##### Table of Contents



X
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended
    
    June 30, 2008
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
 For the transition period fromCommission File Number
    
    0-18277
 
 Delaware
    
    04-2742817(State of Incorporation)
    
    (I.R.S. Employer Identification No.)
 
 
 
 þ o
  Large accelerated filer
o
    
    Accelerated filer
þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ
  Common Stock, $.01 par value
    
    
    29,885,746Class B Common Stock, $.01 par value
    
    
    11,767,052




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##### 



PagePart I  Financial Information:Item 1 - Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at

June 30, 2008 and December 31, 2007
    
    
    1Condensed Consolidated Statements of Operations for the
three and six months ended June 30, 2008 and 2007
    
    
    2Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 2008 and 2007
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4Item 2 - Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    20Item 3 - Quantitative and Qualitative Disclosures About Market Risk
    
    
    33Item 4 - Controls and Procedures
    
    
    33Part II - Other Information:Item 1 - Legal Proceedings
    
    
    36Item 1A  Risk Factors
    
    
    36Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    36Item 3 - Defaults Upon Senior Securities
    
    
    36Item 4 - Submission of Matters to a Vote of Security Holders
    
    
    37Item 5 - Other Information
    
    
    37Item 6  Exhibits
    
    
    37Signature(s)
    
    
    38EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO




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##### Table of Contents



FORM 10-QPART IITEM 1PAGE 1
 
 Item 1  Financial Statements
  
 
 Assets
    
    June 30, 2008
    December 31, 2007Current assets:Cash and cash equivalents
    
    $
    33,000
    
    
    $
    20,017Short-term investments
    
    
    2,663
    
    
    
    57,490Accounts receivable, less allowance of
$296 in 2008 and $398 in 2007
    
    
    27,181
    
    
    
    32,054Inventories, net
    
    
    26,025
    
    
    
    23,078Deferred tax assets
    
    
    741
    
    
    
    741Other current assets
    
    
    3,121
    
    
    
    2,539Total current assets
    
    
    92,731
    
    
    
    135,919Restricted cash and cash equivalents
    
    
    919
    
    
    
    952Long-term investments, net
    
    
    36,250
    
    
    
    Property, plant and equipment, net
    
    
    49,322
    
    
    
    50,257Other assets
    
    
    5,397
    
    
    
    5,330$
    184,619
    
    
    $
    192,458Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    8,260
    
    
    $
    10,062Accrued compensation and benefits
    
    
    7,082
    
    
    
    6,003Accrued expenses
    
    
    2,925
    
    
    
    3,471Accrual for litigation settlement
    
    
    162
    
    
    
    240Income taxes payable
    
    
    696
    
    
    
    278Deferred revenue
    
    
    534
    
    
    
    941Total current liabilities
    
    
    19,659
    
    
    
    20,995Long-term deferred revenue
    
    
    924
    
    
    
    42Long-term income taxes payable
    
    
    1,399
    
    
    
    1,344Deferred income taxes
    
    
    1,649
    
    
    
    1,597Minority interests
    
    
    4,991
    
    
    
    4,040Stockholders equity:Class B Common Stock
    
    
    118
    
    
    
    118Common Stock
    
    
    384
    
    
    
    384Additional paid-in capital
    
    
    160,013
    
    
    
    159,332Retained earnings
    
    
    119,315
    
    
    
    126,263Accumulated other comprehensive (loss) income
    
    
    (2,006
    )
    
    
    170Treasury stock, at cost
    
    
    (121,827
    )
    
    
    (121,827
    )Total stockholders equity
    
    
    155,997
    
    
    
    164,440$
    184,619
    
    
    $
    192,458




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##### Table of Contents



FORM 10-QPART IITEM 1PAGE 2
  
 
 Three Months Ended

    
    Six Months EndedJune 30,
    

    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net revenues
    
    $
    49,297
    
    
    $
    47,206
    
    
    $
    102,766
    
    
    $
    94,187Cost of revenues
    
    
    28,184
    
    
    
    27,607
    
    
    
    59,193
    
    
    
    54,361Gross margin
    
    
    21,113
    
    
    
    19,599
    
    
    
    43,573
    
    
    
    39,826Operating expenses:Selling, general and administrative
    
    
    13,975
    
    
    
    12,163
    
    
    
    28,027
    
    
    
    24,176Research and development
    
    
    8,080
    
    
    
    7,667
    
    
    
    15,591
    
    
    
    15,067Gain from litigation-related
settlements, net
    
    
    (177
    )
    
    
    (1,353
    )
    
    
    (177
    )
    
    
    (1,353
    )Total operating expenses
    
    
    21,878
    
    
    
    18,477
    
    
    
    43,441
    
    
    
    37,890Income (loss) from operations
    
    
    (765
    )
    
    
    1,122
    
    
    
    132
    
    
    
    1,936Other income (expense), net
    
    
    (36
    )
    
    
    906
    
    
    
    719
    
    
    
    2,483Income (loss) before income taxes
    
    
    (801
    )
    
    
    2,028
    
    
    
    851
    
    
    
    4,419Provision for income taxes
    
    
    350
    
    
    
    298
    
    
    
    592
    
    
    
    287Loss from equity method investment,
net of tax
    
    
    172
    
    
    
    756
    
    
    
    962
    
    
    
    837Net income (loss)
    
    $
    (1,323
    )
    
    $
    974
    
    
    $
    (703
    )
    
    $
    3,295Net income (loss) per common share:Basic
    
    $
    (0.03
    )
    
    $
    0.02
    
    
    $
    (0.02
    )
    
    $
    0.08Diluted
    
    $
    (0.03
    )
    
    $
    0.02
    
    
    $
    (0.02
    )
    
