue		(1,246	)

	$	834

The ~~overall decrease in consolidated net revenues~~primary source of cash for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 was proceeds from the ~~six~~issuance of Common Stock upon the exercise of options awarded under our stock option plans and the issuance of Common Stock under our 2017 Employee Stock Purchase Plan, of $2,061,000. The primary uses of cash for the three months ended ~~June 30, 2018 was primarily due to~~March 31, 2020 were for funding the net loss of $(1,731,000), an ~~overall 25.1% decrease~~increase in ~~bookings for~~current assets and liabilities, net, exclusive of cash and cash equivalents, of $2,639,000, and the ~~six months ended June 30, 2019, compared to the six months ended June 30, 2018, with a decline~~purchase of ~~50.8% in bookings for Advanced Products and a decline~~equipment of ~~11.8% for Brick Products.~~

Gross margin for the six months ended June 30, 2019 decreased $5,891,000, or 8.9%, to $60,203,000 from $66,094,000 for the six months ended June 30, 2018, primarily due to the decrease in net revenues. Gross margin as a percentage of net revenues decreased to 46.6% for the six month period ended June 30, 2019 compared to 47.4% for the six month period ended June 30, 2018. Both decreases were primarily due to the decrease in net revenues and higher tariff charges of approximately $2,430,000 and lower absorption of manufacturing overhead expenses in the second quarter of 2019.

$2,999,000.

~~-29-~~-25-

Table of Contents

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

~~June 30, 2019~~

Selling, general and administrative expenses were $30,403,000 for the six months ended June 30, 2019, a decrease of $810,000, or 2.6%, compared to $31,213,000 for the six months ended June 30, 2018. Selling, general and administrative expenses as a percentage of net revenues increased to 23.6% for the six month period ended June 30, 2019 from 22.4% for the six month period ended June 30, 2018, primarily due to the decrease in net revenues, despite the absolute decline in such expenses.

The components of the $810,000 decrease in selling, general and administrative expenses for the six months ended June 30, 2019 from the six months ended June 30, 2018 were as follows (dollars in thousands):

Increase (decrease)

Compensation
$
(457
)
(2.3
)%(1)
Audit, tax, and accounting fees

(356
)
(27.5
)%(2)
Legal fees

(273
)
(28.2
)%(3)
Bad debt expense

(184
)
(274.5
)%(4)
Commissions expense

107

6.6
%
Depreciation and amortization

114

9.4
%
Facilities allocations

143

19.7
%
Advertising expenses

152

11.3
%
Other, net

(56
)
(1.4
)%

$
(810
)
(2.6
)%

~~(1)~~

~~non-employee.~~

~~(2)~~

~~Decrease primarily attributable to the timing of the 2018 audit process.~~

~~(3)~~

~~Decrease attributable to a decrease in corporate legal matters.~~

~~(4)~~

~~Decrease attributable to favorable historical collections experience over the period analyzed.~~

~~-30-~~

~~Table of Contents~~

~~VICOR CORPORATION~~

~~Management’s Discussion and Analysis of~~

~~Financial Condition and Results of Operation~~

~~June 30, 2019~~March 31, 2020

Research and development expenses were $22,926,000 for the six months ended June 30, 2019, an increase of $397,000, or 1.8%, from $22,529,000 for the six months ended June 30, 2018. As a percentage of net revenues, research and development expenses increased to 17.8% for the six month period ended June 30, 2019 from 16.2% for the six month period ended June 30, 2018, primarily due to the decrease in net revenues.

