----

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

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

| Utah                                                                    |   | 87-0398877                                    |
|-------------------------------------------------------------------------|--------|-----------------------------------------------|
| (State      or other jurisdiction ofincorporation      or organization) |   | (I.R.S.      EmployerIdentification      No.) |

| Securities      registered under Section 12(b) of the Act:Title      of each class | Name      of each exchange on which registered  |
|------------------------------------------------------------------------------------|------------------------------------------------------|
| Common      Stock, $0.001 par value                                                | The      NASDAQ Capital Market                       |

----

----

----

| Larger      Accelerated Filer ¨ | Accelerated      Filer ¨                    |
|--------------------------------------|--------------------------------------------------|
| Non-Accelerated      Filer x         | Smaller      Reporting Company  ¨ |

----

|                                                   |                                                                                                                          | PAGE   |
|--------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------|--------|
| SPECIAL      NOTE REGARDING FORWARD-LOOKING STATEMENTS | 1                                                                                                                             |
|                                                   |                                                                                                                          |   |
| PART I.                                                |                                                                                                                          |   |
| ITEM 1.                                                | BUSINESS                                                                                                                      | 1      |
| ITEM 1A.                                               | RISK      FACTORS                                                                                                             | 12     |
| ITEM 1B.                                               | UNRESOLVED      STAFF COMMENTS                                                                                                | 17     |
| ITEM 2.                                                | PROPERTIES                                                                                                                    | 18     |
| ITEM 3.                                                | LEGAL      PROCEEDINGS                                                                                                        | 18     |
| ITEM 4.                                                | SUBMISSION      OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                      | 20     |
|                                                   |                                                                                                                          |   |
| PART II.                                               |                                                                                                                          |   |
| ITEM 5.                                                | MARKET      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER      PURCHASES OF EQUITY SECURITIES | 21     |
| ITEM 6.                                                | SELECTED      FINANCIAL DATA                                                                                                  | 23     |
| ITEM 7.                                                | MANAGEMENT’S      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF      OPERATIONS                         | 26     |
| ITEM 7A.                                               | QUANTITATIVE      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                               | 36     |
| ITEM 8.                                                | FINANCIAL      STATEMENTS AND SUPPLEMENTAL DATA                                                                               | 36     |
| ITEM 9.                                                | CHANGE      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL      DISCLOSURE                                 | 36     |
| ITEM 9A.                                               | CONTROLS      AND PROCEDURES                                                                                                  | 37     |
| ITEM 9B.                                               | OTHER      INFORMATION                                                                                                        | 37     |
|                                                   |                                                                                                                          |   |
| PART III.                                              |                                                                                                                          |   |
| ITEM 10.                                               | DIRECTORS      AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                                       | 38     |
| ITEM 11.                                               | EXECUTIVE      COMPENSATION                                                                                                   | 38     |
| ITEM 12.                                               | SECURITY      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED      STOCKHOLDER MATTERS                      | 38     |
| ITEM 13.                                               | CERTAIN      RELATIONSHIPS AND RELATED TRANSACTIONS                                                                           | 38     |
| ITEM 14.                                               | PRINCIPAL      ACCOUNTANT FEES AND SERVICES                                                                                   | 38     |
|                                                   |                                                                                                                          |   |
| PART IV.                                               |                                                                                                                          |   |
| ITEM 15.                                               | EXHIBITS      AND FINANCIAL STATEMENT SCHEDULES                                                                               | 39     |
|                                                   |                                                                                                                          |   |
| SIGNATURES                                             |                                                                                                                          | 41     |

----

PART I

ITEM 1.  BUSINESS

----

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

----

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

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

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

| ·   | Personal      conferencing devices that enable hands-free audio communications in new      ways that have never before beenpossible. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------|

----

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

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

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

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

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

| ·   | Trend      toward deploying greater numbers ofteleworkers |
|--------------------|-----------------------------------------------------------|

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

| ·   | Transition      to the Internet Protocol, or IP, network from the traditional public      switched telephone network, or PSTN and the deployment of VoIP      applications |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

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

----

| ·   | InfoComm      – the AV industry’s largest trade show. In June 2008 we had a strong      presence at InfoComm, where we highlighted a significant number of new      products. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

----

| ·   | channel      partnerships; |
|--------------------|----------------------------|

| ·   | our      ability to effectively communicate the differentiated value-added features      of our products through sales and marketing  efforts; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | product      design, quality, and functionality ofproducts; |
|--------------------|-------------------------------------------------------------|

| ·   | establishment      of brand name recognition; |
|--------------------|-----------------------------------------------|

| ·   | pricing; |
|--------------------|----------|

| ·   | access      to and penetration of distributionchannels; |
|--------------------|---------------------------------------------------------|

| ·   | quality      of customer support; and |
|--------------------|---------------------------------------|

| ·   | a      significant customer base. |
|--------------------|-----------------------------------|

----

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

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

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

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

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

----

----

----

ITEM 1A.  RISK FACTORS

----

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

| ·   | meeting      market expectations forperformance; |
|--------------------|--------------------------------------------------|

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

| ·   | obtaining      prototype products at anticipated costlevels; |
|--------------------|--------------------------------------------------------------|

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

| ·   | achieving      necessary manufacturingefficiencies. |
|--------------------|-----------------------------------------------------|

----

----

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

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

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

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

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

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

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

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

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

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

----

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

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

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

| ·   | 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 ourcompetitors; |
|--------------------|---------------------------------------------------------|

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

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

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

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

| ·   | quarterly      variations in our results ofoperations; |
|--------------------|--------------------------------------------------------|

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

| ·   | domestic      and international economicconditions; |
|--------------------|-----------------------------------------------------|

| ·   | unexpected      changes in regulatory requirements andtariffs; |
|--------------------|----------------------------------------------------------------|

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

| ·   | the      markets in which our stock istraded. |
|--------------------|-----------------------------------------------|

----

ITEM 1B.  UNRESOLVED STAFF COMMENTS

----

ITEM 2.  PROPERTIES

ITEM 3.  LEGAL PROCEEDINGS

----

----

ITEM 4.    SUBMISSION OF MATERS TO A VOTE OF SECURITYHOLDERS

----

PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY,RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES AND EQUITYSECURITIES

|                |   | 2008   |   |   | 2007   |   |
|---------------------|--------|--------|--------|--------|--------|--------|
|                |   | High   |   |   | Low    |   |   | High |   |   | Low |   |
|                |   |   |   |   |   |   |   |   |   |   |   |   |
| First      Quarter  |   | $      | 7.25   |   |   | $      | 4.40 |   |   | $ | 3.75 |   |   | $ | 3.00 |   |
| Second      Quarter |   |   | 7.42   |   |   |   | 5.00 |   |   |   | 4.34 |   |   |   | 3.20 |   |
| Third      Quarter  |   |   | 5.81   |   |   |   | 4.50 |   |   |   | 6.69 |   |   |   | 4.05 |   |
| Fourth      Quarter |   |   | 5.07   |   |   |   | 3.66 |   |   |   | 6.58 |   |   |   | 4.57 |   |

----

|                                         | 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 |
|----------------------------------------------|---------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------|
| Equity      compensation                     |                                                                                              |                                                                             |                                                                                              |
| plans      approved by                       |                                                                                              |                                                                             |                                                                                              |
| security      holders                        | 1,199,046                                                                                         | $5.85                                                                            | 996,000                                                                                           |
| Equity      compensation                     |                                                                                              |                                                                             |                                                                                              |
|    plans      not approved by |                                                                                              |                                                                             |                                                                                              |
|    security      holders      | -                                                                                                 | -                                                                                | -                                                                                                 |
| Total                                        | 1,199,046                                                                                         | $5.85                                                                            | 996,000                                                                                           |

| Period                                    |   | Total      Number of Shares Purchased |    |   | Average      Price Paid per Share |   |   | Total      Number of Shares Purchased as Part of Publicly Announced Plans or      Programs |   |   | Maximum      Number (or Approximate Dollar Value) of Shares that may be Purchased Under      the Plans or Programs (1) |   |
|-------------------------------------------|--------|---------------------------------------|---------|--------|-----------------------------------|--------|--------|--------------------------------------------------------------------------------------------|--------|--------|------------------------------------------------------------------------------------------------------------------------|--------|
| April      1, 2008 – April 30, 2008 |   |                                  | 42,915  |   |                              | $      | 4.80   |                                                                                       |   |   | 42,915                                                                                                                 |   |   | $ | 1,056,105 |   |
| May      1, 2008 – May 31, 2008     |   |                                  | 129,395 |   |                              | $      | 4.42   |                                                                                       |   |   | 129,395                                                                                                                |   |   | $ | 483,823 |   |
| June      1, 2008 – June 30, 2008   |   |                                  | 50,000  |   |                              | $      | 4.15   |                                                                                       |   |   | 50,000                                                                                                                 |   |   | $ | 276,573 |   |
| Total                                     |   |                                  | 222,310 |   |                              |   |   |                                                                                       |   |   | 222,310                                                                                                                |   |   |   |   |   |

| (1)   | On      August 30, 2007, we announced that our Board of Directors had approved a      stock repurchase program to purchase up $3,625,000 of our common stock      during the following 12 month period in open market and private block      transactions. On May 1, 2008 we announced that our Board of Directors      authorized the purchase of up to an additional $1 million of our common      stock. All repurchased shares will be immediately retired. The stock      repurchase program expired on August 30,2008. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

