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**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**

**0-17219**

**CLEARONE        COMMUNICATIONS, INC.**

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

**1825        Research Way**

**Salt        Lake City, Utah 84119**

**(801)        975-7200**

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

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

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**APPLICABLE        ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY **

**PROCEEDINGS        DURING THE PRECEDING FIVE YEARS**

**(APPLICABLE        ONLY TO CORPORATE REGISTRANTS)**

**DOCUMENTS        INCORPORATED BY REFERENCE**

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

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**DISCLOSURE        REGARDING FORWARD-LOOKING STATEMENTS**

**PART I**

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**ITEM        1. DESCRIPTION OF BUSINESS**

**Overview        **

**Significant        Events**

***The        SEC Action***
**.        **

***Securities        Delisted from NASDAQ Stock Market and Pink Sheets,        LLC.***
** **

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| ·   | a                  shareholders’ equity of $5.0 million, a market value of listed securities                  of $50.0 million, or a net income from continuing operations (in                  the                  latest fiscal year or in two of the last three fiscal years) of                  $750,000; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a                  market value of publicly held shares of $5.0 million; |
|--------------------|--------------------------------------------------------------------------|

| ·   | a                  minimum bid price of $4.00 for 90-days prior to applying for listing; |
|--------------------|------------------------------------------------------------------------------------------|

| ·   | three                  market makers; |
|--------------------|---------------------------------------|

| ·   | distribution                  of an annual report; |
|--------------------|----------------------------------------------------|

| ·   | a                  shareholders meeting; and |
|--------------------|----------------------------------------------|

| ·   | other                  corporate governance requirements. |
|--------------------|-----------------------------------------------------------|

***The        Shareholder Class Action.***

***Changes        to Management and Board of Directors.***

***Potential        SEC Administrative Action.***

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***Changes        in Type and Scope of Operations***

**Acquisitions        of E.mergent, Inc. and OM Video**
**.**
*Acquisitions        and Dispositions*

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

**Sale        of Conferencing Services Business**
**.**

**Sale        of OM Video**
**.        **

**Business        Strategy**

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*Provide        a superior conferencing experience*

*Offer        greater value to our customers*

*Leverage        and extend ClearOne technology leadership and innovation*

*Expand        and strengthen strong sales channels*

*Broaden        our product offerings *

*Develop        strategic partnerships*

*Strengthen        existing customer relationships through dedicated support*

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**Markets        and Products **

***Products        Segment***

**Professional        Audio Conferencing Products**

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**Premium        Conferencing Systems**

**Tabletop        Conferencing Phones **

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**Other        Products**

**Marketing        and Sales**

***Distributors***

***Independent        Integrators and Resellers***

***Trade        Shows and Industry Forums***

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**Customers**

**Competition        **

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**Regulation**

**Seasonality**

**Product        Development **

**Manufacturing        **

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

| ·   | Achievement                  of a rapid International Standards Organization certification of                  our                  products by partnering with an outsource manufacturer that was                  International Standards Organization                  certified; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Scale-ability                  in our manufacturing process without major investment or major                  restructuring costs; and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------|

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

**Intellectual        Property and Other Proprietary Rights **

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**Employees**

|                                    | **Employees                  of as** |
|-----------------------------------------|--------------------------------------|
|                                    | **Feb.                  28, 2006**   | **June                  30, 2005** | **June                  30, 2004** | **June                  30, 2003** |
| Sales,                  marketing, and  |                                 |   |   |   |
| customer                  support       | 44                                   | 45 | 51 | 49 |
| Product                  development    | 47                                   | 43 | 41 | 20 |
| Operations                  support     | 19                                   | 20 | 40 | 40 |
| Administration                          | 15                                   | 18 | 29 | 30 |
| U.S.                  business services | 0                                    | 0 | 0 | 29 |
| Conferencing                  services  | 0                                    | 0 | 76 | 61 |
| OM                  Video               | 0                                    | 0 | 27 | 34 |
| Total                                   | 125                                  | 126 | 264 | 263 |

**Acquisitions        and Dispositions**

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

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***E.mergent        Acquisition.***

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

***Sale        of Broadcast Telephone Interface Business to Comrex.***

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***OM        Video Acquisition.***

*Sale        of OM Video - Canadian Audiovisual Integration Services*

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

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

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

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**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, 2005 consolidated financial statements and related notes.*

***Risks        Relating to Our Business***

*We        face intense competition in all of the 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        profitability may be adversely affected by our continuing dependence on our        distribution channels.*

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*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.*

*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; |
|--------------------|--------------------------------------------------------------------------------|

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

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

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*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; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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, or other restrictions associated with infectious                  diseases. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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*We        may not be able to hire and retain highly skilled 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.*

*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*

*We        may have difficulty in collecting outstanding receivables.*

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*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-margin 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; |
|--------------------|---------------------------------------------------------------------------------------|

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

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

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

| ·   | the                  adoption of the new accounting standard, SFAS 123R, “Share-Based Payments”                  which will require us to record compensation expense for certain                  options                  issued under our “1998 Stock Option Plan” 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. |
|--------------------|-----------------------------------------------------------------------------|

*Many        of our officers and key personnel have recently joined the company or have        only        worked together for a short period of time.*

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*Our        directors and officers own 18.2 percent of the Company and may exert significant        influence over us.*

**ITEM        1B. UNRESOLVED STAFF COMMENTS**

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

| **Location**                                                                                                                    | **Operations**                                              | **Square                  Footage** | **Status**                           | **Expiration                  of Lease Agreement** |
|---------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------|-------------------------------------|--------------------------------------|----------------------------------------------------|
| **Active                  Leases at June 30, 2005**                                                                             |                                                        |                                |                                 |
| Salt                  Lake City, UT                                                                                             | Company                  headquarters                       | 39,760                              | Continuing                           | October                  2006                      |
| Salt                  Lake City, UT                                                                                             | Manufacturing                  facility                     | 12,000                              | Partially                  subleased | October                  2006                      |
| Champlin,                  MN                                                                                                   | Furniture                  manufacturing                    | 17,520                              | Continuing                           | September                  2007                    |
| Berkshire,                                                                                                                      |                                                        |                                |                                 |                                               |
| United                  Kingdom                                                                                                 | Sales                  office                               | 250                                 | Continuing                           | 90                  days notice                    |
|                                                                                                                            |                                                        |                                |                                 |                                               |
| **Terminated                  Leases, i.e., per contract terms, sale of entity, or through early                  termination** |                                                        |
| Dublin,                  Ireland                                                                                                | Research                  and development office            | 4,639                               | Early                  buyout        | November                  2002                     |
| Des                  Moines, IA                                                                                                 | Sales                  office                               | 1,146                               | Lease                  terminated    | December                  2002                     |
| Woburn,                  MA                                                                                                     | ClearOne,                  Inc. acquisition                 | 2,206                               | Early                  buyout        | September                  2003                    |
| Golden                  Valley, MN                                                                                              | U.S.                  audiovisual installation services     | 25,523                              | Early                  buyout        | June                  2004                         |
| Westmont,                  IL                                                                                                   | U.S.                  audiovisual installation services     | 2,608                               | Lease                  expired       | July                  2004                         |
| Nuremberg,                  Germany                                                                                             | Sales                  office                               | 2,153                               | Early                  buyout        | December                  2004                     |
| Ottawa,                  Canada                                                                                                 | Canadian                  audiovisual installation services | 16,190                              | Sold                  entity         | March                  2005                        |

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**ITEM        3.**
**LEGAL        PROCEEDINGS**

**The        SEC Action. **

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

**The        Whistleblower Action. **
** **

**The        Shareholders’ Class Action. **

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**The        Shareholder Derivative Actions. **

**The        Insurance Coverage Action. **

**Wells        Submission. **

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**The        Pacific Technology & Telecommunications Collection Action.**

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

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**PART        II**

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

**Market        Information**

|                            |   | **2005** |   | **2004** |   |
|---------------------------------|--------|----------|--------|----------|--------|
|                            |   | **High** |   | **Low**  |   | **High** |   | **Low** |   |
| First                  Quarter  |   | $        | 5.70   |     | $      | 3.50 |   | $ | 2.15 |   | $ | 1.70 |   |
| Second                  Quarter |   |     | 4.80   |     |   | 3.55 |   |   | 4.35 |   |   | 1.78 |   |
| Third                  Quarter  |   |     | 4.30   |     |   | 3.00 |   |   | 7.96 |   |   | 3.70 |   |
| Fourth                  Quarter |   |     | 3.65   |     |   | 2.25 |   |   | 6.50 |   |   | 4.40 |   |

**Shareholders**

**Dividends**

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

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|                                   | **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      | 1,493,112                                                                                                                                           | $6.21                                                                                                             | 735,514                                                                                                                                                                                            |
| Equity                  compensation   |                                                                                                                                                |                                                                                                              |                                                                                                                                                                                               |
| plans                  not approved by |                                                                                                                                                |                                                                                                              |                                                                                                                                                                                               |
| security                  holders      | -                                                                                                                                                   | -                                                                                                                 | -                                                                                                                                                                                                  |
| Total                                  | 1,493,112                                                                                                                                           | $6.21                                                                                                             | 735,514                                                                                                                                                                                            |

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

**Issuer        Purchases of Equity Securities.**

**Cancellation        of Shares of Executive Officers.**

**Employee        Stock Purchase Program.**

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

**SELECTED        CONSOLIDATED FINANCIAL DATA**

**(in        thousands, except share data)**

|                                                                          |   | **Years                  Ended June 30,** |       |
|-------------------------------------------------------------------------------|--------|-------------------------------------------|------------|
|                                                                          |   | **2005**                                  |       | **2004** |   | **2003** |   | **2002** |   | **2001** |   |
| **Operating                  results:**                                       |   |                                      |       |   |   |   |   |   |   |   |   |
| Revenue                                                                       |   | $                                         | 31,645     |   | $ | 27,966 |   | $ | 28,566 |   | $ | 26,253 |   | $ | 22,448 |   |
| Costs                  and expenses:                                          |   |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                     Cost of goods sold                              |   |                                      | 14,951     |   |   | 16,379 |   |   | 18,115 |   |   | 13,884 |   |   | 9,204 |   |
|                     Marketing and selling                           |   |                                      | 9,070      |   |   | 8,497 |   |   | 7,070 |   |   | 7,010 |   |   | 5,273 |   |
|                     General and administrative                      |   |                                      | 5,489      |   |   | 6,767 |   |   | 5,915 |   |   | 4,376 |   |   | 2,612 |   |
|                     Settlement in shareholders' class action        |   |                                      | (2,046     | ) |   | 4,080 |   |   | 7,325 |   |   | - |   |   | - |   |
|                     Research and product development                |   |                                      | 5,305      |   |   | 4,237 |   |   | 3,281 |   |   | 3,810 |   |   | 2,747 |   |
|                     Impairment losses                               |   |                                      | 180        |   |   | - |   |   | 5,102 |   |   | 7,115 |   |   | - |   |
|                     Restructuring charge                            |   |                                      | 110        |   |   | - |   |   | - |   |   | - |   |   | - |   |
|                     Purchased in-process research and development   |   |                                      | -          |   |   | - |   |   | - |   |   | - |   |   | 728 |   |
| Operating                  (loss) income                                      |   |                                      | (1,414     | ) |   | (11,994 | ) |   | (18,242 | ) |   | (9,942 | ) |   | 1,884 |   |
|                     Other income (expense), net                     |   |                                      | 318        |   |   | (261 | ) |   | 48 |   |   | 288 |   |   | 188 |   |
| (Loss)                  Income from continuing operations before income taxes |   |                                      | (1,096     | ) |   | (12,255 | ) |   | (18,194 | ) |   | (9,654 | ) |   | 2,072 |   |
| Benefit                  (provision) for income taxes                         |   |                                      | 3,248      |   |   | 736 |   |   | 1,352 |   |   | 173 |   |   | (403 | ) |
| Income                  (loss) from continuing operations                     |   |                                      | 2,152      |   |   | (11,519 | ) |   | (16,842 | ) |   | (9,481 | ) |   | 1,669 |   |
| Income                  (loss) from discontinued operations                   |   |                                      | 13,923     |   |   | 1,632 |   |   | (19,130 | ) |   | 2,820 |   |   | 1,949 |   |
| Net                  income (loss)                                            |   | $                                         | 16,075     |   | $ | (9,887 | ) | $ | (35,972 | ) | $ | (6,661 | ) | $ | 3,618 |   |
|                                                                          |   |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Earnings                  (loss) per common share:**                        |   |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                  earnings (loss) from continuing operations             |   | $                                         | 0.19       |   | $ | (1.04 | ) | $ | (1.50 | ) | $ | (0.99 | ) | $ | 0.19 |   |
| Diluted                  earnings (loss) from continuing operations           |   | $                                         | 0.17       |   | $ | (1.04 | ) | $ | (1.50 | ) | $ | (0.99 | ) | $ | 0.18 |   |
| Basic                  earnings (loss) from discontinued operations           |   | $                                         | 1.25       |   | $ | 0.15 |   | $ | (1.71 | ) | $ | 0.30 |   | $ | 0.23 |   |
| Diluted                  earnings (loss) from discontinued operations         |   | $                                         | 1.13       |   | $ | 0.15 |   | $ | (1.71 | ) | $ | 0.30 |   | $ | 0.21 |   |
| Basic                  earnings (loss)                                        |   | $                                         | 1.44       |   | $ | (0.89 | ) | $ | (3.21 | ) | $ | (0.69 | ) | $ | 0.42 |   |
| Diluted                  earnings (loss)                                      |   | $                                         | 1.30       |   | $ | (0.89 | ) | $ | (3.21 | ) | $ | (0.69 | ) | $ | 0.39 |   |
| **Weighted                  average shares outstanding:**                     |   |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                         |   |                                      | 11,177,406 |   |   | 11,057,896 |   |   | 11,183,339 |   |   | 9,588,118 |   |   | 8,593,725 |   |
| Diluted                                                                       |   |                                      | 12,332,106 |   |   | 11,057,896 |   |   | 11,183,339 |   |   | 9,588,118 |   |   | 9,194,009 |   |

|                                                         |   | **As                    of June 30,** |   |
|--------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                         |   | **2005**                              |   | **2004** |   | **2003** |   | **2002** |   | **2001** |   |
| **Financial                    data:**                       |   |                                  |   |   |   |   |   |   |   |   |   |
| Current                    assets                            |   | $                                     | 34,879 |   | $ | 27,202 |   | $ | 29,365 |   | $ | 52,304 |   | $ | 20,264 |   |
| Property,                    plant and equipment, net        |   |                                  | 2,805  |   |   | 4,027 |   |   | 4,320 |   |   | 4,678 |   |   | 3,021 |   |
| Total                    assets                              |   |                                  | 38,021 |   |   | 32,156 |   |   | 35,276 |   |   | 63,876 |   |   | 25,311 |   |
| Long-term                    debt, net of current maturities |   |                                  | -      |   |   | 240 |   |   | 931 |   |   | - |   |   | - |   |
| Capital                    leases, net of current maturities |   |                                  | -      |   |   | 2 |   |   | 9 |   |   | 41 |   |   | 48 |   |
| Total                    shareholders' equity                |   |                                  | 24,911 |   |   | 9,006 |   |   | 18,743 |   |   | 53,892 |   |   | 20,728 |   |

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**Quarterly          Financial Data (Unaudited) **

|                                                                              |   | **Fiscal                      2005 Quarters Ended** |   |                             |   |
|-----------------------------------------------------------------------------------|--------|-----------------------------------------------------|--------|----------------------------------|--------|
|                                                                              |   | **(in                      thousands)**             |   |                             |   |
|                                                                              |   | **Sept.                      30**                   |   | **Dec.                      31** |   | **Mar.                      31** |   | **June                      30** |   | **Total** |   |
| Net                      revenue                                                  |   | $                                                   | 6,747  |                             | $      | 8,692 |   | $ | 7,103 |   | $ | 9,103 |   | $ | 31,645 |   |
| Cost                      of goods sold                                           |   |                                                | (3,797 | )                                |   | (3,948 | ) |   | (3,180 | ) |   | (4,026 | ) |   | (14,951 | ) |
| Marketing                      and selling                                        |   |                                                | (2,086 | )                                |   | (2,341 | ) |   | (2,151 | ) |   | (2,492 | ) |   | (9,070 | ) |
| 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 |   |
| Research                      and product development                             |   |                                                | (1,105 | )                                |   | (1,282 | ) |   | (1,423 | ) |   | (1,495 | ) |   | (5,305 | ) |
| Impairment                      losses                                            |   |                                                | -      |                             |   | - |   |   | - |   |   | (180 | ) |   | (180 | ) |
| Restructuring                      charge                                         |   |                                                | -      |                             |   | - |   |   | - |   |   | (110 | ) |   | (110 | ) |
| Other                      income (expense)                                       |   |                                                | 34     |                             |   | 64 |   |   | 95 |   |   | 125 |   |   | 318 |   |
| (Loss)                      income from continuing operations before income taxes |   |                                                | (622   | )                                |   | 531 |   |   | 12 |   |   | (1,017 | ) |   | (1,096 | ) |
| Benefit                      (provision) for income taxes                         |   |                                                | 232    |                             |   | (198 | ) |   | (5 | ) |   | 3,219 |   |   | 3,248 |   |
| (Loss)                      income from continuing operations                     |   |                                                | (390   | )                                |   | 333 |   |   | 7 |   |   | 2,202 |   |   | 2,152 |   |
| Income                      from discontinued operations                          |   |                                                | 13,346 |                             |   | 73 |   |   | 388 |   |   | 116 |   |   | 13,923 |   |
| Net                      income                                                   |   | $                                                   | 12,956 |                             | $      | 406 |   | $ | 395 |   | $ | 2,318 |   | $ | 16,075 |   |
|                                                                              |   |                                                |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                      income (loss) earnings per common share:               |   |                                                |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing                      operations                                        |   | $                                                   | (0.04  | )                                | $      | 0.03 |   | $ | - |   | $ | 0.20 |   | $ | 0.19 |   |
| Discontinued                      operations                                      |   |                                                | 1.20   |                             |   | 0.01 |   |   | 0.03 |   |   | 0.01 |   |   | 1.25 |   |
| 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                                        |   | $                                                   | (0.03  | )                                | $      | 0.02 |   | $ | - |   | $ | 0.18 |   | $ | 0.17 |   |
| Discontinued                      operations                                      |   |                                                | 1.08   |                             |   | 0.01 |   |   | 0.03 |   |   | 0.01 |   |   | 1.13 |   |
| Diluted                      income (loss) earnings per common share              |   | $                                                   | 1.05   |                             | $      | 0.03 |   | $ | 0.03 |   | $ | 0.19 |   | $ | 1.30 |   |

