----

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**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**WASHINGTON,      D.C. 20549**

**FORM      10-Q**

**Quarterly      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of      1934**

**OR**

**Transition      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of      1934**

**000-17219**

**CLEARONE      COMMUNICATIONS, INC.**

| **Utah**                                                                                     |   | **87-0398877**                                                        |
|----------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|
| (State                or other jurisdiction of incorporation                or organization) |   | (I.R.S.                employer identification                number) |

| **5225                Wiley Post Way, Suite 500****Salt                Lake City, Utah** |   |  **84116**           |
|------------------------------------------------------------------------------------------|--------|---------------------------|
| (Address                of principal executive offices)                                  |   | (Zip                Code) |

**(801)      975-7200**

**1825      Research Way, Salt Lake City, Utah 84119**

----

----

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**CLEARONE      COMMUNICATIONS, INC.**

**REPORT      ON FORM 10-Q**

**FOR      THE QUARTER ENDED SEPTEMBER 30, 2006**

**INDEX**

|                                                                          |                                                                                                                                 | **Page                Number** |
|-------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------|--------------------------------|
| Disclosure                Regarding Forward-Looking                Statements | 3                                                                                                                                    |
|  PART                I - FINANCIAL INFORMATION                           |
| Item                1                                                         | Condensed                Consolidated Financial Statements                                                                           |                           |
|                                                                          | Condensed                Consolidated Balance Sheets as of September 30, 2006                and June 30, 2006                       | 4                              |
|                                                                          | Condensed                Consolidated Statements of Operations for the three                months ended September 30, 2006 and 2005 | 5                              |
|                                                                          | Condensed                Consolidated Statements of Cash Flows for the                three months ended September 30, 2006 and 2005 | 7                              |
|                                                                          | Notes                to Condensed Consolidated Financial                Statements                                                   | 9                              |
| Item                2                                                         | Management’s                Discussion and Analysis of Financial Condition                and Results of Operations            | 22                             |
| Item                3                                                         | Quantitative                and Qualitative Disclosures about Market                Risk                                             | 32                             |
| Item                4                                                         | Controls                and Procedures                                                                                               | 32                             |
|  PART                II - OTHER INFORMATION                              |
| Item                1                                                         | Legal                Proceedings                                                                                                     | 33                             |
| Item                1A                                                        | Risk                Factors                                                                                                          | 34                             |
| Item                2                                                         | Unregistered                Sales of Equity Securities and Use of                Proceeds                                            | 39                             |
| Item                3                                                         | Defaults                Upon Senior Securities                                                                                       | 40                             |
| Item                4                                                         | Submission                of Matters to a Vote of Security                Holders                                                    | 40                             |
| Item                5                                                         | Other                Information                                                                                                     | 40                             |
| Item                6                                                         | Exhibits                                                                                                                             | 40                             |
|  Signatures                                                              |                                                                                                                                 | 41                             |

