----

----

**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-K**

**ANNUAL      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934**

**OR**

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

**000-17219**

**CLEARONE      COMMUNICATIONS, INC.**

| **Utah**                                                                                     |   | **87-0398877**                                                     |
|----------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------|
| (State                or other jurisdiction of incorporation                or organization) |   | (I.R.S.                Employer Identification                No.) |

**5225      Wiley Post Way, Suite 500**

**Salt      Lake City, Utah 84116**

**(801)      975-7200**

**Securities      registered under Section 12(b) of the Act: Common Stock, $0.001 par      value**

**Securities      registered under Section 12(g) of the Act: None **

----

----

----

**DOCUMENTS      INCORPORATED BY REFERENCE**

*e.g.*
*e.g.*

----

**INDEX**

|                                                                     |                                                                                                                                                    | **PAGE**  |
|--------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|----------------|
| **DISCLOSURE                REGARDING FORWARD-LOOKING STATEMENTS**  | 4                                                                                                                                                  |
|                                                                     |                                                                                                                                                    |           |
| **PART                I.**                                          |                                                                                                                                                    |           |
| ITEM                1.                                              | BUSINESS                                                                                                                                           | 4         |
| ITEM                1A.                                             | RISK                FACTORS                                                                                                                        | 16        |
| ITEM                1B.                                             | UNRESOLVED                STAFF COMMENTS                                                                                                           | 21        |
| ITEM                2.                                              | PROPERTIES                                                                                                                                         | 22        |
| ITEM                3.                                              | LEGAL                PROCEEDINGS                                                                                                                   | 22        |
| ITEM                4.                                              | SUBMISSION                OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                                 | 23        |
|                                                                     |                                                                                                                                                    |           |
| **PART                II.**                                         |                                                                                                                                                    |           |
| ITEM                5.                                              | MARKET                FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER                PURCHASES OF EQUITY SECURITIES  | 24        |
| ITEM                6.                                              | SELECTED                FINANCIAL DATA                                                                                                             | 27        |
| ITEM                7.                                              | MANAGEMENT’S                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF                OPERATIONS                          | 30        |
| ITEM                7A.                                             | QUANTITATIVE                AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                          | 41        |
| ITEM                8.                                              | FINANCIAL                STATEMENTS AND SUPPLEMENTAL DATA                                                                                          | 41        |
| ITEM                9.                                              | CHANGE                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL                DISCLOSURE                                  | 41        |
| ITEM                9A.                                             | CONTROLS                AND PROCEDURES                                                                                                             | 42        |
| ITEM                9B.                                             | OTHER                INFORMATION                                                                                                                   | 42        |
|                                                                     |                                                                                                                                                    |           |
| **PART                III.**                                        |                                                                                                                                                    |           |
| ITEM                10.                                             | DIRECTORS                AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                                                  | 43        |
| ITEM                11.                                             | EXECUTIVE                COMPENSATION                                                                                                              | 43        |
| ITEM                12.                                             | SECURITY                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED                STOCKHOLDER MATTERS                       | 43        |
| ITEM                13.                                             | CERTAIN                RELATIONSHIPS AND RELATED TRANSACTIONS                                                                                      | 43        |
| ITEM                14.                                             | PRINCIPAL                ACCOUNTANT FEES AND SERVICES                                                                                              | 43        |
|                                                                     |                                                                                                                                                    |           |
| **PART                IV.**                                         |                                                                                                                                                    |           |
| ITEM                15.                                             | EXHIBITS                AND FINANCIAL STATEMENT SCHEDULES                                                                                          | 44        |
|                                                                     |                                                                                                                                                    |           |
| **SIGNATURES**                                                      |                                                                                                                                                    | 46        |

----

**DISCLOSURE      REGARDING FORWARD-LOOKING STATEMENTS**

**PART I**

**ITEM      1. BUSINESS**

**Overview      **

----

**Business      Strategy**

| **Market**                                            | **Typical                Number of Participants** |
|------------------------------------------------------------|---------------------------------------------------|
| ·  Professional                Conferencing | 20-200                                            |
| ·  Premium                Conferencing      | 8-30                                              |
| ·  Tabletop                Conferencing     | 1-30                                              |
| ·  Personal                Conferencing     | 1-15                                              |

*Provide      a superior conferencing experience*

*Offer      greater value to our customers*

*Leverage      and extend ClearOne technology leadership and innovation*

*Expand      and strengthen sales channels*

----

*Broaden      our product offerings *

| ·   | Professionally                installed audio conferencing systems that are used in executive                boardrooms, courtrooms, hospitals, and auditoriums that integrate                with all                leading video and telepresence                systems |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Premium                conferencing systems that integrate with video and web conferencing                systems |
|--------------------|-------------------------------------------------------------------------------------------------------------------|

| ·   | Tabletop                conferencing phones used in conference rooms and                offices |
|--------------------|-------------------------------------------------------------------------------------------------|

| ·   | Personal                conferencing devices that enable hands-free audio communications                in new                ways that have never before been possible—softphones, web collaboration,                enterprise handsets |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Develop      strategic partnerships*

*Strengthen      existing customer relationships through dedicated support*

**Markets      and Products **

***Products      Overview***

----

| ·   | Increasing                availability of easy-to-use audio conferencing                equipment |
|--------------------|---------------------------------------------------------------------------------------------------|

| ·   | Improving                voice quality of audio conferencing systems compared to telephone                handset                speakerphones |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Trending                expansion of global, regional, and local corporate                enterprises |
|--------------------|-------------------------------------------------------------------------------------------------------|

| ·   | Availability                of a wider range of affordable audio conferencing products for small                businesses and home offices |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Growth                of distance learning and corporate training                programs |
|--------------------|-------------------------------------------------------------------------------------------|

| ·   | Trend                toward deploying greater numbers of                teleworkers |
|--------------------|-------------------------------------------------------------------------------------|

| ·   | Decreases                in the amount of travel within most enterprises for routine                meetings |
|--------------------|--------------------------------------------------------------------------------------------------------------|

| ·   | Transition                to the Internet Protocol (“IP”) network from the traditional public                switched telephone network (“PSTN”) and the deployment of Voice over                Internet Protocol (“VoIP”)                applications |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Professional      Audio Conferencing Products**

----

**Premium      Conferencing Systems**

**Tabletop      Conferencing Phones **

**Personal      Conferencing Products**

----

| PCs                & Macs                      | VoIP                telephony applications such as Skype & Vonage; enterprise softphones,                audio for web-based videoconferencing applications; gaming; audio                playback  |
|---------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Cell                phones                         | Connects                to the 2.5mm headset jack for hands-free, full-duplex audio                conferencing                                                                                         |
| Telephones                                         | Connects                to the headset jack (certain phone models) for hands-free, full-duplex                audio conferencing                                                                        |
| iPods                & MP3 players             | For                full-bandwidth audio playback                                                                                                                                                        |
| Desktop                video conferencing systems  | For                hands-free, full-duplex audio conferencing                                                                                                                                           |

**Other      Products**

**Marketing      and Sales**

----

***Distributors***

***Independent      Integrators, Dealers, and Resellers***

***Marketing***

| ·   | InfoComm                - the AV industry’s largest trade show. In June 2007 we had a strong                presence at InfoComm, where we highlighted a significant number of                new                products, including our new Converge Pro professional conferencing                platform and Chat 150 product. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | National                Systems Contractors Association (“NSCA”) - this show focuses on the sound                reinforcement industry, and we highlight our professional audio                conferencing products. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | A/V                Integrator trade shows - we regularly invest and participate in trade                shows hosted by our partners, namely system integrators. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Customers**

----

**Competition      **

----

**Regulatory      Environment**

**Sources      and Availability of Raw Materials**

**Seasonality**

**Product      Development **

----

**Manufacturing      **

| ·   | Avoidance                of a significant investment in upgrading our manufacturing                infrastructure; |
|--------------------|--------------------------------------------------------------------------------------------------------------------|

| ·   | RoHS-compliant                manufacturing facilities; |
|--------------------|---------------------------------------------------------|

| ·   | Scalability                in our manufacturing process without major investment or major                restructuring costs; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------|

| ·   | Achievement                of future cost reductions on manufacturing costs and inventory costs                based                upon increased economies of scale in material and labor;                and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Manufacturing                world class quality products by partnering with outsource manufacturers                certified with International                Organization of Standardization (ISO)                processes. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Intellectual      Property and Other Proprietary Rights **

----

**Employees**

|                                 | **Employees                of as** |
|--------------------------------------|------------------------------------|
|                                 | **June                30, 2007**   | **June                30, 2006** | **June                30, 2005** |
| Sales,                marketing, and |                               |   |   |
| customer                support      | 32                                 | 44 | 45 |
| Product                development   | 37                                 | 49 | 43 |
| Operations                support    | 21                                 | 17 | 20 |
| Administration                       | 15                                 | 17 | 18 |
| Total                                | 105                                | 127 | 126 |

**Dispositions**

***Sale      of Assets to Burk Technology.***

***Sale      of our U.S. Audiovisual Integration Services***
**.      **

***Sale      of our Conferencing Services***
**.**
*** ***

----

***Sale      of OM Video - Canadian Audiovisual Integration      Services***
**.      **

***Sale      of our Document and Educational Camera Product Line.***

----

**ITEM      1A. RISK FACTORS **

*Investors      should carefully consider the risks described below. The risks described below      are not the only ones we face and there are risks that we are not presently      aware of or that we currently believe are immaterial that may also impair our      business operations. Any of these risks could harm our business. The trading      price of our common stock could decline significantly due to any of these risks,      and investors may lose all or part of their investment. In assessing these      risks, investors should also refer to the other information contained or      incorporated by reference in this Annual Report on Form 10-K, including our      June      30, 2007 consolidated financial statements and related notes.*

***Risks      Relating to Our Business***

*We      face intense competition in all markets for our products and services; our      operating results will be adversely affected if we cannot compete effectively      against other companies.*

*Difficulties      in estimating customer demand in our products segment could harm our profit      margins.*

*Our      sales depend to a certain extent on government funding and      regulation.*

*Environmental      laws and regulations subject us to a number of risks and could result in      significant costs and impact on revenue*

----

*Product      development delays or defects could harm our competitive position and reduce      our      revenues.*

| ·   | meeting                required specifications and regulatory standards; |
|--------------------|--------------------------------------------------------------------------|

| ·   | meeting                market expectations for                performance; |
|--------------------|----------------------------------------------------------------------------|

| ·   | hiring                and keeping a sufficient number of skilled developers; |
|--------------------|------------------------------------------------------------------------------|

| ·   | obtaining                prototype products at anticipated cost                levels; |
|--------------------|----------------------------------------------------------------------------------------|

| ·   | having                the ability to identify problems or product defects in the development                cycle; and |
|--------------------|------------------------------------------------------------------------------------------------------------------------|

| ·   | achieving                necessary manufacturing efficiencies. |
|--------------------|----------------------------------------------------------------|

*Our      profitability may be adversely affected by our continuing dependence on our      distribution channels.*

----

*Reporting      of channel inventory by certain distributors.*

*We      depend on an outsourced manufacturing strategy.*

*Product      obsolescence could harm demand for our products and could adversely affect      our      revenues and our results of operations.*

----

*If      we      are unable to protect our intellectual property rights or have insufficient      proprietary rights, our business would be materially impaired.*

*International      sales account for a significant portion of our net revenue and risks inherent      in      international sales could harm our business.*

| ·   | unexpected                changes in, or the imposition of, additional legislative or regulatory                requirements; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------|

| ·   | unique                environmental regulations; |
|--------------------|--------------------------------------------------|

| ·   | fluctuating                exchange rates; |
|--------------------|--------------------------------------------|

| ·   | tariffs                and other barriers; |
|--------------------|--------------------------------------------|

| ·   | difficulties                in staffing and managing foreign sales operations; |
|--------------------|--------------------------------------------------------------------------------|

| ·   | import                and export restrictions; |
|--------------------|------------------------------------------------|

| ·   | greater                difficulties in accounts receivable collection and longer payment                cycles; |
|--------------------|-----------------------------------------------------------------------------------------------------------------|

| ·   | potentially                adverse tax consequences; |
|--------------------|------------------------------------------------------|

| ·   | potential                hostilities and changes in diplomatic and trade                relationships; |
|--------------------|--------------------------------------------------------------------------------------------------------|

| ·   | disruption                in services due to natural disaster, economic or political difficulties,                quarantines, transportation, or other restrictions associated with                infectious diseases. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*We      may not be able to hire and retain qualified key and highly-skilled technical      employees, which could affect our ability to compete effectively and may cause      our revenue and profitability to decline.*

*Our      reliance on third-party technology or license agreements.*

*We      may have difficulty in collecting outstanding receivables.*

*Interruptions      to our business could adversely affect our operations.*

----

***Risks      Relating to Our Company***

*Our      stock price fluctuates as a result of the conduct of our business and stock      market fluctuations.*

| ·   | statements                or changes in opinions, ratings, or earnings estimates made by brokerage                firms or industry analysts relating to the market in which we do                business                or relating to us specifically; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | disparity                between our reported results and the projections of                analysts; |
|--------------------|-------------------------------------------------------------------------------------------------------|

| ·   | the                shift in sales mix of products that we currently sell to a sales                mix of                lower-gross profit product                offerings; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the                level and mix of inventory levels held by our                distributors; |
|--------------------|-----------------------------------------------------------------------------------------------|

| ·   | the                announcement of new products or product enhancements by us or our                competitors; |
|--------------------|------------------------------------------------------------------------------------------------------------------|

| ·   | technological                innovations by us or our                competitors; |
|--------------------|-----------------------------------------------------------------------------------|

| ·   | success                in meeting targeted availability dates for new or redesigned                products; |
|--------------------|--------------------------------------------------------------------------------------------------------------|

| ·   | the                ability to profitably and efficiently manage our supplies of products                and                key components; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the                ability to maintain profitable relationships with our                customers; |
|--------------------|----------------------------------------------------------------------------------------------------|

| ·   | the                ability to maintain an appropriate cost                structure; |
|--------------------|--------------------------------------------------------------------------------------|

| ·   | quarterly                variations in our results of                operations; |
|--------------------|----------------------------------------------------------------------------------|

| ·   | general                consumer confidence or general market conditions or market conditions                specific to technology industries; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | domestic                and international economic                conditions; |
|--------------------|-------------------------------------------------------------------------------|

| ·   | the                adoption of the new accounting standard, SFAS No. 123R, “Share-Based                Payments,” which requires us to record compensation expense for certain                options issued before July 1, 2005 and for all options issued or                modified                after June 30, 2005; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | our                ability to report financial information in a timely manner;                and |
|--------------------|---------------------------------------------------------------------------------------------------|

| ·   | the                markets in which our stock is                traded. |
|--------------------|-------------------------------------------------------------------------|