|                                                                     |   | **Fiscal                      2004 Quarters Ended** |   |                             |   |
|--------------------------------------------------------------------------|--------|-----------------------------------------------------|--------|----------------------------------|--------|
|                                                                     |   | **(in                      thousands)**             |   |                             |   |
|                                                                     |   | **Sept.                      30**                   |   | **Dec.                      31** |   | **Mar.                      31** |   | **June                      30** |   | **Total** |   |
| Net                      revenue                                         |   | $                                                   | 7,737  |                             | $      | 6,715 |   | $ | 6,652 |   | $ | 6,862 |   | $ | 27,966 |   |
| Cost                      of goods sold                                  |   |                                                | (5,165 | )                                |   | (3,278 | ) |   | (4,392 | ) |   | (3,544 | ) |   | (16,379 | ) |
| Marketing                      and selling                               |   |                                                | (2,012 | )                                |   | (2,004 | ) |   | (2,129 | ) |   | (2,352 | ) |   | (8,497 | ) |
| General                      and administrative                          |   |                                                | (1,583 | )                                |   | (1,639 | ) |   | (1,738 | ) |   | (1,807 | ) |   | (6,767 | ) |
| Settlement                      in shareholders' class action            |   |                                                | -      |                             |   | (2,100 | ) |   | (3,240 | ) |   | 1,260 |   |   | (4,080 | ) |
| Research                      and product development                    |   |                                                | (925   | )                                |   | (829 | ) |   | (1,112 | ) |   | (1,371 | ) |   | (4,237 | ) |
| Other                      income (expense)                              |   |                                                | 1      |                             |   | (65 | ) |   | (2 | ) |   | (195 | ) |   | (261 | ) |
| Loss                      from continuing operations before income taxes |   |                                                | (1,947 | )                                |   | (3,200 | ) |   | (5,961 | ) |   | (1,147 | ) |   | (12,255 | ) |
| Benefit                      for income taxes                            |   |                                                | 123    |                             |   | 109 |   |   | 426 |   |   | 78 |   |   | 736 |   |
| Loss                      from continuing operations                     |   |                                                | (1,824 | )                                |   | (3,091 | ) |   | (5,535 | ) |   | (1,069 | ) |   | (11,519 | ) |
| Income                      (loss) from discontinued operations          |   |                                                | 661    |                             |   | (66 | ) |   | 690 |   |   | 347 |   |   | 1,632 |   |
| Net                      loss                                            |   | $                                                   | (1,163 | )                                | $      | (3,157 | ) | $ | (4,845 | ) | $ | (722 | ) | $ | (9,887 | ) |
|                                                                     |   |                                                |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                      (loss) earnings per common share:             |   |                                                |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing                      operations                               |   | $                                                   | (0.16  | )                                | $      | (0.28 | ) | $ | (0.50 | ) | $ | (0.10 | ) | $ | (1.04 | ) |
| Discontinued                      operations                             |   |                                                | 0.06   |                             |   | - |   |   | 0.06 |   |   | 0.03 |   |   | 0.15 |   |
| Basic                      (loss) earnings per common share              |   | $                                                   | (0.10  | )                                | $      | (0.28 | ) | $ | (0.44 | ) | $ | (0.07 | ) | $ | (0.89 | ) |
| Diluted                      (loss) earnings per common share:           |   |                                                |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing                      operations                               |   | $                                                   | (0.16  | )                                | $      | (0.28 | ) | $ | (0.50 | ) | $ | (0.10 | ) | $ | (1.04 | ) |
| Discontinued                      operations                             |   |                                                | 0.06   |                             |   | - |   |   | 0.06 |   |   | 0.03 |   |   | 0.15 |   |
| Diluted                      (loss) earnings per common share            |   | $                                                   | (0.10  | )                                | $      | (0.28 | ) | $ | (0.44 | ) | $ | (0.07 | ) | $ | (0.89 | ) |

----

**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,            2005            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 1. Description of            Business 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**

----

**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. |
|--------------------|---------------------------------------------------------------------------------------------|

----

**Accounting            for Income Taxes **

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

**BUSINESS            OVERVIEW**

----

**DISCUSSION            OF OPERATIONS**

**Results            of Operations **

|                                                                          |   | **Year                        Ended June 30,** |   |
|-------------------------------------------------------------------------------|--------|------------------------------------------------|--------|
|                                                                          |   | **(in                        thousands)**      |   |
|                                                                          |   | **2005**                                       |   | **2004** |   | **2003** |   |
|                                                                          |   |                                           |   | **%                        of Revenue** |   |   |   | **%                        of Revenue** |   |   |   | **%                        of Revenue** |   |
| Revenue                                                                       |   | $                                              | 31,645 |   |   | 100.0% |   | $ | 27,966 |   |   | 100.0% |   | $ | 28,566 |   |   | 100.0% |   |
| Cost                        of goods sold                                     |   |                                           | 14,951 |   |   | 47.2% |   |   | 16,379 |   |   | 58.6% |   |   | 18,115 |   |   | 63.4% |   |
| Gross                        profit                                           |   |                                           | 16,694 |   |   | 52.8% |   |   | 11,587 |   |   | 41.4% |   |   | 10,451 |   |   | 36.6% |   |
| Operating                        expenses:                                    |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |  |
| Marketing                        and selling                                  |   |                                           | 9,070  |   |   | 28.7% |   |   | 8,497 |   |   | 30.4% |   |   | 7,070 |   |   | 24.7% |   |
| General                        and administrative                             |   |                                           | 5,489  |   |   | 17.3% |   |   | 6,767 |   |   | 24.2% |   |   | 5,915 |   |   | 20.7% |   |
| Settlement                        in shareholders' class action               |   |                                           | (2,046 | ) |   | -6.5% |   |   | 4,080 |   |   | 14.6% |   |   | 7,325 |   |   | 25.6% |   |
| Research                        and product development                       |   |                                           | 5,305  |   |   | 16.8% |   |   | 4,237 |   |   | 15.2% |   |   | 3,281 |   |   | 11.5% |   |
| Impairment                        losses                                      |   |                                           | 180    |   |   | 0.6% |   |   | - |   |   | 0.0% |   |   | 5,102 |   |   | 17.9% |   |
| Restructuring                        charge                                   |   |                                           | 110    |   |   | 0.3% |   |   | - |   |   | 0.0% |   |   | - |   |   | 0.0% |   |
| Total                        operating expenses                               |   |                                           | 18,108 |   |   | 57.2% |   |   | 23,581 |   |   | 84.3% |   |   | 28,693 |   |   | 100.4% |   |
| Operating                        loss                                         |   |                                           | (1,414 | ) |   | -4.5% |   |   | (11,994 | ) |   | -42.9% |   |   | (18,242 | ) |   | -63.9% |   |
| Other                        income (expense), net                            |   |                                           | 318    |   |   | 1.0% |   |   | (261 | ) |   | -0.9% |   |   | 48 |   |   | 0.2% |   |
| Loss                        from continuing operations before income taxes    |   |                                           | (1,096 | ) |   | -3.5% |   |   | (12,255 | ) |   | -43.8% |   |   | (18,194 | ) |   | -63.7% |   |
| Benefit                        for income taxes                               |   |                                           | 3,248  |   |   | 10.3% |   |   | 736 |   |   | 2.6% |   |   | 1,352 |   |   | 4.7% |   |
| Income                        (loss) from continuing operations               |   |                                           | 2,152  |   |   | 6.8% |   |   | (11,519 | ) |   | -41.2% |   |   | (16,842 | ) |   | -59.0% |   |
| Income                        (loss) from discontinued operations, net of tax |   |                                           | 13,923 |   |   | 44.0% |   |   | 1,632 |   |   | 5.8% |   |   | (19,130 | ) |   | -67.0% |   |
| Net                        income (loss)                                      |   | $                                              | 16,075 |   |   | 50.8% |   | $ | (9,887 | ) |   | -35.4% |   | $ | (35,972 | ) |   | -125.9% |   |

----

**Fiscal              Year Ended June 30, 2005 (“Fiscal 2005”)**

**Compared              to Fiscal Year Ended June 30, 2004 (“Fiscal 2004”)**

**Revenue**

|                                       |   | **Year                          Ended June 30,** |   |
|--------------------------------------------|--------|--------------------------------------------------|--------|
|                                       |   | **(in                          thousands)**      |   |
|                                       |   | **2005**                                         |   | **2004** |   |
|                                       |   |                                             |   | **%                          of Revenue** |   |   |   | **%                          of Revenue** |   |
| Product                                    |   | $                                                | 31,645 |   |   | 100.0% |   | $ | 27,836 |   |   | 99.5% |   |
| Business                          services |   |                                             | -      |   |   | 0.0% |   |   | 130 |   |   | 0.5% |   |
| Total                                      |   | $                                                | 31,645 |   |   | 100.0% |   | $ | 27,966 |   |   | 100.0% |   |

**Product**
***.***

|                                                     | **Year                        Ended June 30,**  |
|----------------------------------------------------------|-------------------------------------------------|
|                                                     | **(by                        individual unit)** |
|                                                     | **2005**                                        | **2004** |
| Professional                        audio conferencing   | 10,786                                          | 10,576 |
| Premium                        and tabletop conferencing | 11,782                                          | 9,813 |

**Business              Services**
***.***

**Total              Revenue**
***.***

----

**Costs              of Goods Sold and Gross Profit**

|                                      |   | **Year                        Ended June 30,** |   |
|-------------------------------------------|--------|------------------------------------------------|--------|
|                                      |   | **(in                        thousands)**      |   |
|                                      |   | **2005**                                       |   | **2004** |   |
|                                      |   |                                           |   | **%                        of Revenue** |   |   |   | **%                        of Revenue** |   |
| Cost                        of goods sold |   |                                           |   |   |   |   |   |   |   |
| Product                                   |   | $                                              | 14,951 |   |   | 47.2% |   | $ | 16,379 |   |   | 58.6% |   |
| Business                        services  |   |                                           | -      |   |   | 0.0% |   |   | - |   |   | 0.0% |   |
| Total                                     |   | $                                              | 14,951 |   |   | 47.2% |   | $ | 16,379 |   |   | 58.6% |   |
|                                      |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Gross                        profit       |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Product                                   |   | $                                              | 16,694 |   |   | 52.8% |   | $ | 11,457 |   |   | 41.0% |   |
| Business                        services  |   |                                           | -      |   |   | 0.0% |   |   | 130 |   |   | 0.4% |   |
| Total                                     |   | $                                              | 16,694 |   |   | 52.8% |   | $ | 11,587 |   |   | 41.4% |   |

**Operating              Expenses**

----

**Marketing              and selling expenses**
***.***

**General              and administrative expenses**
***.***

|                                                                                   |   | **Year                        Ended June 30,** |   |
|----------------------------------------------------------------------------------------|--------|------------------------------------------------|--------|
|                                                                                   |   | **(in                        thousands)**      |   |
|                                                                                   |   | **2005**                                       |   | **2004** |   |
| Total                        G&A before discontinued operations                    |   | $                                              | 5,742  |   | $ | 9,703 |   |
|                                                                                   |   |                                           |   |   |   |   |   |
| OM                        Video G&A                                                |   |                                           | (253   | ) |   | (1,113 | ) |
| Conferencing                        services G&A                                   |   |                                           | -      |   |   | (1,036 | ) |
| U.S.                        business services G&A                                  |   |                                           | -      |   |   | (787 | ) |
| Total                        G&A from continuing operations                        |   | $                                              | 5,489  |   | $ | 6,767 |   |
|                                                                                   |   |                                           |   |   |   |   |   |
| Professional                        fees (SEC investigation and subsequent litigation) |   | $                                              | 997    |   | $ | 936 |   |
| Professional                        fees (Other)                                       |   |                                           | 1,993  |   |   | 1,944 |   |
| Severance                        payments to executives                                |   |                                           | -      |   |   | 544 |   |
| Other                        general and administrative expense                        |   |                                           | 2,499  |   |   | 3,343 |   |
| Total                        G&A from continuing operations                        |   | $                                              | 5,489  |   | $ | 6,767 |   |

**Settlement              in shareholders’ class action expense**
**.**

----

**Research              and product development expenses**
***.***

**Impairment              and **
**Restructuring              charges**
**.              **

**Operating              loss.**

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

**Net              loss from continuing operations before income taxes**
***.***

**Benefit              for income taxes**
*Accounting              for Income Taxes*

----

**Income              (loss) from discontinued operations, net of tax. **

*Discontinued              Operations*

*Discontinued              Operations*

*Discontinued              Operations*

**Fiscal              Year Ended June 30, 2004 (“Fiscal 2004”)**

**Compared              to Fiscal Year Ended June 30, 2003 (“Fiscal 2003”)**

**Revenue**

|                                     |   | **Year                        Ended June 30,** |   |
|------------------------------------------|--------|------------------------------------------------|--------|
|                                     |   | **(in                        thousands)**      |   |
|                                     |   | **2004**                                       |   | **2003** |   |
|                                     |   |                                           |   | **%                        of Revenue** |   |   |   | **%                        of Revenue** |   |
| Product                                  |   | $                                              | 27,836 |   |   | 99.5% |   | $ | 27,512 |   |   | 96.3% |   |
| Business                        services |   |                                           | 130    |   |   | 0.5% |   |   | 1,054 |   |   | 3.7% |   |
| Total                                    |   | $                                              | 27,966 |   |   | 100.0% |   | $ | 28,566 |   |   | 100.0% |   |

**Product**
***.***

----

|                                                     | **Year                        Ended June 30,**  |
|----------------------------------------------------------|-------------------------------------------------|
|                                                     | **(by                        individual unit)** |
|                                                     | **2004**                                        | **2003** |
| Professional                        audio conferencing   | 10,576                                          | 7,166 |
| Premium                        and tabletop conferencing | 9,813                                           | - |

**Business              Services**
***.***

**Total              Revenue**
***.***

**Costs              of Goods Sold and Gross Profit**

|                                      |   | **Year                        Ended June 30,** |   |
|-------------------------------------------|--------|------------------------------------------------|--------|
|                                      |   | **(in                        thousands)**      |   |
|                                      |   | **2004**                                       |   | **2003** |   |
|                                      |   |                                           |   | **%                        of Revenue** |   |   |   | **%                        of Revenue** |   |
| Cost                        of goods sold |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Product                                   |   | $                                              | 16,379 |   |   | 58.6% |   | $ | 18,115 |   |   | 63.4% |   |
| Business                        services  |   |                                           | -      |   |   | 0.0% |   |   | - |   |   | 0.0% |   |
| Total                                     |   | $                                              | 16,379 |   |   | 58.6% |   | $ | 18,115 |   |   | 63.4% |   |
|                                      |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Gross                        profit       |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Product                                   |   | $                                              | 11,457 |   |   | 41.0% |   | $ | 9,397 |   |   | 32.9% |   |
| Business                        services  |   |                                           | 130    |   |   | 0.4% |   |   | 1,054 |   |   | 3.7% |   |
| Total                                     |   | $                                              | 11,587 |   |   | 41.4% |   | $ | 10,451 |   |   | 36.6% |   |

----

**Operating              Expenses**

**Marketing              and selling expenses**
***.***

**General              and administrative expenses**
***.***

|                                                                                   |   | **Year                        Ended June 30,** |   |
|----------------------------------------------------------------------------------------|--------|------------------------------------------------|--------|
|                                                                                   |   | **(in                        thousands)**      |   |
|                                                                                   |   | **2004**                                       |   | **2003** |   |
| Total                        G&A before discontinued operations                    |   | $                                              | 9,703  |   | $ | 9,798 |   |
|                                                                                   |   |                                           |   |   |   |   |   |
| OM                        Video G&A                                                |   |                                           | (1,113 | ) |   | (1,270 | ) |
| Conferencing                        services G&A                                   |   |                                           | (1,036 | ) |   | (972 | ) |
| U.S.                        business services G&A                                  |   |                                           | (787   | ) |   | (1,641 | ) |
| Total                        G&A from continuing operations                        |   | $                                              | 6,767  |   | $ | 5,915 |   |
|                                                                                   |   |                                           |   |   |   |   |   |
| Professional                        fees (SEC investigation and subsequent litigation) |   | $                                              | 936    |   | $ | 1,844 |   |
| Professional                        fees (Other)                                       |   |                                           | 1,944  |   |   | 1,270 |   |
| Severance                        payments to executives                                |   |                                           | 544    |   |   | - |   |
| Other                        general and administrative expense                        |   |                                           | 3,343  |   |   | 2,801 |   |
| Total                        G&A from continuing operations                        |   | $                                              | 6,767  |   | $ | 5,915 |   |

----

**Settlement              of shareholders’ class action expenses**
**.**

**Research              and product development expenses**
***.***

**Impairment              losses**
***.***

**Operating              loss**
***.***

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

**Net              loss from continuing operations before income taxes**
***.***

----

**Benefit              for income taxes**
*Accounting              for Income Taxes*

**Income              (loss) from discontinued operations, net of tax. **

*Discontinued              Operations*

*Discontinued              Operations*

*Discontinued              Operations*

**EFFECT              ON THE COMPANY FROM ACQUISITIONS AND SUBSEQUENT RELATED              DISPOSITIONS**

*Acquisitions              and Dispositions*

----

*Subsequent              Events*
*Discontinued              Operations*

**DISCONTINUED              OPERATIONS**

**Burk              Technology, Inc.**

**M:Space,              Inc. - U.S. Audiovisual Integration Services**

**Conferencing              Services**

----

**OM              Video - Canadian Audiovisual Integration Services**

**SALE              OF OTHER ASSETS **

**Sale              of Broadcast Telephone Interface Product Line**

----

**SUBSEQUENT              EVENTS**

**The              Shareholders’ Class Action. **

**Third-Party              Manufacturing Agreement**
***.***

**Payoff              of Burk Note Receivable**
***.***

**Sale              of OM Video.**

**Sale              of Conferencing Services.**

----

**Settlement              Agreement and Release.**

**LIQUIDITY              AND CAPITAL RESOURCES**

----

|                                                      |   | Payments                        Due by Period |      |
|-----------------------------------------------------------|--------|-----------------------------------------------|-----------|
| Contractual                        Obligations            |   | Total                                         |      | One                        yearor                        less |   | Two                        toThree                        Years |   | Four                        toFive                        Years |   | AfterFive                        Years |   |
|                                                      |   |                                          |      |   |   |   |   |   |   |   |   |
| Operating                        Leases                   |   | $                                             | 736       |   | $ | 494 |   | $ | 240 |   | $ | 2 |   | $ | - |   |
|                                                      |   |                                          |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                        Contractual Cash Obligations |   | $                                        | 736  |   | $  | 494  |   | $  | 240  |   | $  | 2  |   | $  |  - |   |

----

**ISSUED              BUT NOT YET ADOPTED ACCOUNTING PRONOUNCEMENTS **

**Other-Than-Temporary              Impairment**

**Inventory              Costs**

**Share-Based              Payment**

----

**Accounting              Changes and Error Corrections**

**Accounting              for Asset Retirement Obligations in the European Union**

FSP              143-1              addresses the accounting for obligations associated with Directive              2002/96/EC,              Waste Electrical and Electronic Equipment, which was adopted by the              European              Union (“EU”). The FSP provides guidance on how to account for the effects of the              Directive but only with respect to historical waste associated with              products              placed on the market on or before August 13, 2005.  FSP              143-1              will              become effective beginning with our fiscal 2006 financial statements.              We do not              believe the adoption of FSP 143-1 will have a material effect on our              business,              results of operations, financial position,              or              liquidity.