----

**DISCLOSURE      REGARDING FORWARD-LOOKING      STATEMENTS**

----

**CLEARONE      COMMUNICATIONS, INC.**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

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

|                                                                                                |   | **September                30,** |    | **June                30,** |   |
|-----------------------------------------------------------------------------------------------------|--------|----------------------------------|---------|-----------------------------|--------|
|                                                                                                |   | **2006**                         |    | **2006**                    |   |
|                                                                                                |   |                             |    |                        |   |
| **ASSETS**                                                                                          |   |                             |    |                        |   |
| Current                assets:                                                                      |   |                             |    |                        |   |
| Cash                and cash equivalents                                                            |   | $                                | 1,734   |                        | $      | 1,240 |   |
| Marketable                securities                                                                |   |                             | 20,550  |                        |   | 20,550 |   |
| Accounts                receivable                                                                  |   |                             | 7,300   |                        |   | 7,784 |   |
| Note                receivable                                                                      |   |                             | 153     |                        |   | - |   |
| Inventories,                net                                                                     |   |                             | 6,179   |                        |   | 6,614 |   |
| Income                tax receivable                                                                |   |                             | 2,548   |                        |   | 2,607 |   |
| Deferred                income taxes, net                                                           |   |                             | 94      |                        |   | 128 |   |
| Prepaid                expenses                                                                     |   |                             | 188     |                        |   | 255 |   |
| Net                Assets of Discontinued Operations                                                |   |                             | -       |                        |   | 565 |   |
| Total                current assets                                                                 |   |                             | 38,746  |                        |   | 39,743 |   |
|                                                                                                |   |                             |    |                        |   |   |   |
| Property                and equipment, net                                                          |   |                             | 1,473   |                        |   | 1,647 |   |
| Note                receivable - long-term                                                          |   |                             | 166     |                        |   | - |   |
| Other                assets                                                                         |   |                             | 22      |                        |   | 15 |   |
| Total                assets                                                                         |   | $                                | 40,407  |                        | $      | 41,405 |   |
|                                                                                                |   |                             |    |                        |   |   |   |
| **LIABILITIES                AND SHAREHOLDERS' EQUITY**                                             |   |                             |    |                        |   |   |   |
| Current                liabilities:                                                                 |   |                             |    |                        |   |   |   |
| Accounts                payable                                                                     |   | $                                | 1,643   |                        | $      | 2,597 |   |
| Accrued                liabilities                                                                  |   |                             | 2,136   |                        |   | 2,397 |   |
| Deferred                product revenue                                                             |   |                             | 5,249   |                        |   | 5,871 |   |
| Total                current liabilities                                                            |   |                             | 9,028   |                        |   | 10,865 |   |
|                                                                                                |   |                             |    |                        |   |   |   |
| Deferred                income taxes, net                                                           |   |                             | 94      |                        |   | 128 |   |
| Total                liabilities                                                                    |   |                             | 9,122   |                        |   | 10,993 |   |
|                                                                                                |   |                             |    |                        |   |   |   |
| Commitments                and contingencies (see Note 8)                                           |   |                             |    |                        |   |   |   |
|                                                                                                |   |                             |    |                        |   |   |   |
| Shareholders'                equity:                                                                |   |                             |    |                        |   |   |   |
| Common                stock, par value $0.001, 50,000,000 shares authorized,                        |   |                             |    |                        |   |   |   |
| 12,185,427                and 12,184,727 shares issued and outstanding, respectively                |   |                             | 12      |                        |   | 12 |   |
| Additional                paid-in capital                                                           |   |                             | 52,997  |                        |   | 52,764 |   |
| Treasury                stock                                                                       |   |                             | (37     | )                           |   | - |   |
| Accumulated                deficit                                                                  |   |                             | (21,687 | )                           |   | (22,364 | ) |
| Total                shareholders' equity                                                           |   |                             | 31,285  |                        |   | 30,412 |   |
| Total                liabilities and shareholders' equity                                           |   | $                                | 40,407  |                        | $      | 41,405 |   |
|                                                                                                |   |                             |    |                        |   |   |   |
| See                accompanying notes to condensed consolidated financial                statements |

----

**CLEARONE      COMMUNICATIONS, INC.**

**CONDENSED      CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

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

|                                                                                                |   | **Three                Months Ended** |   |
|-----------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                                                                |   | **September                30,**      |   | **September                30,** |   |
|                                                                                                |   | **2006**                              |   | **2005** |   |
|                                                                                                |   |                                  |   |   |   |
| Product                Revenue:                                                                     |   | $                                     | 9,411  |   | $ | 8,778 |   |
|                                                                                                |   |                                  |   |   |   |   |   |
| Cost                of goods sold:                                                                  |   |                                  |   |   |   |   |   |
| Product                                                                                             |   |                                  | 4,205  |   |   | 3,921 |   |
| Product                inventory write-offs                                                         |   |                                  | 111    |   |   | 93 |   |
| Total                cost of goods sold                                                             |   |                                  | 4,316  |   |   | 4,014 |   |
| Gross                profit                                                                         |   |                                  | 5,095  |   |   | 4,764 |   |
|                                                                                                |   |                                  |   |   |   |   |   |
| Operating                expenses:                                                                  |   |                                  |   |   |   |   |   |
| Marketing                and selling                                                                |   |                                  | 1,918  |   |   | 1,812 |   |
| General                and administrative                                                           |   |                                  | 809    |   |   | 1,771 |   |
| Settlement                in shareholders' class action                                             |   |                                  | -      |   |   | (1,205 | ) |
| Research                and product development                                                     |   |                                  | 2,079  |   |   | 1,799 |   |
| Total                operating expenses                                                             |   |                                  | 4,806  |   |   | 4,177 |   |
|                                                                                                |   |                                  |   |   |   |   |   |
| Operating                income (loss)                                                              |   |                                  | 289    |   |   | 587 |   |
|                                                                                                |   |                                  |   |   |   |   |   |
| Other                income (expense), net:                                                         |   |                                  |   |   |   |   |   |
| Interest                income                                                                      |   |                                  | 307    |   |   | 159 |   |
| Other,                net                                                                           |   |                                  | 25     |   |   | 7 |   |
| Total                other income (expense), net                                                    |   |                                  | 332    |   |   | 166 |   |
|                                                                                                |   |                                  |   |   |   |   |   |
| Income                (loss) from continuing operations before income taxes                         |   |                                  | 621    |   |   | 753 |   |
| Benefit                from income taxes                                                            |   |                                  | 19     |   |   | 222 |   |
| Income                (loss) from continuing operations                                             |   |                                  | 640    |   |   | 975 |   |
|                                                                                                |   |                                  |   |   |   |   |   |
| Discontinued                operations:                                                             |   |                                  |   |   |   |   |   |
| Income                from discontinued operations                                                  |   |                                  | 55     |   |   | 118 |   |
| Gain                on disposal of discontinued operations                                          |   |                                  | 3      |   |   | 1,496 |   |
| Income                tax provision                                                                 |   |                                  | (21    | ) |   | (602 | ) |
| Income                from discontinued operations                                                  |   |                                  | 37     |   |   | 1,012 |   |
|                                                                                                |   |                                  |   |   |   |   |   |
| Net                income                                                                           |   | $                                     | 677    |   | $ | 1,987 |   |
|                                                                                                |   |                                  |   |   |   |   |   |
| See                accompanying notes to condensed consolidated financial                statements |