~~The components of the $397,000 increase in research and development expenses for the six months ended June 30, 2019 from the six months ended June 30, 2018 were as follows (dollars in thousands):~~

Increase (decrease)

Compensation
$
636

4.0
%(1)
Project and
pre-production
materials

239

8.0
%(2)
Facilities allocations

184

16.3
%
Depreciation and amortization

(97
)
(9.9
)%
Supplies expense

(138
)
(20.5
)%
Deferred costs

(407
)
(73.5
)%(3)
Other, net

(20
)
(1.5
)%

$
397

1.8
%

~~(1)~~

~~Increase primarily attributable to annual compensation adjustments in May 2019 and increased stock-based compensation expense.~~

~~(2)~~

~~Increase primarily attributable to increased spending for new product development of Advanced Products.~~

~~(3)~~

~~Decrease primarily attributable to an increase in deferred costs capitalized for certain~~

~~non-recurring~~

~~engineering projects for which the related revenues have been deferred.~~

The significant components of ‘‘Other income (expense), net’’ for the six months ended June 30, 2019 and the six months ended June 30, 2018 and the changes from period to period were as follows (in thousands):

2019

2018

Increase
(decrease)

Rental income
$
396
$
396
$
—

Interest income

162

108

54

Foreign currency losses, net

(60
)
(152
)
92

Gain on disposals of equipment

22

16

6

Credit gains on
available-for-sale
securities

2

4

(2
)
Other, net

5

14

(9
)

$
527
$
386
$
141

Our exposure to market risk fluctuations in foreign currency exchange rates relates to the operations of VJCL, for which the functional currency is the Japanese Yen, and all other subsidiaries in Europe and Asia, for which the functional currency is the U.S. Dollar. These other subsidiaries in Europe and Asia experienced unfavorable foreign currency exchange rate fluctuations in 2019 compared to 2018. Interest income increased due to an increase in interest rates.

~~-31-~~

~~Table of Contents~~

~~VICOR CORPORATION~~

~~Management’s Discussion and Analysis of~~

~~Financial Condition and Results of Operation~~

~~June 30, 2019~~

~~Income before income taxes was $7,401,000 for the six months ended June 30, 2019, as compared to $12,388,000 for the six months ended June 30, 2018.~~

~~The provisions for income taxes and the effective income tax rates for the six months ended June 30, 2019 and 2018 were as follows (dollars in thousands):~~

2019

2018

Provision for income taxes
$
539
$
497

Effective income tax rate

7.3
%
4.0
%

The effective tax rates were lower than the statutory tax rates for the six months ended June 30, 2019 and 2018 due primarily to the utilization of net operating loss carryforwards and tax credits. The provisions for income taxes in the six months ended June 30, 2019 and 2018 also included estimated foreign income taxes and estimated state taxes in jurisdictions in which the Company does not have net operating loss carryforwards.

~~Net income per diluted share attributable to Vicor Corporation was $0.17 for the six months ended June 30, 2019, compared to $0.29 for the six months ended June 30, 2018.~~

~~Liquidity and Capital Resources~~

As of June 30, 2019, we had $71,482,000 in cash and cash equivalents. The ratio of total current assets to total current liabilities was 5.1:1 as of June 30, 2019 and 4.6:1 as of December 31, 2018. Working capital, defined as total current assets less total current liabilities, increased $7,426,000 to $136,488,000 as of June 30, 2019 from $129,062,000 as of December 31, 2018.

~~The changes in working capital from December 31, 2018 to June 30, 2019 were as follows (in thousands):~~

Increase
(decrease)

Cash and cash equivalents
$
925

Accounts receivable

(5,136
)
Inventories, net

7,202

Other current assets

1,594

Accounts payable

5,330

Accrued compensation and benefits

(487
)
Accrued expenses

403

Operating lease liabilities

(1,660
)
Sales allowances

(92
)
Accrued severance charge

234

Income taxes payable

625

Deferred revenue

(1,512
)

$
7,426

The primary sources of cash for the six months ended June 30, 2019 were from operating activities of $5,239,000 and proceeds from the issuance of Common Stock upon the exercise of options under our stock option plans and our 2017 Employee Stock Purchase Plan, of $1,707,000. The primary use of cash for the six months ended June 30, 2019 was for purchase of equipment of $5,864,000.

~~-32-~~

~~Table of Contents~~

~~VICOR CORPORATION~~

~~Management’s Discussion and Analysis of~~

~~Financial Condition and Results of Operation~~

~~June 30, 2019~~

In November 2000, our Board of Directors authorized the repurchase of up to $30,000,000 of our Common Stock (the “November 2000 Plan”). The November 2000 Plan authorizes us to make such repurchases from time to time in the open market or through privately negotiated transactions. The timing and amounts of Common Stock repurchases are at the discretion of management based on its view of economic and financial market conditions. We did not repurchase shares of Common Stock under the November 2000 Plan during the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. As of ~~June 30, 2019,~~March 31, 2020, we had approximately $8,541,000 remaining under the November 2000 Plan.