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

**Market              Risk for Investment Securities **

----

**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**

| ·   | *Ineffective                        financial statement close process*.                        We have a material weakness in the timeliness and adequacy                        of the monthly                        close process to effect a timely and accurate financial statement                        close                        with the necessary level of review and supervision. Accounting                        personnel                        have not been able to focus full attention to correcting                        this weakness due                        to their focus on the preparation, audit, and issuance for                        the restated                        fiscal 2001, restated fiscal 2002, and fiscal 2003, 2004,                        and 2005                        consolidated financial statements. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Initiation                        of an evaluation and remediation process with respect to                        internal controls                        over financial reporting and related processes designed to                        identify                        internal controls that mitigate financial reporting risk                        and identify                        control gaps that may require further                        remediation. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Evaluation                        of the staffing, organizational structure, systems, policies                        and                        procedures, and other reporting processes, to improve the                        timeliness of                        closing these accounts and to enhance the level of review                        and                        supervision. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Re-evaluation                        of prior policies and procedures and the establishment of                        new policies and                        procedures for such matters as non-routine and complex transactions,                        account reconciliation procedures, and contract management                        procedures. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Hiring                        of additional accounting personnel with experience in accounting                        matters                        and financial reporting. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | On-going                        training and monitoring by management to ensure operation                        of controls as                        designed. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**ITEM              9B. OTHER INFORMATION**

----

**PART                III**

**ITEM                10.**
**DIRECTORS                AND EXECUTIVE OFFICERS OF THE REGISTRANT**

**Directors                and Executive Officers**

***Directors***

| **Name**                                      | **Principal                          Occupation during Past Five Years**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | **Age** | **Director****Since** |
|-----------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|-----------------------|
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |    |                  |
| Edward                          Dallin Bagley | Edward                          Dallin Bagley joined our Board of Directors in April 1994                          and was named                          Chairman of the Board in February 2004. Mr. Bagley also                          served as a                          Director from April 1987 to July 1991. He also currently                          serves as a                          Director of Tunex International. Mr. Bagley has been licensed                          to practice                          law in Utah since 1965 and holds a Juris Doctorate Degree                          from the                          University of Utah College of Law. For in excess of the                          past five years,                          Mr. Bagley has managed his own investments and served as                          a consultant from                          time to time.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 67      | 1994                  |
| Brad                          R. Baldwin      | Brad                          R. Baldwin joined our Board of Directors in October 1988.                          Mr. Baldwin is                          an attorney licensed to practice in Utah. Since April 2001,                          he has been                          engaged in the commercial real estate business with Commerce                          CRG in Salt                          Lake City, Utah. From February 2000 to March 2001, Mr.                          Baldwin was an                          executive with Idea Exchange Inc. From October 1994 to                          January 2000, he                          served as President and Chief Executive Officer of Bank                          One, Utah, a                          commercial bank headquartered in Salt Lake City, Utah.                          Mr. Baldwin holds a                          Degree in Finance from the University of Utah and a Juris                          Doctorate Degree                          from the University of Washington.                                                                                                                                                                                                                                                                                                                                                                                                                                          | 50      | 1988                  |
| Larry                          R. Hendricks   | Larry                          R. Hendricks joined our Board of Directors in June 2003.                          Mr. Hendricks is                          a Certified Public Accountant who retired in December 2002                          after serving                          as Vice-President of Finance and General Manager of Daily                          Foods, Inc., a                          national meat processing company. During his 30-year career                          in accounting,                          he was also a self-employed CPA and worked for the international                          accounting firm Peat Marwick & Mitchell. Mr. Hendricks has served on                          the boards of eight other organizations, including Tunex                          International,                          Habitat for Humanity, Daily Foods, and Skin Care International.                          He earned                          a Bachelor's Degree in Accounting from Utah State University                          and a Master                          of Business Administration Degree from the University of                          Utah. Mr.                          Hendricks is currently a member of the American Institute                          of Certified                          Public Accountants and the Utah Association of Certified                          Public                          Accountants.                     | 63      | 2003                  |
| Scott                          M. Huntsman    | Scott                          M. Huntsman joined our Board of Directors in June 2003.                          Mr. Huntsman has                          served as President and Chief Executive Officer of GlobalSim,                          a private                          technology and simulation company, since February 2003                          and Chief Financial                          Officer from April 2002 to February 2003. Prior to GlobalSim,                          he spent 11                          years on Wall Street as an investment banker, where he                          focused on mergers,                          acquisitions, and corporate finance transactions. From                          August 1996 to                          2000, Mr. Huntsman served at Donaldson, Lufkin and Jenrette                          Securities                          Corporation until their merger with Credit Suisse First                          Boston where he                          served until January 2002. Mr. Huntsman earned a Bachelor's                          Degree from                          Columbia University and a Master of Business Administration                          Degree from                          The Wharton School at the University of Pennsylvania. He                          also studied at                          the London School of Economics as a Kohn Fellowship                          recipient.  | 40      | 2003                  |

----

| Harry                          Spielberg | Harry                          Spielberg joined our Board of Directors in January 2001.                          Since January                          1996, Mr. Spielberg has been the Director of Cosentini                          Information                          Technologies’ Audiovisual Group, a division of the consulting engineering                          firm Cosentini Associates. Prior to 1996, Mr. Spielberg                          served as                          Vice-President, Engineering for Media Facilities Corp.                          and Barsky &                          Associates. Mr. Spielberg received a Bachelor’s Degree in Psychology from                          the State University of New York.  | 54 | 2001 |
|------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----|------|

***Director                Committees***

**The                Audit Committee**
**.                **

**The                Compensation Committee**
**.**

***Meetings                of the Board of Directors and Committees***

**Nomination                of Director Candidates**
**:**

***Executive                Officers***

| Name                                                   |   | Age    |   |  Position                                                                                    |
|-------------------------------------------------------------|--------|--------|--------|---------------------------------------------------------------------------------------------------|
|                                                        |   |   |   |                                                                                              |
| Zeynep                          “Zee” Hakimoglu |   | 52     |   | President                          and Chief Executive Officer                                    |
| Craig                          E. Peeples                   |   | 38     |   | Interim                          Chief Financial Officer and Corporate Controller                 |
| Tracy                          A. Bathurst                  |   | 41     |   | Vice-President                          of Product Line Management                                |
| Werner                          H. Pekarek                  |   | 57     |   | Vice-President                          of Operations                                             |
| Joseph                          P. Sorrentino               |   | 50     |   | Vice-President                          of Worldwide Sales and                          Marketing |

----

| Zee                          Hakimoglu     | Zee                          Hakimoglu joined us in December 2003 with more than 15                          years of executive                          and senior-level, high-tech management experience and was                          appointed as                          President and Chief Executive Officer in July 2004. She                          served in a                          variety of executive business development, product marketing,                          and                          engineering roles including Vice-President of Product Line                          Management for                          ClearOne from December 2003 to July 2004; Vice-President                          of Product Line                          Management for Oplink Communications, a publicly traded                          developer of fiber                          optic subsystems and components from December 2001 to December                          2002;                          President of OZ Optics USA, a manufacturer of fiber optic                          test equipment                          and components from August 2000 to November 2001; and various                          management                          positions including Vice-President of Wireless Engineering                          and wireless                          business unit Vice-President for Aydin Corp., a telecommunications                          equipment company, formerly traded on the New York Stock                          Exchange from May                          1982 until it was acquired in September 1996. Her business                          unit at Aydin                          was the largest provider of digital microwave radios to                          the US Army, which                          used the radios in Desert Storm and a variety of NATO operations.                          She also                          was Vice-President of Business Development for Kaifa Technology                          from                          October 1998 to August 2000 and was instrumental in its                          acquisition by                          E-Tek Dynamics, then again acquired by JDS Uniphase. Through                          these                          acquisitions, she held the role of Deputy General Manager                          of the Kaifa                          business unit. Ms. Hakimoglu earned a Bachelor of Science                          Degree in                          Physics from California State College, Sonoma, and a Master’s Degree in                          Physics from Drexel University.  |
|--------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Craig                          E. Peeples  | Craig                          Peeples joined us in August 2005 as our Corporate                          Controller with more than 15 years of diverse                          financial experience and was appointed as Interim Chief Financial                          Officer in September 2005.  From May 2001 to August 2005, Mr.                          Peeples held various positions at Mrs. Fields Famous Brands, a                          public reporting franchisor/retailer of premium snack foods,                          including Director of Compliance & Audits and TCBY                          Controller.  Mr. Peeples was the Vice-President and                          Corporate Controller for TenFold Corporation, a public, software                          company, from March 2000 to March 2001.  From September 1993 to March                          2000, Mr. Peeples worked in the assurance and business                          advisory practice                          of Arthur Andersen LLP, at the time a "Big-6" public accounting                          firm, most recently with the title Experienced Manager.  Mr.                          Peeples is a graduate of the Marriott School of Management                          at Brigham                          Young University where he earned his Master of Accountancy                          and cum Laude                          Bachelor of Science degrees concurrently.  Mr. Peeples is a                          Utah-state licensed certified public accountant and a member                          of the                          American Institute of Certified Public Accountants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Tracy                          A. Bathurst | Tracy                          Bathurst                          joined                          us in September 1988 and held several positions with us                          until he was named                          Vice-President of Product Line Management in January 2005.                          He was most                          recently ClearOne’s Director of Research and Development and has nearly 20                          years experience in defining and developing communications-related                          products and technology. Mr. Bathurst has lead the design                          and development                          of ClearOne’s high performance audio and telecommunications equipment.                          He                          earned a Bachelor of Science degree in Industrial Technology                          from Southern                          Utah University.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Werner                          H. Pekarek | Werner                          Pekarek joined us in January 2005 with more than 15 years                          of executive                          level operations experience, including responsibility for                          process                          development, production planning and implementation, purchasing,                          supply                          chain management and customer service. Mr. Pekarek was                          Vice-President of                          Operations for start-up high tech companies Break Points                          from July 2002 to                          December 2004 and Optical Micro Machines from November                          2000 to June 2002.                          Mr. Pekarek also held executive operations roles with Siemens                          Communications including Vice-President of Operations for                          Siemens                          Communications Devices, Consumer Products from 1997 to                          2000,                          Vice-President of Operations for Siemens Information & Communications                          Networks, Networking Gear from 1992 to 1997, Vice-President                          of Operations                          for Siemens Wireless, Consumer Products from 1989 to 1992,                          and various                          other management positions for Siemens from 1980 to 1989.                          His expertise                          includes low-volume, high-mix networking gear and high-volume                          consumer                          wireless and cordless phone products. Mr. Pekarek earned                          a Bachelor of                          Science Degree in Electrical Engineering from the University                          of Paderborn                          in Germany.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

----

| Joseph                          P. Sorrentino | Joseph                          Sorrentino joined us in November 2004 with more than 25                          years experience                          in various executive management and sales-related positions.                          From April                          2002 to November 2004, Mr. Sorrentino was Vice-President                          of Sales for                          Polycom’s voice communications division, where he was responsible                          for                          building Polycom’s voice sales team launching new products in the IP space                          and installed space, as well as growing their tabletop                          conferencing                          business. Prior to Polycom, he served as Vice-President                          of Worldwide Sales                          for 3Ware, a start-up storage company that was subsequently                          acquired by                          AMCC, a publicly-traded company, from July 1999 to August                          2001, and for                          IBM’s storage systems division from October 1997 to February                          1999, where                          he managed the company’s largest storage customers. From October 1995 to                          October 1997, Mr. Sorrentino was Vice-President of Worldwide                          Distribution                          Sales and Marketing for storage startup JPS Corporation                          where sales grew                          from zero to $120 million in the first year. He has also                          worked for                          Motorola Communications, Seagate, and Adaptec. Mr. Sorrentino                          earned a                          Bachelor of Science Degree from San Jose State University.  |
|-----------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Compliance                with Section 16(a) of the Exchange Act (Beneficial Ownership Reporting                Compliance)**

**Code                of Ethics**

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

**Summary                Compensation**

----

**SUMMARY                COMPENSATION TABLE**

|                                                                |   |   |   | Annual                          Compensation |   | Long-Term                          Compensation |
|---------------------------------------------------------------------|--------|--------|--------|----------------------------------------------|--------|-------------------------------------------------|
|                                                                |   |   |   |                                         |   |                                            |   |   |   | Awards |   | Payouts |
|                                                                |   |   |   |                                         |   |                                            |   |   |   | Securities |   |   |
|                                                                |   |   |   |                                         |   |                                            |   | Other |   | Under- |   | All |
|                                                                |   |   |   |                                         |   |                                            |   | Annual |   | lying |   | Other |
|                                                                |   | Fiscal |   |                                         |   | Paid                                            |   | Compen- |   | Options |   | Compen- |
| Name                          and Position                          |   | Year   |   | Salary                                       |   | Bonus                                           |   | sation1 |   | /SARS |   | sation2 |
|                                                                |   |   |   |                                         |   |                                            |   |   |   |   |   |   |
| **Chief                          Executive Officer**                |   |   |   |                                         |   |                                            |   |   |   |   |   |   |
|                                                                |   |   |   |                                         |   |                                            |   |   |   |   |   |   |
| Zeynep                          Hakimoglu3                          |   | 2005   |   | $193,077                                     |   | $64,529                                         |   | - |   | 100,000 |   | $17,330 |
| President                          and                              |   |   |   |                                         |   |                                            |   |   |   |   |   |   |
| Chief                          Executive Officer                    |   | 2004   |   | $75,293                                      |   | $2,359                                          |   | - |   | 50,000 |   | $388 |
|                                                                |   |   |   |                                         |   |                                            |   |   |   |   |   |   |
| **Executive                          Officers as of June 30, 2005** |   |   |   |                                         |   |                                            |   |   |   |   |   |   |
|                                                                |   |   |   |                                         |   |                                            |   |   |   |   |   |   |
| Tracy                          A. Bathurst4                         |   | 2005   |   | $113,065                                     |   | $30,676                                         |   | - |   | 20,000 |   | $898 |
| Vice-President                                                      |   |   |   |                                         |   |                                            |   |   |   |   |   |   |
|                                                                |   | 2004   |   | $104,584                                     |   | -                                               |   |   |   | 5,000 |   | $637 |
|                                                                |   | 2003   |   | $101,220                                     |   | -                                               |   |   |   | - |   | $1,000 |
|                                                                |   |   |   |                                         |   |                                            |   |   |   |   |   |   |
| DeLonie                          N. Call5                           |   | 2005   |   | $128,846                                     |   | $51,478                                         |   | - |   | - |   | $1,059 |
| Vice-President                          and                         |   |   |   |                                         |   |                                            |   |   |   |   |   |   |
| Corporate                          Secretary                        |   | 2004   |   | $100,000                                     |   | $20,500                                         |   | - |   | 105,000 |   | $600 |
|                                                                |   | 2003   |   | $97,660                                      |   | -                                               |   | - |   | 15,000 |   | $946 |
|                                                                |   |   |   |                                         |   |                                            |   |   |   |   |   |   |
| Donald                          E. Frederick6                       |   | 2005   |   | $176,904                                     |   | $79,560                                         |   | - |   | 75,000 |   | $1,524 |
| Chief                          Financial Officer                    |   |   |   |                                         |   |                                            |   |   |   |   |   |   |
|                                                                |   |   |   |                                         |   |                                            |   |   |   |   |   |   |
| Werner                          H. Pekarek7                         |   | 2005   |   | $70,031                                      |   | $34,408                                         |   | - |   | 45,000 |   | $17,573 |
| Vice-President                                                      |   |   |   |                                         |   |                                            |   |   |   |   |   |   |
|                                                                |   |   |   |                                         |   |                                            |   |   |   |   |   |   |
| Joseph                          P. Sorrentino8                      |   | 2005   |   | $104,327                                     |   | $99,729                                         |   | - |   | 55,000 |   | $13,363 |
| Vice-President                                                      |   |   |   |                                         |   |                                            |   |   |   |   |   |   |

| 1 | The                          Company did not pay or provide perquisites or other benefits                          during the                          periods indicated by any named executive officer in an                          aggregate amount                          exceeding $50,000. |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2 | These                          amounts reflect our contributions to our deferred compensation                          plan,                          401(k) plan, or severance compensation on behalf of the                          named executive                          officers. |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3 | Ms.                          Hakimoglu served as our Vice-President of Product Line                          Management from                          December 2003 to July 8, 2004 when she was named as our                          President and                          Chief Executive Officer. |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4 | Mr.                          Bathurst was named Vice-President of Product Line Management                          in January                          2005. Mr. Bathurst’s annual salary is                          $120,000. |
|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5 | Ms.                          Call was employed as an executive officer until February                          7, 2006 when her                          position as Vice-President - Human Resources was eliminated.                          Ms. Call                          received a total severance payment of $93,300. In connection                          with this                          payment, she surrendered and delivered to the Company 145,000                          stock                          options (86,853 of which were                          vested). |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 6 | Mr.                          Frederick was employed by the Company from July 12, 2004                          to September 15,                          2005. |
|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 7 | Mr.                          Pekarek was employed by the Company on January 4, 2005.                          Mr. Pekarek’s                          annual base salary is $160,000. |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 8 | Mr.                          Sorrentino was employed by the Company on November 15,                          2004. Mr.                          Sorrentino’s annual base salary is                          $175,000. |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Options/SAR                Grants in Last Fiscal Year**