----

**CLEARONE      COMMUNICATIONS, INC.**

**CONDENSED      CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)**

**(Unaudited)**

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

|                                                                                                |   | **Three                Months Ended** |       |
|-----------------------------------------------------------------------------------------------------|--------|---------------------------------------|------------|
|                                                                                                |   | **September                30,**      |       | **September                30,** |   |
|                                                                                                |   | **2006**                              |       | **2005** |   |
|                                                                                                |   |                                  |       |   |   |
| Basic                earnings (loss) per common share from continuing                operations     |   | $                                     | 0.05       |   | $ | 0.09 |   |
| Diluted                earnings (loss) per common share from continuing                operations   |   | $                                     | 0.05       |   | $ | 0.08 |   |
|                                                                                                |   |                                  |       |   |   |   |   |
| Basic                earnings (loss) per common share from discontinued                operations   |   | $                                     | 0.00       |   | $ | 0.09 |   |
| Diluted                earnings (loss) per common share from discontinued                operations |   | $                                     | 0.00       |   | $ | 0.08 |   |
|                                                                                                |   |                                  |       |   |   |   |   |
| Basic                earnings (loss) per common share                                               |   | $                                     | 0.06       |   | $ | 0.18 |   |
| Diluted                earnings (loss) per common share                                             |   | $                                     | 0.06       |   | $ | 0.16 |   |
|                                                                                                |   |                                  |       |   |   |   |   |
| Basic                weighted average shares                                                        |   |                                  | 12,184,849 |   |   | 11,284,244 |   |
| Diluted                weighted average shares                                                      |   |                                  | 12,231,744 |   |   | 12,278,664 |   |
|                                                                                                |   |                                  |       |   |   |   |   |
| See                accompanying notes to condensed consolidated financial                statements |