*We      have previously identified material weaknesses in our internal      controls.*

**ITEM      1B. UNRESOLVED STAFF COMMENTS**

----

**ITEM      2.** **PROPERTIES**

| **Location**                                      | **Operations**                      | **Square                Footage** | **Status** | **Expiration                of Lease Agreement** |
|---------------------------------------------------|-------------------------------------|-----------------------------------|------------|--------------------------------------------------|
|                                              |                                |                              |       |                                             |
| **Active                Leases at June 30, 2007** |                                |                              |       |
| Salt                Lake City, UT                 | Company                headquarters | 36,279                            | Continuing | December                2013                     |
| Salt                Lake City, UT                 | Warehouse                           | 17,000                            | Continuing | October                2009                      |

**ITEM      3. LEGAL PROCEEDINGS**

**U.S.      Attorney’s Investigation.**
* *

**Theft      of Trade Secret Action. **

----

**The      Shareholder Derivative Actions. **

**The      Insurance Coverage Action. **

**ITEM      4.** **SUBMISSION      OF MATTERS TO A VOTE OF SECURITY HOLDERS**

----

**PART      II**

**ITEM      5.** **MARKET      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER      PURCHASES OF EQUITY SECURITIES**

**Market      Information**

|                          |   | **2007** |   | **2006** |   |
|-------------------------------|--------|----------|--------|----------|--------|
|                          |   | **High** |   | **Low**  |   | **High** |   | **Low** |   |
|                          |   |     |   |     |   |   |   |   |   |
| First                Quarter  |   | $        | 3.75   |     | $      | 3.00 |   | $ | 4.10 |   | $ | 2.20 |   |
| Second                Quarter |   |     | 4.34   |     |   | 3.20 |   |   | 2.50 |   |   | 1.95 |   |
| Third                Quarter  |   |     | 6.69   |     |   | 4.05 |   |   | 3.60 |   |   | 2.25 |   |
| Fourth                Quarter |   |     | 6.58   |     |   | 4.57 |   |   | 4.25 |   |   | 3.50 |   |

**Shareholders**

**Dividends**

**Securities      Authorized for Issuance under Equity Compensation Plans**

----

|                               | **Number                of securities to be issued upon exercise of outstanding options,                warrants,                and rights** | **Weighted-average                exercise price of outstanding options, warrants and                rights** | **Number                of securities remaining available for future issuance under equity                compensation plans (excluding securities reflected in column                (a))** |
|------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                               | **(a)**                                                                                                                                       | **(b)**                                                                                                       | **(c)**                                                                                                                                                                                      |
| Equity                compensation |                                                                                                                                          |                                                                                                          |                                                                                                                                                                                         |
| plans                approved by   |                                                                                                                                          |                                                                                                          |                                                                                                                                                                                         |
| security                holders    | 1,273,199                                                                                                                                     | $5.38                                                                                                         | 908,737                                                                                                                                                                                      |
| Equity                compensation |                                                                                                                                          |                                                                                                          |                                                                                                                                                                                         |
| by                security holders | -                                                                                                                                             | -                                                                                                             | -                                                                                                                                                                                            |
| Total                              | 1,273,199                                                                                                                                     | $5.38                                                                                                         | 908,737                                                                                                                                                                                      |

**Recent      Sales of Unregistered Securities: Use of Proceeds from Registered      Securities.**

**Issuer      Purchases of Equity Securities.**

| **Period**                                    | **Total                Number of Shares Purchased** | **Average                Price Paid per Share** | **Total                Number of Shares Purchased as Part of Publicly Announced Plans or                Programs** | **Maximum                Number (or Approximate Dollar Value) of Shares that May by Purchased                Under                the Plans or Programs (1)** |
|-----------------------------------------------|-----------------------------------------------------|-------------------------------------------------|--------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
| April                1, 2007 - April 30, 2007 | 0                                                   | $0                                              | 0                                                                                                                  | $721,000                                                                                                                                                      |
| May                1, 2007 - May 31, 2007     | 27,000                                              | $6.32                                           | 27,000                                                                                                             | $550,000                                                                                                                                                      |
| June                1, 2007 - June 30, 2007   | 0                                                   | $0                                              | 27,000                                                                                                             | $550,000                                                                                                                                                      |
| Total                                         | 27,000                                              |                                            | 27,000                                                                                                             |                                                                                                                                                          |

| (1)   | On                August 31, 2006, we announced that our Board of Directors had approved                a                stock buy-back program to purchase up to $2,000,000 of our common                stock                over the next 12 months on the open market. All repurchased shares                were                immediately retired. The stock buy-back program expired in August                2007. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Employee      Stock Purchase Program.**

----

**Performance      Graph**

|                                           |   | June                2002 |   | June                2003 |   | June                2004 |   | June                2005 |   | June                2006 |   | June                2007 |   |
|------------------------------------------------|--------|--------------------------|--------|--------------------------|--------|--------------------------|--------|--------------------------|--------|--------------------------|--------|--------------------------|--------|
| ClearOne                Communications, Inc.   |   | $                        | 100    |                     | $      | 20.37                    |   | $                        | 51.89  |                     | $      | 34.91                    |   | $ | 33.02 |   | $ | 44.34 |   |
| Nasdaq                Composite Index          |   | $                        | 100    |                     | $      | 75.11                    |   | $                        | 94.78  |                     | $      | 95.21                    |   | $ | 100.53 |   | $ | 120.49 |   |
| Morgan                Stanley Technology Index |   | $                        | 100    |                     | $      | 110.12                   |   | $                        | 147.45 |                     | $      | 141.23                   |   | $ | 147.75 |   | $ | 185.89 |   |

----

**ITEM      6.** **SELECTED      FINANCIAL DATA**

**SELECTED      CONSOLIDATED FINANCIAL DATA **

**(in      thousands of dollars, except per share data)**

|                                                                        |   | **Years                Ended June 30,** |       |
|-----------------------------------------------------------------------------|--------|-----------------------------------------|------------|
|                                                                        |   | **2007**                                |       | **2006** |   | **2005** |   | **2004** |   | **2003** |   |
|                                                                        |   |                                    |       |   |   |   |   |   |   |   |   |
| **Operating                results:**                                       |   |                                    |       |   |   |   |   |   |   |   |   |
| Revenue                                                                     |   | $                                       | 39,861     |   | $ | 35,362 |   | $ | 29,087 |   | $ | 25,736 |   | $ | 23,999 |   |
| Costs                and expenses:                                          |   |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost                of goods sold                                           |   |                                    | 17,723     |   |   | 17,375 |   |   | 12,720 |   |   | 14,760 |   |   | 15,537 |   |
| Marketing                and selling                                        |   |                                    | 7,791      |   |   | 7,866 |   |   | 9,070 |   |   | 8,497 |   |   | 7,070 |   |
| Research                and product development                             |   |                                    | 7,535      |   |   | 8,299 |   |   | 5,305 |   |   | 4,237 |   |   | 3,281 |   |
| General                and administrative                                   |   |                                    | 3,091      |   |   | 5,108 |   |   | 5,489 |   |   | 6,767 |   |   | 5,915 |   |
| Settlement                in shareholders' class action                     |   |                                    | -          |   |   | (1,205 | ) |   | (2,046 | ) |   | 4,080 |   |   | 7,325 |   |
| Impairment                losses                                            |   |                                    | -          |   |   | - |   |   | 180 |   |   | - |   |   | 5,102 |   |
| Restructuring                charge                                         |   |                                    | -          |   |   | - |   |   | 110 |   |   | - |   |   | - |   |
| Operating                income (loss)                                      |   |                                    | 3,721      |   |   | (2,081 | ) |   | (1,741 | ) |   | (12,605 | ) |   | (20,231 | ) |
| Other                income (expense), net                                  |   |                                    | 1,523      |   |   | 1,016 |   |   | 318 |   |   | (261 | ) |   | 48 |   |
| Income                (loss) from continuing operations before income taxes |   |                                    | 5,244      |   |   | (1,065 | ) |   | (1,423 | ) |   | (12,866 | ) |   | (20,183 | ) |
| (Provision)                benefit for income taxes                         |   |                                    | (457       | ) |   | 1,005 |   |   | 3,370 |   |   | 964 |   |   | 2,094 |   |
| Income                (loss) from continuing operations                     |   |                                    | 4,787      |   |   | (60 | ) |   | 1,947 |   |   | (11,902 | ) |   | (18,089 | ) |
| Income                (loss) from discontinued operations                   |   |                                    | 422        |   |   | 2,155 |   |   | 14,128 |   |   | 2,015 |   |   | (17,883 | ) |
| Net                income (loss)                                            |   | $                                       | 5,209      |   | $ | 2,095 |   | $ | 16,075 |   | $ | (9,887 | ) | $ | (35,972 | ) |
|                                                                        |   |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Earnings                (loss) per common share:**                        |   |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                earnings (loss) from continuing operations             |   | $                                       | 0.42       |   | $ | (0.01 | ) | $ | 0.17 |   | $ | (1.08 | ) | $ | (1.62 | ) |
| Diluted                earnings (loss) from continuing operations           |   | $                                       | 0.41       |   | $ | (0.01 | ) | $ | 0.16 |   | $ | (1.08 | ) | $ | (1.62 | ) |
| Basic                earnings (loss) from discontinued operations           |   | $                                       | 0.04       |   | $ | 0.18 |   | $ | 1.26 |   | $ | 0.18 |   | $ | (1.60 | ) |
| Diluted                earnings (loss) from discontinued operations         |   | $                                       | 0.04       |   | $ | 0.18 |   | $ | 1.15 |   | $ | 0.18 |   | $ | (1.60 | ) |
| Basic                earnings (loss)                                        |   | $                                       | 0.45       |   | $ | 0.18 |   | $ | 1.44 |   | $ | (0.89 | ) | $ | (3.21 | ) |
| Diluted                earnings (loss)                                      |   | $                                       | 0.45       |   | $ | 0.17 |   | $ | 1.30 |   | $ | (0.89 | ) | $ | (3.21 | ) |
| **Weighted                average shares outstanding:**                     |   |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                       |   |                                    | 11,497,773 |   |   | 11,957,756 |   |   | 11,177,406 |   |   | 11,057,896 |   |   | 11,183,339 |   |
| Diluted                                                                     |   |                                    | 11,575,721 |   |   | 12,206,618 |   |   | 12,332,106 |   |   | 11,057,896 |   |   | 11,183,339 |   |
|                                                                        |   |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                             |   | **As                of June 30,**  |
|                                                                        |   |                                    | **2007**   |   |   | **2006** |   |   | **2005** |   |   | **2004** |   |   | **2003** |   |
|                                                                        |   |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Financial                data:**                                          |   |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                assets                                               |   | $                                       | 38,317     |   | $ | 39,743 |   | $ | 34,879 |   | $ | 27,202 |   | $ | 29,365 |   |
| Property,                plant and equipment, net                           |   |                                    | 2,694      |   |   | 1,647 |   |   | 2,805 |   |   | 4,027 |   |   | 4,320 |   |
| Total                assets                                                 |   |                                    | 41,063     |   |   | 41,405 |   |   | 38,021 |   |   | 32,156 |   |   | 35,276 |   |
| Long-term                debt, net of current maturities                    |   |                                    | 619        |   |   | - |   |   | - |   |   | 240 |   |   | 931 |   |
| Capital                leases, net of current maturities                    |   |                                    | -          |   |   | - |   |   | - |   |   | 2 |   |   | 9 |   |
| Total                shareholders' equity                                   |   |                                    | 30,438     |   |   | 30,412 |   |   | 24,911 |   |   | 9,006 |   |   | 18,743 |   |

----

**Quarterly      Financial Data (Unaudited) **

|                                                                 |   | **Fiscal                2007 Quarters Ended**                       |   |                       |   |
|----------------------------------------------------------------------|--------|---------------------------------------------------------------------|--------|----------------------------|--------|
|                                                                 |   | **(in                thousands of dollars, except per share data)** |   |                       |   |
|                                                                 |   | **Sept.                30**                                         |   | **Dec.                31** |   | **Mar.                31** |   | **June                30** |   | **Total** |   |
| Revenue                                                              |   | $                                                                   | 9,411  |                       | $      | 10,107 |   | $ | 9,355 |   | $ | 10,988 |   | $ | 39,861 |   |
| Cost                of goods sold                                    |   |                                                                | (4,316 | )                          |   | (4,860 | ) |   | (4,190 | ) |   | (4,357 | ) |   | (17,723 | ) |
| Marketing                and selling                                 |   |                                                                | (1,918 | )                          |   | (1,789 | ) |   | (2,004 | ) |   | (2,080 | ) |   | (7,791 | ) |
| Research                and product development                      |   |                                                                | (2,079 | )                          |   | (1,855 | ) |   | (1,848 | ) |   | (1,753 | ) |   | (7,535 | ) |
| General                and administrative                            |   |                                                                | (809   | )                          |   | (688 | ) |   | (763 | ) |   | (831 | ) |   | (3,091 | ) |
| Other                income (expense), net                           |   |                                                                | 332    |                       |   | 320 |   |   | 577 |   |   | 294 |   |   | 1,523 |   |
| Income                from continuing operations before income taxes |   |                                                                | 621    |                       |   | 1,235 |   |   | 1,127 |   |   | 2,261 |   |   | 5,244 |   |
| Benefit                (provision) for income taxes                  |   |                                                                | 19     |                       |   | (155 | ) |   | (167 | ) |   | (154 | ) |   | (457 | ) |
| Income                from continuing operations                     |   |                                                                | 640    |                       |   | 1,080 |   |   | 960 |   |   | 2,107 |   |   | 4,787 |   |
| Income                from discontinued operations                   |   |                                                                | 37     |                       |   | 4 |   |   | 263 |   |   | 118 |   |   | 422 |   |
| Net                income                                            |   | $                                                                   | 677    |                       | $      | 1,084 |   | $ | 1,223 |   | $ | 2,225 |   | $ | 5,209 |   |
|                                                                 |   |                                                                |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                income (loss) earnings per common share:        |   |                                                                |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing                operations                                 |   | $                                                                   | 0.05   |                       | $      | 0.09 |   | $ | 0.09 |   | $ | 0.19 |   | $ | 0.42 |   |
| Discontinued                operations                               |   |                                                                | -      |                       |   | - |   |   | 0.02 |   |   | 0.01 |   |   | 0.04 |   |
| Basic                income (loss) earnings per common share         |   | $                                                                   | 0.05   |                       | $      | 0.09 |   | $ | 0.11 |   | $ | 0.20 |   | $ | 0.45 |   |
| Diluted                income (loss) earnings per common share:      |   |                                                                |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing                operations                                 |   | $                                                                   | 0.05   |                       | $      | 0.09 |   | $ | 0.09 |   | $ | 0.19 |   | $ | 0.41 |   |
| Discontinued                operations                               |   |                                                                | -      |                       |   | - |   |   | 0.02 |   |   | 0.01 |   |   | 0.04 |   |
| Diluted                income (loss) earnings per common share       |   | $                                                                   | 0.06   |                       | $      | 0.09 |   | $ | 0.11 |   | $ | 0.20 |   | $ | 0.45 |   |