ITEM 6.    SELECTED FINANCIAL DATA

|                                                                |   | Years Ended June 30,                                  |
|---------------------------------------------------------------------|--------|-------------------------------------------------------|
|                                                                |   | 2008                                                  |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |   | 2004 |   |
|                                                                |   | (in      thousands of dollars, except per share data) |   |
| Operating      results:                                             |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenue                                                             |   | $                                                     | 39,752 |   |   | $ | 39,861 |   |   | $ | 35,362 |   |   | $ | 29,087 |   |   | $ | 25,736 |   |
| Costs      and expenses:                                            |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Cost      of goods sold                                 |   |                                                  | 16,461 |   |   |   | 17,723 |   |   |   | 17,375 |   |   |   | 12,720 |   |   |   | 14,760 |   |
|   Sales      & Marketing                              |   |                                                  | 6,673 |   |   |   | 7,791 |   |   |   | 7,866 |   |   |   | 9,070 |   |   |   | 8,497 |   |
|   Research      and product development                   |   |                                                  | 7,070 |   |   |   | 7,535 |   |   |   | 8,299 |   |   |   | 5,305 |   |   |   | 4,237 |   |
|   General      and administrative                         |   |                                                  | 7,669 |   |   |   | 3,091 |   |   |   | 5,108 |   |   |   | 5,489 |   |   |   | 6,767 |   |
|   Settlement      in shareholders' class action           |   |                                                  | - |   |   |   | - |   |   |   | (1,205 | ) |   |   | (2,046 | ) |   |   | 4,080 |   |
|   Impairment      losses                                  |   |                                                  | - |   |   |   | - |   |   |   | - |   |   |   | 180 |   |   |   | - |   |
|   Restructuring      charge                               |   |                                                  | - |   |   |   | - |   |   |   | - |   |   |   | 110 |   |   |   | - |   |
| Operating      income (loss)                                        |   |                                                  | 1,879 |   |   |   | 3,721 |   |   |   | (2,081 | ) |   |   | (1,741 | ) |   |   | (12,605 | ) |
|   Other      income (expense), net                        |   |                                                  | 1,005 |   |   |   | 1,523 |   |   |   | 1,016 |   |   |   | 318 |   |   |   | (261 | ) |
| Income      (loss) from continuing operations before income taxes   |   |                                                  | 2,884 |   |   |   | 5,244 |   |   |   | (1,065 | ) |   |   | (1,423 | ) |   |   | (12,866 | ) |
| (Provision)      benefit for income taxes                           |   |                                                  | 2,756 |   |   |   | (457 | ) |   |   | 1,005 |   |   |   | 3,370 |   |   |   | 964 |   |
| Income      (loss) from continuing operations                       |   |                                                  | 5,640 |   |   |   | 4,787 |   |   |   | (60 | ) |   |   | 1,947 |   |   |   | (11,902 | ) |
| Income      (loss) from discontinued operations                     |   |                                                  | 16 |   |   |   | 422 |   |   |   | 2,155 |   |   |   | 14,128 |   |   |   | 2,015 |   |
| Net      income (loss)                                              |   | $                                                     | 5,656 |   |   | $ | 5,209 |   |   | $ | 2,095 |   |   | $ | 16,075 |   |   | $ | (9,887 | ) |
|                                                                |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings      (loss) per common share:                              |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Basic      earnings (loss) from continuing operations   |   | $                                                     | 0.53 |   |   | $ | 0.42 |   |   | $ | (0.01 | ) |   | $ | 0.17 |   |   | $ | (1.08 | ) |
|   Diluted      earnings (loss) from continuing operations |   | $                                                     | 0.52 |   |   | $ | 0.41 |   |   | $ | (0.01 | ) |   | $ | 0.16 |   |   | $ | (1.08 | ) |
|   Basic      earnings from discontinued operations        |   | $                                                     | 0.00 |   |   | $ | 0.04 |   |   | $ | 0.18 |   |   | $ | 1.26 |   |   | $ | 0.18 |   |
|   Diluted      earnings from discontinued operations      |   | $                                                     | 0.00 |   |   | $ | 0.04 |   |   | $ | 0.18 |   |   | $ | 1.15 |   |   | $ | 0.18 |   |
|   Basic      earnings (loss)                              |   | $                                                     | 0.53 |   |   | $ | 0.45 |   |   | $ | 0.18 |   |   | $ | 1.44 |   |   | $ | (0.89 | ) |
|   Diluted      earnings (loss)                            |   | $                                                     | 0.52 |   |   | $ | 0.45 |   |   | $ | 0.17 |   |   | $ | 1.30 |   |   | $ | (0.89 | ) |
| Weighted      average shares outstanding:                           |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Basic                                                   |   |                                                  | 10,694,401 |   |   |   | 11,497,773 |   |   |   | 11,957,756 |   |   |   | 11,177,406 |   |   |   | 11,057,896 |   |
|   Diluted                                                 |   |                                                  | 10,798,281 |   |   |   | 11,575,721 |   |   |   | 12,206,618 |   |   |   | 12,332,106 |   |   |   | 11,057,896 |   |
|                                                                |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                |   | As of June 30,                                        |
|                                                                |   | 2008                                                  |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |   | 2004 |   |
|                                                                |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Financial      data:                                                |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current      assets                                                 |   | $                                                     | 28,885 |   |   | $ | 38,317 |   |   | $ | 39,743 |   |   | $ | 34,879 |   |   | $ | 27,202 |   |
| Long-term      Securities                                           |   |                                                  | 11,168 | (1) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Total      assets                                                   |   |                                                  | 44,300 |   |   |   | 41,063 |   |   |   | 41,405 |   |   |   | 38,021 |   |   |   | 32,156 |   |
| Long-term      debt, net of current maturities                      |   |                                                  | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 240 |   |
| Capital      leases, net of current maturities                      |   |                                                  | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 2 |   |
| Total      shareholders' equity                                     |   |                                                  | 32,140 |   |   |   | 30,438 |   |   |   | 30,412 |   |   |   | 24,911 |   |   |   | 9,006 |   |

----

|                                                              |   | Fiscal 2008 Quarters Ended                            |   |
|-------------------------------------------------------------------|--------|-------------------------------------------------------|--------|
|                                                              |   | Sept. 30                                              |   |   | Dec. 31 |   |   | Mar. 31 |   |   | June 30 |   |   | Total |   |
|                                                              |   | (in thousands of dollars, except per share      data) |   |
| Revenue                                                           |   | $                                                     | 9,442  |   |   | $ | 10,787 |   |   | $ | 9,163 |   |   | $ | 10,360 |   |   | $ | 39,752 |   |
| Cost      of goods sold                                           |   |                                                  | (4,299 | ) |   |   | (4,414 | ) |   |   | (3,439 | ) |   |   | (4,309 | ) |   |   | (16,461 | ) |
| Sales      & Marketing                                        |   |                                                  | (1,601 | ) |   |   | (1,578 | ) |   |   | (1,640 | ) |   |   | (1,855 | ) |   |   | (6,674 | ) |
| Research      and product development                             |   |                                                  | (1,756 | ) |   |   | (1,678 | ) |   |   | (1,701 | ) |   |   | (1,935 | ) |   |   | (7,070 | ) |
| General      and administrative                                   |   |                                                  | (2,895 | ) |   |   | (1,198 | ) |   |   | (1,183 | ) |   |   | (2,393 | ) |   |   | (7,669 | ) |
| Other      income (expense), net                                  |   |                                                  | 341    |   |   |   | 311 |   |   |   | 196 |   |   |   | 157 |   |   |   | 1,005 |   |
| Income      (loss) from continuing operations before income taxes |   |                                                  | (768   | ) |   |   | 2,230 |   |   |   | 1,396 |   |   |   | 26 |   |   |   | 2,884 |   |
| Benefit      (provision) for income taxes                         |   |                                                  | (171   | ) |   |   | (449 | ) |   |   | (335 | ) |   |   | 3,711 |   |   |   | 2,756 |   |
| Income      (loss) from continuing operations                     |   |                                                  | (939   | ) |   |   | 1,781 |   |   |   | 1,061 |   |   |   | 3,737 |   |   |   | 5,640 |   |
| Income      from discontinued operations                          |   |                                                  | 15     |   |   |   | 1 |   |   |   | - |   |   |   | - |   |   |   | 16 |   |
| Net      income (loss)                                            |   | $                                                     | (924   | ) |   | $ | 1,782 |   |   | $ | 1,061 |   |   | $ | 3,737 |   |   | $ | 5,656 |   |
|                                                              |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic      income (loss) earnings per common share:               |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Continuing      operations                            |   | $                                                     | (0.09  | ) |   | $ | 0.16 |   |   | $ | 0.10 |   |   | $ | 0.36 |   |   | $ | 0.53 |   |
|   Discontinued      operations                          |   |                                                  | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 0.00 |   |
|   Basic      income (loss) earnings per common share    |   | $                                                     | (0.08  | ) |   | $ | 0.16 |   |   | $ | 0.10 |   |   | $ | 0.36 |   |   | $ | 0.53 |   |
| Diluted      income (loss) earnings per common share:             |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Continuing      operations                            |   | $                                                     | (0.08  | ) |   | $ | 0.16 |   |   | $ | 0.10 |   |   | $ | 0.36 |   |   | $ | 0.52 |   |
|   Discontinued      operations                          |   |                                                  | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 0.00 |   |
|   Diluted      income (loss) earnings per common share  |   | $                                                     | (0.08  | ) |   | $ | 0.16 |   |   | $ | 0.10 |   |   | $ | 0.36 |   |   | $ | 0.52 |   |

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

----

|                                                              |   | Fiscal 2006 Quarters Ended                            |   |
|-------------------------------------------------------------------|--------|-------------------------------------------------------|--------|
|                                                              |   | Sept. 30                                              |   |   | Dec. 31 |   |   | Mar. 31 |   |   | June 30 |   |   | Total |   |
|                                                              |   | (in thousands of dollars, except per share      data) |   |
| Revenue                                                           |   | $                                                     | 8,777  |   |   | $ | 9,102 |   |   | $ | 8,277 |   |   | $ | 9,206 |   |   | $ | 35,362 |   |
| Cost      of goods sold                                           |   |                                                  | (4,013 | ) |   |   | (4,470 | ) |   |   | (4,253 | ) |   |   | (4,639 | ) |   |   | (17,375 | ) |
| Sales      & Marketing                                        |   |                                                  | (1,812 | ) |   |   | (1,810 | ) |   |   | (1,920 | ) |   |   | (2,324 | ) |   |   | (7,866 | ) |
| Research      and product development                             |   |                                                  | (1,799 | ) |   |   | (1,778 | ) |   |   | (2,201 | ) |   |   | (2,521 | ) |   |   | (8,299 | ) |
| General      and administrative                                   |   |                                                  | (1,771 | ) |   |   | (1,457 | ) |   |   | (1,060 | ) |   |   | (820 | ) |   |   | (5,108 | ) |
| Settlement      in shareholders' class action                     |   |                                                  | 1,205  |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,205 |   |
| Other      income (expense), net                                  |   |                                                  | 166    |   |   |   | 191 |   |   |   | 237 |   |   |   | 422 |   |   |   | 1,016 |   |
| Income      (loss) from continuing operations before income taxes |   |                                                  | 753    |   |   |   | (222 | ) |   |   | (920 | ) |   |   | (676 | ) |   |   | (1,065 | ) |
| Benefit      (provision) for income taxes                         |   |                                                  | 222    |   |   |   | 146 |   |   |   | 782 |   |   |   | (145 | ) |   |   | 1,005 |   |
| Income      (loss) from continuing operations                     |   |                                                  | 975    |   |   |   | (76 | ) |   |   | (138 | ) |   |   | (821 | ) |   |   | (60 | ) |
| Income      from discontinued operations                          |   |                                                  | 1,012  |   |   |   | 157 |   |   |   | 677 |   |   |   | 309 |   |   |   | 2,155 |   |
| Net      income (loss)                                            |   | $                                                     | 1,987  |   |   | $ | 81 |   |   | $ | 540 |   |   | $ | (512 | ) |   | $ | 2,096 |   |
|                                                              |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic      income (loss) earnings per common share:               |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Continuing      operations                            |   | $                                                     | 0.09   |   |   | $ | (0.01 | ) |   | $ | (0.01 | ) |   | $ | (0.07 | ) |   | $ | 0.00 |   |
|   Discontinued      operations                          |   |                                                  | 0.08   |   |   |   | 0.01 |   |   |   | 0.06 |   |   |   | 0.03 |   |   |   | 0.18 |   |
|   Basic      income (loss) earnings per common share    |   | $                                                     | 0.17   |   |   | $ | 0.01 |   |   | $ | 0.04 |   |   | $ | (0.04 | ) |   | $ | 0.18 |   |
| Diluted      income (loss) earnings per common share:             |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Continuing      operations                            |   | $                                                     | 0.09   |   |   | $ | (0.01 | ) |   | $ | (0.01 | ) |   | $ | (0.07 | ) |   | $ | 0.00 |   |
|   Discontinued      operations                          |   |                                                  | 0.08   |   |   |   | 0.01 |   |   |   | 0.06 |   |   |   | 0.03 |   |   |   | 0.18 |   |
|   Diluted      income (loss) earnings per common share  |   | $                                                     | 0.17   |   |   | $ | 0.01 |   |   | $ | 0.04 |   |   | $ | (0.04 | ) |   | $ | 0.17 |   |