**OPTION                GRANTS IN FISCAL YEAR ENDED JUNE 30, 2005**

**(INDIVIDUAL                GRANTS)**

|                                                                |   | Number                          ofSecuritiesUnderlyingOptions |   | Percent                          ofTotal                          OptionsGrantedto                          Employees in |   | Exerciseor                          Base |   | Expiration |   | Potential                          RealizableValue                          of AssumedAnnual                          Rate ofStock                          PriceAppreciation                          forOption                          Term4 |
|---------------------------------------------------------------------|--------|---------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Name                          and Position                          |   | Granted                          (#)                          |   | Fiscal                          Year1                                                                                    |   | Price                          ($/Sh)    |   | Date       |   | 5%($)                                                                                                                                                                                                                                           |   | 10%($) |
|                                                                |   |                                                          |   |                                                                                                                     |   |                                     |   |       |   |                                                                                                                                                                                                                                            |   |   |
| **Chief                          Executive Officer**                |   |                                                          |   |                                                                                                                     |   |                                     |   |       |   |                                                                                                                                                                                                                                            |   |   |
|                                                                |   |                                                          |   |                                                                                                                     |   |                                     |   |       |   |                                                                                                                                                                                                                                            |   |   |
| Zeynep                          Hakimoglu                           |   | 100,0002                                                      |   | 22.2%                                                                                                                    |   | $5.55                                    |   | 7/26/2014  |   | $394,238                                                                                                                                                                                                                                        |   | $1,028,480 |
|                                                                |   |                                                          |   |                                                                                                                     |   |                                     |   |       |   |                                                                                                                                                                                                                                            |   |   |
| **Executive                          Officers as of June 30, 2005** |   |                                                          |   |                                                                                                                     |   |                                     |   |       |   |                                                                                                                                                                                                                                            |   |   |
|                                                                |   |                                                          |   |                                                                                                                     |   |                                     |   |       |   |                                                                                                                                                                                                                                            |   |   |
| Tracy                          A. Bathurst                          |   | 20,0003                                                       |   | 4.4%                                                                                                                     |   | $4.00                                    |   | 1/27/2015  |   | $56,827                                                                                                                                                                                                                                         |   | $148,249 |
|                                                                |   |                                                          |   |                                                                                                                     |   |                                     |   |       |   |                                                                                                                                                                                                                                            |   |   |
| Donald                          E. Frederick                        |   | 75,0002                                                       |   | 16.6%                                                                                                                    |   | $5.55                                    |   | 7/26/2014  |   | $295,679                                                                                                                                                                                                                                        |   | $771,360 |
|                                                                |   |                                                          |   |                                                                                                                     |   |                                     |   |       |   |                                                                                                                                                                                                                                            |   |   |
| Werner                          H. Pekarek                          |   | 45,0003                                                       |   | 10.0%                                                                                                                    |   | $4.00                                    |   | 1/27/2015  |   | $127,861                                                                                                                                                                                                                                        |   | $333,561 |
|                                                                |   |                                                          |   |                                                                                                                     |   |                                     |   |       |   |                                                                                                                                                                                                                                            |   |   |
| Joseph                          P. Sorrentino                       |   | 55,0003                                                       |   | 12.2%                                                                                                                    |   | $4.21                                    |   | 11/18/2014 |   | $164,479                                                                                                                                                                                                                                        |   | $429,089 |

| 1.   | Based                            on aggregate of 450,500 shares subject to options granted                            to our employees                            in 2005, including the named executive                            officers. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.   | The                            options have a ten-year term and vest over a three-year                            period with                            one-third vesting on the first anniversary of the grant                            date and the                            remaining two-thirds vesting in equal monthly installments                            over the                            remaining 24-month period. The options vest immediately                            upon a change of                            control as defined in the plan or our Board of Directors                            has authority to                            accelerate vesting in the event of certain specified                            corporate                            transactions. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.   | The                            options have a ten-year term and vest over a four-year                            period with                            one-fourth vesting on the first anniversary of the grant                            date and the                            remaining three-fourths vesting in equal monthly installments                            over the                            remaining 36-month period. The options vest immediately                            upon a change of                            control as defined in the plan or our Board of Directors                            has authority to                            accelerate vesting in the event of certain specified                            corporate                            transactions. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.   | Potential                            realizable values are computed by (1) multiplying the                            number of shares of                            common stock subject to a given option by the per-share                            assumed stock                            value compounded at the annual 5 percent or 10 percent                            appreciation rate                            shown in the table for the entire ten-year term of the                            option and (2)                            subtracting from that result the aggregate option exercise                            price. The 5                            percent and 10 percent assumed annual rates of stock                            price appreciation                            are mandated by the rules of the SEC and do not represent                            our estimate or                            projection of the future prices of our common stock.                            Actual gains, if any,                            on stock option exercises are dependent on our future                            financial                            performance, overall market conditions, and the named                            executive officer’s                            continued employment through the vesting periods. The                            actual value                            realized may be greater or less than the potential realizable                            value set                            forth in the table. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Aggregated                Option/SAR Exercises**
**                and Fiscal Year-End Option/SAR Value Table**

----

**AGGREGATED                OPTION EXERCISES IN FISCAL YEAR ENDED JUNE 30, 2005**

**AND                FISCAL YEAR-END OPTION VALUES**

|                                                                |   |                                     |   |                                   |   | Number                          of     |   |                                   |
|---------------------------------------------------------------------|--------|------------------------------------------|--------|----------------------------------------|--------|----------------------------------------|--------|----------------------------------------|
|                                                                |   |                                     |   |                                   |   | Securities                             |   | Value                          of      |
|                                                                |   |                                     |   |                                   |   | Underlying                             |   | Unexercised                            |
|                                                                |   |                                     |   |                                   |   | Unexercised                            |   | In-the-Money                           |
|                                                                |   |                                     |   |                                   |   | Options                                |   | Options                                |
|                                                                |   | Shares                                   |   |                                   |   | at                          FY-End (#) |   | at                          FY-End ($) |
|                                                                |   | Acquired                                 |   | Value                                  |   | Exercisable/                           |   | Exercisable/                           |
| Name                          and Position                          |   | on                          Exercise (#) |   | Realized                          ($)1 |   | Unexercisable                          |   | Unexercisable2                         |
|                                                                |   |                                     |   |                                   |   |                                   |   |                                   |
| **Chief                          Executive Officer**                |   |                                     |   |                                   |   |                                   |   |                                   |
|                                                                |   |                                     |   |                                   |   |                                   |   |                                   |
| Zeynep                          Hakimoglu                           |   | -                                        |   | $-                                     |   | 20,833/129,167                         |   | $-/$-                                  |
|                                                                |   |                                     |   |                                   |   |                                   |   |                                   |
| **Executive                          Officers as of June 30, 2005** |   |                                     |   |                                   |   |                                   |   |                                   |
|                                                                |   |                                     |   |                                   |   |                                   |   |                                   |
| Tracy                          A. Bathurst                          |   | -                                        |   | $-                                     |   | 40,207/59,793                          |   | $44,250/$-                             |
|                                                                |   |                                     |   |                                   |   |                                   |   |                                   |
| DeLonie                          N. Call3                           |   | -                                        |   | $-                                     |   | 64,249/80,751                          |   | $31,425/$27,525                        |
|                                                                |   |                                     |   |                                   |   |                                   |   |                                   |
| Donald                          E. Frederick                        |   | -                                        |   | $-                                     |   | -/75,000                               |   | $-/$-                                  |
|                                                                |   |                                     |   |                                   |   |                                   |   |                                   |
| Werner                          H. Pekarek                          |   | -                                        |   | $-                                     |   | -/45,000                               |   | $-/$-                                  |
|                                                                |   |                                     |   |                                   |   |                                   |   |                                   |
| Joseph                          P. Sorrentino                       |   | -                                        |   | $-                                     |   | -/55,000                               |   | $-/$-                                  |

| 1 | Based                          upon the market price of the purchased shares on the exercise                          date less                          the option exercise price paid for such                          shares. |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2 | Based                          on the market price of $3.70 per share, which was the closing                          selling                          price of our common stock on the Pink Sheets on the last                          business day of                          our 2005 fiscal year, less the option exercise price payable                          per                          share. |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3 | Ms.                          Call was employed as an executive officer until February                          7, 2006 when her                          position as Vice-President - Human Resources was eliminated.                          Ms. Call                          received a total severance payment of $93,300. In connection                          with this                          payment, she surrendered and delivered to the Company 145,000                          stock                          options (86,853 of which were                          vested). |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Director                Compensation**

**Employment                Contracts and Termination of Employment and Change-in-Control                Arrangements**

***Employment                Agreement.***
* *

----

***Employment                Separation Agreements.***
* *

***Settlement                Agreements and Releases.***
* *

***Stock                Option Plans.***
* *

**Compensation                Committee Interlocks and Insider Participation**

----

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

| Namesof                          Beneficial Owners   |   | Amount                          ofBeneficial                          Ownership |   | Percentageof                          Class1 |
|------------------------------------------------------|--------|---------------------------------------------------------------------------------|--------|----------------------------------------------|
| **Beneficial                          Owners**       |   |                                                                            |   |                                         |
| FMR                          Corp.                   |   | 824,487                                                                         |   | 6.5%                                         |
| Royce                          & Associates Inc. |   | 651,644                                                                         |   | 5.1%                                         |
| Graham                          Partners LP          |   | 642,650                                                                         |   | 5.0%                                         |
|                                                 |   |                                                                            |   |                                         |
| Total                                                |   | 2,118,781                                                                       |   | 16.6%                                        |

| **Directors                          and****Executive                          Officers** |   |      |   |   |
|-------------------------------------------------------------------------------------------|--------|-----------|--------|--------|
| Edward                          Dallin Bagley2                                            |   | 1,813,351 |   | 14.2%  |
| Brad                          R. Baldwin3                                                 |   | 190,416   |   | 1.5%   |
| Zee                          Hakimoglu4                                                   |   | 93,055    |   | 0.7%   |
| Harry                          Spielberg5                                                 |   | 67,750    |   | 0.5%   |
| Tracy                          A. Bathurst6                                               |   | 35,079    |   | 0.3%   |
| Larry                          R. Hendricks7                                              |   | 34,250    |   | 0.3%   |
| Scott                          M. Huntsman8                                               |   | 34,250    |   | 0.3%   |
| Joseph                          P. Sorrentino9                                            |   | 25,972    |   | 0.2%   |
| Werner                          Pekarek10                                                 |   | 18,750    |   | 0.1%   |
|                                                                                      |   |      |   |   |
| Directors                          and Executive Officers as a Group                      |   |      |   |   |
| (10                          people)11                                                    |   | 2,312,873 |   | 18.2%  |

| 1 | For                            each individual included in the table, the calculation                            of percentage of                            beneficial ownership is based on 12,184,727 shares of                            common stock                            outstanding as of February 28, 2006 and shares of common                            stock that could                            be acquired by the individual within 60 days of February                            28, 2006, upon                            the exercise of options or                            otherwise. |
|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2 | Includes                            126,166 shares held by Mr. Bagley’s spouse with respect to which he                            disclaims beneficial ownership and options to purchase                            142,750 shares that                            are exercisable within 60 days after February 28,                            2006. |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3 | Includes                            88,666 shares held in the Baldwin Family Trust; 9,000                            shares owned                            directly, which are held in an IRA under the name of                            Mr. Baldwin; and                            options to purchase 92,750 shares that are exercisable                            within 60 days                            after February 28, 2006. |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4 | Includes                            options to purchase 93,055 shares that are exercisable                            within 60 days                            after February 28, 2006. |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5 | Includes                            options to purchase 67,750 shares that are exercisable                            within 60 days                            after February 28, 2006. |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 6 | Includes                            options to purchase 34,581 shares that are exercisable                            within 60 days                            after February 28, 2006. |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 7 | Includes                            options to purchase 34,250 shares that are exercisable                            within 60 days                            after February 28, 2006. |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 8 | Includes                            options to purchase 34,250 shares that are exercisable                            within 60 days                            after February 28, 2006. |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 9 | Includes                            options to purchase 25,972 shares that are exercisable                            within 60 days                            after February 28, 2006. |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10 | Includes                            options to purchase 18,750 shares that are exercisable                            within 60 days                            after February 28, 2006. |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 11 | Includes                            options to purchase a total of 544,108 shares that are                            exercisable within                            60 days after February 28, 2006 by executive officers                            and directors. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

**Indemnification                of Officers and Directors. **

**Joint                Prosecution and Defense Agreement.**

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

----

|                                        |   | **Years                          Ended June 30,** |    |     |   |
|---------------------------------------------|--------|---------------------------------------------------|---------|----------|--------|
|                                        |   | **2005**                                          |    | **2004** |   | **Multi-Year** |   |
| Audit                          Fees         |   | $                                                 | 237,121 |     | $      | 875,188 |   | $ | 2,204,109 |   |
| Audit-Related                          Fees |   |                                              | -       |     |   | - |   |   | 13,029 |   |
| Tax                          Fees           |   |                                              | -       |     |   | - |   |   | 126,106 |   |
| Other                                       |   |                                              | -       |     |   | 27,110 |   |   | - |   |
| Total                                       |   | $                                                 | 237,121 |     | $      | 902,298 |   | $ | 2,343,244 |   |

----

**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       |
| 10.3    |   | 10                                |   | Share                          Purchase Agreement between ClearOne Communications, Inc.                          and ClearOne                          Communications of Canada, Inc. and 3814149 Canada, Inc.                          3814157 Canada,                          Inc., Stechyson Family Trust, Jim Stechyson, Norm Stechyson,                          and Heather                          Stechyson Family Trust, dated as of August 16, 2002 |   | Incorp.                          by reference5       |
| 10.4    |   | 10                                |   | Asset                          Purchase Agreement between ClearOne Communications, Inc.                          and Comrex Corp.,                          dated as of August 23, 2002                                                                                                                                                                                                                                                                         |   | Incorp.                          by reference5       |
| 10.5    |   | 10                                |   | Agreement                          and Plan of Merger dated January 21, 2003, between ClearOne                          Communications, Inc., Tundra Acquisitions Corporation,                          and E.mergent,                          Inc., and the related Voting Agreement with E.mergent                          shareholders                                                                                                                     |   | Incorp.                          by reference7  |
| 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                                |   | Asset                          Purchase Agreement dated May 6, 2004 between ClearOne Communications,                          Inc.                          and M:SPACE, Inc.                                                                                                                                                                                                                                                                                   |   | Incorp.                          by reference5       |
| 10.8    |   | 10                                |   | Asset                          Purchase Agreement among Clarinet, Inc., American Teleconferencing                          Services, Ltd. doing business as Premiere Conferencing,                          and ClearOne                          Communications, Inc., dated July 1, 2004                                                                                                                                                                      |   | Incorp.                          by reference8       |
| 10.9    |   | 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       |
| 10.10   |   | 10                                |   | Settlement                          Agreement and Release between ClearOne Communications,                          Inc. and DeLonie                          Call dated February 20, 2006*                                                                                                                                                                                                                                                                     |   | This                          filing                 |
| 10.11   |   | 10                                |   | 1990                          Incentive Plan                                                                                                                                                                                                                                                                                                                                                                                                                    |   | Incorp.                          by reference3       |
| 10.12   |   | 10                                |   | 1998                          Stock Option Plan                                                                                                                                                                                                                                                                                                                                                                                                                 |   | Incorp.                          by reference4       |
| 10.13   |   | 10                                |   | Employment                          Settlement Agreement and Release between ClearOne Communications,                          Inc. and                          Gregory Rand dated February 27, 2004*                                                                                                                                                                                                                                                          |   | Incorp.                          by reference5       |
| 10.14   |   | 10                                |   | Employment                          Settlement Agreement and Release between ClearOne Communications,                          Inc. and                          George Claffey dated April 6, 2004*                                                                                                                                                                                                                                                            |   | Incorp.                          by reference5       |
| 10.15   |   | 10                                |   | Employment                          Settlement Agreement and Release between ClearOne Communications,                          Inc. and                          Michael Keough dated June 16, 2004*                                                                                                                                                                                                                                                            |   | Incorp.                          by reference5  |

----

| 10.16 |   | 10 |   | Employment                          Settlement Agreement and Release between ClearOne Communications,                          Inc. and                          Angelina Beitia dated July 15, 2004* |   | Incorp.                          by reference5 |
|-------|--------|----|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|
| 10.17 |   | 10 |   | Manufacturing                          Agreement between ClearOne Communications, Inc. and Inovar,                          Inc. dated                          August 1, 2005                        |   | Incorp.                          by reference6 |
| 10.18 |   | 10 |   | Mutual                          Release and Waiver between ClearOne Communications, Inc.                          and Burk                          Technology, Inc. dated August 22, 2005            |   | Incorp.                          by reference6 |
| 14.1  |   | 14 |   | Code                          of Ethics, approved by the Board of Directors on November                          18,                          2004                                                    |   | Incorp.                          by reference5 |
| 21.1  |   | 21 |   | Subsidiaries                          of the registrant                                                                                                                                               |   | 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           |
| 99.1  |   | 99 |   | Audit                          Committee Charter, adopted November 18, 2004                                                                                                                           |   | Incorp.                          by reference5 |

**______________**

----

** **
**SIGNATURES**

|                                    | CLEARONE                          COMMUNICATIONS, INC. |
|-----------------------------------------|--------------------------------------------------------|
|                                    |                                                   |   |
|                                    |                                                   |   |
| March                          27, 2006 | By:                                                    | /s/                          Zeynep Hakimoglu |
|                                    |                                                   | Zeynep                          Hakimoglu |
|                                    |                                                   | President                          and Chief Executive Officer |

| Signature                                         |   | Title                                                                 |   | Date                                    |
|---------------------------------------------------|--------|-----------------------------------------------------------------------|--------|-----------------------------------------|
|                                              |   |                                                                  |   |                                    |
| /s/                          Zeynep Hakimoglu     |   | President                          and Chief Executive Officer        |   | March                          27, 2006 |
| Zeynep                          Hakimoglu         |   | (Principal                          Executive Officer)                |   |                                    |
|                                              |   |                                                                  |   |                                    |
| /s/                          Craig E. Peeples     |   | Interim                          Chief Financial Officer              |   | March                          27, 2006 |
| Craig                          E. Peeples         |   | (Principal                          Financial and Accounting Officer) |   |                                    |
|                                              |   |                                                                  |   |                                    |
| /s/                          Edward Dallin Bagley |   | Chairman                          of the                              |   | March                          27, 2006 |
| Edward                          Dallin Bagley     |   | Board                          of Directors                           |   |                                    |
|                                              |   |                                                                  |   |                                    |
| /s/                          Brad R. Baldwin      |   | Director                                                              |   | March                          27, 2006 |
| Brad                          R. Baldwin          |   |                                                                  |   |                                    |
|                                              |   |                                                                  |   |                                    |
| /s/                          Larry R. Hendricks   |   | Director                                                              |   | March                          27, 2006 |
| Larry                          R. Hendricks       |   |                                                                  |   |                                    |
|                                              |   |                                                                  |   |                                    |
| /s/                          Scott M. Huntsman    |   | Director                                                              |   | March                          27, 2006 |
| Scott                          M. Huntsman        |   |                                                                  |   |                                    |
|                                              |   |                                                                  |   |                                    |
| /s/                          Harry Spielberg      |   | Director                                                              |   | March                          27, 2006 |
| Harry                          Spielberg          |   |                                                                  |   |                                    |