    $
    0.08Shares used to compute
net income (loss) per share:Basic
    
    
    41,643
    
    
    
    41,576
    
    
    
    41,640
    
    
    
    41,570Diluted
    
    
    41,643
    
    
    
    41,641
    
    
    
    41,640
    
    
    
    41,628Cash dividends per share
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.15
    
    
    $
    0.15




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##### Table of Contents



FORM 10-QPART IITEM 1PAGE 3
  
 
 Six Months EndedJune 30, 2008
    
    June 30, 2007Operating activities:Net income (loss)
    
    $
    (703
    )
    
    $
    3,295Adjustments to reconcile net income (loss) to net 
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    5,211
    
    
    
    6,185Loss from equity method investment, net of tax
    
    
    962
    
    
    
    837Minority interest in net income of subsidiaries
    
    
    951
    
    
    
    89Long-term deferred revenue
    
    
    882
    
    
    
    87Stock compensation expense
    
    
    588
    
    
    
    321Amortization of bond premium
    
    
    
    
    
    
    (321
    )Gain on disposal of equipment
    
    
    (22
    )
    
    
    (23
    )Change in current assets and liabilities, net
    
    
    233
    
    
    
    (36,440
    )Net cash provided by (used in) operating
activities
    
    
    8,102
    
    
    
    (25,970
    )Investing activities:Purchases of investments
    
    
    (9,812
    )
    
    
    (72,408
    )Sales and maturities of investments
    
    
    26,139
    
    
    
    103,030Additions to property, plant and equipment
    
    
    (4,169
    )
    
    
    (3,140
    )Purchase of equity method investment
    
    
    (1,000
    )
    
    
    (1,000
    )Proceeds from sale of equipment
    
    
    22
    
    
    
    23Change in
restricted cash and cash equivalents
    
    
    33
    
    
    
    Increase in other assets
    
    
    (119
    )
    
    
    (58
    )Net cash provided by investing activities
    
    
    11,094
    
    
    
    26,447Financing activities:Proceeds from issuance of Common Stock
    
    
    93
    
    
    
    227Common Stock dividends paid
    
    
    (6,245
    )
    
    
    (6,327
    )Net cash used in financing activities
    
    
    (6,152
    )
    
    
    (6,100
    )Effect of foreign exchange rates on cash
    
    
    (61
    )
    
    
    12Net increase (decrease) in cash and cash equivalents
    
    
    12,983
    
    
    
    (5,611
    )Cash and cash equivalents at beginning of period
    
    
    20,017
    
    
    
    35,860Cash and cash equivalents at end of period
    
    $
    33,000
    
    
    $
    30,249




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##### Table of Contents



FORM 10-QPART IITEM 1PAGE 4
  
    1.
    
    Basis of PresentationThe accompanying unaudited condensed consolidated financial statements 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, they 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, 2008, are not necessarily indicative of the results
that may be expected for any other interim period or the year ending December 31, 2008.
Operating results for the six months ended June 30, 2008 includes compensation-related
accruals of $320,000 for certain of the Companys international subsidiaries and additional
stock compensation expense of $90,000 identified and recorded in the first quarter of 2008.
Management has concluded the impact of accounting for these previously unidentified
accruals in the first quarter of 2008 is not material for the first quarter or the six
months ended June 30, 2008, the Companys estimated 2008 financial results, or prior
periods. Certain amounts in the 2007 condensed consolidated financial statements have been
reclassified to conform to the 2008 presentation.
The balance sheet at December 31, 2007, 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, 2007,
(File No. 0-18277) filed by the Company with the Securities and Exchange Commission.2.
    
    Short-Term and Long-Term InvestmentsThe Companys principal sources of liquidity are its existing balances of cash, cash
equivalents and short-term investments, as well as cash generated from operations.
Consistent with the Companys investment policy guidelines, the Company can and has
historically invested its substantial cash balances in demand deposit accounts, money market
funds meeting certain quality criteria, and highly-liquid auction rate securities meeting
certain quality criteria. All of the Companys investments are subject to credit,
liquidity, market, and interest rate risk.As of June 30, 2008, the Company held $38,500,000 of auction rate securities, consisting of
debt obligations of municipal and corporate issuers. The interest rates for these
securities are reset at auction at regular intervals ranging from seven to 90 days. The
auction rate securities held by the Company have historically traded at par and are callable
at par at the option of the issuer. At June 30, 2008, the majority of the auction rate
securities held by the Company were AAA/Aaa rated by the major credit rating agencies, with
most collateralized by student loans guaranteed by the U.S. Department of Education under
the Federal Family Education Loan Program.




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FORM 10-QPART IITEM 1PAGE 5
 
  
 2.
    