----

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

----

----

----

|                                                                   |   |                           |   |   |         |   |   | Year      Ended June 30, |   |   |         |   |   |   |   |
|------------------------------------------------------------------------|--------|--------------------------------|--------|--------|--------------|--------|--------|--------------------------|--------|--------|--------------|--------|--------|--------|--------|
|                                                                   |   | 2008                           |   |   | 2007         |   |   | 2006                     |   |
|                                                                   |   | (in      thousands of dollars) |   |
|                                                                   |   |                           |   |   | % of Revenue |   |   |                     |   |   | % of Revenue |   |   |   |   |   | % of Revenue |   |
|                                                                   |   |                           |   |   |         |   |   |                     |   |   |         |   |   |   |   |   |   |   |
| Revenue                                                                |   | $                              | 39,752 |   |         |   | 100.0% |                     |   | $      | 39,861       |   |   |   | 100.0% |   |   | $ | 35,362 |   |   |   | 100.0% |   |
| Cost      of goods sold                                                |   |                           | 16,461 |   |         |   | 41.4%  |                     |   |   | 17,723       |   |   |   | 44.5%  |   |   |   | 17,375 |   |   |   | 49.1% |   |
| Gross      profit                                                      |   |                           | 23,291 |   |         |   | 58.6%  |                     |   |   | 22,138       |   |   |   | 55.5%  |   |   |   | 17,987 |   |   |   | 50.9% |   |
| Operating      expenses (benefit):                                     |   |                           |   |   |         |   |   |                     |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Sales      & Marketing                                 |   |                           | 6,673  |   |         |   | 16.8%  |                     |   |   | 7,791        |   |   |   | 19.5%  |   |   |   | 7,866 |   |   |   | 22.2% |   |
|   Research      and product development                      |   |                           | 7,070  |   |         |   | 17.8%  |                     |   |   | 7,535        |   |   |   | 18.9%  |   |   |   | 8,299 |   |   |   | 23.5% |   |
|   General      and administrative                            |   |                           | 7,669  |   |         |   | 19.3%  |                     |   |   | 3,091        |   |   |   | 7.8%   |   |   |   | 5,108 |   |   |   | 14.4% |   |
|   Settlement      in shareholders' class action              |   |                           | -      |   |         |   | 0.0%   |                     |   |   | -            |   |   |   | 0.0%   |   |   |   | (1,205 | ) |   |   | -3.4% |   |
| Total      operating expenses                                          |   |                           | 21,412 |   |         |   | 53.9%  |                     |   |   | 18,417       |   |   |   | 46.2%  |   |   |   | 20,068 |   |   |   | 56.8% |   |
| Operating      income (loss)                                           |   |                           | 1,879  |   |         |   | 4.7%   |                     |   |   | 3,721        |   |   |   | 9.3%   |   |   |   | (2,081 | ) |   |   | -5.9% |   |
| Other      income, net                                                 |   |                           | 1,005  |   |         |   | 2.5%   |                     |   |   | 1,523        |   |   |   | 3.8%   |   |   |   | 1,016 |   |   |   | 2.9% |   |
| Income      (loss) from continuing operations before income taxes |   |                           | 2,884  |   |         |   | 7.3%   |                     |   |   | 5,244        |   |   |   | 13.2%  |   |   |   | (1,065 | ) |   |   | -3.0% |   |
| Benefit      from (Provision) for income taxes                         |   |                           | 2,756  |   |         |   | 6.9%   |                     |   |   | (457         | )      |   |   | -1.1%  |   |   |   | 1,005 |   |   |   | 2.8% |   |
| Income      (loss) from continuing operations                          |   |                           | 5,640  |   |         |   | 14.2%  |                     |   |   | 4,787        |   |   |   | 12.0%  |   |   |   | (60 | ) |   |   | -0.2% |   |
| Income      from discontinued operations, net of tax                   |   |                           | 16     |   |         |   | 0.0%   |                     |   |   | 422          |   |   |   | 1.1%   |   |   |   | 2,156 |   |   |   | 6.1% |   |
| Net      income                                                        |   | $                              | 5,656  |   |         |   | 14.2%  |                     |   | $      | 5,209        |   |   |   | 13.1%  |   |   | $ | 2,096 |   |   |   | 5.9% |   |

----

|                    |   | Year      Ended June 30,       |   |
|-------------------------|--------|--------------------------------|--------|
|                    |   | 2008                           |   |   | 2007 |   |   | 2006 |   |
|                    |   | (in      thousands of dollars) |   |
|                    |   |                           |   |   | %      of Revenue |   |   |   |   |   | %      of Revenue |   |   |   |   |   | %      of Revenue |   |
| Cost      of goods sold |   | $                              | 16,461 |   |   |   | 41.40% |   |   | $ | 17,723 |   |   |   | 44.50% |   |   | $ | 17,375 |   |   |   | 49.10% |   |
| Gross      profit       |   | $                              | 23,291 |   |   |   | 58.60% |   |   | $ | 22,138 |   |   |   | 55.50% |   |   | $ | 17,987 |   |   |   | 50.90% |   |

----

----

|                                                                |   | Years Ended June 30, |   |
|---------------------------------------------------------------------|--------|----------------------|--------|
|                                                                |   | 2008                 |   |   | 2007 |   |   | 2006 |   |
|                                                                |   |                 |   |   |   |   |   |   |   |
| Total      income from discontinued operations, net of income taxes |   |                 |   |   |   |   |   |   |   |
| Conferencing      services business                                 |   | $                    | -      |   |   | $ | - |   |   | $ | 729 |   |
| OM      Video                                                       |   |                 | 16     |   |   |   | 381 |   |   |   | 248 |   |
| Burk      Technology                                                |   |                 | -      |   |   |   | - |   |   |   | 953 |   |
| Ken-A-Vision                                                        |   |                 | -      |   |   |   | 41 |   |   |   | 226 |   |
| Total      income from discontinued operations, net of income taxes |   | $                    | 16     |   |   | $ | 422 |   |   | $ | 2,156 |   |

----

----

----

| Contractual      Obligations |   | Total  |   |   | Less      than 1 Year |   |   | 1-3      Years |   |   | 4-5      Years |   |   |  After      5 Years |   |
|------------------------------|--------|--------|--------|--------|-----------------------|--------|--------|----------------|--------|--------|----------------|--------|--------|--------------------------|--------|
|                         |   |   |   |   |                  |   |   |           |   |   |           |   |   |                     |   |
| Operating      Leases        |   | $      | 4,408  |   |                  | $      | 701    |           |   | $      | 1,396          |   |   | $                        | 1,345  |   |   | $ | 965 |   |
|                         |   |   |   |   |                  |   |   |           |   |   |           |   |   |                     |   |   |   |   |   |   |
| Total      Contractual       |   |   |   |   |                  |   |   |           |   |   |           |   |   |                     |   |   |   |   |   |   |
| Cash      Obligations        |   | $      | 4,408  |   |                  | $      | 701    |           |   | $      | 1,396          |   |   | $                        | 1,345  |   |   | $ | 965 |   |

----

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTALDATA

ITEM 9.  CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ONACCOUNTING AND FINANCIAL DISCLOSURE

----

ITEM 9A.  CONTROLS AND PROCEDURES

ITEM 9B.  OTHER INFORMATION

----

PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS ANDCORPORATE GOVERNANCE

ITEM 11.    EXECUTIVE COMPENSATION

ITEM12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM13.    CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTORINDEPENDENCE

ITEM14.    PRINCIPALACCOUNTANT FEES AND SERVICES

----

PARTIV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENTSCHEDULES

| Exhibit         |                                                                                                                                                                                                                             |                        |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------|
| No.             | Title of Document                                                                                                                                                                                                                | Location                    |
|   3.1 | Articles      of Incorporation and amendments thereto                                                                                                                                                                            | This      filing            |
|   3.2 | Bylaws                                                                                                                                                                                                                           | Incorp.      by reference1  |
| 10.1            | Employment      Separation Agreement between ClearOne Communications,      Inc. and Frances Flood, dated December      5, 2003.*                                                                                                 | Incorp.      by reference3  |
| 10.2            | Employment      Separation Agreement between ClearOne Communications,      Inc. and Susie Strohm, dated December      5, 2003.*                                                                                                  | Incorp.      by reference3  |
| 10.3            | 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 reference3  |
| 10.4            | 1997      Employee Stock Purchase Plan                                                                                                                                                                                           | Incorp.      by reference7  |
| 10.5            | 1998      Stock Option Plan                                                                                                                                                                                                      | Incorp.      by reference7  |
| 10.6            | 2007      Equity Incentive Plan                                                                                                                                                                                                  | Incorp.      by reference10 |

----

| 10.7  | Manufacturing      Agreement between ClearOne Communications, Inc. and Inovar, Inc. dated      August 1, 2005                   | Incorp.      by reference4 |
|-------|---------------------------------------------------------------------------------------------------------------------------------|----------------------------|
| 10.8  | Office      Lease between Edgewater Corporate Park, LLC and ClearOne Communications,      Inc. dated June 5, 2006               | Incorp.      by reference6 |
| 10.9  | Consulting      Agreement between Edward D. Bagley and ClearOne Communications, Inc. dated      July 6, 2007                    | Incorp.      by reference8 |
| 10.10 | Severance      Agreement between ClearOne Communications, Inc. and Edward D. Bagley dated      July 6, 2007*                    | Incorp.      by reference8 |
| 10.11 | Compromise      Agreement between ClearOne Communications UK Limited and Martin Offwood      dated August 13, 2007*             | Incorp.      by reference9 |
| 10.12 | Warehouse      Lease Agreement between Woodenshoe Development and Clearone      Communications, Inc. dated October 5, 2007      | Incorp.      by reference9 |
| 14.1  | Code      of Ethics, approved by the Board of Directors on August 23,      2006                                                 | Incorp.      by reference6 |
| 21.1  | Subsidiaries      of the registrant                                                                                             | This      filing           |
| 23.1  | Consent      of Jones Simkins P.C., Company’s independent auditors for the year ending      June 30, 2008                 | This      filing           |
| 23.2  | Consent      of Hansen Barnett & Maxwell, P.C., Company’s independent auditors for      the year ending June 30, 2006 | This      filing           |
| 31.1  | Section      302 Certification of Chief Executive Officer                                                                       | This      filing           |
| 31.2  | Section      302 Certification of Interim Chief Financial Officer                                                               | This      filing           |
| 32.1  | Section      1350 Certification of Chief Executive Officer                                                                      | This      filing           |
| 32.2  | Section      1350 Certification of Interim Chief Financial Officer                                                              | This      filing           |

| 1  | Incorporated      by reference to the Registrant’s registration statement on Form S-3/A      filed with the Commission on November 1,  2002. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3 | Incorporated      by reference to the Registrant’s Annual Report on Form 10-K for the fiscal      year ended June 30, 2003. |
|---|-----------------------------------------------------------------------------------------------------------------------------------|

| 4 | Incorporated      by reference to the Registrant’s Annual Report on Form 10-K for the fiscal      year ended June 30, 2004. |
|---|-----------------------------------------------------------------------------------------------------------------------------------|

| 6 | Incorporated      by reference to the Registrant’s Annual Report on Form 10-K for the fiscal      year ended June 30, 2006. |
|---|-----------------------------------------------------------------------------------------------------------------------------------|

| 7 | Incorporated      by reference to the Registrant’s registration statement on form S-8 filed      with the Commission on October 6,2006. |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------|

| 8 | Incorporated      by reference to the Registrant’s Annual Report on Form 10-K for the fiscal      year ended June 30, 2007. |
|---|-----------------------------------------------------------------------------------------------------------------------------------|

| 9 | Incorporated      by reference to the Registrant’s Quarterly Report on Form 10-Q for the      quarter ended September 30, 2007. |
|---|---------------------------------------------------------------------------------------------------------------------------------------|

| 10   | Incorporated      by reference to the Registrant’s registration statement on Form S-8 filed      with the Commission on January 22,2008. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------|