----

**ITEM                  8. FINANCIAL STATEMENTS**

**Index                  to Consolidated Financial Statements**

|                                                                                                                                                                                                              | **Page ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------|
|                                                                                                                                                                                                              |           |
| Report                              of Independent Registered Public Accounting Firm – Hansen Barnett &                              Maxwell                                                            | F-2            |
|                                                                                                                                                                                                              |           |
| Report                              of Independent Registered Public Accounting Firm – KPMG                              LLP                                                                                | F-3            |
|                                                                                                                                                                                                              |           |
| Consolidated                              Balance Sheets as of June 30, 2005 and 2004                                                                                                                             | F-4            |
|                                                                                                                                                                                                              |           |
| Consolidated                              Statements of Operations and Comprehensive Income (Loss)                              for fiscal years                              ended June 30, 2005, 2004, and 2003 | F-5            |
|                                                                                                                                                                                                              |           |
| Consolidated                              Statements of Shareholders' Equity for fiscal years                              ended June 30, 2005,                              2004, and 2003                       | F-7            |
|                                                                                                                                                                                                              |           |
| Consolidated                              Statements of Cash Flows for fiscal years ended June                              30, 2005, 2004, and                              2003                                 | 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,** |    |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|---------|
|                                                                                                                                          |   | **2005**                                |    | **2004** |   |
| **ASSETS**                                                                                                                                    |   |                                    |    |   |   |
| Current                            assets:                                                                                                    |   |                                    |    |   |   |
| Cash                            and cash equivalents                                                                                          |   | $                                       | 1,892   |   | $ | 4,207 |   |
| Marketable                            securities                                                                                              |   |                                    | 15,800  |   |   | 1,750 |   |
| Accounts                            receivable, net of allowance for doubtful accountsof                            $46 and $24, respectively |   |                                    | 6,859   |   |   | 6,213 |   |
| Inventories,                            net                                                                                                   |   |                                    | 5,806   |   |   | 6,071 |   |
| Due                            from OM Video                                                                                                  |   |                                    | -       |   |   | 200 |   |
| Income                            tax receivable                                                                                              |   |                                    | 3,952   |   |   | 3,367 |   |
| Deferred                            income taxes, net                                                                                         |   |                                    | 270     |   |   | 401 |   |
| Prepaid                            expenses                                                                                                   |   |                                    | 300     |   |   | 520 |   |
| Assets                            held for sale                                                                                               |   |                                    | -       |   |   | 4,473 |   |
| Total                            current assets                                                                                               |   |                                    | 34,879  |   |   | 27,202 |   |
|                                                                                                                                          |   |                                    |    |   |   |   |   |
| Property                            and equipment, net                                                                                        |   |                                    | 2,805   |   |   | 4,027 |   |
| Intangibles,                            net                                                                                                   |   |                                    | 322     |   |   | 901 |   |
| Other                            assets                                                                                                       |   |                                    | 15      |   |   | 26 |   |
| Total                            assets                                                                                                       |   | $                                       | 38,021  |   | $ | 32,156 |   |
|                                                                                                                                          |   |                                    |    |   |   |   |   |
| **LIABILITIES                            AND SHAREHOLDERS' EQUITY**                                                                           |   |                                    |    |   |   |   |   |
| Current                            liabilities:                                                                                               |   |                                    |    |   |   |   |   |
| Capital                            lease obligations                                                                                          |   | $                                       | -       |   | $ | 6 |   |
| Note                            payable                                                                                                       |   |                                    | -       |   |   | 692 |   |
| Accounts                            payable                                                                                                   |   |                                    | 2,163   |   |   | 1,930 |   |
| Accrued                            liabilities                                                                                                |   |                                    | 5,622   |   |   | 10,705 |   |
| Deferred                            product revenue                                                                                           |   |                                    | 5,055   |   |   | 6,107 |   |
| Liabilities                            associated with assets held for sale                                                                   |   |                                    | -       |   |   | 3,067 |   |
| Total                            current liabilities                                                                                          |   |                                    | 12,840  |   |   | 22,507 |   |
|                                                                                                                                          |   |                                    |    |   |   |   |   |
| Capital                            lease obligations, net of current portion                                                                  |   |                                    | -       |   |   | 2 |   |
| Note                            payable, net of current portion                                                                               |   |                                    | -       |   |   | 240 |   |
| Deferred                            income taxes, net                                                                                         |   |                                    | 270     |   |   | 401 |   |
| Total                            liabilities                                                                                                  |   |                                    | 13,110  |   |   | 23,150 |   |
|                                                                                                                                          |   |                                    |    |   |   |   |   |
| Commitments                            and contingencies (see Notes 12 and 15)                                                                |   |                                    |    |   |   |   |   |
|                                                                                                                                          |   |                                    |    |   |   |   |   |
| Shareholders'                            equity:                                                                                              |   |                                    |    |   |   |   |   |
| Common                            stock, 50,000,000 shares authorized, par value $0.001,                                                      |   |                                    |    |   |   |   |   |
| 11,264,233                            and 11,036,233 shares issued and outstanding, respectively                                              |   |                                    | 11      |   |   | 11 |   |
| Additional                            paid-in capital                                                                                         |   |                                    | 49,393  |   |   | 48,395 |   |
| Deferred                            compensation                                                                                              |   |                                    | (33     | ) |   | (54 | ) |
| Accumulated                            other comprehensive income                                                                             |   |                                    | -       |   |   | 1,189 |   |
| Accumulated                            deficit                                                                                                |   |                                    | (24,460 | ) |   | (40,535 | ) |
| Total                            shareholders' equity                                                                                         |   |                                    | 24,911  |   |   | 9,006 |   |
| Total                            liabilities and shareholders' equity                                                                         |   | $                                       | 38,021  |   | $ | 32,156 |   |
|                                                                                                                                          |
| See                            accompanying notes to consolidated financial                            statements                             |

----

**CLEARONE                  COMMUNICATIONS, INC.**

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

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

|                                                                                                                      |   | **Years                            Ended June 30,** |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|--------|
|                                                                                                                      |   | **2005**                                            |   | **2004** |   | **2003** |   |
| Revenue:                                                                                                                  |   |                                                |   |   |   |   |   |
| Product                                                                                                                   |   | $                                                   | 31,645 |   | $ | 27,836 |   | $ | 27,512 |   |
| Business                            services                                                                              |   |                                                | -      |   |   | 130 |   |   | 1,054 |   |
| Total                            revenue                                                                                  |   |                                                | 31,645 |   |   | 27,966 |   |   | 28,566 |   |
|                                                                                                                      |   |                                                |   |   |   |   |   |   |   |   |
| Cost                            of goods sold:                                                                            |   |                                                |   |   |   |   |   |   |   |   |
| Product                                                                                                                   |   |                                                | 14,701 |   |   | 13,683 |   |   | 15,940 |   |
| Product                            inventory write-offs                                                                   |   |                                                | 250    |   |   | 2,696 |   |   | 2,175 |   |
| Total                            cost of goods sold                                                                       |   |                                                | 14,951 |   |   | 16,379 |   |   | 18,115 |   |
| Gross                            profit                                                                                   |   |                                                | 16,694 |   |   | 11,587 |   |   | 10,451 |   |
|                                                                                                                      |   |                                                |   |   |   |   |   |   |   |   |
| Operating                            expenses:                                                                            |   |                                                |   |   |   |   |   |   |   |   |
| Marketing                            and selling                                                                          |   |                                                | 9,070  |   |   | 8,497 |   |   | 7,070 |   |
| General                            and administrative                                                                     |   |                                                | 5,489  |   |   | 6,767 |   |   | 5,915 |   |
| Settlement                            in shareholders' class action                                                       |   |                                                | (2,046 | ) |   | 4,080 |   |   | 7,325 |   |
| Research                            and product development                                                               |   |                                                | 5,305  |   |   | 4,237 |   |   | 3,281 |   |
| Impairment                            losses (see Note 10)                                                                |   |                                                | 180    |   |   | - |   |   | 5,102 |   |
| Restructuring                            charge (see Note 26)                                                             |   |                                                | 110    |   |   | - |   |   | - |   |
| Total                            operating expenses                                                                       |   |                                                | 18,108 |   |   | 23,581 |   |   | 28,693 |   |
|                                                                                                                      |   |                                                |   |   |   |   |   |   |   |   |
| Operating                            loss                                                                                 |   |                                                | (1,414 | ) |   | (11,994 | ) |   | (18,242 | ) |
|                                                                                                                      |   |                                                |   |   |   |   |   |   |   |   |
| Other                            income (expense), net:                                                                   |   |                                                |   |   |   |   |   |   |   |   |
| Interest                            income                                                                                |   |                                                | 425    |   |   | 52 |   |   | 85 |   |
| Interest                            expense                                                                               |   |                                                | (104   | ) |   | (183 | ) |   | (91 | ) |
| Other,                            net                                                                                     |   |                                                | (3     | ) |   | (130 | ) |   | 54 |   |
| Total                            other income (expense), net                                                              |   |                                                | 318    |   |   | (261 | ) |   | 48 |   |
|                                                                                                                      |   |                                                |   |   |   |   |   |   |   |   |
| Loss                            from continuing operations before income taxes                                            |   |                                                | (1,096 | ) |   | (12,255 | ) |   | (18,194 | ) |
| Benefit                            for income taxes                                                                       |   |                                                | 3,248  |   |   | 736 |   |   | 1,352 |   |
| Income                            (loss) from continuing operations                                                       |   |                                                | 2,152  |   |   | (11,519 | ) |   | (16,842 | ) |
|                                                                                                                      |   |                                                |   |   |   |   |   |   |   |   |
| Discontinued                            operations:                                                                       |   |                                                |   |   |   |   |   |   |   |   |
| Income                            (loss) from discontinued operations                                                     |   |                                                | 225    |   |   | 2,813 |   |   | (18,813 | ) |
| Gain                            (loss) on disposal of discontinued operations                                             |   |                                                | 17,851 |   |   | (183 | ) |   | 318 |   |
| Income                            tax provision                                                                           |   |                                                | (4,153 | ) |   | (998 | ) |   | (635 | ) |
| Income                            (loss) from discontinued operations                                                     |   |                                                | 13,923 |   |   | 1,632 |   |   | (19,130 | ) |
|                                                                                                                      |   |                                                |   |   |   |   |   |   |   |   |
| Net                            income (loss)                                                                              |   | $                                                   | 16,075 |   | $ | (9,887 | ) | $ | (35,972 | ) |
|                                                                                                                      |   |                                                |   |   |   |   |   |   |   |   |
| Comprehensive                            income (loss):                                                                   |   |                                                |   |   |   |   |   |   |   |   |
| Net                            income (loss)                                                                              |   | $                                                   | 16,075 |   | $ | (9,887 | ) | $ | (35,972 | ) |
| Foreign                            currency translation adjustments                                                       |   |                                                | 112    |   |   | (8 | ) |   | 1,197 |   |
| Less:                            reclassification adjustments for foreign currency                            translation |   |                                                |   |   |   |   |   |   |   |   |
| adjustments                            included in net income (loss)                                                      |   |                                                | (1,301 | ) |   | - |   |   | - |   |
|                                                                                                                      |   |                                                |   |   |   |   |   |   |   |   |
| Comprehensive                            income (loss):                                                                   |   | $                                                   | 14,886 |   | $ | (9,895 | ) | $ | (34,775 | ) |
|                                                                                                                      |
| See                            accompanying notes to consolidated financial                            statements         |

----

**CLEARONE                  COMMUNICATIONS, INC.**

**CONSOLIDATED                  STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)                  (CON’T)**

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

|                                                                                                                        |   | **Years                            Ended June 30,** |   |
|-----------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|--------|
|                                                                                                                        |   | **2005**                                            |   | **2004** |   | **2003** |   |
|                                                                                                                        |   |                                                |   |   |   |   |   |
| Basic                            earnings (loss) per common share from continuing                            operations     |   | $                                                   | 0.19   |   | $ | (1.04 | ) | $ | (1.50 | ) |
| Diluted                            earnings (loss) per common share from continuing                            operations   |   | $                                                   | 0.17   |   | $ | (1.04 | ) | $ | (1.50 | ) |
|                                                                                                                        |   |                                                |   |   |   |   |   |   |   |   |
| Basic                            earnings (loss) per common share from discontinued                            operations   |   | $                                                   | 1.25   |   | $ | 0.15 |   | $ | (1.71 | ) |
| Diluted                            earnings (loss) per common share from discontinued                            operations |   | $                                                   | 1.13   |   | $ | 0.15 |   | $ | (1.71 | ) |
|                                                                                                                        |   |                                                |   |   |   |   |   |   |   |   |
| Basic                            earnings (loss) per common share                                                           |   | $                                                   | 1.44   |   | $ | (0.89 | ) | $ | (3.21 | ) |
| Diluted                            earnings (loss) per common share                                                         |   | $                                                   | 1.30   |   | $ | (0.89 | ) | $ | (3.21 | ) |
|                                                                                                                        |
| See                            accompanying notes to consolidated financial                            statements           |

----

**CLEARONE                  COMMUNICATIONS, INC.**

**CONSOLIDATED                  STATEMENTS OF SHAREHOLDERS’ EQUITY**

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

|                                                                                                                                                                                             |   |                                          |       |        |   |           |   |              |   | **Accumulated**  |   | **Retained**      |   |       |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|------------|-------------|--------|----------------|--------|-------------------|--------|------------------|--------|-------------------|--------|------------|--------|
|                                                                                                                                                                                             |   |                                          |       |        |   | **Additional** |   |              |   | **Other**        |   | **Earnings**      |   | **Total**  |   |
|                                                                                                                                                                                             |   | **Common                              Stock** |       | **Paid-In** |   | **Deferred**   |   | **Comprehensive** |   | **(Accumulated** |   | **Shareholders'** |   |
|                                                                                                                                                                                             |   | **Shares**                                    |       | **Amount**  |   | **Capital**    |   | **Compensation**  |   | **Income**       |   | **Deficit)**      |   | **Equity** |   |
|                                                                                                                                                                                             |   |                                          |       |        |   |           |   |              |   |             |   |              |   |       |   |
| Balances                              at June 30, 2002                                                                                                                                           |   |                                          | 11,178,392 |        | $      | 11             |   | $                 | 48,704 |             | $      | (147              | )      | $          | -      |   | $ | 5,324 |   | $ | 53,892 |   |
|                                                                                                                                                                                             |   |                                          |       |        |   |           |   |              |   |             |   |              |   |       |   |   |   |   |   |   |   |   |
| Issuance                              of Common Shares pursuant to exercises of stock options                                                                                                    |   |                                          | 31,500     |        |   | -              |   |              | 86     |             |   | -                 |   |       | -      |   |   | - |   |   | 86 |   |
| Issuance                              of Common Shares under Employee Stock Purchase Plan                                                                                                        |   |                                          | 1,841      |        |   | -              |   |              | 8      |             |   | -                 |   |       | -      |   |   | - |   |   | 8 |   |
| Repurchase                              and retirement of Common Shares                                                                                                                          |   |                                          | (125,000   | )           |   | -              |   |              | (430   | )                |   | -                 |   |       | -      |   |   | - |   |   | (430 | ) |
| Deferred                              compensation resulting from the modification of stock                              options                                                                 |   |                                          | -          |        |   | -              |   |              | (110   | )                |   | 110               |   |       | -      |   |   | - |   |   | - |   |
| Net                              reversal of previously amortized deferred compensation                                                                                                          |   |                                          | -          |        |   | -              |   |              | -      |             |   | (38               | )      |       | -      |   |   | - |   |   | (38 | ) |
| Foreign                              currency translation adjustments                                                                                                                            |   |                                          | -          |        |   | -              |   |              | -      |             |   | -                 |   |       | 1,197  |   |   | - |   |   | 1,197 |   |
| Net                              loss                                                                                                                                                            |   |                                          | -          |        |   | -              |   |              | -      |             |   | -                 |   |       | -      |   |   | (35,972 | ) |   | (35,972 | ) |
| Balances                              at June 30, 2003                                                                                                                                           |   |                                          | 11,086,733 |        |   | 11             |   |              | 48,258 |             |   | (75               | )      |       | 1,197  |   |   | (30,648 | ) |   | 18,743 |   |
|                                                                                                                                                                                             |   |                                          |       |        |   |           |   |              |   |             |   |              |   |       |   |   |   |   |   |   |   |   |
| Repurchase                              and retirement of Common Shares per settlement agreements                              with                               former executive officers |   |                                          | (50,500    | )           |   | -              |   |              | (63    | )                |   | -                 |   |       | -      |   |   | - |   |   | (63 | ) |
| Compensation                              expense resulting from the modification of stock options                                                                                               |   |                                          | -          |        |   | -              |   |              | 200    |             |   | -                 |   |       | -      |   |   | - |   |   | 200 |   |
| Amortization                              of deferred compensation                                                                                                                               |   |                                          | -          |        |   | -              |   |              | -      |             |   | 21                |   |       | -      |   |   | - |   |   | 21 |   |
| Foreign                              currency translation adjustments                                                                                                                            |   |                                          | -          |        |   | -              |   |              | -      |             |   | -                 |   |       | (8     | ) |   | - |   |   | (8 | ) |
| Net                              loss                                                                                                                                                            |   |                                          | -          |        |   | -              |   |              | -      |             |   | -                 |   |       | -      |   |   | (9,887 | ) |   | (9,887 | ) |
| 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 |   |
|                                                                                                                                                                                             |
| See                              accompanying notes to consolidated financial                              statements                                                                            |