----

**CLEARONE      COMMUNICATIONS, INC.**

**CONDENSED      CONSOLIDATED STATEMENTS OF CASH      FLOWS**

**(Unaudited)**

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

|                                                                                                |   | **Three                Months Ended** |   |
|-----------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                                                                |   | **September                30,**      |   | **September                30,** |   |
|                                                                                                |   | **2006**                              |   | **2005** |   |
| Cash                flows from operating activities:                                                |   |                                  |   |   |   |
| Net                income from continuing operations                                                |   | $                                     | 640    |   | $ | 975 |   |
| Adjustments                to reconcile net income (loss) from continuing operations                |   |                                  |   |   |   |   |   |
| to                net cash provided by operations:                                                  |   |                                  |   |   |   |   |   |
| Depreciation                and amortization expense                                                |   |                                  | 268    |   |   | 326 |   |
| Stock-based                compensation                                                             |   |                                  | 230    |   |   | 342 |   |
| Write-off                of inventory                                                               |   |                                  | 111    |   |   | 93 |   |
| (Gain)                loss on disposal of assets and fixed assets write-offs                        |   |                                  | -      |   |   | (40 | ) |
| Provision                for doubtful accounts                                                      |   |                                  | -      |   |   | 3 |   |
| Changes                in operating assets and liabilities:                                         |   |                                  |   |   |   |   |   |
| Accounts                receivable                                                                  |   |                                  | 484    |   |   | (414 | ) |
| Note                receivable - Ken-A-Vision                                                       |   |                                  | (319   | ) |   | - |   |
| Inventories                                                                                         |   |                                  | 324    |   |   | 661 |   |
| Prepaid                expenses and other assets                                                    |   |                                  | 67     |   |   | (280 | ) |
| Accounts                payable                                                                     |   |                                  | (954   | ) |   | (430 | ) |
| Accrued                liabilities                                                                  |   |                                  | (261   | ) |   | (1,357 | ) |
| Income                taxes                                                                         |   |                                  | 59     |   |   | 380 |   |
| Deferred                product revenue                                                             |   |                                  | (622   | ) |   | (207 | ) |
| Net                change in other assets/liabilities                                               |   |                                  | (6     | ) |   | 1 |   |
| Net                cash provided by continuing operating activities                                 |   |                                  | 21     |   |   | 53 |   |
| Net                cash provided by discontinued operating activities                               |   |                                  | 35     |   |   | 527 |   |
| Net                cash provided by operating activities                                            |   |                                  | 56     |   |   | 580 |   |
|                                                                                                |   |                                  |   |   |   |   |   |
| Cash                flows from investing activities:                                                |   |                                  |   |   |   |   |   |
| Purchase                of property and equipment                                                   |   |                                  | (112   | ) |   | (64 | ) |
| Proceeds                from the sale of property and equipment                                     |   |                                  | 18     |   |   | 43 |   |
| Purchase                of marketable securities                                                    |   |                                  | -      |   |   | (3,000 | ) |
| Sale                of marketable securities                                                        |   |                                  | -      |   |   | 1,800 |   |
| Net                cash used in continuing investing activities                                     |   |                                  | (94    | ) |   | (1,221 | ) |
| Net                cash provided by discontinued investing activities                               |   |                                  | 567    |   |   | 938 |   |
| Net                cash used in investing activities                                                |   |                                  | 473    |   |   | (283 | ) |
|                                                                                                |   |                                  |   |   |   |   |   |
| Cash                flows from financing activities:                                                |   |                                  |   |   |   |   |   |
| Proceeds                from common stock                                                           |   |                                  | 2      |   |   | - |   |
| Common                stock purchased and retired                                                   |   |                                  | (37    | ) |   | - |   |
| Net                cash used in continuing financing activities                                     |   |                                  | (35    | ) |   | - |   |
| Net                cash used in discontinued financing activities                                   |   |                                  | -      |   |   | - |   |
| Net                cash used in financing activities                                                |   |                                  | (35    | ) |   | - |   |
|                                                                                                |   |                                  |   |   |   |   |   |
| Net                increase in cash and cash equivalents                                            |   |                                  | 494    |   |   | 297 |   |
| Cash                and cash equivalents at the beginning of the period                             |   |                                  | 1,240  |   |   | 1,892 |   |
| Cash                and cash equivalents at the end of the period                                   |   | $                                     | 1,734  |   | $ | 2,189 |   |
|                                                                                                |   |                                  |   |   |   |   |   |
| See                accompanying notes to condensed consolidated financial                statements |

----

**CLEARONE      COMMUNICATIONS, INC.**

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

**(Unaudited)**

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

|                                                                                                |   | **Three                Months Ended** |   |
|-----------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                                                                |   | **September                30,**      |   | **September                30,** |   |
|                                                                                                |   | **2006**                              |   | **2005** |   |
| Supplemental                disclosure of cash flow information:                                    |   |                                  |   |   |   |
| Cash                paid for interest                                                               |   | $                                     | -      |   | $ | - |   |
| Cash                paid (received) for income taxes                                                |   |                                  | (57    | ) |   | - |   |
|                                                                                                |   |                                  |   |   |   |   |   |
| Supplemental                disclosure of non-cash financing activities:                            |   |                                  |   |   |   |   |   |
| Value                of common shares issued in shareholder settlement                              |   | $                                     | -      |   | $ | 2,264 |   |
|                                                                                                |   |                                  |   |   |   |   |   |
| See                accompanying notes to condensed consolidated financial                statements |

----

**CLEARONE      COMMUNICATIONS, INC.**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL      STATEMENTS**

**(Unaudited)**

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

**1.      Basis of Presentation**

**2.      Summary of Significant Accounting Policy Update**

*Pervasiveness      of Estimates*

*Revenue      Recognition*

|                              |   | **Deferred                Revenue** |   | **Deferred                Cost of Goods Sold** |   | **Deferred                Gross Profit** |   |
|-----------------------------------|--------|-------------------------------------|--------|------------------------------------------------|--------|------------------------------------------|--------|
|                              |   |                                |   |                                           |   |                                     |   |
| September                30, 2006 |   | $                                   | 5,249  |                                           | $      | 2,541                                    |   | $ | 2,708 |   |
| June                30, 2006      |   |                                | 5,871  |                                           |   | 2,817                                    |   |   | 3,054 |   |
| March                31, 2006     |   |                                | 5,355  |                                           |   | 2,443                                    |   |   | 2,912 |   |
| December                31, 2005  |   |                                | 4,936  |                                           |   | 2,199                                    |   |   | 2,737 |   |
| September                30, 2005 |   |                                | 4,848  |                                           |   | 2,373                                    |   |   | 2,475 |   |
| June                30, 2005      |   |                                | 5,055  |                                           |   | 2,297                                    |   |   | 2,758 |   |
| March                31, 2005     |   |                                | 5,456  |                                           |   | 2,321                                    |   |   | 3,135 |   |
| December                31, 2004  |   |                                | 4,742  |                                           |   | 1,765                                    |   |   | 2,977 |   |