----

SIGNATURES

|                    | CLEARONE      COMMUNICATIONS, INC. |
|-------------------------|------------------------------------|
|                    |                               |   |
|                    |                               |   |
| September      10, 2008 | By:                                | /s/ Zeynep Hakimoglu |
|                    |                               | Zeynep      Hakimoglu |
|                    |                               | President,      Chief Executive Officer, andChairman |

| Signature               | Title                                                 | Date                    |
|-------------------------|-------------------------------------------------------|-------------------------|
|                    |                                                  |                    |
| /s/ Zeynep Hakimoglu    | President,      Chief Executive Officer, and Chairman | September      10, 2008 |
| Zeynep      Hakimoglu   | (Principal      Executive Officer)                    |                    |
|                    |                                                  |                    |
| /s/ Greg A. LeClaire    | Chief      Financial Officer                          | September      10, 2008 |
| Greg      A. LeClaire   | (Principal      Financial and Accounting Officer)     |                    |
|                    |                                                  |                    |
| /s/ Brad R. Baldwin     | Director                                              | September      10, 2008 |
| Brad      R. Baldwin    |                                                  |                    |
|                    |                                                  |                    |
| /s/ Larry R. Hendricks  | Director                                              | September      10, 2008 |
| Larry      R. Hendricks |                                                  |                    |
|                    |                                                  |                    |
| /s/ Scott M. Huntsman   | Director                                              | September      10, 2008 |
| Scott      M. Huntsman  |                                                  |                    |

----

----

|                                                                                                                          | Page |
|-------------------------------------------------------------------------------------------------------------------------------|------|
| Report      of Independent Registered Public Accounting Firm – Jones Simkins,      P.C.                                 | F-2  |
| Report      of Independent Registered Public Accounting Firm – Hansen Barnett &      Maxwell, P.C.                  | F-3  |
| Consolidated      Balance Sheets as of June 30, 2008 and 2007                                                                 | F-4  |
| Consolidated      Statements of Operations and Comprehensive Income for fiscal years ended      June 30, 2008, 2007, and 2006 | F-5  |
| Consolidated      Statements of Shareholders' Equity for fiscal years ended June 30, 2008,      2007, and 2006                | F-7  |
| Consolidated      Statements of Cash Flows for fiscal years ended June 30, 2008, 2007, and      2006                          | F-8  |
| Notes      to Consolidated Financial Statements                                                                               | F-10 |

----

Jones Simkins, P.C.

----

Hansen, Barnett & Maxwell, P.C.

----

CONSOLIDATED BALANCE SHEETS

|                                                                                         |   | June      30, |    |
|----------------------------------------------------------------------------------------------|--------|---------------|---------|
|                                                                                         |   | 2008          |    |   | 2007 |   |
| ASSETS                                                                                       |   |          |    |   |   |   |
| Current      assets:                                                                         |   |          |    |   |   |   |
| Cash      and cash equivalents                                                               |   | $             | 3,327   |   |   | $ | 2,782 |   |
| Marketable      securities                                                                   |   |          | 5,922   |   |   |   | 19,871 |   |
| Accounts      receivable, net of allowance for doubtful accounts                             |   |          |    |   |   |   |   |   |
|      of      $87 and $54, respectively                              |   |          | 7,238   |   |   |   | 8,025 |   |
| Deposit,      bond for preliminary injunction                                                |   |          | 908     |   |   |   | - |   |
| Note      receivable                                                                         |   |          | 43      |   |   |   | 163 |   |
| Inventories,      net                                                                        |   |          | 7,799   |   |   |   | 7,263 |   |
| Deferred      income taxes                                                                   |   |          | 2,828   |   |   |   | - |   |
| Prepaid      expenses and other assets                                                       |   |          | 820     |   |   |   | 213 |   |
| Total      current assets                                                                    |   |          | 28,885  |   |   |   | 38,317 |   |
|                                                                                         |   |          |    |   |   |   |   |   |
| Long-term      marketable securities                                                         |   |          | 11,168  |   |   |   | - |   |
| Property      and equipment, net                                                             |   |          | 2,554   |   |   |   | 2,694 |   |
| Intangible      assets, net                                                                  |   |          | 47      |   |   |   | - |   |
| Note      receiveable - long-term                                                            |   |          | -       |   |   |   | 43 |   |
| Long-term      deferred tax asset                                                            |   |          | 1,639   |   |   |   | - |   |
| Other      assets                                                                            |   |          | 7       |   |   |   | 9 |   |
| Total      assets                                                                            |   | $             | 44,300  |   |   | $ | 41,063 |   |
|                                                                                         |   |          |    |   |   |   |   |   |
| LIABILITIES      AND SHAREHOLDERS' EQUITY                                                    |   |          |    |   |   |   |   |   |
| Current      liabilities:                                                                    |   |          |    |   |   |   |   |   |
| Accounts      payable                                                                        |   | $             | 2,187   |   |   | $ | 1,745 |   |
| Accrued      income taxes                                                                    |   |          | 72      |   |   |   | 660 |   |
| Accrued      liabilities                                                                     |   |          | 3,600   |   |   |   | 1,874 |   |
| Deferred      product revenue                                                                |   |          | 4,547   |   |   |   | 4,872 |   |
| Total      current liabilities                                                               |   |          | 10,406  |   |   |   | 9,151 |   |
|                                                                                         |   |          |    |   |   |   |   |   |
| Deferred      rent                                                                           |   |          | 700     |   |   |   | 855 |   |
| Other      long-term liabilities                                                             |   |          | 1,054   |   |   |   | 619 |   |
| Total      liabilities                                                                       |   |          | 12,160  |   |   |   | 10,625 |   |
|                                                                                         |   |          |    |   |   |   |   |   |
| Shareholders'      equity:                                                                   |   |          |    |   |   |   |   |   |
| Common      stock, par value $0.001, 50,000,000 shares authorized,                           |   |          |    |   |   |   |   |   |
|    10,228,902      and 10,861,920 shares issued and outstanding, respectively |   |          | 10      |   |   |   | 11 |   |
| Additional      paid-in capital                                                              |   |          | 44,618  |   |   |   | 47,582 |   |
| Accumulated      other comprehensive loss                                                    |   |          | (694    | ) |   |   | - |   |
| Accumulated      deficit                                                                     |   |          | (11,794 | ) |   |   | (17,155 | ) |
| Total      shareholders' equity                                                              |   |          | 32,140  |   |   |   | 30,438 |   |
| Total      liabilities and shareholders' equity                                              |   | $             | 44,300  |   |   | $ | 41,063 |   |
|                                                                                         |   |          |    |   |   |   |   |   |
| See      accompanying notes to consolidated financial statements                             |   |

----

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVEINCOME

|                                                                  |   | Years      Ended June 30, |   |
|-----------------------------------------------------------------------|--------|---------------------------|--------|
|                                                                  |   | 2008                      |   |   | 2007 |   |   | 2006 |   |
|                                                                  |   |                      |   |   |   |   |   |   |   |
| Revenue                                                               |   | $                         | 39,752 |   |   | $ | 39,861 |   |   | $ | 35,362 |   |
| Cost      of goods sold                                               |   |                      | 16,461 |   |   |   | 17,723 |   |   |   | 17,375 |   |
| Gross      profit                                                     |   |                      | 23,291 |   |   |   | 22,138 |   |   |   | 17,987 |   |
|                                                                  |   |                      |   |   |   |   |   |   |   |   |   |   |
| Operating      expenses:                                              |   |                      |   |   |   |   |   |   |   |   |   |   |
| Sales      & marketing                                            |   |                      | 6,673  |   |   |   | 7,791 |   |   |   | 7,866 |   |
| Research      and product development                                 |   |                      | 7,070  |   |   |   | 7,535 |   |   |   | 8,299 |   |
| General      and administrative                                       |   |                      | 7,669  |   |   |   | 3,091 |   |   |   | 5,108 |   |
| Settlement      in shareholders' class action                         |   |                      | -      |   |   |   | - |   |   |   | (1,205 | ) |
| Total      operating expenses                                         |   |                      | 21,412 |   |   |   | 18,417 |   |   |   | 20,068 |   |
|                                                                  |   |                      |   |   |   |   |   |   |   |   |   |   |
| Operating      income (loss)                                          |   |                      | 1,879  |   |   |   | 3,721 |   |   |   | (2,081 | ) |
|                                                                  |   |                      |   |   |   |   |   |   |   |   |   |   |
| Other      income (expense), net:                                     |   |                      |   |   |   |   |   |   |   |   |   |   |
| Interest      income                                                  |   |                      | 1,039  |   |   |   | 1,468 |   |   |   | 813 |   |
| Interest      expense                                                 |   |                      | (5     | ) |   |   | (4 | ) |   |   | - |   |
| Other,      net                                                       |   |                      | (29    | ) |   |   | 59 |   |   |   | 203 |   |
| Total      other income (expense), net                                |   |                      | 1,005  |   |   |   | 1,523 |   |   |   | 1,016 |   |
|                                                                  |   |                      |   |   |   |   |   |   |   |   |   |   |
| Income      (loss) from continuing operations before income taxes     |   |                      | 2,884  |   |   |   | 5,244 |   |   |   | (1,065 | ) |
| (Provision)      benefit for income taxes                             |   |                      | 2,756  |   |   |   | (457 | ) |   |   | 1,005 |   |
| Income      (loss) from continuing operations                         |   |                      | 5,640  |   |   |   | 4,787 |   |   |   | (60 | ) |
|                                                                  |   |                      |   |   |   |   |   |   |   |   |   |   |
| Discontinued      operations:                                         |   |                      |   |   |   |   |   |   |   |   |   |   |
| Income      from discontinued operations                              |   |                      | -      |   |   |   | 75 |   |   |   | 361 |   |
| Gain      on disposal of discontinued operations                      |   |                      | 25     |   |   |   | 598 |   |   |   | 2,726 |   |
| Income      tax provision                                             |   |                      | (9     | ) |   |   | (251 | ) |   |   | (931 | ) |
| Income      from discontinued operations                              |   |                      | 16     |   |   |   | 422 |   |   |   | 2,156 |   |
|                                                                  |   |                      |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                       |   | $                         | 5,656  |   |   | $ | 5,209 |   |   | $ | 2,096 |   |
|                                                                  |   |                      |   |   |   |   |   |   |   |   |   |   |
| Comprehensive      income:                                            |   |                      |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                       |   | $                         | 5,656  |   |   | $ | 5,209 |   |   | $ | 2,096 |   |
| Unrealized      (loss) on marketable securities, net of taxes of $413 |   | $                         | (694   | ) |   | $ | - |   |   | $ | - |   |
|                                                                  |   |                      |   |   |   |   |   |   |   |   |   |   |
| Comprehensive      income                                             |   | $                         | 4,962  |   |   | $ | 5,209 |   |   | $ | 2,096 |   |
|                                                                  |   |                      |   |   |   |   |   |   |   |   |   |   |
| See      accompanying notes to consolidated financial statements      |   |