We had approximately ~~$3,367,000~~$4,041,000 of capital expenditure commitments, principally for manufacturing equipment, as of ~~June 30, 2019,~~March 31, 2020, which we intend to fund with existing cash. Our primary liquidity needs are for making continuing investments in manufacturing equipment and ~~if we proceed with~~for funding the planned construction of ~~87,100~~approximately 90,000 square feet of additional manufacturing space adjoining our existing Andover manufacturing facility, ~~for funding~~including architectural and construction costs. We believe cash generated from operations and the total of our cash and cash equivalents will be sufficient to fund planned operational needs, capital equipment purchases, and the planned construction, for the foreseeable future.

~~-33-~~-26-

Table of Contents

Vicor Corporation

~~June 30, 2019~~March 31, 2020

Item 3 — Quantitative and Qualitative Disclosures About Market Risk

We are exposed to a variety of market risks, including changes in interest rates affecting the return on our cash and cash equivalents and fluctuations in foreign currency exchange rates. As our cash and cash equivalents consist principally of cash accounts and money market securities, which are short-term in nature, we believe our exposure to market risk on interest rate fluctuations for these investments is not significant. As of ~~June 30, 2019,~~March 31, 2020, our long-term investment portfolio, recorded on our Condensed Consolidated Balance Sheet as “Long-term investments, net”, consisted of a single auction rate security with a par value of $3,000,000, purchased through and held in custody by a broker-dealer affiliate of Bank of America, N.A., that has experienced failed auctions (the “Failed Auction Security”) since February 2008. While the Failed Auction Security is Aaa/AA+ rated by major credit rating agencies, collateralized by student loans and guaranteed by the U.S. Department of Education under the Federal Family Education Loan Program, continued failure to sell at its periodic auction dates (i.e., reset dates) could negatively impact the carrying value of the investment, in turn leading to impairment charges in future periods. Periodic changes in the fair value of the Failed Auction Security attributable to credit loss (i.e., risk of the issuer’s default) are recorded through earnings as a component of “Other income (expense), net”, with the remainder of any periodic change in fair value not related to credit loss (i.e., temporary

“mark-to-market”

carrying value adjustments) recorded in “Accumulated other comprehensive (loss) income”, a component of Stockholders’ Equity. Should we conclude a decline in the fair value of the Failed Auction Security is other than temporary, such losses would be recorded through earnings as a component of “Other income (expense), net”. We do not believe there was an “other-than-temporary” decline in value in this security as of ~~June 30, 2019.~~March 31, 2020.

Our exposure to market risk for fluctuations in foreign currency exchange rates relates to the operations of VJCL, for which the functional currency is the Japanese Yen, and changes in the relative value of the Yen to the U.S. Dollar. The functional currency of all other subsidiaries in Europe and other subsidiaries in Asia is the U.S. Dollar. While we believe risk to fluctuations in foreign currency exchange rates for these subsidiaries is generally not significant, they can be subject to substantial currency changes, and therefore foreign exchange exposures.

Item 4 — Controls and Procedures

(a) Disclosure regarding controls and procedures.

~~(a)~~

~~Disclosure regarding controls and procedures.~~

As required by Rule

13a-15

under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), management, with the participation of our Chief Executive Officer (“CEO”) (who is our principal executive officer) and Chief Financial Officer (“CFO”) (who is our principal financial officer), conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the last fiscal quarter (i.e., ~~June 30, 2019)~~March 31, 2020). The term “disclosure controls and procedures,” as defined in Rules

13a-15(e)

and

15d-15(e)

under the Exchange Act, means controls and other procedures of a company that are designed to ensure information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure information required to be disclosed by a company in the reports it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of ~~June 30, 2019,~~March 31, 2020, our CEO and CFO concluded, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Accordingly, management, including the CEO and CFO, recognizes our disclosure controls or our internal control over financial reporting may not prevent or detect all errors and all fraud. The design of a control system must reflect the fact there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the

~~-34-~~-27-

Table of Contents

Vicor Corporation

~~June 30, 2019~~March 31, 2020

likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any control’s effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

(b) Changes in internal control over financial reporting.