    Short-Term and Long-Term Investments (continued)Until February 2008, the auction rate securities market was highly liquid. Starting the
week of February 11, 2008, a substantial number of auctions failed, meaning there was not
enough demand to sell all of the securities that holders offered for sale. The consequences
of a failed auction are (a) an investor must hold the specific security until the next
scheduled auction (unless that investor chooses to sell the security to a third party
outside of the auction process) and (b) the interest rate on the security generally resets
to an interest rate set forth in the securitys indenture. The principal associated with
these failed auctions will not be accessible to the Company until a successful auction
occurs, a buyer is found outside of the auction process, the security is called by the
issuer, or the underlying securities have matured. As of June 30, 2008, the Company held
auction rate securities that had experienced failed auctions totaling $38,500,000 at par
value (the Failed Auction Securities).Management is not aware of any reason to believe any of the issuers of the Failed Auction
Securities held by the Company are presently at risk of default. Through June 30, 2008, the
Company has continued to receive interest payments on the Failed Auction Securities in
accordance with their terms. Management believes the Company ultimately should be able to
liquidate all of its auction rate security investments without significant loss primarily
due to the collateral securing the substantial majority of the underlying obligations.
However, current conditions in the auction rate securities market have lead management to
conclude the recovery period for the Failed Auction Securities exceeds 12 months. As a
result, the Company continued to classify the Failed Auction Securities as long-term as of
June 30, 2008, having classified them as long-term as of March 31, 2008.Based on the fair value measurements described in Note 3, the fair value of the Failed
Auction Securities at June 30, 2008, was estimated by the Company to be approximately
$36,250,000, compared with a par value of $38,500,000. Management considers this $2,250,000
difference to be temporary and has recorded this amount as an unrealized loss, net of taxes,
in Accumulated other comprehensive (loss) income on the consolidated balance sheet. In
making this determination, management considered the financial condition and near-term
prospects of the issuers, the magnitude of the losses compared to the investments cost, the
length of time the investments have been in an unrealized loss position, the assumed low
probability that the Company will be unable to collect all amounts due according to the
contractual terms of the security, whether the security has been downgraded by a rating
agency, and the Companys ability and intent to hold these investments until the anticipated
recovery in market value occurs. If current market conditions deteriorate further, the
Company may be required to record additional unrealized losses. If the credit rating of the
security issuers deteriorates, or the anticipated recovery in the market values does not
occur, the Company may be required to adjust the carrying value of these investments through
impairment charges recorded in the consolidated statement of operations, and any such
impairment adjustments may be material.




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FORM 10-QPART IITEM 1PAGE 6
  
 2.
    
    Short-Term and Long-Term Investments (continued)Based on the Companys ability to access cash and other short-term investments and its
expected operating cash flows, management does not anticipate the current lack of liquidity
will affect the Companys ability to execute its current operating plan.3.
    
    Fair Value MeasurementsThe Company purchases marketable securities that have been designated as
available-for-sale in accordance with Statement of Financial Accounting Standards (SFAS)
115, Accounting for Certain Investments in Debt and Equity Securities. SFAS 115 addresses
the determination as to when an investment is considered impaired, whether that impairment
is other than temporary, and the measurement of an impairment loss. Consistent with SFAS
115, such available-for-sale securities are carried at fair value, with unrealized gains and
losses reported in Accumulated other comprehensive (loss) income, a component of
stockholders equity.In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS 157, Fair
Value Measurements, expanding upon SFAS 115 and providing guidance on how to measure assets
and liabilities recorded at fair value. SFAS 157 does not expand the use of fair value to
any new circumstances, but does require additional disclosures in both annual and quarterly
reports. The Company adopted SFAS 157 and its related amendments for financial assets and
liabilities effective as of January 1, 2008. In accordance with FASB Staff Position No. FAS
157-2 (FSP FAS 157-2), SFAS 157 will be effective for non-financial assets and liabilities
in financial statements issued for fiscal years beginning after November 15, 2008. FSP FAS
157-2 will impact the disclosures related to the Companys investment in Great Wall
Semiconductor Corporation (GWS) and goodwill related to the operations of one of the
Companys subsidiaries, Vicor Japan Company, Ltd.SFAS 157 defines fair value 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 that market participants would use in pricing an asset or
liability. SFAS 157 establishes a three-level hierarchy for disclosure to show the extent
and level of judgment used to estimate fair value measurements:
 Level 1
    
    Inputs used to measure fair value are unadjusted quoted prices available in
active markets for the identical assets or liabilities as of the reporting date.




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FORM 10-QPART IITEM 1PAGE 7
  
 3.
    
    Fair Value Measurements (continued)
 Level 2
    
    Inputs used to measure fair value, other than quoted prices included in
Level 1, are either directly or indirectly observable as of the reporting date through
correlation with market data, including quoted prices for similar assets and
liabilities in active markets and quoted prices in inactive markets. Level 2 also
includes assets and liabilities valued using models or other pricing methodologies that
do not require significant judgment since the input assumptions used in the models,
such as interest rates and volatility factors, are corroborated by readily observable
data from actively quoted markets for substantially the full term of the financial
instrument.Level 3
    
    Inputs used to measure fair value are unobservable inputs supported by
little or no market activity and reflect the use of significant management
judgment. These values are generally determined using pricing models for which the
assumptions utilize managements estimates of market participant assumptions.
 As of June 30, 2008, there was insufficient observable auction rate security market
information available to determine the fair value of the Failed Auction Securities. As
such, the Companys investments in Failed Auction Securities were deemed to require
valuation using Level 3 inputs. Consistent with SFAS 157, management, after consulting with
outside experts, valued the Failed Auction Securities 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 these securities as of June 30,
2008. The assumptions used in preparing the DCF model included estimates for the amount and
timing of future interest, principal payments and the rate of return required by investors
to own these securities in the current environment, and the estimated timeframe during which
successful auctions for these securities will occur. In making these assumptions,
management considered relevant factors including: the formula applicable to each security
defining the interest rate paid to investors in the event of a failed auction; forward
projections of the interest rate benchmarks specified in such formulas; the likely timing of
principal repayments; the probability of full repayment considering the guarantees by the
U.S. Department of Education of the underlying student loans, guarantees by other third
parties, and additional credit enhancements provided through other means; and publicly
available pricing data for recently issued student loan asset-backed securities not subject
to auctions. The estimate of the rate of return required by investors to own these
securities also considered the currently reduced liquidity for auction-rate securities. An
increase or decrease in the liquidity risk premium (i.e., the discount rate) of 100 basis
points as used in the model would decrease or increase, respectively, the fair value of the
Failed Auction Securities by approximately $600,000.




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##### Table of Contents



FORM 10-QPART IITEM 1PAGE 8
 
  
 3.
    