----

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME(CONTINUED)

|                                                                    |   | Years      Ended June 30, |       |
|-------------------------------------------------------------------------|--------|---------------------------|------------|
|                                                                    |   | 2008                      |       |   | 2007 |   |   | 2006 |   |
|                                                                    |   |                      |       |   |   |   |   |   |   |
| Basic      earnings (loss) per common share from continuingoperations   |   | $                         | 0.53       |   |   | $ | 0.42 |   |   | $ | (0.01 | ) |
| Diluted      earnings (loss) per common share from continuingoperations |   | $                         | 0.52       |   |   | $ | 0.41 |   |   | $ | - |   |
|                                                                    |   |                      |       |   |   |   |   |   |   |   |   |   |
| Basic      earnings per common share from discontinued operations       |   | $                         | -          |   |   | $ | 0.04 |   |   | $ | 0.18 |   |
| Diluted      earnings per common share from discontinued operations     |   | $                         | -          |   |   | $ | 0.04 |   |   | $ | 0.18 |   |
|                                                                    |   |                      |       |   |   |   |   |   |   |   |   |   |
| Basic      earnings per common share                                    |   | $                         | 0.53       |   |   | $ | 0.45 |   |   | $ | 0.18 |   |
| Diluted      earnings per common share                                  |   | $                         | 0.52       |   |   | $ | 0.45 |   |   | $ | 0.17 |   |
|                                                                    |   |                      |       |   |   |   |   |   |   |   |   |   |
| Basic      weighted average shares outstanding                          |   |                      | 10,694,401 |   |   |   | 11,497,773 |   |   |   | 11,957,756 |   |
| Diluted      weighted average shares outstanding                        |   |                      | 10,798,281 |   |   |   | 11,575,721 |   |   |   | 12,206,618 |   |
|                                                                    |   |                      |       |   |   |   |   |   |   |   |   |   |
| See      accompanying notes to consolidated financial statements        |   |

----

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

|                                                                                                 |   |         |       |   |    |   |   |       |   |   |          |   |   | Accumulated |   |   |          |   |   |   |   |
|------------------------------------------------------------------------------------------------------|--------|--------------|------------|--------|---------|--------|--------|------------|--------|--------|---------------|--------|--------|-------------|--------|--------|---------------|--------|--------|--------|--------|
|                                                                                                 |   |         |       |   |    |   |   | Additional |   |   |          |   |   | Other       |   |   |          |   |   | Total  |   |
|                                                                                                 |   | Common Stock |       |   | Paid-In |   |   | Deferred   |   |   | Comprehensive |   |   | Accumulated |   |   | Shareholders' |   |
|                                                                                                 |   | Shares       |       |   | Amount  |   |   | Capital    |   |   | Compensation  |   |   | Income      |   |   | Deficit       |   |   | Equity |   |
|                                                                                                 |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |   |   |
| Balances      at June 30, 2005                                                                       |   |         | 11,264,233 |   |    |   | 11     |       |   |   | 49,393        |   |   |        | (33    | )      |          |   | -      |   |   |   | (24,460 | ) |   |   | 24,911 |   |
|                                                                                                 |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |   |   |   |   |   |   |   |   |   |
|   Issuance      of Common Shares                                                           |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |   |   |   |   |   |   |   |   |   |
|     related      to shareholder                                                  |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |   |   |   |   |   |   |   |   |   |
|     settlement      agreement                                                    |   |         | 920,494    |   |    |   | 1      |       |   |   | 2,263         |   |   |        | -      |   |          |   | -      |   |   |   | - |   |   |   | 2,264 |   |
|   Compensation      expense resulting                                                      |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |   |   |   |   |   |   |   |   |   |
|     from      the modification of stock                                          |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |   |   |   |   |   |   |   |   |   |
|     options                                                                      |   |         | -          |   |    |   | -      |       |   |   | 16            |   |   |        | -      |   |          |   | -      |   |   |   | - |   |   |   | 16 |   |
|   Compensation      cost associated                                                        |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |   |   |   |   |   |   |   |   |   |
|     with      SFAS No. 123R                                                      |   |         | -          |   |    |   | -      |       |   |   | 1,092         |   |   |        | -      |   |          |   | -      |   |   |   | - |   |   |   | 1,092 |   |
|   SFAS      No. 123R transition                                                            |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |   |   |   |   |   |   |   |   |   |
|     expense                                                                      |   |         | -          |   |    |   | -      |       |   |   | -             |   |   |        | 33     |   |          |   | -      |   |   |   | - |   |   |   | 33 |   |
|   Net      income                                                                          |   |         | -          |   |    |   | -      |       |   |   | -             |   |   |        | -      |   |          |   | -      |   |   |   | 2,096 |   |   |   | 2,096 |   |
| Balances      at June 30, 2006                                                                       |   |         | 12,184,727 |   |    |   | 12     |       |   |   | 52,764        |   |   |        | -      |   |          |   | -      |   |   |   | (22,364 | ) |   |   | 30,412 |   |
|                                                                                                 |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |   |   |   |   |   |   |   |   |   |
|   Tender      offer                                                                        |   |         | (1,073,552 | )      |    |   | (1     | )          |   |   | (4,602        | )      |   |        | -      |   |          |   | -      |   |   |   | - |   |   |   | (4,603 | ) |
|   Stock      buy back program                                                              |   |         | (265,360   | )      |    |   | -      |       |   |   | (1,450        | )      |   |        | -      |   |          |   | -      |   |   |   | - |   |   |   | (1,450 | ) |
|   Exercise      of stock options                                                           |   |         | 15,940     |   |    |   | -      |       |   |   | 54            |   |   |        | -      |   |          |   | -      |   |   |   | - |   |   |   | 54 |   |
|   Tax      benefit stock option exercise                                                   |   |         | -          |   |    |   | -      |       |   |   | 9             |   |   |        | -      |   |          |   | -      |   |   |   | - |   |   |   | 9 |   |
|   Compensation      cost associated                                                        |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |   |   |   |   |   |   |   |   |   |
|     with      SFAS No. 123R                                                      |   |         | -          |   |    |   | -      |       |   |   | 802           |   |   |        | -      |   |          |   | -      |   |   |   | - |   |   |   | 802 |   |
|    Employee      stock purchase program                                               |   |         | 165        |   |    |   | -      |       |   |   | 4             |   |   |        | -      |   |          |   | -      |   |   |   | - |   |   |   | 4 |   |
|   Net      income                                                                          |   |         | -          |   |    |   | -      |       |   |   | -             |   |   |        | -      |   |          |   | -      |   |   |   | 5,209 |   |   |   | 5,209 |   |
| Balances      at June 30, 2007                                                                       |   |         | 10,861,920 |   |    | $      | 11     |       |   | $      | 47,582        |   |   | $           | -      |   |          | $      | -      |   |   | $ | (17,155 | ) |   | $ | 30,438 |   |
|                                                                                                 |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                 |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |   |   |   |   |   |   |   |   |   |
|   Stock      buy back program                                                              |   |         | (834,646   | )      |    |   | (1     | )          |   |   | (4,354        | )      |   |        | -      |   |          |   | -      |   |   |   | - |   |   |   | (4,355 | ) |
|   Exercise      of stock options                                                           |   |         | 228,368    |   |    |   | -      |       |   |   | 792           |   |   |        | -      |   |          |   | -      |   |   |   | - |   |   |   | 792 |   |
|   Shares      received/retired upon                                                        |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |   |   |   |   |   |   |   |   |   |
|     exercise      of stock options                                               |   |         | (28,066    | )      |    |   | -      |       |   |   | (186          | )      |   |        | -      |   |          |   | -      |   |   |   | - |   |   |   | (186 | ) |
|   Tax      benefit stock option exercise                                                   |   |         | -          |   |    |   | -      |       |   |   | 70            |   |   |        | -      |   |          |   | -      |   |   |   | - |   |   |   | 70 |   |
|   Compensation      cost associated                                                        |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |   |   |   |   |   |   |   |   |   |
|     with      SFAS No. 123R                                                      |   |         | -          |   |    |   | -      |       |   |   | 707           |   |   |        | -      |   |          |   | -      |   |   |   | - |   |   |   | 707 |   |
|    Employee      stock purchase program                                               |   |         | 1,326      |   |    |   | -      |       |   |   | 7             |   |   |        | -      |   |          |   | -      |   |   |   | - |   |   |   | 7 |   |
|   Adoption      of FIN 48                                                                  |   |         | -          |   |    |   | -      |       |   |   | -             |   |   |        | -      |   |          |   | -      |   |   |   | (295 | ) |   |   | (295 | ) |
|        Unrealized (loss) on marketable     securities,      net of tax |   |         | -          |   |    |   | -      |       |   |   | -             |   |   |        | -      |   |          |   | (694   | )      |   |   | - |   |   |   | (694 | ) |
|   Net      income                                                                          |   |         | -          |   |    |   | -      |       |   |   | -             |   |   |        | -      |   |          |   | -      |   |   |   | 5,656 |   |   |   | 5,656 |   |
| Balances      at June 30, 2008                                                                       |   |         | 10,228,902 |   |    | $      | 10     |       |   | $      | 44,618        |   |   | $           | -      |   |          | $      | (694   | )      |   | $ | (11,794 | ) |   | $ | 32,140 |   |
|                                                                                                 |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |   |   |   |   |   |   |   |   |   |
| See      accompanying notes to consolidated financial statements                                     |   |