----

|                                                                        |   | **Fiscal                2006 Quarters Ended**                       |   |                       |   |
|-----------------------------------------------------------------------------|--------|---------------------------------------------------------------------|--------|----------------------------|--------|
|                                                                        |   | **(in                thousands of dollars, except per share data)** |   |                       |   |
|                                                                        |   | **Sept.                30**                                         |   | **Dec.                31** |   | **Mar.                31** |   | **June                30** |   | **Total** |   |
| Revenue                                                                     |   | $                                                                   | 8,777  |                       | $      | 9,102 |   | $ | 8,277 |   | $ | 9,206 |   | $ | 35,362 |   |
| Cost                of goods sold                                           |   |                                                                | (4,013 | )                          |   | (4,470 | ) |   | (4,253 | ) |   | (4,639 | ) |   | (17,375 | ) |
| Marketing                and selling                                        |   |                                                                | (1,812 | )                          |   | (1,810 | ) |   | (1,920 | ) |   | (2,324 | ) |   | (7,866 | ) |
| Research                and product development                             |   |                                                                | (1,799 | )                          |   | (1,778 | ) |   | (2,201 | ) |   | (2,521 | ) |   | (8,299 | ) |
| General                and administrative                                   |   |                                                                | (1,771 | )                          |   | (1,457 | ) |   | (1,060 | ) |   | (820 | ) |   | (5,108 | ) |
| Settlement                in shareholders' class action                     |   |                                                                | 1,205  |                       |   | - |   |   | - |   |   | - |   |   | 1,205 |   |
| Other                income (expense), net                                  |   |                                                                | 166    |                       |   | 191 |   |   | 237 |   |   | 422 |   |   | 1,016 |   |
| (Loss)                income from continuing operations before income taxes |   |                                                                | 753    |                       |   | (222 | ) |   | (920 | ) |   | (676 | ) |   | (1,065 | ) |
| Benefit                (provision) for income taxes                         |   |                                                                | 222    |                       |   | 146 |   |   | 782 |   |   | (145 | ) |   | 1,005 |   |
| Income                (loss) from continuing operations                     |   |                                                                | 975    |                       |   | (76 | ) |   | (138 | ) |   | (821 | ) |   | (60 | ) |
| Income                from discontinued operations                          |   |                                                                | 1,012  |                       |   | 157 |   |   | 677 |   |   | 309 |   |   | 2,155 |   |
| Net                income                                                   |   | $                                                                   | 1,987  |                       | $      | 81 |   | $ | 540 |   | $ | (512 | ) | $ | 2,096 |   |
|                                                                        |   |                                                                |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                income (loss) earnings per common share:               |   |                                                                |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing                operations                                        |   | $                                                                   | 0.09   |                       | $      | (0.01 | ) | $ | (0.01 | ) | $ | (0.07 | ) | $ | - |   |
| Discontinued                operations                                      |   |                                                                | 0.08   |                       |   | 0.01 |   |   | 0.06 |   |   | 0.03 |   |   | 0.18 |   |
| Basic                income (loss) earnings per common share                |   | $                                                                   | 0.17   |                       | $      | 0.01 |   | $ | 0.04 |   | $ | (0.04 | ) | $ | 0.18 |   |
| Diluted                income (loss) earnings per common share:             |   |                                                                |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing                operations                                        |   | $                                                                   | 0.09   |                       | $      | (0.01 | ) | $ | (0.01 | ) | $ | (0.07 | ) | $ | - |   |
| Discontinued                operations                                      |   |                                                                | 0.08   |                       |   | 0.01 |   |   | 0.06 |   |   | 0.03 |   |   | 0.18 |   |
| Diluted                income (loss) earnings per common share              |   | $                                                                   | 0.17   |                       | $      | 0.01 |   | $ | 0.04 |   | $ | (0.04 | ) | $ | 0.17 |   |

|                                                                        |   | **Fiscal                2005 Quarters Ended**                       |   |                       |   |
|-----------------------------------------------------------------------------|--------|---------------------------------------------------------------------|--------|----------------------------|--------|
|                                                                        |   | **(in                thousands of dollars, except per share data)** |   |                       |   |
|                                                                        |   | **Sept.                30**                                         |   | **Dec.                31** |   | **Mar.                31** |   | **June                30** |   | **Total** |   |
| Revenue                                                                     |   | $                                                                   | 6,160  |                       | $      | 7,939 |   | $ | 6,566 |   | $ | 8,422 |   | $ | 29,087 |   |
| Cost                of goods sold                                           |   |                                                                | (3,292 | )                          |   | (3,347 | ) |   | (2,697 | ) |   | (3,384 | ) |   | (12,720 | ) |
| Marketing                and selling                                        |   |                                                                | (2,086 | )                          |   | (2,341 | ) |   | (2,151 | ) |   | (2,492 | ) |   | (9,070 | ) |
| Research                and product development                             |   |                                                                | (1,105 | )                          |   | (1,282 | ) |   | (1,423 | ) |   | (1,495 | ) |   | (5,305 | ) |
| General                and administrative                                   |   |                                                                | (1,435 | )                          |   | (1,388 | ) |   | (1,287 | ) |   | (1,379 | ) |   | (5,489 | ) |
| Settlement                in shareholders' class action                     |   |                                                                | 1,020  |                       |   | 734 |   |   | 855 |   |   | (563 | ) |   | 2,046 |   |
| Impairment                losses                                            |   |                                                                | -      |                       |   | - |   |   | - |   |   | (180 | ) |   | (180 | ) |
| Restructuring                charge                                         |   |                                                                | -      |                       |   | - |   |   | - |   |   | (110 | ) |   | (110 | ) |
| Other                income (expense), net                                  |   |                                                                | 34     |                       |   | 64 |   |   | 95 |   |   | 125 |   |   | 318 |   |
| (Loss)                income from continuing operations before income taxes |   |                                                                | (704   | )                          |   | 379 |   |   | (42 | ) |   | (1,056 | ) |   | (1,423 | ) |
| Benefit                (provision) for income taxes                         |   |                                                                | 263    |                       |   | (141 | ) |   | 15 |   |   | 3,234 |   |   | 3,370 |   |
| (Loss)                income from continuing operations                     |   |                                                                | (441   | )                          |   | 238 |   |   | (27 | ) |   | 2,178 |   |   | 1,948 |   |
| Income                from discontinued operations                          |   |                                                                | 13,397 |                       |   | 168 |   |   | 422 |   |   | 140 |   |   | 14,127 |   |
| Net                income                                                   |   | $                                                                   | 12,956 |                       | $      | 406 |   | $ | 395 |   | $ | 2,318 |   | $ | 16,075 |   |
|                                                                        |   |                                                                |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                income (loss) earnings per common share:               |   |                                                                |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing                operations                                        |   | $                                                                   | (0.04  | )                          | $      | 0.02 |   | $ | - |   | $ | 0.19 |   | $ | 0.17 |   |
| Discontinued                operations                                      |   |                                                                | 1.21   |                       |   | 0.02 |   |   | 0.04 |   |   | 0.01 |   |   | 1.26 |   |
| Basic                income (loss) earnings per common share                |   | $                                                                   | 1.16   |                       | $      | 0.04 |   | $ | 0.03 |   | $ | 0.21 |   | $ | 1.44 |   |
| Diluted                income (loss) earnings per common share:             |   |                                                                |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing                operations                                        |   | $                                                                   | (0.04  | )                          | $      | 0.02 |   | $ | - |   | $ | 0.18 |   | $ | 0.16 |   |
| Discontinued                operations                                      |   |                                                                | 1.08   |                       |   | 0.01 |   |   | 0.03 |   |   | 0.01 |   |   | 1.15 |   |
| Diluted                income (loss) earnings per common share              |   | $                                                                   | 1.05   |                       | $      | 0.03 |   | $ | 0.03 |   | $ | 0.19 |   | $ | 1.30 |   |

----

**ITEM      7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION      AND RESULTS OF OPERATIONS**

*The      following discussion should be read in conjunction with our June 30, 2007      Consolidated Financial Statements and related Notes to Consolidated Financial      Statements included in Item 8 of this Annual Report on Form 10-K. This      discussion contains forward-looking statements based on current expectations      that involve risks and uncertainties, such as our plans, objectives,      expectations, and intentions, as set forth under “Disclosure Regarding      Forward-Looking Statements.” Our actual results and the timing of events could      differ materially from those anticipated in these forward-looking statements      as      a result of various factors, including those set forth in the following      discussion and under the caption “Risk Factors” in Item 1A and elsewhere in this      Annual Report on Form 10-K. Unless otherwise indicated, all references to a      year      reflect our fiscal year that ends on June 30.*

**CRITICAL      ACCOUNTING POLICIES**

**Revenue      and Associated Allowances for Revenue Adjustments and Doubtful      Accounts**

----

|                              |   | **Deferred                Revenue** |   | **Deferred                Cost of Goods Sold** |   | **Deferred                Gross Profit** |   |
|-----------------------------------|--------|-------------------------------------|--------|------------------------------------------------|--------|------------------------------------------|--------|
|                              |   |                                |   |                                           |   |                                     |   |
| June                30, 2007      |   | $                                   | 4,872  |                                           | $      | 2,115                                    |   | $ | 2,757 |   |
| March                31, 2007     |   |                                | 5,111  |                                           |   | 2,265                                    |   |   | 2,846 |   |
| December                , 2006    |   |                                | 4,711  |                                           |   | 2,166                                    |   |   | 2,545 |   |
| September                30, 2006 |   |                                | 5,249  |                                           |   | 2,541                                    |   |   | 2,708 |   |
| June                30, 2006      |   |                                | 5,871  |                                           |   | 2,817                                    |   |   | 3,054 |   |
| March                31, 2006     |   |                                | 5,355  |                                           |   | 2,443                                    |   |   | 2,912 |   |
| December                31, 2005  |   |                                | 4,936  |                                           |   | 2,199                                    |   |   | 2,737 |   |
| September                30, 2005 |   |                                | 4,848  |                                           |   | 2,373                                    |   |   | 2,475 |   |
| June                30, 2005      |   |                                | 5,055  |                                           |   | 2,297                                    |   |   | 2,758 |   |

**Goodwill      and Purchased Intangibles**

| ·   | Significant                underperformance relative to projected future operating                results; |
|--------------------|------------------------------------------------------------------------------------------------------------|

| ·   | Significant                changes in the manner of our use of the acquired assets or the strategy                for our overall business; and |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Significant                negative industry or economic                trends. |
|--------------------|---------------------------------------------------------------------------------|

----

**Impairment      of Long-Lived Assets**

**Accounting      for Income Taxes **

**Lower-of-Cost      or Market Adjustments and Reserves for Excess and Obsolete      Inventory**

**Share-Based      Payment**

----

----

**DISCUSSION      OF OPERATIONS**

**Results      of Operations **

|                                                                        |   | **Year                Ended June 30,**       |   |
|-----------------------------------------------------------------------------|--------|----------------------------------------------|--------|
|                                                                        |   | **(in                thousands of dollars)** |   |
|                                                                        |   | **2007**                                     |   | **2006** |   | **2005** |   |
|                                                                        |   |                                         |   | **%                of Revenue** |   |   |   | **%                of Revenue** |   |   |   | **%                of Revenue** |   |
|                                                                        |   |                                         |   |   |   |   |   |   |   |   |   |   |   |
| Revenue                                                                     |   | $                                            | 39,861 |   |   | 100.0% |   | $ | 35,362 |   |   | 100.0% |   | $ | 29,087 |   |   | 100.0% |   |
| Cost                of goods sold                                           |   |                                         | 17,723 |   |   | 44.5% |   |   | 17,375 |   |   | 49.1% |   |   | 12,720 |   |   | 43.7% |   |
| Gross                profit                                                 |   |                                         | 22,138 |   |   | 55.5% |   |   | 17,987 |   |   | 50.9% |   |   | 16,367 |   |   | 56.3% |   |
| Operating                expenses (benefit):                                |   |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Marketing                and selling                                        |   |                                         | 7,791  |   |   | 19.5% |   |   | 7,866 |   |   | 22.2% |   |   | 9,070 |   |   | 31.2% |   |
| Research                and product development                             |   |                                         | 7,535  |   |   | 18.9% |   |   | 8,299 |   |   | 23.5% |   |   | 5,305 |   |   | 18.2% |   |
| General                and administrative                                   |   |                                         | 3,091  |   |   | 7.8% |   |   | 5,108 |   |   | 14.4% |   |   | 5,489 |   |   | 18.9% |   |
| Settlement                in shareholders' class action                     |   |                                         | -      |   |   | 0.0% |   |   | (1,205 | ) |   | -3.4% |   |   | (2,046 | ) |   | -7.0% |   |
| Impairment                losses                                            |   |                                         | -      |   |   | 0.0% |   |   | - |   |   | 0.0% |   |   | 180 |   |   | 0.6% |   |
| Restructuring                charge                                         |   |                                         | -      |   |   | 0.0% |   |   | - |   |   | 0.0% |   |   | 110 |   |   | 0.4% |   |
| Total                operating expenses                                     |   |                                         | 18,417 |   |   | 46.2% |   |   | 20,068 |   |   | 56.8% |   |   | 18,108 |   |   | 62.3% |   |
| Operating                income (loss)                                      |   |                                         | 3,721  |   |   | 9.3% |   |   | (2,081 | ) |   | -5.9% |   |   | (1,741 | ) |   | -6.0% |   |
| Other                income (expense), net                                  |   |                                         | 1,523  |   |   | 3.8% |   |   | 1,016 |   |   | 2.9% |   |   | 318 |   |   | 1.1% |   |
| Income                (loss) from continuing operations before income taxes |   |                                         | 5,244  |   |   | 13.2% |   |   | (1,065 | ) |   | -3.0% |   |   | (1,423 | ) |   | -4.9% |   |
| (Provision)                Benefit for income taxes                         |   |                                         | (457   | ) |   | -1.1% |   |   | 1,005 |   |   | 2.8% |   |   | 3,370 |   |   | 11.6% |   |
| Income                (loss) from continuing operations                     |   |                                         | 4,787  |   |   | 12.0% |   |   | (60 | ) |   | -0.2% |   |   | 1,947 |   |   | 6.7% |   |
| Income                from discontinued operations, net of tax              |   |                                         | 422    |   |   | 1.1% |   |   | 2,156 |   |   | 6.1% |   |   | 14,128 |   |   | 48.6% |   |
| Net                income (loss)                                            |   | $                                            | 5,209  |   |   | 13.1% |   | $ | 2,096 |   |   | 5.9% |   | $ | 16,075 |   |   | 55.3% |   |