    Fair Value Measurements (continued)Assets measured at fair value on a recurring basis, consistent with SFAS 157, include the
following as of June 30, 2008 (in thousands):
 Fair Value Measurements at June 30, 2008UsingSignificantQuoted Prices
    
    Other
    
    Significantin Active
    
    Observable
    
    Unobservable
    
    Total FairMarkets
    
    Inputs
    
    Inputs
    
    Value as of(Level 1)
    
    (Level 2)
    
    (Level 3)
    
    June 30, 2008Cash equivalents:Money market funds
    
    $
    20,913
    
    
    $
    
    
    
    $
    
    
    
    $
    20,913Short term investments
    
    
    2,663
    
    
    
    
    
    
    
    
    
    
    
    2,663Auction rate securities:Long term investments
    
    
    
    
    
    
    
    
    
    
    36,250
    
    
    
    36,250
 The following table summarizes the change in the fair values for those assets valued on a
recurring basis utilizing Level 3 inputs for the six months ended June 30, 2008 (in
thousands):
 Level 3Balance at the beginning of the period (1)
    
    $
    Transfers into Level 3 categorization:
    
    
    38,500Unrealized loss included in Accumulated 
other comprehensive (loss) income
    
    
    (2,250
    )Balance at the end of the period
    
    $
    36,250
  All short-term and long-term investments measured at fair value are classified as
available-for-sale securities, consistent with SFAS 115. Adjustments to fair value of these
investments are recorded as an increase or decrease, net of taxes, in Accumulated other
comprehensive (loss) income, except when losses are considered to be other-than-temporary,
in which case the losses are recorded in Other income (expense), net.Effective January 1, 2008, the Company adopted SFAS 159, The Fair Value Option for Financial
Assets and Financial Liabilities. SFAS 159 allows an entity the irrevocable option to elect
fair value for the initial and subsequent measurement for specified financial assets and
liabilities on a contract-by-contract basis. The Company did not elect the fair value option
as set forth by SFAS 159.




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FORM 10-QPART IITEM 1PAGE 9
  
 4.
    
    Stock-Based CompensationThe Company accounts for stock-based compensation in accordance with SFAS 123 (revised
2004), Share-Based Payment. Stock compensation expense for the three and six months ended
June 30 was as follows (in thousands):
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Cost of revenues
    
    $
    30
    
    
    $
    14
    
    
    $
    45
    
    
    $
    24Selling, general and administrative (1)
    
    
    206
    
    
    
    46
    
    
    
    431
    
    
    
    164Research and development
    
    
    50
    
    
    
    67
    
    
    
    112
    
    
    
    133Total stock based compensation
    
    $
    286
    
    
    $
    127
    
    
    $
    588
    
    
    $
    321
 (1)
    
    The increase in selling, general and administrative stock-based compensation
expense is primarily the result
of acceleration of the service periods used to amortize the cost of V*I Chip stock
options granted to the Companys Chief Executive Officer in 2007.




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FORM 10-QPART IITEM 1PAGE 10
  
 5.
    
    Net Income (Loss) per ShareThe following table sets forth the computation of basic and diluted income per share for
the three and six months ended June 30 (in thousands, except per share amounts):
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Numerator:Net income (loss)
    
    
    ($  1,323
    )
    
    
    $     974
    
    
    
    ($   703
    )
    
    
    $  3,295Denominator:Denominator for basic income (loss) 

per share (weighted average shares)
    
    
    41,643
    
    
    
    41,576
    
    
    
    41,640
    
    
    
    41,570Effect of dilutive securities:Employee stock options (1)
    
    
    -
    
    
    
    65
    
    
    
    -
    
    
    
    58Denominator for diluted income
(loss) per share (adjusted
weighted-average shares and assumed
conversions) (2)
    
    
    41,643
    
    
    
    41,641
    
    
    
    41,640
    
    
    
    41,628Basic income (loss) per share
    
    
    $   (0.03
    )
    
    
    $   0.02
    
    
    
    $  (0.02
    )
    
    
    $   0.08Diluted income (loss) per share
    
    
    $   (0.03
    )
    
    
    $   0.02
    
    
    
    $  (0.02
    )
    
    
    $   0.08
 (1)
    
    Options to purchase 1,236,256 and 1,302,434 shares of Common Stock were
outstanding for the three and six months ended June 30, 2007, respectively, but were
not included in the computation of diluted income per share because the options
exercise prices were greater than the average market price of the Common Stock and,
therefore, the effect would have been antidilutive.(2)
    
    Options to purchase 1,007,761 and 1,044,879 shares of Common Stock for the
three and six months ended June 30, 2008, respectively, were not included in the
calculation of net loss per share as the effect would have been antidilutive.
 6.
    
    InventoriesInventories are valued at the lower of cost (determined using the first-in, first-out
method) or market and presented in the accompanying consolidated balance sheets net of
reserves for inventories estimated to be excess, obsolete or unmarketable. The Companys
estimation process for such reserves is based upon its known backlog, projected future
demand 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.




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FORM 10-QPART IITEM 1PAGE 11
  
 6.
    
    Inventories (continued)Inventories, net as of June 30, 2008 and December 31, 2007 (in thousands) were as
follows:
 June 30, 2008
    
    December 31, 2007Raw materials
    
    
    $ 25,479
    
    
    
    $ 23,711Work-in-process
    
    
    3,158
    
    
    
    2,656Finished goods
    
    
    4,480
    
    
    
    4,35733,117
    
    
    
    30,724Inventory reserves
    
    
    (7,092
    )
    
    
    (7,646
    )Inventories, net
    
    
    $ 26,025
    
    
    
    $ 23,078
 7.
    