----

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                       |   | Years      Ended June 30, |    |
|----------------------------------------------------------------------------|--------|---------------------------|---------|
|                                                                       |   | 2008                      |    |   | 2007 |   |   | 2006 |   |
| Cash      flows from operating activities:                                 |   |                      |    |   |   |   |   |   |   |
| Net      income (loss) from continuing operations                          |   | $                         | 5,640   |   |   | $ | 4,787 |   |   | $ | (60 | ) |
| Adjustments      to reconcile net income (loss) from continuing operations |   |                      |    |   |   |   |   |   |   |   |   |   |
| to      net cash provided by operations:                                   |   |                      |    |   |   |   |   |   |   |   |   |   |
| Impairment      on marketable securities                                   |   |                      | 155     |   |   |   | - |   |   |   | - |   |
| Depreciation      and amortization expense                                 |   |                      | 767     |   |   |   | 870 |   |   |   | 1,389 |   |
| Stock-based      compensation                                              |   |                      | 714     |   |   |   | 806 |   |   |   | 1,140 |   |
| Write-off      of inventory                                                |   |                      | 136     |   |   |   | 660 |   |   |   | 681 |   |
| (Gain)      loss on disposal of assets                                     |   |                      | 6       |   |   |   | (58 | ) |   |   | (237 | ) |
| Provision      for doubtful accounts                                       |   |                      | 33      |   |   |   | 5 |   |   |   | 3 |   |
| Changes      in operating assets and liabilities:                          |   |                      |    |   |   |   |   |   |   |   |   |   |
| Accounts      receivable                                                   |   |                      | 322     |   |   |   | (261 | ) |   |   | (928 | ) |
| Deferred      taxes                                                        |   |                      | (4,467  | ) |   |   | - |   |   |   | - |   |
| Deposit      - bond for preliminary injunction                             |   |                      | (908    | ) |   |   | - |   |   |   | - |   |
| Notes      receivable                                                      |   |                      | 163     |   |   |   | (206 | ) |   |   | - |   |
| Inventories                                                                |   |                      | (672    | ) |   |   | (1,309 | ) |   |   | (2,236 | ) |
| Prepaids      and other assets                                             |   |                      | (590    | ) |   |   | 40 |   |   |   | 45 |   |
| Accounts      payable                                                      |   |                      | 875     |   |   |   | (811 | ) |   |   | 434 |   |
| Accrued      liabilities                                                   |   |                      | 1,726   |   |   |   | (673 | ) |   |   | (960 | ) |
| Other      long term liabilities                                           |   |                      | -       |   |   |   | 619 |   |   |   | - |   |
| Accrued      income taxes                                                  |   |                      | (50     | ) |   |   | 3,267 |   |   |   | 1,345 |   |
| Deferred      product revenue                                              |   |                      | (325    | ) |   |   | (999 | ) |   |   | 816 |   |
| Net      cash provided by continuing operating activities                  |   |                      | 3,525   |   |   |   | 6,737 |   |   |   | 1,432 |   |
| Net      cash provided by discontinued operating activities                |   |                      | -       |   |   |   | 47 |   |   |   | 730 |   |
| Net      cash provided by operating activities                             |   |                      | 3,525   |   |   |   | 6,784 |   |   |   | 2,162 |   |
|                                                                       |   |                      |    |   |   |   |   |   |   |   |   |   |
| Cash      flows from investing activities:                                 |   |                      |    |   |   |   |   |   |   |   |   |   |
| Purchase      of property and equipment                                    |   |                      | (786    | ) |   |   | (909 | ) |   |   | (224 | ) |
| Purchase      of intangible assets                                         |   |                      | (49     | ) |   |   | - |   |   |   | - |   |
| Proceeds      from the sale of property and equipment                      |   |                      | -       |   |   |   | 35 |   |   |   | 230 |   |
| Purchase      of marketable securities                                     |   |                      | (15,378 | ) |   |   | (23,369 | ) |   |   | (14,800 | ) |
| Sale      of marketable securities                                         |   |                      | 16,897  |   |   |   | 24,050 |   |   |   | 10,050 |   |
| Net      cash provided by (used in) continuing investing activities        |   |                      | 684     |   |   |   | (193 | ) |   |   | (4,744 | ) |
| Net      cash provided by discontinued investing activities                |   |                      | 16      |   |   |   | 941 |   |   |   | 1,930 |   |
| Net      cash provided by (used in) investing activities                   |   |                      | 700     |   |   |   | 748 |   |   |   | (2,814 | ) |
|                                                                       |   |                      |    |   |   |   |   |   |   |   |   |   |
| Cash      flows from financing activities:                                 |   |                      |    |   |   |   |   |   |   |   |   |   |
| Proceeds      from the issuance of common stock - options                  |   |                      | 605     |   |   |   | 54 |   |   |   | - |   |
| Common      stock purchased and retired                                    |   |                      | (4,355  | ) |   |   | (6,053 | ) |   |   | - |   |
| Tax      benefit from stock options                                        |   |                      | 70      |   |   |   | 9 |   |   |   | - |   |
| Net      cash used in financing activities                                 |   |                      | (3,680  | ) |   |   | (5,990 | ) |   |   | - |   |
|                                                                       |   |                      |    |   |   |   |   |   |   |   |   |   |
| Net      increase (decrease) in cash and cash equivalents                  |   |                      | 545     |   |   |   | 1,542 |   |   |   | (652 | ) |
| Cash      and cash equivalents at the beginning of the year                |   |                      | 2,782   |   |   |   | 1,240 |   |   |   | 1,892 |   |
| Cash      and cash equivalents at the end of the year                      |   | $                         | 3,327   |   |   | $ | 2,782 |   |   | $ | 1,240 |   |
|                                                                       |   |                      |    |   |   |   |   |   |   |   |   |   |
| See      accompanying notes to consolidated financial statements           |   |

----

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

|                                                                   |   | Years      Ended June 30, |   |
|------------------------------------------------------------------------|--------|---------------------------|--------|
|                                                                   |   | 2008                      |   |   | 2007 |   |   | 2006 |   |
|                                                                   |   |                      |   |   |   |   |   |   |   |
| Supplemental      disclosure of cash flow information:                 |   |                      |   |   |   |   |   |   |   |
| Cash      paid for interest                                            |   | $                         | 5      |   |   | $ | 4 |   |   | $ | - |   |
| Cash      paid (received) for income taxes                             |   |                      | 1,701  |   |   |   | (3,202 | ) |   |   | (1,419 | ) |
|                                                                   |   |                      |   |   |   |   |   |   |   |   |   |   |
| Supplemental      disclosure of non-cash financing activities:         |   |                      |   |   |   |   |   |   |   |   |   |   |
|     Adoption      of FIN48                         |   | $                         | 295    |   |   | $ | - |   |   | $ | - |   |
| Exchanged      accounts receivable from a vendor with accounts payable |   |                      |   |   |   |   |   |   |   |   |   |   |
| to      the same vendor                                                |   |                      | 432    |   |   |   | 15 |   |   |   | - |   |
| Lease      incentive for leasehold improvements                        |   |                      | -      |   |   |   | 1,088 |   |   |   | - |   |
| Sales      of property and equipment for accounts payable              |   |                      | -      |   |   |   | 25 |   |   |   | - |   |
| Value      of common shares issued in shareholder settlement           |   |                      | -      |   |   |   | - |   |   |   | 2,264 |   |
|                                                                   |   |                      |   |   |   |   |   |   |   |   |   |   |
| See      accompanying notes to consolidated financial statements       |   |

----

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

| 1.   | Organization      – Nature of Operations |
|----------------|------------------------------------------------|

| 2.   | Summary      of Significant Accounting Policies |
|----------------|-------------------------------------------------|

----

----

| Description                   |   | Balance      at Beginning of Period |   |   | Charged      to Costs and Expenses |   |   | Deductions |   |   | Balance      at End of Period |   |
|-------------------------------|--------|-------------------------------------|--------|--------|------------------------------------|--------|--------|------------|--------|--------|-------------------------------|--------|
|                          |   |                                |   |   |                               |   |   |       |   |   |                          |   |
| Year      ended June 30, 2007 |   | $                                   | 49     |   |                               | $      | 12     |       |   | $      | (7                            | )      |   | $ | 54 |   |
|                          |   |                                |   |   |                               |   |   |       |   |   |                          |   |   |   |   |   |
| Year      ended June 30, 2008 |   | $                                   | 54     |   |                               | $      | 33     |       |   | $      | -                             |   |   | $ | 87 |   |

----

|               |   | Deferred Revenue |   |   | Deferred Cost of Goods Sold |   |   | Deferred Gross Profit |   |
|--------------------|--------|------------------|--------|--------|-----------------------------|--------|--------|-----------------------|--------|
|               |   |             |   |   |                        |   |   |                  |   |
| June      30, 2008 |   | $                | 4,547  |   |                        | $      | 1,719  |                  |   | $ | 2,828 |   |
| June      30, 2007 |   |             | 4,872  |   |                        |   | 2,115  |                  |   |   | 2,757 |   |
| June      30, 2006 |   |             | 5,871  |   |                        |   | 2,817  |                  |   |   | 3,054 |   |

----

|                                  |   | Years Ended June 30, |   |
|---------------------------------------|--------|----------------------|--------|
|                                  |   | 2008                 |   |   | 2007 |   |
|                                  |   |                 |   |   |   |   |
| Balance      at the beginning of year |   | $                    | 125    |   |   | $ | 169 |   |
| Accruals/additions                    |   |                 | 329    |   |   |   | 241 |   |
| Usage                                 |   |                 | (243   | ) |   |   | (285 | ) |
| Balance      at end of year           |   | $                    | 211    |   |   | $ | 125 |   |

----

|                                                               |   | Years Ended June 30, |       |
|--------------------------------------------------------------------|--------|----------------------|------------|
|                                                               |   | 2008                 |       |   | 2007 |   |   | 2006 |   |
| Numerator:                                                         |   |                 |       |   |   |   |   |   |   |
| Income      (loss) from continuing operations                      |   | $                    | 5,640      |   |   | $ | 4,787 |   |   | $ | (60 | ) |
| Income      from discontinued operations, net of tax               |   |                 | -          |   |   |   | 47 |   |   |   | 226 |   |
| Gain      on disposal of discontinued operations, net of tax       |   |                 | 16         |   |   |   | 375 |   |   |   | 1,930 |   |
| Net      income                                                    |   | $                    | 5,656      |   |   | $ | 5,209 |   |   | $ | 2,096 |   |
| Denominator:                                                       |   |                 |       |   |   |   |   |   |   |   |   |   |
| Basic      weighted average shares                                 |   |                 | 10,694,401 |   |   |   | 11,497,773 |   |   |   | 11,957,756 |   |
| Dilutive      common stock equivalents using treasury stock method |   |                 | 103,880    |   |   |   | 77,948 |   |   |   | 248,862 |   |
| Diluted      weighted average shares                               |   |                 | 10,798,281 |   |   |   | 11,575,721 |   |   |   | 12,206,618 |   |
|                                                               |   |                 |       |   |   |   |   |   |   |   |   |   |
| Basic      earnings (loss) per common share:                       |   |                 |       |   |   |   |   |   |   |   |   |   |
| Continuing      operations                                         |   | $                    | 0.53       |   |   | $ | 0.42 |   |   | $ | (0.01 | ) |
| Discontinued      operations                                       |   | $                    | -          |   |   | $ | 0.00 |   |   | $ | 0.02 |   |
| Disposal      of discontinued operations                           |   | $                    | 0.00       |   |   | $ | 0.03 |   |   | $ | 0.16 |   |
| Net      income                                                    |   | $                    | 0.53       |   |   | $ | 0.45 |   |   | $ | 0.18 |   |
| Diluted      earnings (loss) per common share:                     |   |                 |       |   |   |   |   |   |   |   |   |   |
| Continuing      operations                                         |   | $                    | 0.52       |   |   | $ | 0.41 |   |   | $ | 0.00 |   |
| Discontinued      operations                                       |   | $                    | 0.00       |   |   | $ | 0.00 |   |   | $ | 0.02 |   |
| Disposal      of discontinued operations                           |   | $                    | 0.00       |   |   | $ | 0.03 |   |   | $ | 0.16 |   |
| Net      income                                                    |   | $                    | 0.52       |   |   | $ | 0.45 |   |   | $ | 0.17 |   |