**Revenue**

----

**Costs      of Goods Sold and Gross Profit**

|                                |   | **Year                  Ended June 30,**       |   |
|-------------------------------------|--------|------------------------------------------------|--------|
|                                |   | **(in                  thousands of dollars)** |   |
|                                |   | **2007**                                       |   | **2006** |   | **2005** |   |
|                                |   |                                           |   | **%                  of Revenue** |   |   |   | **%                  of Revenue** |   |   |   | **%                  of Revenue** |   |
|                                |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Cost                  of goods sold |   | $                                              | 17,723 |   |   | 44.5% |   | $ | 17,375 |   |   | 49.1% |   | $ | 12,720 |   |   | 43.7% |   |
|                                |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross                  profit       |   | $                                              | 22,138 |   |   | 55.5% |   | $ | 17,987 |   |   | 50.9% |   | $ | 16,367 |   |   | 56.3% |   |

**Operating      Expenses and Profits (Losses)**

----

**S&M      expenses**
**.**

**R&D      expenses**
***.***

**G&A      expenses**
***.***

**Settlement      in shareholders’ class action expense (benefit)**
**.**

----

**Other      operating income (expense), net.**

**(Provision)      Benefit for income taxes.**
*Accounting      for Income Taxes*

**Income      from discontinued operations, net of tax. **

|                                                                                                |   | **Years                Ended June 30,** |   |
|-----------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                                                                |   | **2007**                                |   | **2006** |   | **2005** |   |
|                                                                                                |   |                                    |   |   |   |   |   |
| Total                income (loss) from discontinued operations, net of income                taxes |   |                                    |   |   |   |   |   |
| Conferencing                services business                                                       |   | $                                       | -      |   | $ | 729 |   | $ | 13,378 |   |
| OM                Video                                                                             |   |                                    | 381    |   |   | 248 |   |   | 401 |   |
| Burk                Technology                                                                      |   |                                    | -      |   |   | 953 |   |   | 144 |   |
| Ken-A-Vision                                                                                        |   |                                    | 41     |   |   | 226 |   |   | 205 |   |
| Total                income from discontinued operations, net of income taxes                       |   | $                                       | 422    |   | $ | 2,156 |   | $ | 14,128 |   |

**SUBSEQUENT      EVENTS**

----

**LIQUIDITY      AND CAPITAL RESOURCES**

----

*Issues      Relating to Accounting for Leases*

----

**Off-Balance      Sheet Arrangements**

**Contractual      Obligations**

| Contractual                Obligations |   | Total  |   | Less                than 1 Year |   | 1-3                Years |   | 4-5                Years |   |   After                5 Years |   |
|----------------------------------------|--------|--------|--------|---------------------------------|--------|--------------------------|--------|--------------------------|--------|------------------------------------------|--------|
|                                   |   |   |   |                            |   |                     |   |                     |   |                                     |   |
| Operating                Leases        |   | $      | 4,374  |                            | $      | 725                      |   | $                        | 1,396  |                                     | $      | 1,288 |   | $ | 965 |   |
|                                   |   |   |   |                            |   |                     |   |                     |   |                                     |   |   |   |   |   |   |
| Total                Contractual       |   |   |   |                            |   |                     |   |                     |   |                                     |   |   |   |   |   |   |
| Cash                Obligations        |   | $      | 4,374  |                            | $      | 725                      |   | $                        | 1,396  |                                     | $      | 1,288 |   | $ | 965 |   |

**I**
**SSUED      BUT NOT YET ADOPTED ACCOUNTING PRONOUNCEMENTS **

*Fair      Value Measurements*

*Considering      the Effects of Prior Year Misstatements when Quantifying Misstatements in      Current Year Financial Statements*

----

**ITEM      7A.QUANTITATIVE      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

**ITEM      8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA**

**ITEM      9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING      AND FINANCIAL DISCLOSURE**

----

**ITEM      9A. CONTROLS AND PROCEDURES**

**ITEM      9B. OTHER INFORMATION**

----

**PART      III**

**ITEM      10.** **DIRECTORS,      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**

**ITEM      11.** **EXECUTIVE      COMPENSATION**

**ITEM      12.** **SECURITY      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED      S****TOCKHOLDER      MATTERS**

**ITEM      13.** **CERTAIN      RELATIONSHIPS AND RELATED TRANSACTIONS**

**ITEM      14.** **PRINCIPAL      ACCOUNTANT FEES AND SERVICES**

----

**PART      IV**

**ITEM      15.** **EXHIBITS      AND FINANCIAL STATEMENT SCHEDULES**

**(a)**
**1.**
**Financial      Statements**

**2.**
**Financial      Statement Schedules**

**3.**
**Exhibits**

| Exhibit | SEC                Ref. |                                                                                                                                                                                                                                                |                                  |
|---------|-------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------|
| No.     |  No.               | Title                of Document                                                                                                                                                                                                                    | Location                              |
| 3.1     | 3                       | Articles                of Incorporation and amendments thereto                                                                                                                                                                                     | Incorp.                by reference1  |
| 3.2     | 3                       | Bylaws                                                                                                                                                                                                                                              | Incorp.                by reference2  |
| 10.1    | 10                      | Employment                Separation Agreement between ClearOne Communications, Inc. and Frances                Flood, dated December 5, 2003.*                                                                                                     | Incorp.                by reference5  |
| 10.2    | 10                      | Employment                Separation Agreement between ClearOne Communications, Inc. and Susie                Strohm, dated December 5, 2003.*                                                                                                      | Incorp.                by reference5  |
| 10.6    | 10                      | Joint                Prosecution and Defense Agreement dated April 1, 2004 between ClearOne                Communications, Inc. Parsons Behle & Latimer, Edward Dallin Bagley and                Burbidge & Mitchell, and amendment thereto | Incorp.                by reference5  |
| 10.7    | 10                      | Stock                Purchase Agreement dated March 4, 2005 between 6351352 Canada Inc.                and                Gentner Ventures, Inc., a wholly owned subsidiary of ClearOne                Communications, Inc.                         | Incorp.                by reference5  |
| 10.8    | 10                      | Settlement                Agreement and Release between ClearOne Communications, Inc. and DeLonie                Call dated February 20, 2006*                                                                                                      | Incorp.                by reference7  |
| 10.9    | 10                      | 1997                Employee Stock Purchase Plan                                                                                                                                                                                                    | Incorp.                by reference10 |
| 10.10   | 10                      | 1998                Stock Option Plan                                                                                                                                                                                                               | Incorp.                by reference10 |

----

| 10.11 | 10 | Manufacturing                Agreement between ClearOne Communications, Inc. and Inovar, Inc.                dated                August 1, 2005                       | Incorp.                by reference6 |
|-------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------|
| 10.12 | 10 | Mutual                Release and Waiver between ClearOne Communications, Inc. and Burk                Technology, Inc. dated August 22, 2005                          | Incorp.                by reference6 |
| 10.13 | 10 | Office                Lease between Edgewater Corporate Park, LLC and ClearOne Communications,                Inc. dated June 5, 2006                                  | Incorp.                by reference9 |
| 10.14 | 10 | Consulting                Agreement between Edward D. Bagley and ClearOne Communications, Inc.                dated                July 6, 2007                        | This                filing           |
| 10.15 | 10 | Severance                Agreement between ClearOne Communications, Inc. and Edward D. Bagley                dated                July 6, 2007*                        | This                filing           |
| 14.1  | 14 | Code                of Ethics, approved by the Board of Directors on August 23,                2006                                                                    | Incorp.                by reference9 |
| 21.1  | 21 | Subsidiaries                of the registrant                                                                                                                          | This                filing           |
| 23.1  | 23 | Consent                of Jones Simkins P.C., Company’s independent auditors for the year ending                June 30, 2007                                    | This                filing           |
| 23.2  | 23 | Consent                of Hansen Barnett & Maxwell, P.C., Company’s independent auditors for                the years ending June 30, 2006 and June 30, 2005 | This                filing           |
| 31.1  | 31 | Section                302 Certification of Chief Executive Officer                                                                                                    | This                filing           |
| 31.2  | 31 | Section                302 Certification of Interim Chief Financial Officer                                                                                            | This                filing           |
| 32.1  | 32 | Section                1350 Certification of Chief Executive Officer                                                                                                   | This                filing           |
| 32.2  | 32 | Section                1350 Certification of Interim Chief Financial Officer                                                                                           | This                filing           |

**______________**

----

** **
**SIGNATURES**

|                                | **CLEARONE                  COMMUNICATIONS, INC.** |
|-------------------------------------|----------------------------------------------------|
|                                |                                               |   |
|                                |                                               |   |
| September                  17, 2007 | By:                                                | /s/                  Zeynep Hakimoglu |
|                                |                                               | Zeynep                  Hakimoglu |
|                                |                                               | President,                  Chief Executive Officer, and                  Director |

| Signature                               | Title                                                             | Date                                |
|-----------------------------------------|-------------------------------------------------------------------|-------------------------------------|
|                                    |                                                              |                                |
| /s/                  Zeynep Hakimoglu   | President,                  Chief Executive Officer, and Director | September                  17, 2007 |
|  Zeynep                Hakimoglu   | (Principal                  Executive Officer)                    |                                |
|                                    |                                                              |                                |
| /s/                  Greg A. LeClaire   | Vice                  President of Finance                        | September                  17, 2007 |
| Greg                  A. LeClaire       | (Principal                  Financial and Accounting Officer)     |                                |
|                                    |                                                              |                                |
| /s/                  Brad R. Baldwin    | Director                                                          | September                  17, 2007 |
| Brad                  R. Baldwin        |                                                              |                                |
|                                    |                                                              |                                |
| /s/                  Larry R. Hendricks | Director                                                          | September                  17, 2007 |
| Larry                  R. Hendricks     |                                                              |                                |
|                                    |                                                              |                                |
| /s/                  Scott M. Huntsman  | Director                                                          | September                  17, 2007 |
| Scott                  M. Huntsman      |                                                              |                                |
|                                    |                                                              |                                |
| /s/                  Harry Spielberg    | Director                                                          | September                  17, 2007 |
| Harry                  Spielberg        |                                                              |                                |

----

**ITEM        8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

**Index        to Consolidated Financial Statements**

|                                                                                                                                                                                                      |  Page  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------|
|  Report                  of Independent Registered Public Accounting Firm - Jones Simkins,                  P.C.                                                                           | F-2              |
|  Report                  of Independent Registered Public Accounting Firm - Hansen Barnett&                  Maxwell, P.C.                                                                  |  F-3        |
|  Consolidated                  Balance Sheets as of June 30, 2007 and 2006                                                                                                                      |  F-4        |
|  Consolidated                  Statements of Operations and Comprehensive Income for fiscal years                  ended                  June                  30, 2007, 2006, and 2005   |  F-5        |
|  Consolidated                  Statements of Shareholders' Equity for fiscal years ended June                  30, 2007,                  2006, and 2005                                        |  F-7        |
|  Consolidated                  Statements of Cash Flows for fiscal years ended June 30, 2007,                  2006, and                  2005                                                  |  F-8        |
|  Notes                  to Consolidated Financial Statements                                                                                                                                    |  F-10       |

----

----

----

**CLEARONE        COMMUNICATIONS, INC.**

**CONSOLIDATED        BALANCE SHEETS**

**(in        thousands of dollars, except per share amounts)**

|                                                                                          |   | **June                  30,** |    |
|-----------------------------------------------------------------------------------------------|--------|-------------------------------|---------|
|                                                                                          |   | **2007**                      |    | **2006** |   |
|                                                                                          |   |                          |    |   |   |
| **ASSETS**                                                                                    |   |                          |    |   |   |
| Current                  assets:                                                              |   |                          |    |   |   |
| Cash                  and cash equivalents                                                    |   | $                             | 2,782   |   | $ | 1,240 |   |
| Marketable                  securities                                                        |   |                          | 19,871  |   |   | 20,550 |   |
| Accounts                  receivable, net of allowance for doubtful accounts                  |   |                          | 8,025   |   |   | 7,784 |   |
| of                  $54 and $49, respectively                                                 |   |
| Note                  receivable                                                              |   |                          | 163     |   |   | - |   |
| Inventories,                  net                                                             |   |                          | 7,263   |   |   | 6,614 |   |
| Income                  tax receivable                                                        |   |                          | -       |   |   | 2,607 |   |
| Deferred                  income taxes, net                                                   |   |                          | -       |   |   | 128 |   |
| Prepaid                  expenses                                                             |   |                          | 213     |   |   | 255 |   |
| Net                  assets of discontinued operations                                        |   |                          | -       |   |   | 565 |   |
| Total                  current assets                                                         |   |                          | 38,317  |   |   | 39,743 |   |
|                                                                                          |   |                          |    |   |   |   |   |
| Property                  and equipment, net                                                  |   |                          | 2,694   |   |   | 1,647 |   |
| Note                  receiveable - long-term                                                 |   |                          | 43      |   |   | - |   |
| Other                  assets                                                                 |   |                          | 9       |   |   | 15 |   |
| Total                  assets                                                                 |   | $                             | 41,063  |   | $ | 41,405 |   |
|                                                                                          |   |                          |    |   |   |   |   |
| **LIABILITIES                  AND SHAREHOLDERS' EQUITY**                                     |   |                          |    |   |   |   |   |
| Current                  liabilities:                                                         |   |                          |    |   |   |   |   |
| Accounts                  payable                                                             |   | $                             | 1,745   |   | $ | 2,597 |   |
| Accrued                  taxes                                                                |   |                          | 660     |   |   | - |   |
| Accrued                  liabilities                                                          |   |                          | 1,874   |   |   | 2,397 |   |
| Deferred                  product revenue                                                     |   |                          | 4,872   |   |   | 5,871 |   |
| Total                  current liabilities                                                    |   |                          | 9,151   |   |   | 10,865 |   |
|                                                                                          |   |                          |    |   |   |   |   |
| Deferred                  rent                                                                |   |                          | 855     |   |   | - |   |
| Deferred                  income taxes, net                                                   |   |                          | -       |   |   | 128 |   |
| Other                  long-term liabilities                                                  |   |                          | 619     |   |   | - |   |
| Total                  liabilities                                                            |   |                          | 10,625  |   |   | 10,993 |   |
|                                                                                          |   |                          |    |   |   |   |   |
| Commitments                  and contingencies (see Notes 7 and 10)                           |   |                          |    |   |   |   |   |
|                                                                                          |   |                          |    |   |   |   |   |
| Shareholders'                  equity:                                                        |   |                          |    |   |   |   |   |
| Common                  stock, 50,000,000 shares authorized, par value $0.001,                |   |                          |    |   |   |   |   |
| 10,861,920                  and 12,184,727 shares issued and outstanding, respectively        |   |                          | 11      |   |   | 12 |   |
| Additional                  paid-in capital                                                   |   |                          | 47,582  |   |   | 52,764 |   |
| Accumulated                  deficit                                                          |   |                          | (17,155 | ) |   | (22,364 | ) |
| Total                  shareholders' equity                                                   |   |                          | 30,438  |   |   | 30,412 |   |
| Total                  liabilities and shareholders' equity                                   |   | $                             | 41,063  |   | $ | 41,405 |   |
|                                                                                          |   |                          |    |   |   |   |   |
| See                  accompanying notes to consolidated financial                  statements |