    InvestmentsIn May 2007, the Company invested $1,000,000 in non-voting convertible preferred stock of
GWS. The Company made an additional $1,000,000 investment in February 2008, increasing its
ownership in GWS to approximately 30%. The Companys total gross investment in GWS was
$5,000,000 as of June 30, 2008, and $4,000,000 as of December 31, 2007. GWS designs,
develops and manufactures high performance power semiconductors. A director of the Company
is the founder, Chairman of the Board, President and Chief Executive Officer, as well as
the majority voting shareholder, of GWS. The Company and GWS are parties to an
intellectual property cross-licensing agreement, and the Company purchases certain
components from GWS. Purchases from GWS totaled approximately $970,000 for the six months
ended June 30, 2008.As previously disclosed, the Company, due to the additional investment in GWS in May 2007,
changed its method of accounting for its investment in GWS from the cost method to the
equity method of accounting. As a result, the Companys financial statements for the years
ended December 31, 2003, 2004, 2005, and 2006 were restated to reflect the equity method of
accounting, in accordance with Accounting Principles Board Opinion No. 18, The Equity
Method of Accounting for Investments in Common Stock(APB 18).In accordance with APB 18, each investment in GWS has been accounted for as a step
acquisition using the purchase method of accounting, in accordance with SFAS 141, Business
Combinations. The allocation of the purchase price included acquired intangible assets,
including core and developed technology as well as in-process research and development
(IPR&D). The excess of the purchase price over the fair value allocated to the net assets
is goodwill. The core and developed technology is being amortized over three years. The
amounts allocated to IPR&D were charged to expense in accordance with SFAS 141, which
specifies that the amount assigned to the acquired intangible assets to be used in a
particular research and development project that have no alternative future use shall be
charged to expense at the acquisition date.




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##### Table of Contents



FORM 10-QPART IITEM 1PAGE 12
  
 7.
    
    Investments (continued)The amounts included in Other assets in the accompanying consolidated balance sheets
related to the net GWS investment were $726,000 and $687,000 as of June 30, 2008, and
December 31, 2007, respectively, as follows (in thousands):
 June 30,
    
    
    December 31,2008
    
    
    2007Equity method goodwill
    
    
    $ 606
    
    
    
    $ 634Intangible assets, net of
amortization
    
    
    120
    
    
    
    53$ 726
    
    
    
    $ 687
 Loss from equity method investment, net of tax presented in the accompanying condensed
consolidated statements of operations for the three and six months ended June 30 consists of
the following (in thousands):
 Three Months Ended
    
    Six Months EndedJune 30
    
    June 302008
    
    2007
    
    2008
    
    2007Allocation of losses from equity
method
investment, net of tax
    
    
    $145
    
    
    
    $  61
    
    
    
    $174
    
    
    
    $  83Amortization of intangible assets
and other, net of tax
    
    
    27
    
    
    
    75
    
    
    
    82
    
    
    
    134Other than temporary
decline in investment
    
    
    -
    
    
    
    620
    
    
    
    706
    
    
    
    620Loss from equity method investment,
net of tax
    
    
    $172
    
    
    
    $756
    
    
    
    $962
    
    
    
    $837
 The Company periodically evaluates the investment in GWS to determine if there are any events
or circumstances likely to have a significant adverse effect on the fair value of the investment,
including the net book value of acquired intangible assets and goodwill. Examples of such
impairment indicators include, but are not limited to: GWS actual results of operations; actual
results of operations compared to forecast; working capital requirements; additional third-party
equity investment, if any; and
other considerations. If an impairment indicator is identified, the fair value of the
investment is estimated and compared it to its carrying value. If the fair value of the investment
is less than its carrying




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##### Table of Contents



FORM 10-QPART IITEM 1PAGE 13
  
 7.
    
    Investments (continued)value, the investment is impaired and a determination is made as to whether the impairment
is other-than-temporary. For other-than-temporary impairments, an impairment loss equal to
the difference between an investments carrying value and its fair value is recognized. In
the first quarter of 2008, the investment was adjusted for a decline in value judged to be
other than temporary of $706,000. Deterioration or changes in GWS business in the future
could lead to impairment adjustments in future periods and such impairment adjustments may
be material.Summary financial information for GWS is as follows (in thousands):
 As ofJune 30,
    
    December 31,2008
    
    2007(unaudited)Current assets
    
    
    $1,913
    
    
    
    $2,322Noncurrent assets
    
    
    3,064
    
    
    
    3,110Total assets
    
    
    4,977
    
    
    
    5,432Current liabilities
    
    
    1,812
    
    
    
    1,743Noncurrent liabilities
    
    
    400
    
    
    
    1,354Minority interests
    
    
    3,638
    
    
    
    3,614Total stockholders equity (deficit)
    
    
    (873
    )
    
    
    (1,280
    )
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,(unaudited)2008
    
    2007
    
    2008
    
    2007Net revenue
    
    $
    712
    
    
    $
    300
    
    
    $
    2,444
    
    
    $
    682Gross margin
    
    
    321
    
    
    
    54
    
    
    
    815
    
    
    
    188Net income (loss)
    
    
    (485
    )
    
    
    (278
    )
    
    
    (596
    )
    
    
    (402
    )




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##### Table of Contents



FORM 10-QPART IITEM 1PAGE 14
  
 8.
    
    Product Warranties
   Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Balance at the beginning of the period
    
    $
    693
    
    
    $
    1,011
    
    
    $
    679
    
    
    $
    1,046Accruals for warranties for products
sold in the period
    
    
    209
    
    
    
    164
    
    
    
    269
    
    
    
    190Fulfillment of warranty obligations
    
    
    (19
    )
    
    
    (90
    )
    
    
    (71
    )
    
    
    (126
    )Revisions of estimated obligations
    
    
    (77
    )
    
    
    (207
    )
    
    
    (71
    )
    
    
    (232
    )Balance at the end of the period
    
    $
    806
    
    
    $
    878
    
    
    $
    806
    
    
    $
    878
 Accounting for Separately Priced Extended Warranty and Product Maintenance
Contracts
 9.
    