----

----

|                                                                |   | Years Ended June 30, |   |
|---------------------------------------------------------------------|--------|----------------------|--------|
|                                                                |   | 2008                 |   |   | 2007 |   |   | 2006 |   |
|                                                                |   |                 |   |   |   |   |   |   |   |
| Income      from discontinued operations                            |   |                 |   |   |   |   |   |   |   |
| Ken-A-Vision                                                        |   | $                    | -      |   |   | $ | 75 |   |   | $ | 361 |   |
| Total      income from discontinued operations                      |   |                 | -      |   |   |   | 75 |   |   |   | 361 |   |
|                                                                |   |                 |   |   |   |   |   |   |   |   |   |   |
| Gain      (loss) on disposal of discontinued operations             |   |                 |   |   |   |   |   |   |   |   |   |   |
| Conferencing      services business                                 |   | $                    | -      |   |   | $ | - |   |   | $ | 1,030 |   |
| OM      Video                                                       |   |                 | 25     |   |   |   | 607 |   |   |   | 350 |   |
| Burk      Technology                                                |   |                 | -      |   |   |   | - |   |   |   | 1,346 |   |
| Ken-A-Vision                                                        |   |                 | -      |   |   |   | (9 | ) |   |   | - |   |
| Total      gain on disposal of discontinued operations              |   |                 | 25     |   |   |   | 598 |   |   |   | 2,726 |   |
|                                                                |   |                 |   |   |   |   |   |   |   |   |   |   |
| Income      tax provision                                           |   |                 |   |   |   |   |   |   |   |   |   |   |
| Conferencing      services business                                 |   | $                    | -      |   |   | $ | - |   |   | $ | (301 | ) |
| OM      Video                                                       |   |                 | (9     | ) |   |   | (227 | ) |   |   | (102 | ) |
| Burk      Technology                                                |   |                 | -      |   |   |   | - |   |   |   | (393 | ) |
| Ken-A-Vision                                                        |   |                 | -      |   |   |   | (24 | ) |   |   | (135 | ) |
| Total      income tax provision                                     |   |                 | (9     | ) |   |   | (251 | ) |   |   | (931 | ) |
|                                                                |   |                 |   |   |   |   |   |   |   |   |   |   |
| Total      income from discontinued operations, net of income taxes |   |                 |   |   |   |   |   |   |   |   |   |   |
| Conferencing      services business                                 |   | $                    | -      |   |   | $ | - |   |   | $ | 729 |   |
| OM      Video                                                       |   |                 | 16     |   |   |   | 380 |   |   |   | 248 |   |
| Burk      Technology                                                |   |                 | -      |   |   |   | - |   |   |   | 953 |   |
| Ken-A-Vision                                                        |   |                 | -      |   |   |   | 42 |   |   |   | 226 |   |
| Total      income from discontinued operations, net of income taxes |   | $                    | 16     |   |   | $ | 422 |   |   | $ | 2,156 |   |

----

----

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

|                                     |   | Year Ended June 30, |   |
|------------------------------------------|--------|---------------------|--------|
|                                     |   | 2008                |   |   | 2007 |   |   | 2006 |   |
|                                     |   |                |   |   |   |   |   |   |   |
| Revenue                                  |   | $                   | -      |   |   | $ | 648 |   |   | $ | 2,269 |   |
| Cost      of goods sold                  |   |                | -      |   |   |   | 573 |   |   |   | 1,908 |   |
| Gross      profit                        |   |                | -      |   |   |   | 75 |   |   |   | 361 |   |
| Loss      on disposal                    |   |                | -      |   |   |   | (9 | ) |   |   | - |   |
| Provision      for income taxes          |   |                | -      |   |   |   | (24 | ) |   |   | (135 | ) |
| Income      from discontinued operations |   | $                   | -      |   |   | $ | 42 |   |   | $ | 226 |   |

|                     |   | As of June 30, |   |
|--------------------------|--------|----------------|--------|
|                     |   | 2008           |   |   | 2007 |   |
|                     |   |           |   |   |   |   |
| Raw      materials       |   | $              | 724    |   |   | $ | 453 |   |
| Finished      goods      |   |           | 5,356  |   |   |   | 4,695 |   |
| Consigned      inventory |   |           | 1,719  |   |   |   | 2,115 |   |
| Total      inventory     |   | $              | 7,799  |   |   | $ | 7,263 |   |

----

|                                               | Estimated          |   | As of June 30, |   |
|----------------------------------------------------|--------------------|--------|----------------|--------|
|                                               | useful lives       |   | 2008           |   |   | 2007 |   |
|                                               |               |   |           |   |   |   |   |
| Office      furniture and equipment                | 3      to 10 years |   | $              | 8,197  |   |   | $ | 7,825 |   |
| Leasehold      improvements                        | 1      to 6 years  |   |           | 1,309  |   |   |   | 1,289 |   |
| Manufacturing      and test equipment              | 2      to 10 years |   |           | 1,532  |   |   |   | 1,433 |   |
|                                               |               |   |           | 11,038 |   |   |   | 10,547 |   |
| Accumulated      depreciation and amortization     |               |   |           | (8,484 | ) |   |   | (7,853 | ) |
|    Property      and equipment, net |               |   | $              | 2,554  |   |   | $ | 2,694 |   |

| Description      of Securities |   | Total      - All Less than 12 Months |   |
|--------------------------------|--------|--------------------------------------|--------|
|                           |   | Fair      Value                      |   |   | Unrealized      Losses |   |
| Marketable      Securities     |   | $                                    | 17,090 |   |   | $ | 1,107 |   |

----

|                                                                      |   | Year      ending June 30, |   |
|---------------------------------------------------------------------------|--------|---------------------------|--------|
|                                                                      |   | 2008                      |   |   | 2007 |   |
| Balance,      beginning of year                                           |   | $                         | -      |   |   | $ | - |   |
| Unrealized      holding (losses), in marketable securities (before taxes) |   |                      | (1,107 | ) |   |   | - |   |
| Income      tax benefit                                                   |   |                      | 413    |   |   |   |   |   |
| Balance,      end of year                                                 |   | $                         | (694   | ) |   | $ | - |   |

----

|                                                         |   | Year ending June 30, |   |
|--------------------------------------------------------------|--------|---------------------------|--------|
|                                                         |   | 2008                      |   |   | 2007 |   |
| Net      income                                              |   | $                         | 5,656  |   |   | $ | 5,209 |   |
| Other      comprehensive income (loss):                      |   |                      |   |   |   |   |   |   |
| Unrealized      gain (loss) on available-for-sale investment |   |                      | (1,107 | ) |   |   | 0 |   |
| Income      tax benefit                                      |   |                      | 413    |   |   |   | 0 |   |
|                                                         |   | $                         | 4,962  |   |   | $ | 5,209 |   |

|                                   |   |     Years Ending      June 30, |   |
|-----------------------------------|--------|----------------------------------------------------|--------|
| 2009                              |   | $                                                  | 701    |   |
| 2010                              |   |                                               | 695    |   |
| 2011                              |   |                                               | 682    |   |
| 2012                              |   |                                               | 663    |   |
| 2013                              |   |                                               | 644    |   |
| Thereafter                        |   |                                               | 1,023  |   |
| Total      minimum lease payments |   | $                                                  | 4,408  |   |

----

|                                         |   | As of June 30, |   |
|----------------------------------------------|--------|----------------|--------|
|                                         |   | 2008           |   |   | 2007 |   |
| Accrued      salaries and other compensation |   | $              | 974    |   |   | $ | 1,027 |   |
| Other      accrued liabilities               |   |           | 2,626  |   |   |   | 847 |   |
| Total                                        |   | $              | 3,600  |   |   | $ | 1,874 |   |

----

----

----

|                                    | Fiscal Year Ended |
|-----------------------------------------|-------------------|
|                                    | June 30,          | June 30, | June 30, |
|                                    | 2008              | 2007 | 2006 |
| Risk-free      interest rate, average   | 4.5%              | 4.8% | 4.4% |
| Expected      option life, average      | 4.3      years    | 4.6      years | 5.9      years |
| Expected      price volatility, average | 73.9%             | 88.3% | 87.2% |
| Expected      dividend yield            | 0.0%              | 0.0% | 0.0% |
| Expected      annual forfeiture rate    | 10.0%             | 10.0% | 10.0% |

----

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

----

| Stock Options                     |   | Number of Shares |      |   | Weighted Average Exercise    Price |   |
|-----------------------------------|--------|------------------|-----------|--------|------------------------------------|--------|
|                              |   |             |      |   |                               |   |
| Outstanding      at June 30, 2005 |   |             | 1,493,112 |   |                               |   | 6.21 |   |
|                              |   |             |      |   |                               |   |   |   |
| Granted                           |   |             | 29,000    |   |                               |   | 2.63 |   |
| Expired      and canceled         |   |             | (118,353  | )      |                               |   | 3.55 |   |
| Forfeited      prior to vesting   |   |             | (165,839  | )      |                               |   | 8.11 |   |
| Exercised                         |   |             | -         |   |                               |   | - |   |
| Outstanding      at June 30, 2006 |   |             | 1,237,920 |   |                               |   | 6.12 |   |
|                              |   |             |      |   |                               |   |   |   |
| Granted                           |   |             | 436,500   |   |                               |   | 3.84 |   |
| Expired      and canceled         |   |             | (329,316  | )      |                               |   | 6.45 |   |
| Forfeited      prior to vesting   |   |             | (55,965   | )      |                               |   | 3.94 |   |
| Exercised                         |   |             | (15,940   | )      |                               |   | 3.41 |   |
| Outstanding      at June 30, 2007 |   |             | 1,273,199 |   |                               |   | 5.38 |   |
|                              |   |             |      |   |                               |   |   |   |
| Granted                           |   |             | 319,000   |   |                               |   | 6.13 |   |
| Expired      and canceled         |   |             | (68,058   | )      |                               |   | 7.39 |   |
| Forfeited      prior to vesting   |   |             | (96,727   | )      |                               |   | 5.23 |   |
| Exercised                         |   |             | (228,368  | )      |                               |   | 3.47 |   |
| Outstanding      at June 30, 2008 |   |             | 1,199,046 |   |                               |   | 5.85 |   |
| Exercisable                       |   |             | 747,736   |   |                               |   | 6.07 |   |

|                 |                  |   | Options Outstanding |      | Options Exercisable |                               |
|----------------------|-----------------------|--------|---------------------|-----------|---------------------|------------------------------------|
| Exercise Price Range |                  |   | Number of Shares    |      |                | Weighted Average Exercise    Price |   | Weighted Average Contractual Term      (Years) |   | Options Exercisable |   |   | Weighted Average Exercise    Price |   |
|                 |                  |   |                |      |                |                               |   |   |   |   |   |   |   |   |
|                 | $0.00      to $4.00   |   |                |      | 486,442             |                               |   | $ | 3.45 |   | 7.0      years |   |   | 352,442 |   |   | $ | 3.41 |   |
|                 | $4.01      to $8.00   |   |                |      | 572,354             |                               |   |   | 5.99 |   | 7.6      years |   |   | 268,470 |   |   |   | 5.98 |   |
|                 | $8.01      to $12.00  |   |                |      | 52,500              |                               |   |   | 11.83 |   | 2.1      years |   |   | 51,688 |   |   |   | 11.86 |   |
|                 | $12.01      to $16.00 |   |                |      | 87,000              |                               |   |   | 14.64 |   | 1.8      years |   |   | 74,713 |   |   |   | 14.87 |   |
|                 | $16.01      to $20.00 |   |                |      | 750                 |                               |   |   | 18.80 |   | 1.8      years |   |   | 423 |   |   |   | 19.13 |   |
| Total                |                  |   |                | 1,199,046 |                |                               | $ | 5.85 |   | 6.7      years |   |   | 747,736 |   |   | $ | 6.07 |   |