----

**CLEARONE        COMMUNICATIONS, INC. AND SUBSIDIARIES**

**CONSOLIDATED        STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME**

**(in        thousands of dollars, except per share amounts)**

|                                                                                                                                     |   | **Years                  Ended June 30,** |   |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|
|                                                                                                                                     |   | **2007**                                  |   | **2006** |   | **2005** |   |
|                                                                                                                                     |   |                                      |   |   |   |   |   |
| Revenue                                                                                                                                  |   | $                                         | 39,861 |   | $ | 35,362 |   | $ | 29,087 |   |
| Cost                  of goods sold                                                                                                      |   |                                      | 17,723 |   |   | 17,375 |   |   | 12,720 |   |
| Gross                  profit                                                                                                            |   |                                      | 22,138 |   |   | 17,987 |   |   | 16,367 |   |
|                                                                                                                                     |   |                                      |   |   |   |   |   |   |   |   |
| Operating                  expenses:                                                                                                     |   |                                      |   |   |   |   |   |   |   |   |
| Marketing                  and selling                                                                                                   |   |                                      | 7,791  |   |   | 7,866 |   |   | 9,070 |   |
| Research                  and product development                                                                                        |   |                                      | 7,535  |   |   | 8,299 |   |   | 5,305 |   |
| General                  and administrative                                                                                              |   |                                      | 3,091  |   |   | 5,108 |   |   | 5,489 |   |
| Settlement                  in shareholders' class action                                                                                |   |                                      | -      |   |   | (1,205 | ) |   | (2,046 | ) |
| Impairment                  losses (see Note 19)                                                                                         |   |                                      | -      |   |   | - |   |   | 180 |   |
| Restructuring                  charge (see Note 19)                                                                                      |   |                                      | -      |   |   | - |   |   | 110 |   |
| Total                  operating expenses                                                                                                |   |                                      | 18,417 |   |   | 20,068 |   |   | 18,108 |   |
|                                                                                                                                     |   |                                      |   |   |   |   |   |   |   |   |
| Operating                  income (loss)                                                                                                 |   |                                      | 3,721  |   |   | (2,081 | ) |   | (1,741 | ) |
|                                                                                                                                     |   |                                      |   |   |   |   |   |   |   |   |
| Other                  income (expense), net:                                                                                            |   |                                      |   |   |   |   |   |   |   |   |
| Interest                  income                                                                                                         |   |                                      | 1,468  |   |   | 813 |   |   | 425 |   |
| Interest                  expense                                                                                                        |   |                                      | (4     | ) |   | - |   |   | (104 | ) |
| Other,                  net                                                                                                              |   |                                      | 59     |   |   | 203 |   |   | (3 | ) |
| Total                  other income (expense), net                                                                                       |   |                                      | 1,523  |   |   | 1,016 |   |   | 318 |   |
|                                                                                                                                     |   |                                      |   |   |   |   |   |   |   |   |
| Income                  (loss) from continuing operations before income taxes                                                            |   |                                      | 5,244  |   |   | (1,065 | ) |   | (1,423 | ) |
| (Provision)                  benefit for income taxes                                                                                    |   |                                      | (457   | ) |   | 1,005 |   |   | 3,370 |   |
| Income                  (loss) from continuing operations                                                                                |   |                                      | 4,787  |   |   | (60 | ) |   | 1,947 |   |
|                                                                                                                                     |   |                                      |   |   |   |   |   |   |   |   |
| Discontinued                  operations:                                                                                                |   |                                      |   |   |   |   |   |   |   |   |
| Income                  from discontinued operations                                                                                     |   |                                      | 75     |   |   | 361 |   |   | 552 |   |
| Gain                  on disposal of discontinued operations                                                                             |   |                                      | 598    |   |   | 2,726 |   |   | 17,851 |   |
| Income                  tax provision                                                                                                    |   |                                      | (251   | ) |   | (931 | ) |   | (4,275 | ) |
| Income                  from discontinued operations                                                                                     |   |                                      | 422    |   |   | 2,156 |   |   | 14,128 |   |
|                                                                                                                                     |   |                                      |   |   |   |   |   |   |   |   |
| Net                  income                                                                                                              |   | $                                         | 5,209  |   | $ | 2,096 |   | $ | 16,075 |   |
|                                                                                                                                     |   |                                      |   |   |   |   |   |   |   |   |
| Comprehensive                  income:                                                                                                   |   |                                      |   |   |   |   |   |   |   |   |
| Net                  income                                                                                                              |   | $                                         | 5,209  |   | $ | 2,096 |   | $ | 16,075 |   |
| Foreign                  currency translation adjustments                                                                                |   |                                      | -      |   |   | - |   |   | 112 |   |
| Less:                  reclassification adjustments for foreign currency translation adjustments                  included in net income |   |                                      | -      |   |   | - |   |   | (1,301 | ) |
|                                                                                                                                     |   |                                      |   |   |   |   |   |   |   |   |
| Comprehensive                  income                                                                                                    |   | $                                         | 5,209  |   | $ | 2,096 |   | $ | 14,886 |   |
|                                                                                                                                     |   |                                      |   |   |   |   |   |   |   |   |
| See                  accompanying notes to consolidated financial                  statements                                            |

----

**CLEARONE        COMMUNICATIONS, INC. AND SUBSIDIARIES**

**CONSOLIDATED        STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME        (CONTINUED)**

**(in        thousands of dollars, except per share amounts)**

|                                                                                                  |   | **Years                  Ended June 30,** |       |
|-------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|------------|
|                                                                                                  |   | **2007**                                  |       | **2006** |   | **2005** |   |
|                                                                                                  |   |                                      |       |   |   |   |   |
| Basic                  earnings (loss) per common share from continuing                  operations   |   | $                                         | 0.42       |   | $ | (0.01 | ) | $ | 0.17 |   |
| Diluted                  earnings (loss) per common share from continuing                  operations |   | $                                         | 0.41       |   | $ | - |   | $ | 0.16 |   |
|                                                                                                  |   |                                      |       |   |   |   |   |   |   |   |
| Basic                  earnings per common share from discontinued operations                         |   | $                                         | 0.04       |   | $ | 0.18 |   | $ | 1.26 |   |
| Diluted                  earnings per common share from discontinued operations                       |   | $                                         | 0.04       |   | $ | 0.18 |   | $ | 1.15 |   |
|                                                                                                  |   |                                      |       |   |   |   |   |   |   |   |
| Basic                  earnings per common share                                                      |   | $                                         | 0.45       |   | $ | 0.18 |   | $ | 1.44 |   |
| Diluted                  earnings per common share                                                    |   | $                                         | 0.45       |   | $ | 0.17 |   | $ | 1.30 |   |
|                                                                                                  |   |                                      |       |   |   |   |   |   |   |   |
| Basic                  weighted average shares outstanding                                            |   |                                      | 11,497,773 |   |   | 11,957,756 |   |   | 11,177,406 |   |
| Diluted                  weighted average shares outstanding                                          |   |                                      | 11,575,721 |   |   | 12,206,618 |   |   | 12,332,106 |   |
|                                                                                                  |   |                                      |       |   |   |   |   |   |   |   |
| See                  accompanying notes to consolidated financial                  statements         |

----

**CLEARONE        COMMUNICATIONS, INC. AND SUBSIDIARIES**

**CONSOLIDATED        STATEMENTS OF SHAREHOLDERS’ EQUITY**

**(in        thousands of dollars, except per share amounts)**

|                                                                                                    |   |                              |       |        |   |           |   |              |   | **Accumulated** |   |              |   |       |   |
|---------------------------------------------------------------------------------------------------------|--------|-----------------------------------|------------|-------------|--------|----------------|--------|-------------------|--------|-----------------|--------|-------------------|--------|------------|--------|
|                                                                                                    |   |                              |       |        |   | **Additional** |   |              |   | **Other**       |   |              |   | **Total**  |   |
|                                                                                                    |   | **Common                  Stock** |       | **Paid-In** |   | **Deferred**   |   | **Comprehensive** |   | **Accumulated** |   | **Shareholders'** |   |
|                                                                                                    |   | **Shares**                        |       | **Amount**  |   | **Capital**    |   | **Compensation**  |   | **Income**      |   | **Deficit**       |   | **Equity** |   |
| Balances                  at June 30, 2004                                                              |   |                              | 11,036,233 |        | $      | 11             |   | $                 | 48,395 |            | $      | (54               | )      | $          | 1,189  |   | $ | (40,535 | ) | $ | 9,006 |   |
|                                                                                                    |   |                              |       |        |   |           |   |              |   |            |   |              |   |       |   |   |   |   |   |   |   |   |
| Issuance                  of Common Shares related to shareholder settlement                  agreement |   |                              | 228,000    |        |   | -              |   |              | 957    |            |   | -                 |   |       | -      |   |   | - |   |   | 957 |   |
| Compensation                  expense resulting from the modification of stock options                  |   |                              | -          |        |   | -              |   |              | 41     |            |   | -                 |   |       | -      |   |   | - |   |   | 41 |   |
| Amortization                  of deferred compensation                                                  |   |                              | -          |        |   | -              |   |              | -      |            |   | 21                |   |       | -      |   |   | - |   |   | 21 |   |
| Foreign                  currency translation adjustments                                               |   |                              | -          |        |   | -              |   |              | -      |            |   | -                 |   |       | (1,189 | ) |   | - |   |   | (1,189 | ) |
| Net                  income                                                                             |   |                              | -          |        |   | -              |   |              | -      |            |   | -                 |   |       | -      |   |   | 16,075 |   |   | 16,075 |   |
| Balances                  at June 30, 2005                                                              |   |                              | 11,264,233 |        |   | 11             |   |              | 49,393 |            |   | (33               | )      |       | -      |   |   | (24,460 | ) |   | 24,911 |   |
|                                                                                                    |   |                              |       |        |   |           |   |              |   |            |   |              |   |       |   |   |   |   |   |   |   |   |
| Issuance                  of Common Shares related to shareholder settlement                  agreement |   |                              | 920,494    |        |   | 1              |   |              | 2,263  |            |   | -                 |   |       | -      |   |   | - |   |   | 2,264 |   |
| Compensation                  expense resulting from the modification of stock options                  |   |                              | -          |        |   | -              |   |              | 16     |            |   | -                 |   |       | -      |   |   | - |   |   | 16 |   |
| Compensation                  cost associated with SFAS No. 123R                                        |   |                              | -          |        |   | -              |   |              | 1,092  |            |   | -                 |   |       | -      |   |   | - |   |   | 1,092 |   |
| SFAS                  No. 123R transition expense                                                       |   |                              | -          |        |   | -              |   |              | -      |            |   | 33                |   |       | -      |   |   | - |   |   | 33 |   |
| Net                  income                                                                             |   |                              | -          |        |   | -              |   |              | -      |            |   | -                 |   |       | -      |   |   | 2,096 |   |   | 2,096 |   |
| Balances                  at June 30, 2006                                                              |   |                              | 12,184,727 |        |   | 12             |   |              | 52,764 |            |   | -                 |   |       | -      |   |   | (22,364 | ) |   | 30,412 |   |
|                                                                                                    |   |                              |       |        |   |           |   |              |   |            |   |              |   |       |   |   |   |   |   |   |   |   |
| Tender                  offer                                                                           |   |                              | (1,073,552 | )           |   | (1             | )      |              | (4,602 | )               |   | -                 |   |       | -      |   |   | - |   |   | (4,603 | ) |
| Stock                  buy back program                                                                 |   |                              | (265,360   | )           |   | -              |   |              | (1,450 | )               |   | -                 |   |       | -      |   |   | - |   |   | (1,450 | ) |
| Exercise                  of stock options                                                              |   |                              | 15,940     |        |   | -              |   |              | 54     |            |   | -                 |   |       | -      |   |   | - |   |   | 54 |   |
| Tax                  benefit stock option exercise                                                      |   |                              | -          |        |   | -              |   |              | 9      |            |   | -                 |   |       | -      |   |   | - |   |   | 9 |   |
| Compensation                  cost associated with SFAS No. 123R                                        |   |                              | -          |        |   | -              |   |              | 802    |            |   | -                 |   |       | -      |   |   | - |   |   | 802 |   |
| Compensation                  cost associated with the ESPP                                             |   |                              | 165        |        |   | -              |   |              | 4      |            |   | -                 |   |       | -      |   |   | - |   |   | 4 |   |
| Net                  income                                                                             |   |                              | -          |        |   | -              |   |              | -      |            |   | -                 |   |       | -      |   |   | 5,209 |   |   | 5,209 |   |
| Balances                  at June 30, 2007                                                              |   |                              | 10,861,920 |        | $      | 11             |   | $                 | 47,582 |            | $      | -                 |   | $          | -      |   | $ | (17,155 | ) | $ | 30,438 |   |
|                                                                                                    |   |                              |       |        |   |           |   |              |   |            |   |              |   |       |   |   |   |   |   |   |   |   |
| See                  accompanying notes to consolidated financial                  statements           |