    Income Taxes




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##### Table of Contents



FORM 10-QPART IITEM 1PAGE 15
  
 9.
    
    Income Taxes (continued)
   Three Months Ended
    
    Six Months EndedJune 30
    
    June 302008
    
    2007
    
    2008
    
    2007Provision for income
taxes
    
    $
    350
    
    
    $
    298
    
    
    $
    592
    
    
    $
    287Effective income tax rate
    
    
    43.7
    %
    
    
    14.7
    %
    
    
    69.6
    %
    
    
    6.5
    %
  10.
    
    Comprehensive (Loss) Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007

    
    
    2008
    
    
    2007Net income (loss)
    
    $
    (1,323
    )
    
    $
    974
    
    
    $
    (703
    )
    
    $
    3,295Foreign currency translation (loss) gain
    
    
    (109
    )
    
    
    (44
    )
    
    
    74
    
    
    
    (30
    )Unrealized (losses) gains, net of tax,
on
available for sale securities
    
    
    (250
    )
    
    
    -
    
    
    
    (2,250
    )
    
    
    6Comprehensive (loss) income
    
    $
    (1,682
    )
    
    $
    930
    
    
    $
    (2,879
    )
    
    $
    3,271




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##### Table of Contents



FORM 10-QPART IITEM 1PAGE 16
  
 10.
    
    Comprehensive (Loss) Income (continued):
  11.
    
    Legal Proceedings




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##### Table of Contents



FORM 10-QPART IITEM 1PAGE 17
  
 12.
    
    Segment Information
   BBU
    
    V*I Chip
    
    Picor
    
    Corporate
    
    Eliminations
    
    Total2008:Net revenues
    
    $
    45,963
    
    
    $
    3,195
    
    
    $
    1,192
    
    
    $
    -
    
    
    $
    (1,053
    )
    
    $
    49,297Income (loss) from
operations
    
    
    6,220
    
    
    
    (6,614
    )
    
    
    (542
    )
    
    
    39
    
    
    
    132
    
    
    
    (765
    )Total assets
    
    
    161,878
    
    
    
    16,084
    
    
    
    7,757
    
    
    
    102,813
    
    
    
    (103,913
    )
    
    
    184,619Depreciation and
amortization
    
    
    1,469
    
    
    
    674
    
    
    
    94
    
    
    
    388
    
    
    
    -
    
    
    
    2,6252007:Net revenues
    
    $
    45,601
    
    
    $
    1,422
    
    
    $
    1,124
    
    
    $
    -
    
    
    $
    (941
    )
    
    $
    47,206Income (loss) from
operations
    
    
    6,228
    
    
    
    (5,769
    )
    
    
    (709
    )
    
    
    1,207
    
    
    
    165
    
    
    
    1,122Total assets
    
    
    127,786
    
    
    
    10,020
    
    
    
    7,367
    
    
    
    117,020
    
    
    
    (64,822
    )
    
    
    197,371Depreciation and
amortization
    
    
    2,076
    
    
    
    502
    
    
    
    97
    
    
    
    377
    
    
    
    -
    
    
    
    3,052
  BBU
    
    V*I Chip
    
    Picor
    
    Corporate
    
    Eliminations
    
    Total2008:Net revenues
    
    $
    94,975
    
    
    $
    7,508
    
    
    $
    2,335
    
    
    $
    -
    
    
    $
    (2,052
    )
    
    $
    102,766Income (loss) from
operations
    
    
    13,797
    
    
    
    (12,757
    )
    
    
    (1,223
    )
    
    
    (109
    )
    
    
    424
    
    
    
    132Total assets
    
    
    161,878
    
    
    
    16,084
    
    
    
    7,757
    
    
    
    102,813
    
    
    
    (103,913
    )
    
    
    184,619Depreciation and
amortization
    
    
    3,010
    
    
    
    1,249
    
    
    
    191
    
    
    
    761
    
    
    
    -
    
    
    
    5,2112007:Net revenues
    
    $
    91,476
    
    
    $
    2,393
    
    
    $
    2,277
    
    
    $
    -
    
    
    $
    (1,959
    )
    
    $
    94,187Income (loss) from
operations
    
    
    13,766
    
    
    
    (11,637
    )
    
    
    (1,298
    )
    
    
    817
    
    
    
    288
    
    
    
    1,936Total assets
    
    
    127,786
    
    
    
    10,020
    
    
    
    7,367
    
    
    
    117,020
    
    
    
    (64,822
    )
    
    
    197,371Depreciation and
amortization
    
    
    4,027
    
    
    
    988
    
    
    
    212
    
    
    
    958
    
    
    
    -
    
    
    
    6,185




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FORM 10-QPART IITEM 1PAGE 18
  
 12.
    
    Segment Information (continued)
  13.
    
    Dividends
   14.
    
    Impact of Recently Issued Accounting Standards
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements Consolidated
Financial Statements




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##### Table of Contents



FORM 10-QPART IITEM 1PAGE 19
  
 14.
    