----

**CLEARONE                  COMMUNICATIONS, INC.**

**CONSOLIDATED                  STATEMENTS OF CASH FLOWS**

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

|                                                                                                                     |   | **Years                            Ended June 30,** |    |
|--------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|---------|
|                                                                                                                     |   | **2005**                                            |    | **2004** |   | **2003** |   |
| Cash                            flows from operating activities:                                                         |   |                                                |    |   |   |   |   |
| Net                            income (loss) from continuing operations                                                  |   | $                                                   | 2,152   |   | $ | (11,519 | ) | $ | (16,842 | ) |
| Adjustments                            to reconcile net income (loss) from continuing operations                         |   |                                                |    |   |   |   |   |   |   |   |
| to                            net cash provided by operations:                                                           |   |                                                |    |   |   |   |   |   |   |   |
| Loss                            on impairment of long-lived assets, goodwill, and                            intangibles |   |                                                | 180     |   |   | - |   |   | 5,102 |   |
| Depreciation                            and amortization expense                                                         |   |                                                | 2,366   |   |   | 1,934 |   |   | 1,805 |   |
| Deferred                            income taxes                                                                         |   |                                                | -       |   |   | 3,079 |   |   | 2,224 |   |
| Stock-based                            compensation                                                                      |   |                                                | 62      |   |   | 221 |   |   | (38 | ) |
| Write-off                            of inventory                                                                        |   |                                                | 250     |   |   | 2,696 |   |   | 2,175 |   |
| (Gain)                            loss on disposal of assets and fixed assets write-offs                                 |   |                                                | (12     | ) |   | 154 |   |   | (2 | ) |
| Provision                            for doubtful accounts                                                               |   |                                                | 46      |   |   | 24 |   |   | - |   |
| Purchase                            accounting adjustment                                                                |   |                                                | 395     |   |   | - |   |   | - |   |
| Changes                            in operating assets and liabilities:                                                  |   |                                                |    |   |   |   |   |   |   |   |
| Accounts                            receivable                                                                           |   |                                                | (692    | ) |   | (6,140 | ) |   | (177 | ) |
| Inventories                                                                                                              |   |                                                | 15      |   |   | (31 | ) |   | 1,604 |   |
| Prepaid                            expenses and other assets                                                             |   |                                                | 220     |   |   | (296 | ) |   | (126 | ) |
| Accounts                            payable                                                                              |   |                                                | 233     |   |   | 399 |   |   | (580 | ) |
| Restructuring                            charge                                                                          |   |                                                | 110     |   |   | - |   |   | - |   |
| Accrued                            liabilities                                                                           |   |                                                | (4,237  | ) |   | 2,300 |   |   | 6,042 |   |
| Income                            taxes                                                                                  |   |                                                | (585    | ) |   | (609 | ) |   | (2,893 | ) |
| Deferred                            product revenue                                                                      |   |                                                | (1,052  | ) |   | 6,107 |   |   | - |   |
| Net                            change in other assets/liabilities                                                        |   |                                                | 11      |   |   | 1 |   |   | 48 |   |
| Net                            cash used in continuing operating activities                                              |   |                                                | (538    | ) |   | (1,680 | ) |   | (1,658 | ) |
| Net                            cash provided by discontinued operating activities                                        |   |                                                | 168     |   |   | 2,764 |   |   | 4,201 |   |
| Net                            cash (used in) provided by operating activities                                           |   |                                                | (370    | ) |   | 1,084 |   |   | 2,543 |   |
|                                                                                                                     |   |                                                |    |   |   |   |   |   |   |   |
| Cash                            flows from investing activities:                                                         |   |                                                |    |   |   |   |   |   |   |   |
| Restricted                            cash                                                                               |   |                                                | -       |   |   | 200 |   |   | (200 | ) |
| Purchase                            of property and equipment                                                            |   |                                                | (1,136  | ) |   | (1,685 | ) |   | (1,402 | ) |
| Proceeds                            from the sale of property and equipment                                              |   |                                                | 8       |   |   | 5 |   |   | 4 |   |
| Proceeds                            from the sale of assets                                                              |   |                                                | -       |   |   | - |   |   | 80 |   |
| Purchase                            of marketable securities                                                             |   |                                                | (47,100 | ) |   | (3,350 | ) |   | (18,500 | ) |
| Sale                            of marketable securities                                                                 |   |                                                | 33,050  |   |   | 3,500 |   |   | 29,000 |   |
| Net                            cash (used in) provided by continuing investing activities                                |   |                                                | (15,178 | ) |   | (1,330 | ) |   | 8,982 |   |
| Net                            cash provided by (used in) discontinued investing                            activities   |   |                                                | 14,173  |   |   | (147 | ) |   | (7,665 | ) |
| Net                            cash (used in) provided by investing activities                                           |   |                                                | (1,005  | ) |   | (1,477 | ) |   | 1,317 |   |
|                                                                                                                     |   |                                                |    |   |   |   |   |   |   |   |
| Cash                            flows from financing activities:                                                         |   |                                                |    |   |   |   |   |   |   |   |
| Borrowings                            under note payable                                                                 |   |                                                | -       |   |   | - |   |   | 1,998 |   |
| Principal                            payments on capital lease obligations                                               |   |                                                | (8      | ) |   | (32 | ) |   | (61 | ) |
| Principal                            payments on note payable                                                            |   |                                                | (932    | ) |   | (652 | ) |   | (414 | ) |
| Proceeds                            from sales of Common Shares                                                          |   |                                                | -       |   |   | - |   |   | 95 |   |
| Purchase                            and retirement of Common Shares                                                      |   |                                                | -       |   |   | (63 | ) |   | (430 | ) |
| Net                            cash (used in) provided by continuing financing activities                                |   |                                                | (940    | ) |   | (747 | ) |   | 1,188 |   |
| Net                            cash used in discontinued financing activities                                            |   |                                                | -       |   |   | (770 | ) |   | (723 | ) |
| Net                            cash (used in) provided by financing activities                                           |   |                                                | (940    | ) |   | (1,517 | ) |   | 465 |   |
|                                                                                                                     |   |                                                |    |   |   |   |   |   |   |   |
| Net                            (decrease) increase in cash and cash equivalents                                          |   |                                                | (2,315  | ) |   | (1,910 | ) |   | 4,325 |   |
| Effect                            of foreign exchange rates on cash and cash equivalents                                 |   |                                                | -       |   |   | (7 | ) |   | 55 |   |
| Cash                            and cash equivalents at the beginning of the year                                        |   |                                                | 4,207   |   |   | 6,124 |   |   | 1,744 |   |
| Cash                            and cash equivalents at the end of the year                                              |   | $                                                   | 1,892   |   | $ | 4,207 |   | $ | 6,124 |   |
|                                                                                                                     |
| See                            accompanying notes to consolidated financial                            statements        |

----

**CLEARONE                  COMMUNICATIONS, INC.**

**CONSOLIDATED                  STATEMENTS OF CASH FLOWS (CON’T)**

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

|                                                                                                              |   | **Years                            Ended June 30,** |   |
|-------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|--------|
|                                                                                                              |   | **2005**                                            |   | **2004** |   | **2003** |   |
| Supplemental                            disclosure of cash flow information:                                      |   |                                                |   |   |   |   |   |
| Cash                            paid for interest                                                                 |   | $                                                   | 104    |   | $ | 282 |   | $ | 211 |   |
| Cash                            paid (received) for income taxes                                                  |   |                                                | 1,117  |   |   | (2,189 | ) |   | (79 | ) |
|                                                                                                              |   |                                                |   |   |   |   |   |   |   |   |
| Supplemental                            disclosure of non-cash financing activities:                              |   |                                                |   |   |   |   |   |   |   |   |
| Value                            of common shares issued in shareholder settlement                                |   | $                                                   | 957    |   | $ | - |   | $ | - |   |
|                                                                                                              |   |                                                |   |   |   |   |   |   |   |   |
| Supplemental                            disclosure of acquisition activity:                                       |   |                                                |   |   |   |   |   |   |   |   |
| Fair                            value of assets acquired                                                          |   | $                                                   | -      |   | $ | - |   | $ | 8,235 |   |
| Liabilities                            assumed                                                                    |   |                                                | -      |   |   | - |   |   | (599 | ) |
| Cash                            paid for acquisition                                                              |   | $                                                   | -      |   | $ | - |   | $ | 7,636 |   |
|                                                                                                              |
| See                            accompanying notes to consolidated financial                            statements |

----

**CLEARONE                  COMMUNICATIONS, INC.**

**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 *

*Cash                  Equivalents*

*Marketable                  Securities*

*Sources                  of Supplies*

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

*Accounts                  Receivable*

| Description                                           |   | Balance                              atBeginning                              ofPeriod |   | Charged                              to Costs andExpenses |   | Deductions |   | Balance                              atEnd                              ofPeriod |   |
|-------------------------------------------------------|--------|----------------------------------------------------------------------------------------|--------|-----------------------------------------------------------|--------|------------|--------|----------------------------------------------------------------------------------|--------|
|                                                  |   |                                                                                   |   |                                                      |   |       |   |                                                                             |   |
| Year                              ended June 30, 2004 |   | $                                                                                      | -      |                                                      | $      | 24         |   | $                                                                                | -      |   | $ | 24 |   |
|                                                  |   |                                                                                   |   |                                                      |   |       |   |                                                                             |   |   |   |   |   |
| Year                              ended June 30, 2005 |   | $                                                                                      | 24     |                                                      | $      | 46         |   | $                                                                                | (24    | ) | $ | 46 |   |

*Inventories*

*Property                  and Equipment*

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

*Goodwill*

*Intangibles*

*Impairment                  of Long-Lived Assets*

*Revenue                  Recognition*

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

*Shipping                  and Handling Costs*

*Warranty                  Costs*

|                                                        |   | **Years                            Ended June 30,** |   |
|-------------------------------------------------------------|--------|-----------------------------------------------------|--------|
|                                                        |   | **2005**                                            |   | **2004** |   |
|                                                        |   |                                                |   |   |   |
| Balance                            at the beginning of year |   | $                                                   | 108    |   | $ | 80 |   |
| Accruals/additions                                          |   |                                                | 174    |   |   | 206 |   |
| Usage                                                       |   |                                                | (156   | ) |   | (178 | ) |
| Balance                            at end of year           |   | $                                                   | 126    |   | $ | 108 |   |

*Advertising                  *

*Research                  and Product Development Costs*

*Income                  Taxes*

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

*Earnings                  Per Share*

|                                                                                                                 |   | **Years                            Ended June 30,** |       |
|----------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|------------|
|                                                                                                                 |   | **2005**                                            |       | **2004** |   | **2003** |   |
| Numerator:                                                                                                           |   |                                                |       |   |   |   |   |
| Income                            (loss) from continuing operations                                                  |   | $                                                   | 2,152      |   | $ | (11,519 | ) | $ | (16,842 | ) |
| Income                            (loss) from discontinued operations, net of tax                                    |   |                                                | 173        |   |   | 1,747 |   |   | (19,330 | ) |
| Gain                            (loss) on disposal of discontinued operations, net of                            tax |   |                                                | 13,750     |   |   | (115 | ) |   | 200 |   |
| Net                            income (loss)                                                                         |   | $                                                   | 16,075     |   | $ | (9,887 | ) | $ | (35,972 | ) |
| Denominator:                                                                                                         |   |                                                |       |   |   |   |   |   |   |   |
| Basic                            weighted average shares                                                             |   |                                                | 11,177,406 |   |   | 11,057,896 |   |   | 11,183,339 |   |
| Dilutive                            common stock equivalents using treasury stock method                             |   |                                                | 1,154,700  |   |   | - |   |   | - |   |
| Diluted                            weighted average shares                                                           |   |                                                | 12,332,106 |   |   | 11,057,896 |   |   | 11,183,339 |   |
|                                                                                                                 |   |                                                |       |   |   |   |   |   |   |   |
| Basic                            earnings (loss) per common share:                                                   |   |                                                |       |   |   |   |   |   |   |   |
| Continuing                            operations                                                                     |   | $                                                   | 0.19       |   | $ | (1.04 | ) | $ | (1.50 | ) |
| Discontinued                            operations                                                                   |   |                                                | 0.02       |   |   | 0.16 |   |   | (1.73 | ) |
| Disposal                            of discontinued operations                                                       |   |                                                | 1.23       |   |   | (0.01 | ) |   | 0.02 |   |
| Net                            income (loss)                                                                         |   |                                                | 1.44       |   |   | (0.89 | ) |   | (3.21 | ) |
| Diluted                            earnings (loss) per common share:                                                 |   |                                                |       |   |   |   |   |   |   |   |
| Continuing                            operations                                                                     |   | $                                                   | 0.17       |   | $ | (1.04 | ) | $ | (1.50 | ) |
| Discontinued                            operations                                                                   |   |                                                | 0.01       |   |   | 0.16 |   |   | (1.73 | ) |
| Disposal                            of discontinued operations                                                       |   |                                                | 1.12       |   |   | (0.01 | ) |   | 0.02 |   |
| Net                            income (loss)                                                                         |   |                                                | 1.30       |   |   | (0.89 | ) |   | (3.21 | ) |

*Stock-Based                  Compensation*

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

|                                                                                       |   | **Years                            Ended June 30,** |   |
|--------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|--------|
|                                                                                       |   | **2005**                                            |   | **2004** |   | **2003** |   |
| Net                            income (loss):                                              |   |                                                |   |   |   |   |   |
| As                            reported                                                     |   | $                                                   | 16,075 |   | $ | (9,887 | ) | $ | (35,972 | ) |
| Stock-based                            employee compensation expense included in           |   |                                                |   |   |   |   |   |   |   |   |
| reported                            net loss, net of income taxes                          |   |                                                | 13     |   |   | 13 |   |   | (24 | ) |
| Stock-based                            employee compensation expense determined            |   |                                                |   |   |   |   |   |   |   |   |
| under                            the fair-value method for all awards, net of income taxes |   |                                                | (664   | ) |   | (439 | ) |   | (966 | ) |
| Pro                            forma                                                       |   | $                                                   | 15,424 |   | $ | (10,313 | ) | $ | (36,962 | ) |
|                                                                                       |   |                                                |   |   |   |   |   |   |   |   |
| Basic                            earnings (loss) per common share:                         |   |                                                |   |   |   |   |   |   |   |   |
| As                            reported                                                     |   | $                                                   | 1.44   |   | $ | (0.89 | ) | $ | (3.21 | ) |
| Pro                            forma                                                       |   |                                                | 1.38   |   |   | (0.93 | ) |   | (3.31 | ) |
| Diluted                            earnings (loss) per common share:                       |   |                                                |   |   |   |   |   |   |   |   |
| As                            reported                                                     |   | $                                                   | 1.30   |   | $ | (0.89 | ) | $ | (3.21 | ) |
| Pro                            forma                                                       |   |                                                | 1.25   |   |   | (0.93 | ) |   | (3.31 | ) |

*Recent                  Accounting Pronouncements*

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

FSP                  143-1                  addresses the accounting for obligations associated with Directive                  2002/96/EC,                  Waste Electrical and Electronic Equipment, which was adopted by                  the European                  Union (“EU”). The FSP provides guidance on how to account for the effects                  of the                  Directive but only with respect to historical waste associated                  with products                  placed on the market on or before August 13, 2005.                  FSP                  143-1 will be effective beginning with the Company’s fiscal 2006 financial                  statements. The                  Company does not believe the adoption of FSP 143-1 will have a                  material effect                  on its business, results of operations, financial position, or                  liquidity.

*Reclassifications*

----

| **3.  ** | **Acquisitions** |
|--------------------|------------------|

|                                                             |   | **E.mergent** |   | **OM                            Video** |   |
|------------------------------------------------------------------|--------|---------------|--------|-----------------------------------------|--------|
|                                                             |   |          |   |                                    |   |
| Cash                                                             |   | $             | 7,300  |                                    | $      | 6,276 |   |
| Holdback                            account                      |   |          | -      |                                    |   | 600 |   |
| Common                            stock and fully-vested options |   |          | 14,427 |                                    |   | - |   |
| Direct                            acquisition costs              |   |          | 603    |                                    |   | 110 |   |
| Total                            consideration                   |   | $             | 22,330 |                                    | $      | 6,986 |   |
|                                                             |   |          |   |                                    |   |   |   |
| Net                            tangible assets acquired          |   | $             | 3,591  |                                    | $      | 337 |   |
| Intangible                            assets:                    |   |          |   |                                    |   |   |   |
| Patents                            and trademarks                |   |          | 1,060  |                                    |   | - |   |
| Customer                            relationships                |   |          | 392    |                                    |   | - |   |
| Non-compete                            agreements                |   |          | 215    |                                    |   | 574 |   |
| Goodwill                                                         |   |          | 17,072 |                                    |   | 6,075 |   |
| Total                            purchase price allocation       |   | $             | 22,330 |                                    | $      | 6,986 |   |

*E.mergent*

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

*OM                  Video*

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

|                                                                                                                       |   | **Year                            Ended**    |    |
|----------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|---------|
|                                                                                                                       |   | **June                            30, 2003** |    |
|                                                                                                                       |   |                                         |    |
| Revenue                            from discontinued operations                                                            |   | $                                            | 30,162  |   |
| Loss                            from discontinued operations                                                               |   |                                         | (19,137 | ) |
| Net                            loss                                                                                        |   |                                         | (35,979 | ) |
|                                                                                                                       |   |                                         |    |   |
| Basic                            and diluted loss per common share from discontinued                            operations |   | $                                            | (1.71   | ) |
| Basic                            and diluted loss per common share from net loss                                           |   | $                                            | (3.22   | ) |

| **4.  ** | **Discontinued                            Operations** |
|--------------------|--------------------------------------------------------|

|                                                                              |   | **As                            of June 30,** |   |
|-----------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|
|                                                                              |   | **2004**                                      |   |
| Assets                            held for sale                                   |   |                                          |   |
| Conferencing                            services business                         |   | $                                             | 3,294  |   |
| OM                            Video                                               |   |                                          | 1,179  |   |
| Total                            assets held for sale                             |   | $                                             | 4,473  |   |
|                                                                              |   |                                          |   |   |
| Liabilities                            associated with assets held for sale       |   |                                          |   |   |
| Conferencing                            services business                         |   | $                                             | 2,329  |   |
| OM                            Video                                               |   |                                          | 738    |   |
| Total                            liabilities associated with assets held for sale |   | $                                             | 3,067  |   |

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

|                                                                                                                        |   | **Years                            Ended June 30,** |         |
|-----------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|--------------|
|                                                                                                                        |   | **2005**                                            |         | **2004** |   | **2003** |   |
| Income                            (loss) from discontinued operations                                                       |   |                                                |         |   |   |   |   |
| U.S.                            audiovisual integration services                                                            |   | $                                                   | -            |   | $ | (360 | ) | $ | (14,127 | ) |
| Conferencing                            services business                                                                   |   |                                                | -            |   |   | 2,800 |   |   | 3,366 |   |
| OM                            Video                                                                                         |   |                                                | 225          |   |   | 373 |   |   | (8,052 | ) |
| Total                            income (loss) from discontinued operations                                                 |   |                                                | 225          |   |   | 2,813 |   |   | (18,813 | ) |
|                                                                                                                        |   |                                                |         |   |   |   |   |   |   |   |
| Gain                            (loss) on disposal of discontinued operations                                               |   |                                                |         |   |   |   |   |   |   |   |
| U.S.                            audiovisual integration services                                                            |   | $                                                   | -            |   | $ | (276 | ) | $ | - |   |
| Conferencing                            services business                                                                   |   |                                                | 17,369       |   |   | - |   |   | - |   |
| OM                            Video                                                                                         |   |                                                | 295          |   |   | - |   |   | - |   |
| Burk                            (see Note 5)                                                                                |   |                                                | 187          |   |   | 93 |   |   | 318 |   |
| Total                            gain (loss) on disposal of discontinued operations                                         |   |                                                | 17,851       |   |   | (183 | ) |   | 318 |   |
|                                                                                                                        |   |                                                |         |   |   |   |   |   |   |   |
| Income                            tax (provision) benefit                                                                   |   |                                                |         |   |   |   |   |   |   |   |
| U.S.                            audiovisual integration services                                                            |   | $                                                   | -            |   | $ | 237 |   | $ | 769 |   |
| Conferencing                            services business                                                                   |   |                                                | (3,991       | ) |   | (1,044 | ) |   | (1,256 | ) |
| OM                            Video                                                                                         |   |                                                | (119         | ) |   | (156 | ) |   | (30 | ) |
| Burk                            (see Note 5)                                                                                |   |                                                | (43          | ) |   | (35 | ) |   | (118 | ) |
| Total                            income tax (provision) benefit                                                             |   |                                                | (4,153       | ) |   | (998 | ) |   | (635 | ) |
|                                                                                                                        |   |                                                |         |   |   |   |   |   |   |   |
| Total                            income (loss) from discontinued operations, net of income                            taxes |   |                                                |         |   |   |   |   |   |   |   |
| U.S.                            audiovisual integration services                                                            |   | $                                                   | -            |   | $ | (399 | ) | $ | (13,358 | ) |
| Conferencing                            services business                                                                   |   |                                                | 13,378       |   |   | 1,756 |   |   | 2,110 |   |
| OM                            Video                                                                                         |   |                                                | 401          |   |   | 217 |   |   | (8,082 | ) |
| Burk                            (see Note 5)                                                                                |   |                                                | 144          |   |   | 58 |   |   | 200 |   |
| Total                            income (loss) from discontinued operations, net of income                            taxes |   | $                                                   | 13,923  |   | $  | 1,632  |   | $  | (19,130 | )  |