----

**CLEARONE        COMMUNICATIONS, INC. AND SUBSIDIARIES**

**CONSOLIDATED        STATEMENTS OF CASH FLOWS**

**(in        thousands of dollars, except per share amounts)**

|                                                                                                 |   | **Years                  Ended June 30,** |    |
|------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|---------|
|                                                                                                 |   | **2007**                                  |    | **2006** |   | **2005** |   |
| Cash                  flows from operating activities:                                               |   |                                      |    |   |   |   |   |
| Net                  income (loss) from continuing operations                                        |   | $                                         | 4,787   |   | $ | (60 | ) | $ | 1,947 |   |
| Adjustments                  to reconcile net income (loss) from continuing operations               |   |                                      |    |   |   |   |   |   |   |   |
| to                  net cash provided by (used in) operations:                                       |   |                                      |    |   |   |   |   |   |   |   |
| Loss                  on impairment of long-lived assets, goodwill, and                  intangibles |   |                                      | -       |   |   | - |   |   | 180 |   |
| Depreciation                  and amortization expense                                               |   |                                      | 870     |   |   | 1,389 |   |   | 2,182 |   |
| Stock-based                  compensation                                                            |   |                                      | 806     |   |   | 1,140 |   |   | 62 |   |
| Write-off                  of inventory                                                              |   |                                      | 660     |   |   | 681 |   |   | 250 |   |
| Gain                  on disposal of assets and fixed assets write-offs                              |   |                                      | (58     | ) |   | (237 | ) |   | (12 | ) |
| Provision                  for doubtful accounts                                                     |   |                                      | 5       |   |   | 3 |   |   | 46 |   |
| Changes                  in operating assets and liabilities:                                        |   |                                      |    |   |   |   |   |   |   |   |
| Accounts                  receivable                                                                 |   |                                      | (261    | ) |   | (928 | ) |   | (692 | ) |
| Note                  receivable - Ken-A-Vision                                                      |   |                                      | (206    | ) |   | - |   |   | - |   |
| Inventories                                                                                          |   |                                      | (1,309  | ) |   | (2,236 | ) |   | (106 | ) |
| Prepaids                  and other assets                                                           |   |                                      | 40      |   |   | 45 |   |   | 220 |   |
| Accounts                  payable                                                                    |   |                                      | (811    | ) |   | 434 |   |   | 233 |   |
| Restructuring                  charge                                                                |   |                                      | -       |   |   | - |   |   | 110 |   |
| Accrued                  liabilities                                                                 |   |                                      | (673    | ) |   | (960 | ) |   | (4,226 | ) |
| Other                  long term liabilities                                                         |   |                                      | 619     |   |   | - |   |   | - |   |
| Income                  taxes                                                                        |   |                                      | 3,267   |   |   | 1,345 |   |   | (585 | ) |
| Deferred                  product revenue                                                            |   |                                      | (999    | ) |   | 816 |   |   | (1,052 | ) |
| Net                  cash provided by (used in) continuing operating activities                      |   |                                      | 6,737   |   |   | 1,432 |   |   | (1,443 | ) |
| Net                  cash provided by discontinued operating activities                              |   |                                      | 47      |   |   | 730 |   |   | 1,073 |   |
| Net                  cash provided by (used in) operating activities                                 |   |                                      | 6,784   |   |   | 2,162 |   |   | (370 | ) |
|                                                                                                 |   |                                      |    |   |   |   |   |   |   |   |
| Cash                  flows from investing activities:                                               |   |                                      |    |   |   |   |   |   |   |   |
| Purchase                  of property and equipment                                                  |   |                                      | (909    | ) |   | (224 | ) |   | (1,136 | ) |
| Proceeds                  from the sale of property and equipment                                    |   |                                      | 35      |   |   | 230 |   |   | 8 |   |
| Purchase                  of marketable securities                                                   |   |                                      | (23,369 | ) |   | (14,800 | ) |   | (47,100 | ) |
| Sale                  of marketable securities                                                       |   |                                      | 24,050  |   |   | 10,050 |   |   | 33,050 |   |
| Net                  cash used in continuing investing activities                                    |   |                                      | (193    | ) |   | (4,744 | ) |   | (15,178 | ) |
| Net                  cash provided by (used in) discontinued investing                  activities   |   |                                      | 941     |   |   | 1,930 |   |   | 14,173 |   |
| Net                  cash (used in) investing activities                                             |   |                                      | 748     |   |   | (2,814 | ) |   | (1,005 | ) |
|                                                                                                 |   |                                      |    |   |   |   |   |   |   |   |
| Cash                  flows from financing activities:                                               |   |                                      |    |   |   |   |   |   |   |   |
| Proceeds                  from common stock                                                          |   |                                      | 54      |   |   | - |   |   | - |   |
| Principal                  payments on capital lease obligations                                     |   |                                      | -       |   |   | - |   |   | (8 | ) |
| Principal                  payments on note payable                                                  |   |                                      | -       |   |   | - |   |   | (932 | ) |
| Purchase                  and retirement of Common Shares                                            |   |                                      | (6,053  | ) |   | - |   |   | - |   |
| Tax                  benefit from stock options                                                      |   |                                      | 9       |   |   | - |   |   | - |   |
| Net                  cash used in continuing financing activities                                    |   |                                      | (5,990  | ) |   | - |   |   | (940 | ) |
| Net                  cash used in discontinued financing activities                                  |   |                                      | -       |   |   | - |   |   | - |   |
| Net                  cash used in financing activities                                               |   |                                      | (5,990  | ) |   | - |   |   | (940 | ) |
|                                                                                                 |   |                                      |    |   |   |   |   |   |   |   |
| Net                  increase (decrease) in cash and cash equivalents                                |   |                                      | 1,542   |   |   | (652 | ) |   | (2,315 | ) |
| Cash                  and cash equivalents at the beginning of the year                              |   |                                      | 1,240   |   |   | 1,892 |   |   | 4,207 |   |
| Cash                  and cash equivalents at the end of the year                                    |   | $                                         | 2,782   |   | $ | 1,240 |   | $ | 1,892 |   |
|                                                                                                 |   |                                      |    |   |   |   |   |   |   |   |
| See                  accompanying notes to consolidated financial                  statements        |

----

**CLEARONE        COMMUNICATIONS, INC. AND SUBSIDIARIES**

**CONSOLIDATED        STATEMENTS OF CASH FLOWS (CONTINUED)**

**(in        thousands of dollars, except per share amounts)**

|                                                                                          |   | **Years                  Ended June 30,** |   |
|-----------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|
|                                                                                          |   | **2007**                                  |   | **2006** |   | **2005** |   |
|                                                                                          |   |                                      |   |   |   |   |   |
| Supplemental                  disclosure of cash flow information:                            |   |                                      |   |   |   |   |   |
| Cash                  paid for interest                                                       |   | $                                         | 4      |   | $ | - |   | $ | 104 |   |
| Cash                  paid (received) for income taxes                                        |   |                                      | (3,202 | ) |   | (1,419 | ) |   | 1,117 |   |
|                                                                                          |   |                                      |   |   |   |   |   |   |   |   |
| Supplemental                  disclosure of non-cash financing activities:                    |   |                                      |   |   |   |   |   |   |   |   |
| Value                  of common shares issued in shareholder settlement                      |   | $                                         | -      |   | $ | 2,264 |   | $ | 957 |   |
| Lease                  incentive for leasehold improvements                                   |   |                                      | 1,088  |   |   | - |   |   | - |   |
| Sales                  of property and equipment for accounts payable                         |   |                                      | 25     |   |   | - |   |   | - |   |
| Exchanged                  accounts receivable from a vendor with accounts payable            |   |                                      |   |   |   |   |   |   |   |   |
| to                  the same vendor                                                           |   |                                      | 15     |   |   | - |   |   | - |   |
|                                                                                          |   |                                      |   |   |   |   |   |   |   |   |
| See                  accompanying notes to consolidated financial                  statements |

----

**CLEARONE        COMMUNICATIONS, INC. AND SUBSIDIARIES**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**(in        thousands of dollars, except per share amounts)**

| **1.  ** | **Organization                -****Nature                of Operations** |
|--------------------|--------------------------------------------------------------------------|
| **2.  ** | **Summary                of Significant Accounting                Policies** |
|--------------------|------------------------------------------------------------------------------|

*Consolidation*

*Pervasiveness        of Estimates*

*Fair        Value of Financial Instruments*

----

*Foreign        Currency Translation *

*Concentration        Risk*

*Cash        Equivalents*

*Marketable        Securities*

----

**CLEARONE            COMMUNICATIONS, INC. AND SUBSIDIARIES**

**NOTES            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(in            thousands of dollars, except per share amounts)**

*Accounts        Receivable*

| Description                               |   | Balance                  at Beginning of Period |   | Charged                  to Costs and Expenses |   | Deductions |   | Balance                  at End of Period |   |
|-------------------------------------------|--------|-------------------------------------------------|--------|------------------------------------------------|--------|------------|--------|-------------------------------------------|--------|
|                                      |   |                                            |   |                                           |   |       |   |                                      |   |
| Year                  ended June 30, 2006 |   | $                                               | 46     |                                           | $      | 3          |   | $                                         | -      |   | $ | 49 |   |
|                                      |   |                                            |   |                                           |   |       |   |                                      |   |   |   |   |   |
| Year                  ended June 30, 2007 |   | $                                               | 49     |                                           | $      | 12         |   | $                                         | (7     | ) | $ | 54 |   |

*Inventories*

*Property        and Equipment*

*Impairment        of Long-Lived Assets*

*Revenue        Recognition*

----

**CLEARONE            COMMUNICATIONS, INC. AND SUBSIDIARIES**

**NOTES            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(in            thousands of dollars, except per share amounts)**

|                           |   | **Deferred                  Revenue** |   | **Deferred                  Cost of Goods Sold** |   | **Deferred                  Gross Profit** |   |
|--------------------------------|--------|---------------------------------------|--------|--------------------------------------------------|--------|--------------------------------------------|--------|
|                           |   |                                  |   |                                             |   |                                       |   |
| June                  30, 2007 |   | $                                     | 4,872  |                                             | $      | 2,115                                      |   | $ | 2,757 |   |
| June                  30, 2006 |   |                                  | 5,871  |                                             |   | 2,817                                      |   |   | 3,054 |   |
| June                  30, 2005 |   |                                  | 5,055  |                                             |   | 2,297                                      |   |   | 2,758 |   |

*Shipping        and Handling Costs*

*Warranty        Costs*

----

**CLEARONE            COMMUNICATIONS, INC. AND SUBSIDIARIES**

**NOTES            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(in            thousands of dollars, except per share amounts)**

|                                              |   | **Years                  Ended June 30,** |   |
|---------------------------------------------------|--------|-------------------------------------------|--------|
|                                              |   | **2007**                                  |   | **2006** |   |
|                                              |   |                                      |   |   |   |
| Balance                  at the beginning of year |   | $                                         | 169    |   | $ | 126 |   |
| Accruals/additions                                |   |                                      | 241    |   |   | 356 |   |
| Usage                                             |   |                                      | (285   | ) |   | (313 | ) |
| Balance                  at end of year           |   | $                                         | 125    |   | $ | 169 |   |

*Advertising        *

*Research        and Product Development Costs*

*Income        Taxes*

----

**CLEARONE            COMMUNICATIONS, INC. AND SUBSIDIARIES**

**NOTES            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(in            thousands of dollars, except per share amounts)**

*Earnings        Per Share*

|                                                                            |   | **Years                  Ended June 30,** |       |
|---------------------------------------------------------------------------------|--------|-------------------------------------------|------------|
|                                                                            |   | **2007**                                  |       | **2006** |   | **2005** |   |
| Numerator:                                                                      |   |                                      |       |   |   |   |   |
| Income                  (loss) from continuing operations                       |   | $                                         | 4,787      |   | $ | (60 | ) | $ | 1,947 |   |
| Income                  from discontinued operations, net of tax                |   |                                      | 47         |   |   | 226 |   |   | 378 |   |
| Gain                  (loss) on disposal of discontinued operations, net of tax |   |                                      | 375        |   |   | 1,930 |   |   | 13,750 |   |
| Net                  income (loss)                                              |   | $                                         | 5,209      |   | $ | 2,096 |   | $ | 16,075 |   |
| Denominator:                                                                    |   |                                      |       |   |   |   |   |   |   |   |
| Basic                  weighted average shares                                  |   |                                      | 11,497,773 |   |   | 11,957,756 |   |   | 11,177,406 |   |
| Dilutive                  common stock equivalents using treasury stock method  |   |                                      | 77,948     |   |   | 248,862 |   |   | 1,154,700 |   |
| Diluted                  weighted average shares                                |   |                                      | 11,575,721 |   |   | 12,206,618 |   |   | 12,332,106 |   |
|                                                                            |   |                                      |       |   |   |   |   |   |   |   |
| Basic                  earnings (loss) per common share:                        |   |                                      |       |   |   |   |   |   |   |   |
| Continuing                  operations                                          |   | $                                         | 0.42       |   | $ | (0.01 | ) | $ | 0.17 |   |
| Discontinued                  operations                                        |   | $                                         | 0.00       |   | $ | 0.02 |   | $ | 0.03 |   |
| Disposal                  of discontinued operations                            |   | $                                         | 0.03       |   | $ | 0.16 |   | $ | 1.23 |   |
| Net                  income                                                     |   | $                                         | 0.45       |   | $ | 0.18 |   | $ | 1.44 |   |
| Diluted                  earnings (loss) per common share:                      |   |                                      |       |   |   |   |   |   |   |   |
| Continuing                  operations                                          |   | $                                         | 0.41       |   | $ | - |   | $ | 0.16 |   |
| Discontinued                  operations                                        |   | $                                         | 0.00       |   | $ | 0.02 |   | $ | 0.03 |   |
| Disposal                  of discontinued operations                            |   | $                                         | 0.03       |   | $ | 0.16 |   | $ | 1.11 |   |
| Net                  income                                                     |   | $                                         | 0.45       |   | $ | 0.17 |   | $ | 1.30 |   |

*Share-Based        Payment*

----

**CLEARONE            COMMUNICATIONS, INC. AND SUBSIDIARIES**

**NOTES            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(in            thousands of dollars, except per share amounts)**

|                                                                             |   | **Year                  Ended****June                  30,** |   |
|----------------------------------------------------------------------------------|--------|--------------------------------------------------------------|--------|
|                                                                             |   | **2005**                                                     |   |
| Net                  income (loss):                                              |   |                                                         |   |
| As                  reported                                                     |   | $                                                            | 16,075 |   |
| Stock-based                  employee compensation expense included in           |   |                                                         |   |   |
| reported                  net loss, net of income taxes                          |   |                                                         | 13     |   |
| Stock-based                  employee compensation expense determined            |   |                                                         |   |   |
| under                  the fair-value method for all awards, net of income taxes |   |                                                         | (866   | ) |
| Pro                  forma                                                       |   | $                                                            | 15,222 |   |
|                                                                             |   |                                                         |   |   |
| Basic                  earnings per common share:                                |   |                                                         |   |   |
| As                  reported                                                     |   | $                                                            | 1.44   |   |
| Pro                  forma                                                       |   |                                                         | 1.36   |   |
| Diluted                  earnings per common share:                              |   |                                                         |   |   |
| As                  reported                                                     |   | $                                                            | 1.30   |   |
| Pro                  forma                                                       |   |                                                         | 1.23   |   |