    Impact of Recently Issued Accounting Standards (continued)
 Determination of the
Useful Life of Intangible Assets Goodwill and Other Intangible Assets




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FORM 10-QPART IITEM 1PAGE 20
  
 
 Item 2
- Managements Discussion and Analysis of Financial Condition and Results of
Operations
  Critical Accounting Policies and Estimates
  Fair Value Measurements
 Fair Value Measurements




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FORM 10-QPART IITEM 2PAGE 21
  
 Results of Operations
 Three months ended June 30, 2008, compared to three months ended June 30, 2007




---



##### Table of Contents



FORM 10-QPART IITEM 2PAGE 22
  
  Increase (decrease)Compensation expenses
    
    
    $   970
    
    18.5%
    
    
    
    (1)Vicor Integration Architects (VIA) related
expenses
    
    
    443
    
    77.5%
    
    
    
    (2)Audit and tax fees
    
    
    255
    
    92.9%
    
    
    
    (3)Vicor Japan related expenses
    
    
    218
    
    29.1%
    
    
    
    (4)Training, consultants & computer expense
    
    
    142
    
    49.4%Travel expense
    
    
    133
    
    26.4%Advertising expense
    
    
    104
    
    16.7%Bad debt expense
    
    
    (168
    )
    (99.7%
    )Legal fees
    
    
    (434
    )
    (46.8%
    )
    
    
    (5)Other, net
    
    
    149
    
    5.3%$ 1,812
    
    14.9%
 (1)
    
    Increase primarily attributed to annual compensation adjustments in May 2008,
an increase in stock compensation expense and increases in headcount.(2)
    
    Increase primarily attributed to $262,000 in increased compensation expense,
$68,000 in increased employee benefit costs and $27,000 of increased bad debt expense.(3)
    
    Increase primarily attributed to the late filings of the Companys 2007 Forms
10-Q and additional work related to accounting for the Companys investment in GWS.(4)
    
    Increase primarily attributed to annual compensation adjustments in May 2008,
increases in headcount and increased transportation costs.(5)
    
    Decrease primarily attributed to less legal activity related to the Ericsson
matter that settled in the first quarter of 2007 (see Note 11. Legal
Proceedings in the Notes to Condensed Consolidated Financial Statements in Part I -
Item 1 - Financial Statements) and to litigation against Concurrent Computer
Corporation settled in the third quarter of 2007.




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FORM 10-QPART IITEM 2PAGE 23
  
  Increase (decrease)Compensation
    
    $
    326
    
    
    
    6.4%
    
    
    
    (1)Project materials
    
    
    225
    
    
    
    27.2%
    
    
    
    (2)Picor non-recurring engineering charges
    
    
    (65
    )
    
    
    (51.5%
    )
    
    
    (3)Other, net
    
    
    (73
    )
    
    
    (3.9%
    )$
    413
    
    
    
    5.4%
 (1)
    
    Increase primarily attributed to annual compensation adjustments in May 2008.(2)
    
    Increase primarily attributed to the re-engineering of certain V*I Chip materials and
processes.(3)
    
    Decrease primarily attributed to more costs being allocated to cost of revenues.




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FORM 10-QPART IITEM 2PAGE 24
  
  Increase2008
    
    
    2007
    
    
    (decrease)Interest income
    
    $
    520
    
    
    $
    973
    
    
    $
    (453
    )Minority interest in net income of subsidiaries
    
    
    (506
    )
    
    
    (77
    )
    
    
    (429
    )Foreign currency losses
    
    
    (59
    )
    
    
    (77
    )
    
    
    18Other
    
    
    9
    
    
    
    87
    
    
    
    (78
    )$
    (36
    )
    
    $
    906
    
    
    $
    (942
    )
 Legal Proceedings
   Three Months EndedJune 30,2008
    
    2007Provision for income taxes
    
    $
    350
    
    
    $
    298Effective income tax rate
    
    
    43.7
    %
    
    
    14.7
    %




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FORM 10-QPART IITEM 2PAGE 25
  
   Six months ended June 30, 2008 compared to six months ended June 30, 2007




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##### Table of Contents



FORM 10-QPART IITEM 2PAGE 26
  
  Increase (decrease)Compensation expense
    
    $
    1,875
    
    
    
    18.3%
    
    
    
    (1)VIA related expenses
    
    
    744
    
    
    
    56.3%
    
    
    
    (2)Audit and tax fees
    
    
    607
    
    
    
    81.7%
    
    
    
    (3)Vicor Japan related expenses
    
    
    362
    
    
    
    24.4%
    
    
    
    (4)Advertising expense
    
    
    244
    
    
    
    21.6%Training, consultants and
computer expense
    
    
    196
    
    
    
    33.5%Travel expense
    
    
    189
    
    
    
    20.0%Legal fees
    
    
    (169
    )
    
    
    (10.4%
    )
    
    
    (5)Bad debt expense
    
    
    (182
    )
    
    
    (95.5%
    )Depreciation and amortization
    
    
    (223
    )
    
    
    (11.6%
    )
    
    
    (6)Other, net
    
    
    208
    
    
    
    5.3%$
    3,851
    
    
    
    15.9%
 (1)
    
    Increase primarily attributed to annual compensation adjustments in May 2008 and
increases in headcount. The increase in compensation expense included previously unidentified
compensation-related accruals of $320,000 for certain of the Companys international subsidiaries
and additional stock compensation expense of $90,000 identified and recorded in the first quarter
of 2008. The impact on the first quarter of 2008, as well as on prior periods, was not material.(2)
    
    Increase primarily attributed to $446,000 of increased commission expense,
$163,000 of increased employee benefit costs and $78,000 of increased indirect labor.(3)
    
    Increase primarily attributed to the late filings of the Companys 2007 Forms
10-Q and additional work related to accounting for the Companys investment in GWS.(4)
    
    Increase primarily attributed to annual compensation adjustments in May 2008,
increases in headcount and increased transportation costs.(5)
    
    Decrease primarily attributed to less legal activity related to the Ericsson
matter that settled in the first quarter of 2007 (see Note 11. Legal
Proceedings in the Notes to Condensed Consolidated Financial Statements in Part I -
Item 1 - Financial Statements) and to litigation against Concurrent Computer
Corporation settled in the third quarter of 2007.(6)
    
    Decrease primarily attributed to a decrease in patent amortization expense.