*M:Space                  *

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

|                                                                              |   | **Years                            Ended June 30,** |   |
|-----------------------------------------------------------------------------------|--------|-----------------------------------------------------|--------|
|                                                                              |   | **2004**                                            |   | **2003** |   |
|                                                                              |   |                                                |   |   |   |
| Revenue                            - business services                            |   | $                                                   | 3,597  |   | $ | 7,640 |   |
| Cost                            of goods sold - business services                 |   |                                                | 2,648  |   |   | 5,227 |   |
| Gross                            profit                                           |   |                                                | 949    |   |   | 2,413 |   |
| Marketing                            and selling expenses                         |   |                                                | 522    |   |   | 2,426 |   |
| General                            and administrative expenses                    |   |                                                | 787    |   |   | 1,641 |   |
| Impairment                            losses                                      |   |                                                | -      |   |   | 12,473 |   |
| Loss                            before income taxes                               |   |                                                | (360   | ) |   | (14,127 | ) |
| Loss                            on disposal of discontinued operations            |   |                                                | (276   | ) |   | - |   |
| Benefit                            for income taxes                               |   |                                                | 237    |   |   | 769 |   |
| Loss                            from discontinued operations, net of income taxes |   | $                                                   | (399   | ) | $ | (13,358 | ) |

*Conferencing                  Services*

|                                                                              |   | **As                            of June 30,** |   |
|-----------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|
|                                                                              |   | **2004**                                      |   |
| Assets                            held for sale                                   |   |                                          |   |
| Accounts                            receivable                                    |   | $                                             | 1,712  |   |
| Prepaid                            expenses                                       |   |                                          | 158    |   |
| Property                            and equipment, net                            |   |                                          | 1,424  |   |
| Total                            assets held for sale                             |   | $                                             | 3,294  |   |
|                                                                              |   |                                          |   |   |
| Liabilities                            associated with assets held for sale       |   |                                          |   |   |
| Capitalized                            leases                                     |   | $                                             | 1,206  |   |
| Accounts                            payable                                       |   |                                          | 287    |   |
| Accrued                            liabilities                                    |   |                                          | 836    |   |
| Total                            liabilities associated with assets held for sale |   | $                                             | 2,329  |   |

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

|                                                                                |   | **Years                            Ended June 30,** |   |
|-------------------------------------------------------------------------------------|--------|-----------------------------------------------------|--------|
|                                                                                |   | **2005**                                            |   | **2004** |   | **2003** |   |
|                                                                                |   |                                                |   |   |   |   |   |
| Revenue                            - conferencing services                          |   | $                                                   | -      |   | $ | 15,578 |   | $ | 15,268 |   |
| Cost                            of goods sold - conferencing services               |   |                                                | -      |   |   | 7,844 |   |   | 7,904 |   |
| Gross                            profit                                             |   |                                                | -      |   |   | 7,734 |   |   | 7,364 |   |
| Marketing                            and selling expenses                           |   |                                                | -      |   |   | 3,799 |   |   | 2,881 |   |
| General                            and administrative expenses                      |   |                                                | -      |   |   | 1,036 |   |   | 972 |   |
| Other                            expense, net                                       |   |                                                | -      |   |   | 99 |   |   | 145 |   |
| Income                            before income taxes                               |   |                                                | -      |   |   | 2,800 |   |   | 3,366 |   |
| Gain                            on disposal of discontinued operations              |   |                                                | 17,369 |   |   | - |   |   | - |   |
| Provision                            for income taxes                               |   |                                                | (3,991 | ) |   | (1,044 | ) |   | (1,256 | ) |
| Income                            from discontinued operations, net of income taxes |   | $                                                   | 13,378 |   | $ | 1,756 |   | $ | 2,110 |   |

*OM                  Video*

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

|                                                                              |   | **As                            of June 30,** |   |
|-----------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|
|                                                                              |   | **2004**                                      |   |
| Assets                            held for sale                                   |   |                                          |   |
| Accounts                            receivable                                    |   | $                                             | 1,012  |   |
| Due                            to parent                                          |   |                                          | (200   | ) |
| Inventory                                                                         |   |                                          | 226    |   |
| Accrued                            taxes                                          |   |                                          | 79     |   |
| Prepaid                            expenses                                       |   |                                          | 12     |   |
| Property                            and equipment, net                            |   |                                          | 50     |   |
| Total                            assets held for sale                             |   | $                                             | 1,179  |   |
|                                                                              |   |                                          |   |   |
| Liabilities                            associated with assets held for sale       |   |                                          |   |   |
| Accounts                            payable                                       |   | $                                             | 304    |   |
| Accrued                            compensation                                   |   |                                          | 59     |   |
| Billing                            in excess of cost                              |   |                                          | 375    |   |
| Total                            liabilities associated with assets held for sale |   | $                                             | 738    |   |

|                                                                                       |   | **Years                            Ended June 30,** |   |
|--------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|--------|
|                                                                                       |   | **2005**                                            |   | **2004** |   | **2003** |   |
|                                                                                       |   |                                                |   |   |   |   |   |
| Revenue                            - business services                                     |   | $                                                   | 3,805  |   | $ | 5,928 |   | $ | 6,111 |   |
| Cost                            of goods sold - business services                          |   |                                                | 3,038  |   |   | 4,052 |   |   | 4,055 |   |
| Gross                            profit                                                    |   |                                                | 767    |   |   | 1,876 |   |   | 2,056 |   |
| Marketing                            and selling expenses                                  |   |                                                | 289    |   |   | 390 |   |   | 412 |   |
| General                            and administrative expenses                             |   |                                                | 253    |   |   | 1,113 |   |   | 1,270 |   |
| Impairment                            losses                                               |   |                                                | -      |   |   | - |   |   | 8,426 |   |
| Income                            (loss) before income taxes                               |   |                                                | 225    |   |   | 373 |   |   | (8,052 | ) |
| Gain                            on disposal of discontinued operations                     |   |                                                | 295    |   |   | - |   |   | - |   |
| (Provision)                            benefit for income taxes                            |   |                                                | (119   | ) |   | (156 | ) |   | (30 | ) |
| Income                            (loss) from discontinued operations, net of income taxes |   | $                                                   | 401    |   | $ | 217 |   | $ | (8,082 | ) |

| **5.  ** | **Sale                            of Assets** |
|--------------------|-----------------------------------------------|

*Burk                  Technology, Inc.*

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

| **6.  ** | **Sale                            of Broadcast Telephone                            Interface** |
|--------------------|-------------------------------------------------------------------------------------------------|

----

| **7.  ** | **Inventories** |
|--------------------|-----------------|

|                                           |   | **As                            of June 30,** |   |
|------------------------------------------------|--------|-----------------------------------------------|--------|
|                                           |   | **2005**                                      |   | **2004** |   |
|                                           |   |                                          |   |   |   |
| Raw                            materials       |   | $                                             | 1,804  |   | $ | 1,674 |   |
| Finished                            goods      |   |                                          | 1,705  |   |   | 2,016 |   |
| Consigned                            inventory |   |                                          | 2,297  |   |   | 2,381 |   |
| Total                            inventory     |   | $                                             | 5,806  |   | $ | 6,071 |   |

| **8.  ** | **Property                            and Equipment** |
|--------------------|-------------------------------------------------------|

|                                                                 |   | **Estimated**                               |                                     | **As                            of June 30,** |   |
|----------------------------------------------------------------------|--------|---------------------------------------------|------------------------------------------|-----------------------------------------------|--------|
|                                                                 |   | **useful                            lives** |                                     | **2005**                                      |   | **2004** |   |
|                                                                 |   |                                        |                                     |                                          |   |   |   |
| Office                            furniture and equipment            |   |                                        | 3                            to 10 years |                                          | $      | 7,522 |   | $ | 7,252 |   |
| Leasehold                            improvements                    |   |                                        | 2                            to 5 years  |                                          |   | 924 |   |   | 758 |   |
| Manufacturing                            and test equipment          |   |                                        | 2                            to 10 years |                                          |   | 1,049 |   |   | 2,532 |   |
| Vehicles                                                             |   |                                        | 3                            to 5 years  |                                          |   | - |   |   | 9 |   |
|                                                                 |   |                                        |                                     |                                          |   | 9,495 |   |   | 10,551 |   |
| Accumulated                            depreciation and amortization |   |                                        |                                     |                                          |   | (6,690 | ) |   | (6,524 | ) |
| Property                            and equipment, net               |   |                                        |                                     |                                          | $      | 2,805 |   | $ | 4,027 |   |

| **9.  ** | **Goodwill                            and Other Intangible                            Assets** |
|--------------------|------------------------------------------------------------------------------------------------|

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

*Goodwill*

|                                                                        |   | **Products** |   | **Business                            Services (see Note 4)** |   | **Total** |   |
|-----------------------------------------------------------------------------|--------|--------------|--------|---------------------------------------------------------------|--------|-----------|--------|
|                                                                        |   |         |   |                                                          |   |      |   |
| Balances                            as of June 30, 2002                     |   | $            | 5,026  |                                                          | $      | 12,046    |   | $ | 17,072 |   |
|                                                                        |   |         |   |                                                          |   |      |   |   |   |   |
| E.mergent                            goodwill purchase price adjustment     |   |         | -      |                                                          |   | 20        |   |   | 20 |   |
| Acquisition                            of OM Video                          |   |         | -      |                                                          |   | 6,725     |   |   | 6,725 |   |
| Foreign                            currency translation related to OM Video |   |         |   |                                                          |   |      |   |   |   |   |
| goodwill                                                                    |   |         | -      |                                                          |   | 1,049     |   |   | 1,049 |   |
| Impairment                            of E.mergent and OM Video goodwill    |   |         |   |                                                          |   |      |   |   |   |   |
| (see                            Note 10)                                    |   |         | (5,026 | )                                                             |   | (19,840   | )      |   | (24,866 | ) |
| Balances                            as of June 30, 2003                     |   | $            | -      |                                                          | $      | -         |   | $ | - |   |

*Acquired                  Intangibles*

|                                              |   |                                        |                                    | **As                            of June 30,** |   |
|---------------------------------------------------|--------|---------------------------------------------|-----------------------------------------|-----------------------------------------------|--------|
|                                              |   |                                        |                                    | **2005**                                      |   | **2004** |   |
|                                              |   |                                        |                                    | **Gross**                                     |   | **Accumulated** |   | **Gross** |   | **Accumulated** |   |
|                                              |   | **Useful                            Lives** |                                    | **Value**                                     |   | **Amortization** |   | **Value** |   | **Amortization** |   |
| Patents                                           |   |                                        | 15/5                            years   |                                          | $      | 1,060 |   | $ | (738 | ) | $ | 1,060 |   | $ | (175 | ) |
| Non-compete                            agreements |   |                                        | 2                            to 3 years |                                          |   | - |   |   | - |   |   | 52 |   |   | (36 | ) |
| Total                                             |   |                                        |                                    |                                          | $      | 1,060 |   | $ | (738 | ) | $ | 1,112 |   | $ | (211 | ) |

|                                                            |   | **Years                            Ending**   |   |
|-----------------------------------------------------------------|--------|-----------------------------------------------|--------|
|                                                                 |   |  **June                            30,** |   |
| 2006                                                            |   | $                                             | 168    |   |
| 2007                                                            |   |                                          | 154    |   |
| Thereafter                                                      |   |                                          | -      |   |
| Total                            estimated amortization expense |   | $                                             | 322    |   |

----

| **10.  ** | **Impairments** |
|---------------------|-----------------|

|                                                                               |   | **Year                            Ended**    |   |
|------------------------------------------------------------------------------------|--------|----------------------------------------------|--------|
|                                                                               |   | **June                            30, 2003** |   |
| Goodwill:                                                                          |   |                                         |   |
|                               E.mergent - Products                       |   | $                                            | 5,026  |   |
|                               E.mergent - Business Services (see Note 4) |   |                                         | 12,066 |   |
|                               OM Video (see Note 4)                      |   |                                         | 7,774  |   |
|                                                                               |   |                                         | 24,866 |   |
|                                                                               |   |                                         |   |   |
| Intangible                            assets:                                      |   |                                         |   |   |
|                               E.mergent - Products                       |   |                                         | 18     |   |
|                               E.mergent - Business Services (see Note 4) |   |                                         | 195    |   |
|                               OM Video (see Note 4)                      |   |                                         | 387    |   |
|                                                                               |   |                                         | 600    |   |
|                                                                               |   |                                         |   |   |
| Property                            and equipment:                                 |   |                                         |   |   |
|                               E.mergent - Products                       |   |                                         | 58     |   |
|                               E.mergent - Business Services (see Note 4) |   |                                         | 212    |   |
|                               OM Video (see Note 4)                      |   |                                         | 265    |   |
|                                                                               |   |                                         | 535    |   |
| Total                                                                              |   | $                                            | 26,001 |   |

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

| **11.  ** | **Lines                            of Credit** |
|---------------------|------------------------------------------------|

| **12.  ** | **Leases** |
|---------------------|------------|

|                                                                       |   | **As                            of June 30,** |   |
|----------------------------------------------------------------------------|--------|-----------------------------------------------|--------|
|                                                                       |   | **2005**                                      |   | **2004** |   |
| Office                            furniture and equipment                  |   | $                                             | -      |   | $ | 28 |   |
| Accumulated                            amortization                        |   |                                          | -      |   |   | (15 | ) |
| Net                            property and equipment under capital leases |   | $                                             | -      |   | $ | 13 |   |

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

|                                                    |   | **Gross                            Operating Leases** |   | **Less                            Sublease** |   | **Net                            Operating Leases** |   |
|---------------------------------------------------------|--------|-------------------------------------------------------|--------|----------------------------------------------|--------|-----------------------------------------------------|--------|
| For                            years ending June 30:    |   |                                                  |   |                                         |   |                                                |   |
| 2006                                                    |   | $                                                     | 494    |                                         | $      | (110                                                | )      | $ | 384 |   |
| 2007                                                    |   |                                                  | 219    |                                         |   | -                                                   |   |   | 219 |   |
| 2008                                                    |   |                                                  | 21     |                                         |   | -                                                   |   |   | 21 |   |
| 2009                            and thereafter          |   |                                                  | 2      |                                         |   | -                                                   |   |   | 2 |   |
| Total                            minimum lease payments |   | $                                                     | 736    |                                         | $      | (110                                                | )      | $ | 626 |   |

| **13.  ** | **Note                            Payable** |
|---------------------|---------------------------------------------|

| **14.  ** | **Accrued                            Liabilities** |
|---------------------|----------------------------------------------------|

|                                                               |   | **As                            of June 30,** |   |
|--------------------------------------------------------------------|--------|-----------------------------------------------|--------|
|                                                               |   | **2005**                                      |   | **2004** |   |
| Accrued                            salaries and other compensation |   | $                                             | 977    |   | $ | 889 |   |
| Other                            accrued liabilities               |   |                                          | 1,049  |   |   | 803 |   |
| Class                            action settlement                 |   |                                          | 3,596  |   |   | 9,013 |   |
| Total                                                              |   | $                                             | 5,622  |   | $ | 10,705 |   |

| **15.  ** | **Commitments                            and Contingencies** |
|---------------------|--------------------------------------------------------------|

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

*Ascalade                  Communications, Ltd.*

*Legal                  Proceedings.*

*The                  SEC Action*

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

*The                  Whistleblower Action*
** **

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

*The                  Shareholders’ Class Action*

*The                  Shareholder Derivative Actions*

*Employment                  Separation Agreements*

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

*Indemnification                  of Officers and Directors*

*The                  Insurance Coverage Action. *

*Wells                  Submission.*

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

*The                  Pacific Technology & Telecommunications Collection Action*

| **16.  ** | **Shareholders’                            Equity** |
|---------------------|-----------------------------------------------------------|

*Private                  Placement*

*Stock                  Repurchase Program*

| **17.  ** | **Stock                            Options** |
|---------------------|----------------------------------------------|

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

| **Stock                            Options**            |   | **Number                            of Shares** |       | **Weighted                            Average Exercise Price** |   |
|---------------------------------------------------------|--------|-------------------------------------------------|------------|----------------------------------------------------------------|--------|
|                                                    |   |                                            |       |                                                           |   |
| Outstanding                            at June 30, 2002 |   |                                            | 1,518,956  |                                                           | $      | 8.71 |   |
| Granted                                                 |   |                                            | 835,500    |                                                           |   | 3.57 |   |
| Expired                            and canceled         |   |                                            | (350,200   | )                                                              |   | 11.57 |   |
| Exercised                                               |   |                                            | (31,500    | )                                                              |   | 2.72 |   |
| Outstanding                            at June 30, 2003 |   |                                            | 1,972,756  |                                                           |   | 6.12 |   |
|                                                    |   |                                            |       |                                                           |   |   |   |
| Granted                                                 |   |                                            | 1,118,250  |                                                           |   | 4.37 |   |
| Expired                            and canceled         |   |                                            | (1,657,819 | )                                                              |   | 4.72 |   |
| Exercised                                               |   |                                            | -          |                                                           |   | - |   |
| Outstanding                            at June 30, 2004 |   |                                            | 1,433,187  |                                                           |   | 6.37 |   |
|                                                    |   |                                            |       |                                                           |   |   |   |
| Granted                                                 |   |                                            | 450,500    |                                                           |   | 4.77 |   |
| Expired                            and canceled         |   |                                            | (390,575   | )                                                              |   | 5.17 |   |
| Exercised                                               |   |                                            | -          |                                                           |   | - |   |
| Outstanding                            at June 30, 2005 |   |                                            | 1,493,112  |                                                           | $      | 6.21 |   |

|                                            |   | Options                            Outstanding |      | Options                            Exercisable                         |   |
|-------------------------------------------------|--------|------------------------------------------------|-----------|------------------------------------------------------------------------|--------|
| Exercise                            Price Range |   | Options                            Outstanding |      | Weighted                            Average Contractual Remaining Life |   | Weighted                            Average Exercise Price |   | Options                            Exercisable |   | Weighted                            Average Exercise Price |   |
|                                            |   |                                           |      |                                                                   |   |   |   |   |   |   |   |
| $0.00                            to $2.04       |   |                                           | 30,750    |                                                                   |   | 0.5                            years |   | $ | 0.75 |   |   | 30,750 |   | $ | 0.75 |   |
| $2.05                            to $4.09       |   |                                           | 658,424   |                                                                   |   | 8.1                            years |   |   | 3.36 |   |   | 405,745 |   |   | 3.36 |   |
| $4.10                            to $6.13       |   |                                           | 250,000   |                                                                   |   | 9.1                            years |   |   | 5.23 |   |   | - |   |   | - |   |
| $6.13                            to $8.18       |   |                                           | 244,976   |                                                                   |   | 8.7                            years |   |   | 6.43 |   |   | 105,467 |   |   | 6.44 |   |
| $8.19                            to $10.22      |   |                                           | 13,581    |                                                                   |   | 4.4                            years |   |   | 9.67 |   |   | 11,144 |   |   | 9.67 |   |
| $10.23                            to $12.26     |   |                                           | 76,360    |                                                                   |   | 5.4                            years |   |   | 11.39 |   |   | 26,860 |   |   | 11.39 |   |
| $12.27                            to $14.31     |   |                                           | 126,946   |                                                                   |   | 5.0                            years |   |   | 13.30 |   |   | 78,714 |   |   | 13.58 |   |
| $14.32                            to $16.35     |   |                                           | 64,640    |                                                                   |   | 4.9                            years |   |   | 15.25 |   |   | 26,689 |   |   | 15.25 |   |
| $16.36                            to $18.40     |   |                                           | 26,935    |                                                                   |   | 5.0                            years |   |   | 17.15 |   |   | 5,005 |   |   | 17.15 |   |
| $18.41                            to $20.45     |   |                                           | 500       |                                                                   |   | 4.7                            years |   |   | 19.63 |   |   | 338 |   |   | 19.63 |   |
| Total                                           |   |                                           | 1,493,112 |                                                                   |   | 7.6                            years |   | $ | 6.21 |   |   | 690,712 |   | $ | 5.86 |   |