----

**CLEARONE            COMMUNICATIONS, INC. AND SUBSIDIARIES**

**NOTES            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(in            thousands of dollars, except per share amounts)**

*Recent        Accounting Pronouncements*

*Fair        Value Measurements*

*Considering        the Effects of Prior Year Misstatements when Quantifying Misstatements in        Current Year Financial Statements*

*Reclassifications*

----

| **3.  ** | **Discontinued                Operations** |
|--------------------|--------------------------------------------|

|                                                                            |   | **Years                  Ended June 30,** |   |
|---------------------------------------------------------------------------------|--------|-------------------------------------------|--------|
|                                                                            |   | **2007**                                  |   | **2006** |   | **2005** |   |
|                                                                            |   |                                      |   |   |   |   |   |
| Income                  from discontinued operations                            |   |                                      |   |   |   |   |   |
| OM                  Video                                                       |   | $                                         | -      |   | $ | - |   | $ | 225 |   |
| Ken-A-Vision                                                                    |   |                                      | 75     |   |   | 361 |   |   | 327 |   |
| Total                  income from discontinued operations                      |   |                                      | 75     |   |   | 361 |   |   | 552 |   |
|                                                                            |   |                                      |   |   |   |   |   |   |   |   |
| Gain                  (loss) on disposal of discontinued operations             |   |                                      |   |   |   |   |   |   |   |   |
| Conferencing                  services business                                 |   | $                                         | -      |   | $ | 1,030 |   | $ | 17,369 |   |
| OM                  Video                                                       |   |                                      | 607    |   |   | 350 |   |   | 295 |   |
| Burk                  Technology                                                |   |                                      | -      |   |   | 1,346 |   |   | 187 |   |
| Ken-A-Vision                                                                    |   |                                      | (9     | ) |   | - |   |   | - |   |
| Total                  gain on disposal of discontinued operations              |   |                                      | 598    |   |   | 2,726 |   |   | 17,851 |   |
|                                                                            |   |                                      |   |   |   |   |   |   |   |   |
| Income                  tax provision                                           |   |                                      |   |   |   |   |   |   |   |   |
| Conferencing                  services business                                 |   | $                                         | -      |   | $ | (301 | ) | $ | (3,991 | ) |
| OM                  Video                                                       |   |                                      | (227   | ) |   | (102 | ) |   | (119 | ) |
| Burk                  Technology                                                |   |                                      | -      |   |   | (393 | ) |   | (43 | ) |
| Ken-A-Vision                                                                    |   |                                      | (24    | ) |   | (135 | ) |   | (122 | ) |
| Total                  income tax provision                                     |   |                                      | (251   | ) |   | (931 | ) |   | (4,275 | ) |
|                                                                            |   |                                      |   |   |   |   |   |   |   |   |
| Total                  income from discontinued operations, net of income taxes |   |                                      |   |   |   |   |   |   |   |   |
| Conferencing                  services business                                 |   | $                                         | -      |   | $ | 729 |   | $ | 13,378 |   |
| OM                  Video                                                       |   |                                      | 380    |   |   | 248 |   |   | 401 |   |
| Burk                  Technology                                                |   |                                      | -      |   |   | 953 |   |   | 144 |   |
| Ken-A-Vision                                                                    |   |                                      | 42     |   |   | 226 |   |   | 205 |   |
| Total                  income from discontinued operations, net of income taxes |   | $                                         | 422    |   | $ | 2,156 |   | $ | 14,128 |   |

*Conferencing        Services*

----

**CLEARONE            COMMUNICATIONS, INC. AND SUBSIDIARIES**

**NOTES            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(in            thousands of dollars, except per share amounts)**

*OM        Video*

|                                                                      |   | **Year                  Ended****June                  30,** |   |
|---------------------------------------------------------------------------|--------|--------------------------------------------------------------|--------|
|                                                                      |   | **2005**                                                     |   |
|                                                                      |   |                                                         |   |
| Revenue                                                                   |   | $                                                            | 3,805  |   |
| Cost                  of goods sold                                       |   |                                                         | 3,038  |   |
| Gross                  profit                                             |   |                                                         | 767    |   |
| Marketing                  and selling expenses                           |   |                                                         | 289    |   |
| General                  and administrative expenses                      |   |                                                         | 253    |   |
| Income                  before income taxes                               |   |                                                         | 225    |   |
| Gain                  on disposal                                         |   |                                                         | 295    |   |
| Provision                  for income taxes                               |   |                                                         | (119   | ) |
| Income                  from discontinued operations, net of income taxes |   | $                                                            | 401    |   |

----

**CLEARONE            COMMUNICATIONS, INC. AND SUBSIDIARIES**

**NOTES            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(in            thousands of dollars, except per share amounts)**

*Burk        Technology*

*Ken-A-Vision*

|                                  |   | **Year                  Ended****June                  30,** |   |
|---------------------------------------|--------|--------------------------------------------------------------|--------|
|                                  |   | **2006**                                                     |   |
|                                  |   |                                                         |   |
| Inventory                             |   | $                                                            | 411    |   |
| Patents,                  net         |   |                                                         | 154    |   |
| Total                  current assets |   | $                                                            | 565    |   |

----

**CLEARONE            COMMUNICATIONS, INC. AND SUBSIDIARIES**

**NOTES            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(in            thousands of dollars, except per share amounts)**

|                                                 |   | **Year                  Ended June 30,** |   |
|------------------------------------------------------|--------|------------------------------------------|--------|
|                                                 |   | **2007**                                 |   | **2006** |   | **2005** |   |
|                                                 |   |                                     |   |   |   |   |   |
| Revenue                                              |   | $                                        | 648    |   | $ | 2,269 |   | $ | 2,558 |   |
| Cost                  of goods sold                  |   |                                     | 573    |   |   | 1,908 |   |   | 2,231 |   |
| Gross                  profit                        |   |                                     | 75     |   |   | 361 |   |   | 327 |   |
| Loss                  on disposal                    |   |                                     | (9     | ) |   | - |   |   | - |   |
| Provision                  for income taxes          |   |                                     | (24    | ) |   | (135 | ) |   | (122 | ) |
| Income                  from discontinued operations |   | $                                        | 42     |   | $ | 226 |   | $ | 205 |   |

| **4.  ** | **Inventories** |
|--------------------|-----------------|

|                                 |   | **As                  of June 30,** |   |
|--------------------------------------|--------|-------------------------------------|--------|
|                                 |   | **2007**                            |   | **2006** |   |
|                                 |   |                                |   |   |   |
| Raw                  materials       |   | $                                   | 453    |   | $ | 600 |   |
| Finished                  goods      |   |                                | 4,695  |   |   | 3,197 |   |
| Consigned                  inventory |   |                                | 2,115  |   |   | 2,817 |   |
| Total                  inventory     |   | $                                   | 7,263  |   | $ | 6,614 |   |

| **5.  ** | **Note                Receivable** |
|--------------------|------------------------------------|
| **6.  ** | **Property                and Equipment** |
|--------------------|-------------------------------------------|

|                                                       |   | **Estimated**                     |                           | **As                  of June 30,** |   |
|------------------------------------------------------------|--------|-----------------------------------|--------------------------------|-------------------------------------|--------|
|                                                       |   | **useful                  lives** |                           | **2007**                            |   | **2006** |   |
|                                                       |   |                              |                           |                                |   |   |   |
| Office                  furniture and equipment            |   |                              | 3                  to 10 years |                                | $      | 7,825 |   | $ | 7,458 |   |
| Leasehold                  improvements                    |   |                              | 2                  to 5 years  |                                |   | 1,289 |   |   | 974 |   |
| Manufacturing                  and test equipment          |   |                              | 2                  to 10 years |                                |   | 1,433 |   |   | 1,184 |   |
|                                                       |   |                              |                           |                                |   | 10,547 |   |   | 9,616 |   |
| Accumulated                  depreciation and amortization |   |                              |                           |                                |   | (7,853 | ) |   | (7,969 | ) |
| Property                  and equipment, net               |   |                              |                           |                                | $      | 2,694 |   | $ | 1,647 |   |

----

| **7.  ** | **Leases                and Deferred Rent** |
|--------------------|---------------------------------------------|

| **Years                  Ending June 30,**    |   |   |   |
|-----------------------------------------------|--------|--------|--------|
| 2008                                          |   | $      | 725    |   |
| 2009                                          |   |   | 725    |   |
| 2010                                          |   |   | 671    |   |
| 2011                                          |   |   | 644    |   |
| 2012                                          |   |   | 644    |   |
| Thereafter                                    |   |   | 965    |   |
| Total                  minimum lease payments |   | $      | 4,374  |   |

| **8.  ** | **Accrued                Liabilities** |
|--------------------|----------------------------------------|

|                                                     |   | **As                  of June 30,** |   |
|----------------------------------------------------------|--------|-------------------------------------|--------|
|                                                     |   | **2007**                            |   | **2006** |   |
| Accrued                  salaries and other compensation |   | $                                   | 1,027  |   | $ | 1,150 |   |
| Other                  accrued liabilities               |   |                                | 847    |   |   | 1,247 |   |
| Total                                                    |   | $                                   | 1,874  |   | $ | 2,397 |   |

| **9.  ** | **Commitments                and Contingencies** |
|--------------------|--------------------------------------------------|

----

**CLEARONE            COMMUNICATIONS, INC. AND SUBSIDIARIES**

**NOTES            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(in            thousands of dollars, except per share amounts)**

*Outsource        Manufacturers.*

*Legal        Proceedings.*

*U.S.        Attorney’s Investigation. *

*Theft        of Trade Secret Action.*
** **

*The        Shareholder Derivative Actions. *

----

**CLEARONE            COMMUNICATIONS, INC. AND SUBSIDIARIES**

**NOTES            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(in            thousands of dollars, except per share amounts)**

*The        Insurance Coverage Action. *

*Indemnification        of Officers and Directors*

*Income        Tax Contingency.*

----

| **10.  ** | **Shareholders’                Equity** |
|---------------------|-----------------------------------------------|

*Private        Placement*

*Stock        Buy-Back Program*

*Tender        Offer*

| **11.  ** | **Share-Based                Payment** |
|---------------------|----------------------------------------|

----

**CLEARONE            COMMUNICATIONS, INC. AND SUBSIDIARIES**

**NOTES            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(in            thousands of dollars, except per share amounts)**

|                                                | **Fiscal                  Year Ended** |
|-----------------------------------------------------|----------------------------------------|
|                                                | **June                  30,**          | **June                  30,** | **June                  30,** |
|                                                | **2007**                               | **2006** | **2005** |
| Risk-free                  interest rate, average   | 4.8%                                   | 4.4% | 4.0% |
| Expected                  option life, average      | 4.6                  years             | 5.9                  years | 5.8                  years |
| Expected                  price volatility, average | 88.3%                                  | 87.2% | 91.8% |
| Expected                  dividend yield            | 0.0%                                   | 0.0% | 0.0% |
| Expected                  annual forfeiture rate    | 10.0%                                  | 10.0% | 0.0% |

----

**CLEARONE            COMMUNICATIONS, INC. AND SUBSIDIARIES**

**NOTES            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(in            thousands of dollars, except per share amounts)**

|                                                                 |   | **Year                  Ended June 30, 2006** |   |
|----------------------------------------------------------------------|--------|-----------------------------------------------|--------|
|                                                                 |   | **(in                  thousands)**           |   |
|                                                                 |   |                                          |   |   |   |
|                                                                 |   |                                          |   | **SFAS** |   |
|                                                                 |   |                                          |   | **No.                  123R** |   |
|                                                                 |   |                                          |   | **Compensation** |   |
|                                                                 |   | **As                  Reported**              |   | **Expense** |   |
|                                                                 |   |                                          |   |   |   |
| Revenue                                                              |   | $                                             | 35,362 |   | $ | - |   |
| Cost                  of goods sold                                  |   |                                          | 17,375 |   |   | (49 | ) |
| Gross                  profit                                        |   |                                          | 17,987 |   |   | 49 |   |
| Operating                  expenses:                                 |   |                                          |   |   |   |   |   |
| Marketing                  and selling                               |   |                                          | 7,866  |   |   | (99 | ) |
| Research                  and product development                    |   |                                          | 8,299  |   |   | (203 | ) |
| General                  and administrative                          |   |                                          | 5,108  |   |   | (756 | ) |
| Settlement                  in shareholders' class action            |   |                                          | (1,205 | ) |   | - |   |
| Total                  operating expenses                            |   |                                          | 20,068 |   |   | (1,058 | ) |
| Operating                  loss                                      |   |                                          | (2,081 | ) |   | 1,107 |   |
| Other                  income, net                                   |   |                                          | 1,016  |   |   | 34 |   |
| Loss                  from continuing operations before income taxes |   |                                          | (1,065 | ) |   | 1,141 |   |
| Benefit                  for income taxes                            |   |                                          | 1,005  |   |   | (264 | ) |
| Income                  from continuing operations                   |   |                                          | (60    | ) |   | 877 |   |
| Income                  from discontinued operations, net of tax     |   |                                          | 2,156  |   |   | - |   |
| Net                  income                                          |   | $                                             | 2,096  |   | $ | 877 |   |
|                                                                 |   |                                          |   |   |   |   |   |
| Basic                  earnings (loss) per common share:             |   |                                          |   |   |   |   |   |
| Continuing                  operations                               |   | $                                             | (0.01  | ) | $ | 0.07 |   |
| Discontinued                  operations                             |   |                                          | 0.18   |   |   | - |   |
| Net                  income                                          |   |                                          | 0.18   |   |   | 0.07 |   |
| Diluted                  earnings (loss) per common share:           |   |                                          |   |   |   |   |   |
| Continuing                  operations                               |   | $                                             | 0.00   |   | $ | 0.07 |   |
| Discontinued                  operations                             |   |                                          | 0.18   |   |   | - |   |
| Net                  income                                          |   |                                          | 0.17   |   |   | 0.07 |   |