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FORM 10-QPART IITEM 2PAGE 27
  
  Increase (decrease)Compensation
    
    $
    415
    
    
    
    4.1%
    
    
    
    (1)Project materials
    
    
    224
    
    
    
    14.1%
    
    
    
    (2)Picor non-recurring
engineering charges
    
    
    (152
    )
    
    
    (57.3%
    )
    
    
    (3)Other, net
    
    
    37
    
    
    
    1.0%$
    524
    
    
    
    3.5%
 (1)
    
    The increase primarily attributed to annual compensation adjustments in May 2008.(2)
    
    Increase primarily attributed to the re-engineering of certain V*I Chip materials and
processes.(3)
    
    Decrease primarily attributed to more costs being allocated to cost of revenues.




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##### Table of Contents



FORM 10-QPART IITEM 2PAGE 28
  
  Increase2008
    
    
    2007
    
    
    (decrease)Interest income
    
    $
    1,424
    
    
    $
    2,512
    
    
    $
    (1,088
    )Minority interest in net income
of subsidiaries
    
    
    (951
    )
    
    
    (89
    )
    
    
    (862
    )Foreign currency gains (losses)
    
    
    203
    
    
    
    (36
    )
    
    
    239Other
    
    
    43
    
    
    
    96
    
    
    
    (53
    )$
    719
    
    
    $
    2,483
    
    
    $
    (1,764
    )
 Legal Proceedings
   Six Months EndedJune 302008
    
    2007Provision for income taxes
    
    $
    592
    
    
    $
    287Effective income tax rate
    
    
    69.6
    %
    
    
    6.5
    %




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##### Table of Contents



FORM 10-QPART IITEM 2PAGE 29




---



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FORM 10-QPART IITEM 2PAGE 30




---



##### Table of Contents



FORM 10-QPART IITEM 2PAGE 31
  
  Liquidity and Capital Resources




---



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FORM 10-QPART IITEM 2PAGE 32




---



##### Table of Contents



FORM 10-QPART IITEMS 3-4PAGE 33
   
 Item 3
 Quantitative and Qualitative Disclosures About Market Risk
    
 Item 4
 Controls and Procedures




---



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FORM 10-QPART IITEM 4PAGE 34




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FORM 10-QPART IITEM 4PAGE 35
     
    
    The Company has hired a new Chief Financial
Officer with the appointment of James A. Simms,
effective April 14, 2008.
    
    The Company has reorganized its Accounting
Department, in the process redefining certain
duties and responsibilities in order to address
specific weaknesses and deficiencies
identified. The Company also is assessing on
an ongoing basis the staffing requirements for
the Accounting Department so that it has the
resources and expertise to evaluate complex and
judgmental accounting, tax and financial
reporting issues.
    
    The Company is amending and expanding its disclosure controls and
procedures, including the implementation of a Disclosure Committee with
responsibility for oversight of implementation and execution of the disclosure
controls and procedures.




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##### Table of Contents



FORM 10-QPART IIITEMS 1-3PAGE 36
  
   
 Item 1 - Legal Proceedings
 Legal Proceedings
 
 Item 1A - Risk Factors
  
 Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
 Issuer Purchases of Equity Securities
 Maximum Number(or ApproximateTotal Number of
    
    Dollar Value) ofShares (or Units)
    
    Shares (or Units)Total Number
    
    
    
    
    
    Purchased as Part
    
    that May Yet Beof Shares (or
    
    
    
    
    
    of Publicly
    
    Purchased UnderUnits)
    
    Average Price Paid
    
    Announced Plans or
    
    the Plans orPeriod
    
    Purchased
    
    per Share (or Unit)
    
    Programs
    
    ProgramsApril 1  30, 2008
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    $ 8,541,000May 1  31, 2008
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    $ 8,541,000June 1  30, 2008
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    $ 8,541,000Total
    
    
    -
    
    
    $
    -
    
    
    
    -
    
    
    
    $ 8,541,000
  
 Item 3 - Defaults Upon Senior Securities




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FORM 10-QPART IIITEMS 4-6PAGE 37
 
 
 Item 4 - Submission of Matters to a Vote of Security Holders
   Nominee
    
    Votes For
    
    
    Votes WithheldPatrizio Vinciarelli
    
    
    139,765,965
    
    
    
    4,316,917Estia J. Eichten
    
    
    142,980,664
    
    
    
    1,102,218Barry Kelleher
    
    
    139,706,014
    
    
    
    4,376,868David T. Riddiford
    
    
    142,981,449
    
    
    
    1,101,433Samuel Anderson
    
    
    138,853,805
    
    
    
    5,229,077James A. Simms
    
    
    139,653,537
    
    
    
    4,429,345Claudio Tuozzolo
    
    
    139,722,514
    
    
    
    4,360,368
  
 Item 5 - Other Information
  
 Item 6 - Exhibits
 Exhibit Number
    
    Description31.1
    
    
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 193431.2
    
    
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 193432.1
    
    
    
    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 200232.2
    
    
    
    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




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##### Table of Contents



Form 10-QPART IIPAGE 38
 
 SIGNATURES
  VICOR CORPORATIONDate:  August 11, 2008
    By:
    /s/ Patrizio VinciarelliPatrizio VinciarelliPresident, Chief Executive Officer
and Chairman of the Board
(Principal Executive Officer)Date:  August 11, 2008
    By:
    /s/ James A. SimmsJames A. SimmsVice President, Chief Financial Officer
(Principal Financial Officer)