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

| **18.  ** | **Employee                            Stock Purchase Plan** |
|---------------------|-------------------------------------------------------------|

----

| **19.  ** | **Significant                            Customers** |
|---------------------|------------------------------------------------------|

| **Product                            Segment Revenues** |
|---------------------------------------------------------|
|                                                    | **2005** | **2004** | **2003** |
| Customer                            A                   | 28.0% | 27.4% | 17.5% |
| Customer                            B                   | 19.2% | 18.3% | 12.7% |
| Customer                            C                   | 16.0% | 18.6% | 11.3% |
| Total                                                   | 63.2% | 64.3% | 41.5% |

| **Gross                            Accounts Receivable** |
|----------------------------------------------------------|
|                                                     | **2005** | **2004** |
| Customer                            A                    | 29.4% | 23.3% |
| Customer                            B                    | 18.7% | 17.2% |
| Customer                            C                    | 13.9% | 22.8% |
| Total                                                    | 62.0% | 63.3% |

| **20.  ** | **Severance                            Charges** |
|---------------------|--------------------------------------------------|

----

| **21.  ** | **Retirement                            Savings and Profit Sharing Plan** |
|---------------------|---------------------------------------------------------------------------|

| **22.  ** | **Income                            Taxes** |
|---------------------|---------------------------------------------|

|     |   | **Years                            Ended June 30,** |   |
|----------|--------|-----------------------------------------------------|--------|
|     |   | **2005**                                            |   | **2004** |   | **2003** |   |
|     |   |                                                |   |   |   |   |   |
| U.S.     |   | $                                                   | (1,148 | ) | $ | (12,438 | ) | $ | (17,823 | ) |
| Non-U.S. |   |                                                | 52     |   |   | 183 |   |   | (371 | ) |
|     |   | $                                                   | (1,096 | ) | $ | (12,255 | ) | $ | (18,194 | ) |

|                                                                     |   | **Years                            Ended June 30,** |   |
|--------------------------------------------------------------------------|--------|-----------------------------------------------------|--------|
|                                                                     |   | **2005**                                            |   | **2004** |   | **2003** |   |
| Current:                                                                 |   |                                                |   |   |   |   |   |
| U.S.                            Federal                                  |   | $                                                   | 2,845  |   | $ | 3,698 |   | $ | 3,461 |   |
| U.S.                            State                                    |   |                                                | 423    |   |   | 163 |   |   | 131 |   |
| Non-U.S.                                                                 |   |                                                | (20    | ) |   | (46 | ) |   | (16 | ) |
| Total                            current                                 |   | $                                                   | 3,248  |   | $ | 3,815 |   | $ | 3,576 |   |
|                                                                     |   |                                                |   |   |   |   |   |   |   |   |
| Deferred:                                                                |   |                                                |   |   |   |   |   |   |   |   |
| U.S.                            Federal                                  |   |                                                | (2,236 | ) |   | 666 |   |   | 771 |   |
| U.S.                            State                                    |   |                                                | (337   | ) |   | 440 |   |   | 613 |   |
| Non-U.S.                                                                 |   |                                                | -      |   |   | - |   |   | - |   |
| Change                            in deferred before valuation allowance |   |                                                | (2,573 | ) |   | 1,106 |   |   | 1,384 |   |
| Decrease                            (increase) in valuation allowance    |   |                                                | 2,573  |   |   | (4,185 | ) |   | (3,608 | ) |
| Total                            deferred                                |   |                                                | -      |   |   | (3,079 | ) |   | (2,224 | ) |
|                                                                     |   |                                                |   |   |   |   |   |   |   |   |
| Benefit                            for income taxes                      |   | $                                                   | 3,248  |   | $ | 736 |   | $ | 1,352 |   |

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

|                                                                                   |   | **Years                            Ended June 30,** |   |
|----------------------------------------------------------------------------------------|--------|-----------------------------------------------------|--------|
|                                                                                   |   | **2005**                                            |   | **2004** |   | **2003** |   |
| U.S.                            federal statutory income tax rate at 34.0 percent      |   | $                                                   | 373    |   | $ | 4,167 |   | $ | 6,186 |   |
| State                            income tax (provision) benefit, net of federal income |   |                                                |   |   |   |   |   |   |   |   |
| tax                            effect                                                  |   |                                                | (3     | ) |   | 75 |   |   | 53 |   |
| Research                            and development credit                             |   |                                                | 188    |   |   | 108 |   |   | - |   |
| Foreign                            earnings or losses taxed at different rates         |   |                                                | (3     | ) |   | (10 | ) |   | (255 | ) |
| Impairment                            of E.mergent goodwill                            |   |                                                | -      |   |   | - |   |   | (1,709 | ) |
| Change                            in valuation allowance                               |   |                                                | 2,573  |   |   | (4,185 | ) |   | (3,608 | ) |
| Valuation                            allowance change attributable to state tax impact |   |                                                |   |   |   |   |   |   |   |   |
| and                            other                                                   |   |                                                | -      |   |   | 436 |   |   | 661 |   |
| Non-deductible                            items and other                              |   |                                                | 120    |   |   | 145 |   |   | 24 |   |
|                                                                                   |   |                                                |   |   |   |   |   |   |   |   |
| Benefit                            for income taxes                                    |   | $                                                   | 3,248  |   | $ | 736 |   | $ | 1,352 |   |

|                                                                         |   | **As                            of June 30,** |   |
|------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|
|                                                                         |   | **2005**                                      |   | **2004** |   |
| Deferred                            income tax assets:                       |   |                                          |   |   |   |
| Net                            operating loss carryforwards                  |   | $                                             | 786    |   | $ | 1,838 |   |
| Accrued                            liabilities                               |   |                                          | 1,649  |   |   | 3,865 |   |
| Allowance                            for sales returns and doubtful accounts |   |                                          | 18     |   |   | 9 |   |
| Inventory                            reserve                                 |   |                                          | 757    |   |   | 1,019 |   |
| Deferred                            revenue                                  |   |                                          | 1,086  |   |   | 1,455 |   |
| Installment                            sale of discontinued operations       |   |                                          | 172    |   |   | 178 |   |
| Accumulated                            research and development credits      |   |                                          | 333    |   |   | 382 |   |
| Alternative                            minimum tax credits                   |   |                                          | 355    |   |   | 355 |   |
| Basis                            difference in intangible assets             |   |                                          | 922    |   |   | 797 |   |
| Other                                                                        |   |                                          | 266    |   |   | 227 |   |
| Subtotal                                                                     |   |                                          | 6,344  |   |   | 10,125 |   |
| Valuation                            allowance                               |   |                                          | (5,909 | ) |   | (9,507 | ) |
| Deferred                            income tax assets                        |   |                                          | 435    |   |   | 618 |   |
|                                                                         |   |                                          |   |   |   |   |   |
| Deferred                            income tax liabilities:                  |   |                                          |   |   |   |   |   |
| Difference                            in property and equipment basis        |   |                                          | (435   | ) |   | (618 | ) |
| Other                                                                        |   |                                          | -      |   |   | - |   |
| Deferred                            income tax liabilities                   |   |                                          | (435   | ) |   | (618 | ) |
|                                                                         |   |                                          |   |   |   |   |   |
| Net                            deferred income tax assets                    |   | $                                             | -      |   | $ | - |   |

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

|                                                                 |   | **As                            of June 30,** |   |
|----------------------------------------------------------------------|--------|-----------------------------------------------|--------|
|                                                                 |   | **2005**                                      |   | **2004** |   |
|                                                                 |   |                                          |   |   |   |
| Current                            deferred income tax assets        |   | $                                             | 270    |   | $ | 401 |   |
| Long-term                            deferred income tax assets      |   |                                          | -      |   |   | - |   |
| Current                            deferred income tax liabilities   |   |                                          | -      |   |   | - |   |
| Long-term                            deferred income tax liabilities |   |                                          | (270   | ) |   | (401 | ) |
| Net                            deferred income tax assets            |   | $                                             | -      |   | $ | - |   |

*“Accounting                  for Income Taxes,”*

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

| **23.  ** | **Related-Party                            Transactions** |
|---------------------|-----------------------------------------------------------|

*The                  Insurance Coverage Action.*

| **24.  ** | **Segment                            and Geographic Information** |
|---------------------|-------------------------------------------------------------------|

|                                           |   | **Years                            Ended June 30,** |   |
|------------------------------------------------|--------|-----------------------------------------------------|--------|
|                                           |   | **2005**                                            |   | **2004** |   | **2003** |   |
|                                           |   |                                                |   |   |   |   |   |
| United                            States       |   | $                                                   | 23,464 |   | $ | 21,654 |   | $ | 19,683 |   |
| Canada                                         |   |                                                | 779    |   |   | 346 |   |   | 205 |   |
| All                            other countries |   |                                                | 7,402  |   |   | 5,966 |   |   | 8,678 |   |
| Total                                          |   | $                                                   | 31,645 |   | $ | 27,966 |   | $ | 28,566 |   |

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

|                                    |   | **Product** |   | **Business                            Services** |   | **Total** |   |
|-----------------------------------------|--------|-------------|--------|--------------------------------------------------|--------|-----------|--------|
| 2005:                                   |   |        |   |                                             |   |      |   |
| Revenue                                 |   | $           | 31,645 |                                             | $      | -         |   | $ | 31,645 |   |
| Gross                            profit |   |        | 16,694 |                                             |   | -         |   |   | 16,694 |   |
|                                    |   |        |   |                                             |   |      |   |   |   |   |
| 2004:                                   |   |        |   |                                             |   |      |   |   |   |   |
| Revenue                                 |   | $           | 27,836 |                                             | $      | 130       |   | $ | 27,966 |   |
| Gross                            profit |   |        | 11,457 |                                             |   | 130       |   |   | 11,587 |   |
|                                    |   |        |   |                                             |   |      |   |   |   |   |
| 2003:                                   |   |        |   |                                             |   |      |   |   |   |   |
| Revenue                                 |   | $           | 27,512 |                                             | $      | 1,054     |   | $ | 28,566 |   |
| Gross                            profit |   |        | 9,397  |                                             |   | 1,054     |   |   | 10,451 |   |

|                                                                |   | **Year                            Ended June 30, 2005** |   |
|---------------------------------------------------------------------|--------|---------------------------------------------------------|--------|
|                                                                |   | **Product**                                             |   | **Corporate** |   | **Total** |   |
|                                                                |   |                                                    |   |   |   |   |   |
| Gross                            profit                             |   | $                                                       | 16,694 |   | $ | - |   | $ | 16,694 |   |
| Marketing                            and selling expense            |   |                                                    | (9,070 | ) |   | - |   |   | (9,070 | ) |
| General                            and administrative expense       |   |                                                    | (343   | ) |   | (5,146 | ) |   | (5,489 | ) |
| Settlement                            in shareholders' class action |   |                                                    | -      |   |   | 2,046 |   |   | 2,046 |   |
| Research                            and product development expense |   |                                                    | (5,305 | ) |   | - |   |   | (5,305 | ) |
| Impairment                            charge (see Note 26)          |   |                                                    | (180   | ) |   | - |   |   | (180 | ) |
| Restructuring                            charge (see Note 26)       |   |                                                    | (110   | ) |   | - |   |   | (110 | ) |
| Interest                            income                          |   |                                                    | -      |   |   | 425 |   |   | 425 |   |
| Interest                            expense                         |   |                                                    | -      |   |   | (104 | ) |   | (104 | ) |
| Other                            income (expense), net              |   |                                                    | -      |   |   | (3 | ) |   | (3 | ) |
| Benefit                            for income taxes                 |   |                                                    | -      |   |   | 3,248 |   |   | 3,248 |   |
| Total                            income from continuing operations  |   | $                                                       | 1,686  |   | $ | 466 |   | $ | 2,152 |   |
|                                                                |   |                                                    |   |   |   |   |   |   |   |   |
| Depreciation                            and amortization expense    |   | $                                                       | 2,366  |   | $ | - |   | $ | 2,366 |   |
|                                                                |   |                                                    |   |   |   |   |   |   |   |   |
| Identifiable                            assets                      |   | $                                                       | 16,092 |   | $ | 21,929 |   | $ | 38,021 |   |

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

|                                                                |   | **Year                            Ended June 30, 2004** |   |
|---------------------------------------------------------------------|--------|---------------------------------------------------------|--------|
|                                                                |   | **Product**                                             |   | **Business                            Services** |   | **Corporate** |   | **Total** |   |
|                                                                |   |                                                    |   |   |   |   |   |   |   |
| Gross                            profit                             |   | $                                                       | 11,457 |   | $ | 130 |   | $ | - |   | $ | 11,587 |   |
| Marketing                            and selling expense            |   |                                                    | (8,497 | ) |   | - |   |   | - |   |   | (8,497 | ) |
| General                            and administrative expense       |   |                                                    | (406   | ) |   | - |   |   | (6,361 | ) |   | (6,767 | ) |
| Settlement                            in shareholders' class action |   |                                                    | -      |   |   | - |   |   | (4,080 | ) |   | (4,080 | ) |
| Research                            and product development expense |   |                                                    | (4,237 | ) |   | - |   |   | - |   |   | (4,237 | ) |
| Interest                            income                          |   |                                                    | -      |   |   | - |   |   | 52 |   |   | 52 |   |
| Interest                            expense                         |   |                                                    | -      |   |   | - |   |   | (183 | ) |   | (183 | ) |
| Other                            income (expense), net              |   |                                                    | -      |   |   | - |   |   | (130 | ) |   | (130 | ) |
| Benefit                            for income taxes                 |   |                                                    | -      |   |   | - |   |   | 736 |   |   | 736 |   |
| Total                            income from continuing operations  |   | $                                                       | (1,683 | ) | $ | 130 |   | $ | (9,966 | ) | $ | (11,519 | ) |
|                                                                |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                            and amortization expense    |   | $                                                       | 1,934  |   | $ | - |   | $ | - |   | $ | 1,934 |   |
|                                                                |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Identifiable                            assets                      |   | $                                                       | 17,732 |   | $ | - |   | $ | 9,951 |   | $ | 27,683 |   |

|                                                                |   | **Year                            Ended June 30, 2003** |   |
|---------------------------------------------------------------------|--------|---------------------------------------------------------|--------|
|                                                                |   | **Product**                                             |   | **Business                            Services** |   | **Corporate** |   | **Total** |   |
|                                                                |   |                                                    |   |   |   |   |   |   |   |
| Gross                            profit                             |   | $                                                       | 9,397  |   | $ | 1,054 |   | $ | - |   | $ | 10,451 |   |
| Marketing                            and selling expense            |   |                                                    | (7,070 | ) |   | - |   |   | - |   |   | (7,070 | ) |
| General                            and administrative expense       |   |                                                    | (365   | ) |   | - |   |   | (5,550 | ) |   | (5,915 | ) |
| Settlement                            in shareholders' class action |   |                                                    | -      |   |   | - |   |   | (7,325 | ) |   | (7,325 | ) |
| Research                            and product development expense |   |                                                    | (3,281 | ) |   | - |   |   | - |   |   | (3,281 | ) |
| Impairment                            losses                        |   |                                                    | (5,102 | ) |   | - |   |   | - |   |   | (5,102 | ) |
| Interest                            income                          |   |                                                    | -      |   |   | - |   |   | 85 |   |   | 85 |   |
| Interest                            expense                         |   |                                                    | -      |   |   | - |   |   | (91 | ) |   | (91 | ) |
| Other                            income (expense), net              |   |                                                    | -      |   |   | - |   |   | 54 |   |   | 54 |   |
| Benefit                            for income taxes                 |   |                                                    | -      |   |   | - |   |   | 1,352 |   |   | 1,352 |   |
| Total                            income from continuing operations  |   | $                                                       | (6,421 | ) | $ | 1,054 |   | $ | (11,475 | ) | $ | (16,842 | ) |
|                                                                |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                            and amortization expense    |   | $                                                       | 1,805  |   | $ | - |   | $ | - |   | $ | 1,805 |   |
|                                                                |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Identifiable                            assets                      |   | $                                                       | 14,255 |   | $ | - |   | $ | 14,417 |   | $ | 28,672 |   |

| **25.  ** | **Closing                            of Germany Office** |
|---------------------|----------------------------------------------------------|

----

| **26.  ** | **Manufacturing                            Transition** |
|---------------------|---------------------------------------------------------|

|                                             |   | **Severance** |   | **Manufacturing                            Facilities Lease** |   | **Total** |   |
|--------------------------------------------------|--------|---------------|--------|---------------------------------------------------------------|--------|-----------|--------|
|                                             |   |          |   |                                                          |   |      |   |
| Balance                            at 06/30/2004 |   | $             | -      |                                                          | $      | -         |   | $ | - |   |
| Restructuring                            charge  |   |          | 70     |                                                          |   | 40        |   |   | 110 |   |
| Utilized                                         |   |          | -      |                                                          |   | -         |   |   | - |   |
| Balance                            at 06/30/2005 |   | $             | 70     |                                                          | $      | 40        |   | $ | 110 |   |

| **27.  ** | **Subsequent                            Events** |
|---------------------|--------------------------------------------------|

*The                  Shareholders’ Class Action*

----

**CLEARONE                      COMMUNICATIONS, INC.**

**NOTES                      TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)**

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

*Third-Party                  Manufacturing Agreement.*

*Payoff                  of Burk Note Receivable*

*Sale                  of Conferencing Services.*

*Settlement                  Agreement and Release*

----