----

**CLEARONE            COMMUNICATIONS, INC. AND SUBSIDIARIES**

**NOTES            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(in            thousands of dollars, except per share amounts)**

| **Stock                  Options**            |   | **Number                  of Shares** |      | **Weighted                  Average Exercise Price** |   | **Weighted                  Remaining Contractual Term (years)** |   | **Aggregate                  Intrinsic Value** |                       |
|-----------------------------------------------|--------|---------------------------------------|-----------|------------------------------------------------------|--------|------------------------------------------------------------------|--------|------------------------------------------------|----------------------------|
|                                          |   |                                  |      |                                                 |   |                                                             |   |                                           |                       |
| Outstanding                  at June 30, 2004 |   |                                  | 1,433,187 |                                                 |   | 6.37                                                             |   |                                           |                       |   |   |   |   |
|                                          |   |                                  |      |                                                 |   |                                                             |   |                                           |                       |   |   |   |   |
| Granted                                       |   |                                  | 450,500   |                                                 |   | 4.77                                                             |   |                                           |                       |   |   |   |   |
| Expired                  and canceled         |   |                                  | (87,600   | )                                                    |   | 2.71                                                             |   |                                           |                       |   |   |   |   |
| Forfeited                  prior to vesting   |   |                                  | (302,975  | )                                                    |   | 5.88                                                             |   |                                           |                       |   |   |   |   |
| Exercised                                     |   |                                  | -         |                                                 |   | -                                                                |   |                                           |                       |   |   |   |   |
| Outstanding                  at June 30, 2005 |   |                                  | 1,493,112 |                                                 |   | 6.21                                                             |   |                                           |                       |   |   |   |   |
|                                          |   |                                  |      |                                                 |   |                                                             |   |                                           |                       |   |   |   |   |
| Granted                                       |   |                                  | 29,000    |                                                 |   | 2.63                                                             |   |                                           |                       |   |   |   |   |
| Expired                  and canceled         |   |                                  | (118,353  | )                                                    |   | 3.55                                                             |   |                                           |                       |   |   |   |   |
| Forfeited                  prior to vesting   |   |                                  | (165,839  | )                                                    |   | 8.11                                                             |   |                                           |                       |   |   |   |   |
| Exercised                                     |   |                                  | -         |                                                 |   | -                                                                |   |                                           |                       |   | $ | 0 |   |
| Outstanding                  at June 30, 2006 |   |                                  | 1,237,920 |                                                 |   | 6.12                                                             |   |                                           |                       |   | $ | 135 |   |
|                                          |   |                                  |      |                                                 |   |                                                             |   |                                           |                       |   |   |   |   |
| Granted                                       |   |                                  | 436,500   |                                                 |   | 3.84                                                             |   |                                           |                       |   |   |   |   |
| Expired                  and canceled         |   |                                  | (329,316  | )                                                    |   | 6.45                                                             |   |                                           |                       |   |   |   |   |
| Forfeited                  prior to vesting   |   |                                  | (55,965   | )                                                    |   | 3.94                                                             |   |                                           |                       |   |   |   |   |
| Exercised                                     |   |                                  | (15,940   | )                                                    |   | 3.41                                                             |   |                                           |                       |   | $ | 42 |   |
| Outstanding                  at June 30, 2007 |   |                                  | 1,273,199 |                                                 |   | 5.38                                                             |   |                                           |                       |   | $ | 946 |   |
| Exercisable                                   |   |                                  | 794,545   |                                                 |   | 6.13                                                             |   |                                           | 5.7                  years |   | $ | 521 |   |

|                                  |   | Options                  Outstanding |      | Options                  Exercisable             |   |
|---------------------------------------|--------|--------------------------------------|-----------|--------------------------------------------------|--------|
| Exercise                  Price Range |   | Number                  of Shares    |      | Weighted                  Average Exercise Price |   | Weighted                  Average Contractual Term (Years) |   | Options                  Exercisable |   | Weighted                  Average Exercise Price |   |
|                                  |   |                                 |      |                                             |   |   |   |   |   |   |   |
| $0.00                  to $4.00       |   |                                 | 715,449   |                                             | $      | 3.41 |   |   | 7.4                  years |   |   | 369,465 |   | $ | 3.29 |   |
| $4.01                  to $8.00       |   |                                 | 390,000   |                                             |   | 5.70 |   |   | 7.6                  years |   |   | 272,381 |   |   | 6.09 |   |
| $8.01                  to $12.00      |   |                                 | 80,000    |                                             |   | 11.29 |   |   | 3.3                  years |   |   | 77,563 |   |   | 11.34 |   |
| $12.01                  to $16.00     |   |                                 | 87,000    |                                             |   | 14.64 |   |   | 2.8                  years |   |   | 74,713 |   |   | 14.87 |   |
| $16.01                  to $20.00     |   |                                 | 750       |                                             |   | 18.80 |   |   | 2.8                  years |   |   | 423 |   |   | 19.13 |   |
| Total                                 |   |                                 | 1,273,199 |                                             | $      | 5.38 |   |   | 6.9                  years |   |   | 794,545 |   | $ | 6.13 |   |

----

**CLEARONE            COMMUNICATIONS, INC. AND SUBSIDIARIES**

**NOTES            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(in            thousands of dollars, except per share amounts)**

| **Non-vested                  Shares**       |   | **Number                  of Shares** |     | **Weighted                  Average Grant-Date Fair Value** |   |
|----------------------------------------------|--------|---------------------------------------|----------|-------------------------------------------------------------|--------|
|                                         |   |                                  |     |                                                        |   |
| Non-vested                  at June 30, 2006 |   |                                  | 320,224  |                                                        | $      | 4.39 |   |
|                                         |   |                                  |     |                                                        |   |   |   |
| Granted                                      |   |                                  | 436,500  |                                                        |   | 2.65 |   |
| Vested                                       |   |                                  | (222,105 | )                                                           |   | 4.62 |   |
| Forfeited                  prior to vesting  |   |                                  | (55,965  | )                                                           |   | 2.89 |   |
| Non-vested                  at June 30, 2007 |   |                                  | 478,654  |                                                        | $      | 2.87 |   |

| **12.  ** | **Significant                Customers** |
|---------------------|------------------------------------------|

|                        | **2007** | **2006** | **2005** |
|-----------------------------|----------|----------|----------|
| Customer                  A | 30.4%    | 24.6%    | 28.0%    |
| Customer                  B | 13.4%    | 16.6%    | 19.2%    |
| Customer                  C | 12.8%    | 15.0%    | 16.0%    |
| Total                       | 56.6%    | 56.2%    | 63.2%    |

----

**CLEARONE            COMMUNICATIONS, INC. AND SUBSIDIARIES**

**NOTES            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(in            thousands of dollars, except per share amounts)**

|                        | **2007** | **2006** |
|-----------------------------|----------|----------|
| Customer                  A | 29.3%    | 19.4%    |
| Customer                  B | 16.7%    | 16.1%    |
| Customer                  C | 12.2%    | 11.9%    |
| Total                       | 58.2%    | 47.4%    |

| **13.  ** | **Severance                Charges** |
|---------------------|--------------------------------------|
| **14.  ** | **Retirement                Savings and Profit Sharing Plan** |
|---------------------|---------------------------------------------------------------|
| **15.  ** | **Income                Taxes** |
|---------------------|---------------------------------|

|     |   | **Years                  Ended June 30,** |   |
|----------|--------|-------------------------------------------|--------|
|     |   | **2007**                                  |   | **2006** |   | **2005** |   |
|     |   |                                      |   |   |   |   |   |
| U.S.     |   | $                                         | 5,184  |   | $ | (1,113 | ) | $ | (1,475 | ) |
| Non-U.S. |   |                                      | 60     |   |   | 48 |   |   | 52 |   |
|     |   | $                                         | 5,244  |   | $ | (1,065 | ) | $ | (1,423 | ) |

----

**CLEARONE            COMMUNICATIONS, INC. AND SUBSIDIARIES**

**NOTES            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(in            thousands of dollars, except per share amounts)**

|                                                           |   | **Years                  Ended June 30,** |   |
|----------------------------------------------------------------|--------|-------------------------------------------|--------|
|                                                           |   | **2007**                                  |   | **2006** |   | **2005** |   |
|                                                           |   |                                      |   |   |   |   |   |
| Current:                                                       |   |                                      |   |   |   |   |   |
| U.S.                  Federal                                  |   | $                                         | (435   | ) | $ | 889 |   | $ | 2,952 |   |
| U.S.                  State                                    |   |                                      | (4     | ) |   | 118 |   |   | 439 |   |
| Non-U.S.                                                       |   |                                      | (18    | ) |   | (2 | ) |   | (21 | ) |
| Total                  current                                 |   | $                                         | (457   | ) | $ | 1,005 |   | $ | 3,370 |   |
|                                                           |   |                                      |   |   |   |   |   |   |   |   |
| Deferred:                                                      |   |                                      |   |   |   |   |   |   |   |   |
| U.S.                  Federal                                  |   |                                      | (148   | ) |   | (619 | ) |   | (2,236 | ) |
| U.S.                  State                                    |   |                                      | (594   | ) |   | 73 |   |   | (337 | ) |
| Change                  in deferred before valuation allowance |   |                                      | (742   | ) |   | (546 | ) |   | (2,573 | ) |
| Decrease                  (increase) in valuation allowance    |   |                                      | 742    |   |   | 546 |   |   | 2,573 |   |
| Total                  deferred                                |   |                                      | -      |   |   | - |   |   | - |   |
|                                                           |   |                                      |   |   |   |   |   |   |   |   |
| (Provision)                  benefit for income taxes          |   | $                                         | (457   | ) | $ | 1,005 |   | $ | 3,370 |   |

|                                                               |   | **2007**    |   | **2006**      |   |
|--------------------------------------------------------------------|--------|-------------|--------|---------------|--------|
|                                                               |   | **Current** |   | **Long-term** |   | **Current** |   | **Long-term** |   |
|                                                               |   |        |   |          |   |   |   |   |   |
| Deferred                  revenue                                  |   |        | 1,075  |          |   |   |   |   | 1,191 |   |   |   |   |
| Basis                  difference in intangible assets             |   |        |   |          |   | 676 |   |   |   |   |   | 885 |   |
| Inventory                  reserve                                 |   |        | 870    |          |   |   |   |   | 873 |   |   |   |   |
| Net                  operating loss carryforwards                  |   |        |   |          |   | 115 |   |   |   |   |   | 799 |   |
| Accumulated                  research and development credits      |   |        |   |          |   | 960 |   |   |   |   |   | 591 |   |
| Alternative                  minimum tax credits                   |   |        |   |          |   | 409 |   |   |   |   |   | 409 |   |
| Accrued                  liabilities                               |   |        | 242    |          |   |   |   |   | 321 |   |   |   |   |
| Deductible                  SFAS 123R compensation expense         |   |        | 436    |          |   |   |   |   | 268 |   |   |   |   |
| Allowance                  for sales returns and doubtful accounts |   |        | 21     |          |   |   |   |   | 19 |   |   |   |   |
| Other                                                              |   |        |   |          |   | 77 |   |   |   |   |   | 281 |   |
| Difference                  in property and equipment basis        |   |        |        |          |   | (254 | ) |   |  |   |   | (268 | ) |
|                                                               |   |        |   |          |   |   |   |   |   |   |   |   |   |
| Total                  net deferred income tax asset               |   |        | 2,644  |          |   | 1,983 |   |   | 2,672 |   |   | 2,697 |   |
|                                                               |   |        |   |          |   |   |   |   |   |   |   |   |   |
| Less                  valuation allowance                          |   |        | (2,644 | )             |   | (1,983 | ) |   | (2,672 | ) |   | (2,697 | ) |
|                                                               |   |        |   |          |   |   |   |   |   |   |   |   |   |
| Net                  deferred income tax asset                     |   |        | -      |          |   | - |   |   | - |   |   | - |   |

----

**CLEARONE            COMMUNICATIONS, INC. AND SUBSIDIARIES**

**NOTES            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(in            thousands of dollars, except per share amounts)**

|                                                       |   | **As                  of June 30,** |   |
|------------------------------------------------------------|--------|-------------------------------------|--------|
|                                                       |   | **2007**                            |   | **2006** |   |
|                                                       |   |                                |   |   |   |
| Current                  deferred income tax assets        |   | $                                   | -      |   | $ | 128 |   |
| Long-term                  deferred income tax assets      |   |                                | -      |   |   | - |   |
| Current                  deferred income tax liabilities   |   |                                | -      |   |   | - |   |
| Long-term                  deferred income tax liabilities |   |                                | -      |   |   | (128 | ) |
| Net                  deferred income tax assets            |   | $                                   | -      |   | $ | - |   |

*“Accounting        for Income Taxes,”*

| **16.  ** | **Related-Party                Transactions** |
|---------------------|-----------------------------------------------|

*The        Insurance Coverage Action.*

----

| **17.  ** | **Geographic                Sales Information** |
|---------------------|-------------------------------------------------|

|                                 |   | **Years                  Ended June 30,** |   |
|--------------------------------------|--------|-------------------------------------------|--------|
|                                 |   | **2007**                                  |   | **2006** |   | **2005** |   |
|                                 |   |                                      |   |   |   |   |   |
| United                  States       |   | $                                         | 28,336 |   | $ | 25,316 |   | $ | 21,703 |   |
| All                  other countries |   |                                      | 11,525 |   |   | 10,046 |   |   | 7,384 |   |
| Total                                |   | $                                         | 39,861 |   | $ | 35,362 |   | $ | 29,087 |   |

| **18.  ** | **Closing                of Germany Office** |
|---------------------|----------------------------------------------|
| **19.  ** | **Manufacturing                Transition** |
|---------------------|---------------------------------------------|

----

**CLEARONE            COMMUNICATIONS, INC. AND SUBSIDIARIES**

**NOTES            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(in            thousands of dollars, except per share amounts)**

|                                        |   | **Severance** |   | **Manufacturing                  Facilities Lease** |   | **Total** |   |
|---------------------------------------------|--------|---------------|--------|-----------------------------------------------------|--------|-----------|--------|
|                                        |   |          |   |                                                |   |      |   |
| Balance                  at 06/30/2004      |   | $             | -      |                                                | $      | -         |   | $ | - |   |
| Restructuring                  charge       |   |          | 70     |                                                |   | 40        |   |   | 110 |   |
| Utilized                                    |   |          | -      |                                                |   | -         |   |   | - |   |
| Balance                  at 06/30/2005      |   | $             | 70     |                                                | $      | 40        |   | $ | 110 |   |
|                                        |   |          |   |                                                |   |      |   |   |   |   |
| Utilized                                    |   |          | (70    | )                                                   |   | (107      | )      |   | (177 | ) |
| Sublease                  payments received |   |          | -      |                                                |   | 110       |   |   | 110 |   |
| Balance                  at 06/30/2006      |   | $             | -      |                                                | $      | 43        |   | $ | 43 |   |
|                                        |   |          |   |                                                |   |      |   |   |   |   |
| Utilized                                    |   |          | -      |                                                |   | (43       | )      |   | (43 | ) |
| Balance                  at 06/30/2007      |   | $             | -      |                                                | $      | -         |   | $ | - |   |

| **20.  ** | **Subsequent                Events** |
|---------------------|--------------------------------------|

** **