~~(b)~~

~~Changes in internal control over financial reporting.~~

There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended ~~June 30, 2019,~~March 31, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~-35-~~-28-

Table of Contents

Vicor Corporation

Part II – Other Information

~~June 30, 2019~~March 31, 2020

Item 1 — Legal Proceedings

See Note ~~12.~~10.

Commitments and Contingencies

in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 – “Financial Statements.”

Item 1A — Risk Factors

There have been no material changes in the risk factors described in Part I, Item 1A – “Risk Factors” of the Company’s Annual Report on Form

10-K

for the year ended December 31, ~~2018.~~2019, except for the following supplemental risk factor:

~~Item 2 – Unregistered Sales~~Our financial and operational performance has been and may continue to be negatively influenced by the consequences of ~~Equity Securities and Use of Proceeds~~the

COVID-19

pandemic.

The

~~On June 28, 2019, VI Chip was merged with~~COVID-19

pandemic and ~~into~~ the ~~Company, with the Company as the surviving entity. The terms~~response of ~~the merger call~~governments worldwide to contain its spread negatively influenced our financial and operational performance for the ~~Company~~first quarter of 2020, and future developments may have a potentially more substantial negative influence on our financial and operational performance over an unknown period of time. We experienced certain supply chain constraints associated with

COVID-19

during the first quarter of 2020, and such constraints contributed to ~~issue 993 shares~~lower revenue, manufacturing delays, reduced shipments, production inefficiencies, higher costs, and reduced productivity, although we do not consider the cumulative impact of ~~the Company’s Common Stock in exchange for 6,600 shares of the common stock of VI Chip that~~such constraints to have had ~~been held by minority stockholders, subject to the respective waiver of appraisal rights by such individual minority stockholders. As of 5:00 p.m. (EDT)~~a material influence on ~~July 22, 2019, the deadline~~our financial performance for the ~~five minority stockholders~~period. However, there can be no assurance that future circumstances associated with the

COVID-19

pandemic will not have a material negative influence on our financial and operational performance.

We have taken action to ~~demand an appraisal pursuant~~protect the health and safety of our workforce, the costs of which, to date, have not had a material effect on our financial performance. We expect to maintain the ~~requirements~~measures put in place until we determine the

COVID-19

pandemic is adequately contained for purposes of ~~Section 262~~our business, and we may take further actions we consider to be in the best interests of ~~the General Corporation Law of the State of Delaware, no such demand had been received~~our employees, customers, business partners, and ~~accordingly, Vicor will issue, as soon as practicable,~~suppliers or in response to government mandate or requirement. Such further actions may have a negative influence on our costs and productivity and, in turn, our financial and operational performance.

Our customers, business partners, and suppliers may be adversely affected by the ~~933 shares of the Company’s Common Stock. All of such shares will be issued without registration under the Securities Act of 1933, in reliance upon the exemption provided in Section 4(a)(2)~~

COVID-19

pandemic, which also may contribute to a negative influence on our future financial and ~~Rule 506(b) thereunder.~~operational performance.

Item 6 — Exhibits


Exhibit Number		Description

	~~10.1~~	~~VI Chip Corporation Amended and Restated 2007 Stock Option and Incentive Plans, as amended and restated (1)~~

	31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act.

	31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act.

	32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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

	101.SCH	Inline XBRL Taxonomy Extension Schema Document.

	101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.

	101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.

	101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.

	101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.