----

*Share-Based      Payment*

*Recent      Accounting Pronouncements*

*Accounting      for Uncertainty in Income Taxes*
*Accounting      for Income Taxes*

----

**CLEARONE          COMMUNICATIONS, INC.**

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

**(Unaudited)**

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

**3.      Earnings Per Common Share**

|                                                                          |   | **Three                Months Ended**                                                    |       |
|-------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------|------------|
|                                                                          |   | **September                30,**                                                         |       | **September                30,** |   |
|                                                                          |   | **2006**                                                                                 |       | **2005** |   |
|                                                                          |   | **(in                thousands of dollars,****except                per share amounts)** |       |
| Numerator:                                                                    |   |                                                                                     |       |   |   |
| Income                (loss) from continuing operations                       |   | $                                                                                        | 640        |   | $ | 975 |   |
| Income                (loss) from discontinued operations, net of tax         |   |                                                                                     | 35         |   |   | 74 |   |
| Gain                (loss) on disposal of discontinued operations, net of tax |   |                                                                                     | 2          |   |   | 938 |   |
| Net                income (loss)                                              |   | $                                                                                        | 677        |   | $ | 1,987 |   |
| Denominator:                                                                  |   |                                                                                     |       |   |   |   |   |
| Basic                weighted average shares                                  |   |                                                                                     | 12,184,849 |   |   | 11,284,244 |   |
| Dilutive                common stock equivalents using treasury stock method  |   |                                                                                     | 46,895     |   |   | 994,420 |   |
| Diluted                weighted average shares                                |   |                                                                                     | 12,231,744 |   |   | 12,278,664 |   |
|                                                                          |   |                                                                                     |       |   |   |   |   |
| Basic                earnings (loss) per common share:                        |   |                                                                                     |       |   |   |   |   |
| Continuing                operations                                          |   | $                                                                                        | 0.05       |   | $ | 0.09 |   |
| Discontinued                operations                                        |   |                                                                                     | 0.00       |   |   | 0.01 |   |
| Disposal                of discontinued operations                            |   |                                                                                     | 0.00       |   |   | 0.08 |   |
| Net                income (loss)                                              |   |                                                                                     | 0.06       |   |   | 0.18 |   |
| Diluted                earnings (loss) per common share:                      |   |                                                                                     |       |   |   |   |   |
| Continuing                operations                                          |   | $                                                                                        | 0.05       |   | $ | 0.08 |   |
| Discontinued                operations                                        |   |                                                                                     | 0.00       |   |   | 0.01 |   |
| Disposal                of discontinued operations                            |   |                                                                                     | 0.00       |   |   | 0.08 |   |
| Net                income (loss)                                              |   |                                                                                     | 0.06       |   |   | 0.16 |   |

----

**CLEARONE          COMMUNICATIONS, INC.**

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

**(Unaudited)**

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

**4.      Discontinued Operations**

|                                                                           |   | **Three                Months Ended** |   |
|--------------------------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                                           |   | **September                30,**      |   | **September                30,** |   |
|                                                                           |   | **2006**                              |   | **2005** |   |
|                                                                           |   |                                  |   |   |   |
| Income                from discontinued operations:                            |   |                                  |   |   |   |
| Ken-A-Vision                                                                   |   | $                                     | 55     |   | $ | 118 |   |
|                                                                           |   |                                  |   |   |   |   |   |
| Gain                on disposal of discontinued operations:                    |   |                                  |   |   |   |   |   |
| Ken-A-Vision                                                                   |   | $                                     | 3      |   | $ | - |   |
| OM                Video                                                        |   |                                  | -      |   |   | 150 |   |
| Burk                                                                           |   |                                  | -      |   |   | 1,346 |   |
| Total                gain on disposal of discontinued operations               |   |                                  | 3      |   |   | 1,496 |   |
|                                                                           |   |                                  |   |   |   |   |   |
| Income                tax (provision) benefit:                                 |   |                                  |   |   |   |   |   |
| Ken-A-Vision                                                                   |   | $                                     | (21    | ) | $ | (44 | ) |
| OM                Video                                                        |   |                                  | -      |   |   | (56 | ) |
| Burk                                                                           |   |                                  | -      |   |   | (502 | ) |
| Total                income tax (provision) benefit                            |   |                                  | (21    | ) |   | (602 | ) |
|                                                                           |   |                                  |   |   |   |   |   |
| Total                income from discontinued operations, net of income taxes: |   |                                  |   |   |   |   |   |
| Ken-A-Vision                                                                   |   | $                                     | 37     |   | $ | 74 |   |
| OM                Video                                                        |   |                                  | -      |   |   | 94 |   |
| Burk                                                                           |   |                                  | -      |   |   | 844 |   |
| Total                income from discontinued operations,                      |   |                                  |   |   |   |   |   |
| net                of income taxes                                             |   | $                                     | 37     |   | $ | 1,012 |   |