----

| Non-vested Shares                |   | Number of Shares |     |   | Weighted Average Grant-Date Fair      Value |   |
|----------------------------------|--------|------------------|----------|--------|---------------------------------------------|--------|
|                             |   |             |     |   |                                        |   |
| Non-vested      at June 30, 2007 |   |             | 478,654  |   |                                        | $      | 2.87 |   |
|                             |   |             |     |   |                                        |   |   |   |
| Granted                          |   |             | 319,000  |   |                                        |   | 3.69 |   |
| Vested                           |   |             | (249,617 | )      |                                        |   | 2.68 |   |
| Forfeited      prior to vesting  |   |             | (96,727  | )      |                                        |   | 3.38 |   |
| Non-vested      at June 30, 2008 |   |             | 451,310  |   |                                        | $      | 3.44 |   |

----

|            |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|-----------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Customer      A |   |   | 31.0%  |   |   |   | 30.4%  |   |   |   | 24.6% |   |
| Customer      B |   |   | 14.4%  |   |   |   | 13.4%  |   |   |   | 16.6% |   |
| Customer      C |   |   | 14.4%  |   |   |   | 12.8%  |   |   |   | 15.0% |   |
| Total           |   |   | 59.8%  |   |   |   | 56.6%  |   |   |   | 56.2% |   |

|            |   | 2008   |   |   | 2007   |   |
|-----------------|--------|--------|--------|--------|--------|--------|
| Customer      A |   |   | 22.5%  |   |   |   | 29.3% |   |
| Customer      B |   |   | 15.3%  |   |   |   | 16.7% |   |
| Customer      C |   |   | 12.3%  |   |   |   | 12.2% |   |
| Total           |   |   | 50.1%  |   |   |   | 58.2% |   |

----

|     |   | Years Ended June 30, |   |
|----------|--------|----------------------|--------|
|     |   | 2008                 |   |   | 2007 |   |   | 2006 |   |
|     |   |                 |   |   |   |   |   |   |   |
| U.S.     |   | $                    | 3,033  |   |   | $ | 5,184 |   |   | $ | (1,113 | ) |
| Non-U.S. |   |                 | (149   | ) |   |   | 60 |   |   |   | 48 |   |
|     |   | $                    | 2,884  |   |   | $ | 5,244 |   |   | $ | (1,065 | ) |

|                                               |   | Years Ended June 30, |   |
|----------------------------------------------------|--------|----------------------|--------|
|                                               |   | 2008                 |   |   | 2007 |   |   | 2006 |   |
|                                               |   |                 |   |   |   |   |   |   |   |
| Current:                                           |   |                 |   |   |   |   |   |   |   |
| U.S.      Federal                                  |   | $                    | (1,395 | ) |   | $ | (435 | ) |   | $ | 889 |   |
| U.S.      State                                    |   |                 | (61    | ) |   |   | (4 | ) |   |   | 118 |   |
| Non-U.S.                                           |   |                 | -      |   |   |   | (18 | ) |   |   | (2 | ) |
| Total      current                                 |   | $                    | (1,456 | ) |   | $ | (457 | ) |   | $ | 1,005 |   |
|                                               |   |                 |   |   |   |   |   |   |   |   |   |   |
| Deferred:                                          |   |                 |   |   |   |   |   |   |   |   |   |   |
| U.S.      Federal                                  |   |                 | 3,368  |   |   |   | (148 | ) |   |   | (619 | ) |
| U.S.      State                                    |   |                 | 844    |   |   |   | (594 | ) |   |   | 73 |   |
| Change      in deferred before valuation allowance |   |                 | 4,212  |   |   |   | (742 | ) |   |   | (546 | ) |
| Decrease      (increase) in valuation allowance    |   |                 | -      |   |   |   | 742 |   |   |   | 546 |   |
| Total      deferred                                |   |                 | 4,212  |   |   |   | - |   |   |   | - |   |
|                                               |   |                 |   |   |   |   |   |   |   |   |   |   |
| (Provision)      benefit for income taxes          |   | $                    | 2,756  |   |   | $ | (457 | ) |   | $ | 1,005 |   |

|                                                             |   | Years Ended June 30, |   |
|------------------------------------------------------------------|--------|----------------------|--------|
|                                                             |   | 2008                 |   |   | 2007 |   |   | 2006 |   |
|                                                             |   |                 |   |   |   |   |   |   |   |
| U.S.      federal statutory income tax rate at 34.0 percent      |   |  $              | (989   | ) |   |  $ | (1,782 | ) |   |  $ | 362 |   |
| State      income tax (provision) benefit, net of federal income |   |                 |   |   |   |   |   |   |   |   |   |   |
|   tax      effect                                      |   |                 | 517    |   |   |   | (4 | ) |   |   | 79 |   |
| Repatriated      foreign earnings                                |   |                 | (308   | ) |   |   | - |   |   |   | - |   |
| Foreign      tax credit                                          |   |                 | 185    |   |   |   | - |   |   |   | - |   |
| Non-deductible      SFAS No. 123R compensation expense           |   |                 | (106   | ) |   |   | (122 | ) |   |   | (143 | ) |
| Research      and development credit                             |   |                 | 58     |   |   |   | 329 |   |   |   | 72 |   |
| Foreign      earnings or losses taxed at different rates         |   |                 | (45    | ) |   |   | (11 | ) |   |   | 14 |   |
| Uncertain      tax positions                                     |   |                 | (295   | ) |   |   | - |   |   |   | - |   |
| Non-deductible      items and other                              |   |                 | 59     |   |   |   | 496 |   |   |   | 180 |   |
| Change      in valuation allowance                               |   |                 | 3,680  |   |   |   | 637 |   |   |   | 441 |   |
|                                                             |   |                 |   |   |   |   |   |   |   |   |   |   |
| Tax      (provision) benefit                                     |   |  $              | 2,756  |   |   |  $ | (457 | ) |   |  $ | 1,005 |   |

----

|                                                       |   | 2008    |   | 2007   |      |
|------------------------------------------------------------|--------|---------|--------|--------|-----------|
|                                                       |   | Current |   |   | Long-term |   | Current |   |   | Long-term |   |
|                                                       |   |    |   |   |      |   |   |   |   |   |   |
| Deferred      revenue                                      |   | $       | 1,103  |   |      |  $ |   | $ | 1,075 |   |   | $ |   |   |
| Basis      difference in intangible assets                 |   |    |   |   |      |   | 599 |   |   |   |   |   |   | 676 |   |
| Inventory      reserve                                     |   |    | 815    |   |      |   |   |   |   | 870 |   |   |   |   |   |
| Net      operating loss carryforwards                      |   |    |   |   |      |   | 25 |   |   |   |   |   |   | 115 |   |
| Accumulated      research and development credits          |   |    |   |   |      |   | 341 |   |   |   |   |   |   | 960 |   |
| Alternative      minimum tax credits                       |   |    |   |   |      |   | 287 |   |   |   |   |   |   | 409 |   |
| Accrued      liabilities                                   |   |    | 1,044  |   |      |   |   |   |   | 242 |   |   |   |   |   |
| Deductible      SFAS 123R compensation expense             |   |    |   |   |      |   | 513 |   |   | 436 |   |   |   |   |   |
| Allowance      for sales returns and doubtful accounts     |   |    | 34     |   |      |   |   |   |   | 21 |   |   |   |   |   |
| State      income taxes                                    |   |    | (228   | )      |      |   | (61 | ) |   |   |   |   |   |   |   |
| Uncertain      tax positions                               |   |    |   |   |      |   | (155 | ) |   |   |   |   |   |   |   |
| Difference      in property and equipment basis            |   |    |   |   |      |   | (324 | ) |   |   |   |   |   | (254 | ) |
| Other                                                      |   |    | 60     |   |      |   | 414 |   |   |   |   |   |   | 77 |   |
|                                                       |   |    |   |   |      |   |   |   |   |   |   |   |   |   |   |
|    Total      net deferred income tax asset |   |    | 2,828  |   |      |   | 1,639 |   |   | 2,644 |   |   |   | 1,983 |   |
|                                                       |   |    |   |   |      |   |   |   |   |   |   |   |   |   |   |
|    Less      valuation allowance            |   |    | -      |   |      |   | - |   |   | (2,644 | ) |   |   | (1,983 | ) |
|                                                       |   |    |   |   |      |   |   |   |   |   |   |   |   |   |   |
|    Net      deferred income tax asset       |   | $       | 2,828  |   |      | $ | 1,639 |   | $ | - |   |   | $ | - |   |

|                                           |   | As of June 30, |   |
|------------------------------------------------|--------|----------------|--------|
|                                           |   | 2008           |   |   | 2007 |   |
|                                           |   |           |   |   |   |   |
| Current      deferred income tax assets        |   | $              | 2,828  |   |   | $ | - |   |
| Long-term      deferred income tax assets      |   |           | 1,639  |   |   |   | - |   |
| Current      deferred income tax liabilities   |   |           | -      |   |   |   | - |   |
| Long-term      deferred income tax liabilities |   |           | -      |   |   |   |   |   |
| Net      deferred income tax assets            |   | $              | 4,467  |   |   | $ | - |   |

----

| Unrecognized      tax benefits at July 1, 2007  |   | $      | 862    |   |
|-------------------------------------------------|--------|--------|--------|--------|
| Tax      positions taken in a prior period      |   |   |   |   |
| Gross      increases                            |   |   | 63     |   |
| Gross      decreases                            |   |   | -      |   |
| Tax      positions taken in the current period  |   |   |   |   |
| Gross      increases                            |   |   | 419    |   |
| Gross      decreases                            |   |   | -      |   |
| Settlements      with taxing authorities        |   |   | -      |   |
| Lapse      of applicable statute of limitations |   |   | (192   | )      |
| Unrecognized      tax benefits at June 30, 2008 |   | $      | 1,152  |   |

----

|                     |   | Years Ended June 30, |   |
|--------------------------|--------|----------------------|--------|
|                     |   | 2008                 |   |   | 2007 |   |   | 2006 |   |
|                     |   |                 |   |   |   |   |   |   |   |
| United      States       |   | $                    | 27,826 |   |   | $ | 28,336 |   |   | $ | 25,316 |   |
| All      other countries |   |                 | 11,926 |   |   |   | 11,525 |   |   |   | 10,046 |   |
| Total                    |   | $                    | 39,752 |   |   | $ | 39,861 |   |   | $ | 35,362 |   |