~~(1)~~	~~Filed~~
	104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit ~~10.1 to the Company’s Registration Statement on Form S-8, under the Securities Act of 1933 (No. 333-232864), and incorporated herein by reference.~~101)

~~-36-~~

-29-

Table of Contents

SIGNATURES

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


	VICOR CORPORATION

Date: ~~July 31, 2019~~May 4, 2020	By:	/s/ Patrizio Vinciarelli
		Patrizio Vinciarelli
		Chairman of the Board, President and
		Chief Executive Officer
		(Principal Executive Officer)

Date: ~~July 31, 2019~~May 4, 2020	By:	/s/ James A. Simms
		James A. Simms
		Vice President, Chief Financial Officer
		(Principal Financial Officer)

~~-37-~~-30-


Delaware		04-2742817
(State of Incorporation)		(I.R.S. Employer Identification No.)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	VICR	The NASDAQ Stock Market LLC


Common Stock, $.01 par value			~~28,519,626~~28,904,269
Class B Common Stock, $.01 par value			11,758,218


	Page
Part I — Financial Information:
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019		1
Condensed Consolidated Statements of Operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~		2
Condensed Consolidated Statements of Comprehensive Income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~		3
Condensed Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~		4
Condensed Consolidated Statements of Equity for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~		5
Notes to Condensed Consolidated Financial Statements		6
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations		21 18
Item 3 - Quantitative and Qualitative Disclosures About Market Risk		34 27
Item 4 - Controls and Procedures		34 27
Part II — Other Information:
Item 1 - Legal Proceedings		36 29
Item 1A - Risk Factors		36
~~Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds~~		36 29
Item 6 - Exhibits		36
~~Signature(s)~~		37 29
Signature(s)		30

EX-31.1 SECTION 302 CERTIFICATION OF CEO

EX-31.2 SECTION 302 CERTIFICATION OF CFO

EX-32.1 SECTION 906 CERTIFICATION OF CEO

EX-32.2 SECTION 906 CERTIFICATION OF CFO


June 30, 2019	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Failed Auction Security	$	3,000	$	—	$	435	$	2,565


	Cost		Estimated Fair Value
Due in twenty to forty years	$	3,000	$	2,565


	Fair Value		Valuation Technique	Unobservable Input	Weighted Average
Failed Auction Security	$	2,565	Discounted cash flow	Cumulative probability of earning the maximum rate until maturity		0.08	%
				Cumulative probability of principal return prior to maturity		94.34	%
				Cumulative probability of default		5.58	%
				Liquidity risk premium		5.00	%
				Recovery rate in default		40.00	%

	Three Months Ended June 30, 2018
	Brick Products		Advanced Products		Total
United States	$	18,295		8,124	$	26,419
Europe		4,877		1,275		6,152
Asia Pacific		23,876		16,387		40,263
All other		1,301		61		1,362

	$	48,349	$	25,847	$	74,196


	Six Months Ended June 30, 2018
	Brick Products		Advanced Products		Total
United States	$	35,286		16,756	$	52,042
Europe		9,602		1,923		11,525
Asia Pacific		42,087		31,532		73,619
All other		2,011		268		2,279

	$	88,986	$	50,479	$	139,465


2019	$	911
2020		1,461
2021		756
2022		453
2023		357
Thereafter		413

Total lease payments	$	4,351
Less: Imputed interest		299

Present value of lease liabilities	$	4,052


	Increase (decrease)
Compensation	$	(617	)	(6.1	)%(1)
Legal fees		(236	)	(40.5	)%(2)
Audit, tax, and accounting fees		(143	)	(30.0	)%
Advertising expenses		174		26.6	%
Facilities allocations		102		32.1	%
Other, net		(64	)	(1.8	)%

	$	(784	)	(5.0	)%


	Increase (decrease)
Compensation	$	(457	)	(2.3	)%(1)
Audit, tax, and accounting fees		(356	)	(27.5	)%(2)
Legal fees		(273	)	(28.2	)%(3)
Bad debt expense		(184	)	(274.5	)%(4)
Commissions expense		107		6.6	%
Depreciation and amortization		114		9.4	%
Facilities allocations		143		19.7	%
Advertising expenses		152		11.3	%
Other, net		(56	)	(1.4	)%

	$	(810	)	(2.6	)%

Large accelerated filer

Smaller reporting company

Accelerated filer

Emerging growth company

Non-accelerated
filer