*Document      and Camera Product Line*

----

**CLEARONE          COMMUNICATIONS, INC.**

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

**(Unaudited)**

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

*OM      Video*

*Burk*

**5.      Income Taxes**

*“Accounting      for Income Taxes,”*

**6.      Inventory**

|                               |   | **September                30,** |   | **June                30,** |   |
|------------------------------------|--------|----------------------------------|--------|-----------------------------|--------|
|                               |   | **2006**                         |   | **2006**                    |   |
|                               |   |                             |   |                        |   |
| Raw                materials       |   | $                                | 188    |                        | $      | 513 |   |
| Finished                goods      |   |                             | 3,450  |                        |   | 3,284 |   |
| Consigned                inventory |   |                             | 2,541  |                        |   | 2,817 |   |
| Total                inventory     |   | $                                | 6,179  |                        | $      | 6,614 |   |

----

**CLEARONE          COMMUNICATIONS, INC.**

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

**(Unaudited)**

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

**7.      Accrued Liabilities**

|                                                   |   | **September                30,** |   | **June                30,** |   |
|--------------------------------------------------------|--------|----------------------------------|--------|-----------------------------|--------|
|                                                   |   | **2006**                         |   | **2006**                    |   |
|                                                   |   |                             |   |                        |   |
| Accrued                salaries and other compensation |   | $                                | 800    |                        | $      | 1,150 |   |
| Other                accrued liabilities               |   |                             | 1,336  |                        |   | 1,247 |   |
| Total                                                  |   | $                                | 2,136  |                        | $      | 2,397 |   |

**8.      Commitments and Contingencies**

*Outsource      Manufacturer.*

*Legal      Proceedings.*

----

**CLEARONE          COMMUNICATIONS, INC.**

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

**(Unaudited)**

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

*The      Shareholders’ Class Action*

*The      Shareholder Derivative Actions*

----

**CLEARONE          COMMUNICATIONS, INC.**

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

**(Unaudited)**

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

*The      Insurance Coverage Action.*

**9.      Share-Based Payment **

----

**CLEARONE          COMMUNICATIONS, INC.**

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

**(Unaudited)**

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

|                                              | **Three                Months Ended** |
|---------------------------------------------------|---------------------------------------|
|                                              | **September                30,**      | **September                30,** |
|                                              | **2006**                              | **2005** |
| Risk-free                interest rate, average   | 4.8%                                  | 4.1% |
| Expected                option life, average      | 4.6                years              | 5.8                years |
| Expected                price volatility, average | 88.4%                                 | 88.3% |
| Expected                dividend yield            | 0.0%                                  | 0.0% |
| Expected                annual forfeiture rate    | 10.0%                                 | 10.0% |

----

**CLEARONE          COMMUNICATIONS, INC.**

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

**(Unaudited)**

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

|                                                                        |   | **Three                Months Ended** |   |
|-----------------------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                                        |   | **September                30,**      |   |
|                                                                        |   | **2006**                              |   |
|                                                                        |   |                                  |   |   |   |
|                                                                        |   |                                  |   | **SFAS** |   |
|                                                                        |   |                                  |   | **No.                123R** |   |
|                                                                        |   |                                  |   | **Compensation** |   |
|                                                                        |   | **As                Reported**        |   | **Expense** |   |
|                                                                        |   |                                  |   |   |   |
| Revenue                                                                     |   | $                                     | 9,411  |   | $ | - |   |
| Cost                of goods sold                                           |   |                                  | 4,316  |   |   | 10 |   |
| Gross                profit                                                 |   |                                  | 5,095  |   |   | (10 | ) |
| Operating                expenses:                                          |   |                                  |   |   |   |   |   |
| Marketing                and selling                                        |   |                                  | 1,918  |   |   | 25 |   |
| General                and administrative                                   |   |                                  | 809    |   |   | 167 |   |
| Research                and product development                             |   |                                  | 2,079  |   |   | 28 |   |
| Total                operating expenses                                     |   |                                  | 4,806  |   |   | 220 |   |
| Operating                (loss) income                                      |   |                                  | 289    |   |   | (230 | ) |
| Other                income (expense), net                                  |   |                                  | 332    |   |   | - |   |
| Income                (loss) from continuing operations before income taxes |   |                                  | 621    |   |   | (230 | ) |
| Benefit                for income taxes                                     |   |                                  | 19     |   |   | 86 |   |
| Income                (loss) from continuing operations                     |   |                                  | 640    |   |   | (144 | ) |
| Income                from discontinued operations, net of tax              |   |                                  | 37     |   |   | - |   |
| Net                income                                                   |   | $                                     | 677    |   | $ | (144 | ) |
|                                                                        |   |                                  |   |   |   |   |   |
| Basic                earnings (loss) per common share:                      |   |                                  |   |   |   |   |   |
| Continuing                operations                                        |   | $                                     | 0.05   |   | $ | 0.01 |   |
| Discontinued                operations                                      |   |                                  | -      |   |   | - |   |
| Net                income                                                   |   |                                  | 0.06   |   |   | 0.01 |   |
| Diluted                earnings (loss) per common share:                    |   |                                  |   |   |   |   |   |
| Continuing                operations                                        |   | $                                     | 0.05   |   | $ | 0.01 |   |
| Discontinued                operations                                      |   |                                  | -      |   |   | - |   |
| Net                income                                                   |   |                                  | 0.06   |   |   | 0.01 |   |

----

**CLEARONE          COMMUNICATIONS, INC.**

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

**(Unaudited)**

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

| **Stock                Options**                 |   | **Number                of Shares** |      | **Weighted                Average Exercise Price** |   | **Weighted                Remaining Contractual Term (years)** |   |
|--------------------------------------------------|--------|-------------------------------------|-----------|----------------------------------------------------|--------|----------------------------------------------------------------|--------|
|                                             |   |                                |      |                                               |   |                                                           |   |
| Outstanding                at June 30, 2006      |   |                                | 1,237,920 |                                               | $      | 6.12                                                           |   |   |   |   |
|                                             |   |                                |      |                                               |   |                                                           |   |   |   |   |
| Granted                                          |   |                                | 321,000   |                                               |   | 3.57                                                           |   |   |   |   |
| Expired                and canceled              |   |                                | (275,720  | )                                                  |   | 6.91                                                           |   |   |   |   |
| Forfeited                prior to vesting        |   |                                | (30,579   | )                                                  |   | 3.90                                                           |   |   |   |   |
| Exercised                                        |   |                                | (700      | )                                                  |   | 2.88                                                           |   |   |   |   |
| Outstanding                at September 30, 2006 |   |                                | 1,251,921 |                                               |   | 5.35                                                           |   |   | 7.3                years |   |
| Exercisable                                      |   |                                | 712,238   |                                               |   | 5.73                                                           |   |   | 6.2                years |   |

| **Non-vested                Shares**            |   | **Number                of Shares** |    | **Weighted                Average Grant Date Fair Value** |   |
|-------------------------------------------------|--------|-------------------------------------|---------|-----------------------------------------------------------|--------|
|                                            |   |                                |    |                                                      |   |
| Non-vested                at June 30, 2006      |   |                                | 320,124 |                                                      | $      | 4.39 |   |
|                                            |   |                                |    |                                                      |   |   |   |
| Granted                                         |   |                                | 321,000 |                                                      |   | 2.47 |   |
| Vested                                          |   |                                | (70,862 | )                                                         |   | 3.33 |   |
| Forfeited                prior to vesting       |   |                                | (30,579 | )                                                         |   | 2.95 |   |
| Non-vested                at September 30, 2006 |   |                                | 539,683 |                                                      | $      | 3.47 |   |

----

**CLEARONE          COMMUNICATIONS, INC.**

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

**(Unaudited)**

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

**10.      Segment and Geographic Information **

|                               |   | **Three                Months Ended** |   |
|------------------------------------|--------|---------------------------------------|--------|
|                               |   | **September                30,**      |   | **September                30,** |   |
|                               |   | **2006**                              |   | **2005** |   |
|                               |   |                                  |   |   |   |
| United                States       |   | $                                     | 6,938  |   | $ | 6,824 |   |
| All                other countries |   |                                  | 2,473  |   |   | 1,954 |   |
| Total                              |   | $                                     | 9,411  |   | $ | 8,778 |   |

**11.      Manufacturing Transition**

|                                         |   | **Severance** |   | **Manufacturing                Facilities Lease** |   | **Total** |   |
|----------------------------------------------|--------|---------------|--------|---------------------------------------------------|--------|-----------|--------|
|                                         |   |          |   |                                              |   |      |   |
| Balance                at June 30, 2005      |   | $             | 70     |                                              | $      | 40        |   | $ | 110 |   |
| Utilized                                     |   |          | (30    | )                                                 |   | (8        | )      |   | (38 | ) |
| Balance                at September 30, 2005 |   | $             | 40     |                                              | $      | 32        |   | $ | 72 |   |
|                                         |   |          |   |                                              |   |      |   |   |   |   |
| Balance                at June 30, 2006      |   | $             | -      |                                              | $      | 43        |   | $ | 43 |   |
| Utilized                                     |   |          | 0      |                                              |   | (29       | )      |   | (29 | ) |
| Balance                at September 30, 2006 |   | $             | -      |                                              | $      | 14        |   | $ | 14 |   |

**12.      Settlement Agreement and Release**

----

**CLEARONE          COMMUNICATIONS, INC.**

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

**(Unaudited)**

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

**13.      Subsequent Events **

----

| **Item                2.** | **MANAGEMENT'S                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND                RESULTS OF OPERATIONS** |
|----------------------------|-------------------------------------------------------------------------------------------------------------------------|

*The      following discussion should be read in conjunction with our unaudited condensed      consolidated financial statements and related notes to condensed consolidated      financial statements included in this Form 10-Q and our audited consolidated      financial statements included in our Annual Report on Form 10-K for the year      ended June 30, 2006 filed with the SEC and management’s discussion and analysis      contained therein. This discussion contains forward-looking statements based      on      current expectations that involve risks and uncertainties, such as our plans,      objectives, expectations, and intentions, as set forth under “Disclosure      Regarding Forward-Looking Statements.” Our actual results and the timing of      events could differ materially from those anticipated in these forward-looking      statements as a result of various factors, including those set forth in the      following discussion and under the caption “Risk Factors” in Part II, Item 1A,      as well as other information found in the documents we file from time to time      with the SEC. Unless otherwise indicated, all references to a year reflect      our      fiscal year that ends on June 30.*

**CRITICAL      ACCOUNTING POLICIES**

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

----

|                              |   | **Deferred                Revenue** |   | **Deferred                Cost of Goods Sold** |   | **Deferred                Gross Profit** |   |
|-----------------------------------|--------|-------------------------------------|--------|------------------------------------------------|--------|------------------------------------------|--------|
|                              |   |                                |   |                                           |   |                                     |   |
| September                30, 2006 |   | $                                   | 5,249  |                                           | $      | 2,541                                    |   | $ | 2,708 |   |
| June                30, 2006      |   |                                | 5,871  |                                           |   | 2,817                                    |   |   | 3,054 |   |
| March                31, 2006     |   |                                | 5,355  |                                           |   | 2,443                                    |   |   | 2,912 |   |
| December                31, 2005  |   |                                | 4,936  |                                           |   | 2,199                                    |   |   | 2,737 |   |
| September                30, 2005 |   |                                | 4,848  |                                           |   | 2,373                                    |   |   | 2,475 |   |
| June                30, 2005      |   |                                | 5,055  |                                           |   | 2,297                                    |   |   | 2,758 |   |
| March                31, 2005     |   |                                | 5,456  |                                           |   | 2,321                                    |   |   | 3,135 |   |
| December                31, 2004  |   |                                | 4,742  |                                           |   | 1,765                                    |   |   | 2,977 |   |

**Impairment      of Long-Lived Assets**

**Accounting      for Income Taxes **

----

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

**Share-Based      Payment**

----

**SEASONALITY**

**BUSINESS      OVERVIEW**

**[Remainder      of Page Intentionally Left Blank]**

----

**DISCUSSION      OF OPERATIONS**

**Results      of Operations for the three months ended September 30, 2006 and 2005**

|                                                                        |   | **Three                Months Ended** |   |
|-----------------------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                                        |   | **(in                thousands)**     |   |
|                                                                        |   | **September                30,**      |   |   |   | **September                30,** |   |   |   |
|                                                                        |   | **2006**                              |   |   |   | **2005** |   |   |   |
|                                                                        |   |                                  |   | **%                of Revenue** |   |   |   | **%                of Revenue** |   |
| Product                Revenue:                                             |   | $                                     | 9,411  |   |   | 100.0% |   | $ | 8,778 |   |   | 100.0% |   |
|                                                                        |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Cost                of goods sold:                                          |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Product                                                                     |   |                                  | 4,205  |   |   | 44.7% |   |   | 3,921 |   |   | 44.7% |   |
| Product                inventory write-offs                                 |   |                                  | 111    |   |   | 1.2% |   |   | 93 |   |   | 1.1% |   |
| Total                cost of goods sold                                     |   |                                  | 4,316  |   |   | 45.9% |   |   | 4,014 |   |   | 45.7% |   |
| Gross                profit                                                 |   |                                  | 5,095  |   |   | 54.1% |   |   | 4,764 |   |   | 54.3% |   |
|                                                                        |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Operating                expenses:                                          |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Marketing                and selling                                        |   |                                  | 1,918  |   |   | 20.4% |   |   | 1,812 |   |   | 20.6% |   |
| General                and administrative                                   |   |                                  | 809    |   |   | 8.6% |   |   | 1,771 |   |   | 20.2% |   |
| Settlement                in shareholders' class action                     |   |                                  | -      |   |   | 0.0% |   |   | (1,205 | ) |   | -13.7% |   |
| Research                and product development                             |   |                                  | 2,079  |   |   | 22.1% |   |   | 1,799 |   |   | 20.5% |   |
| Total                operating expenses                                     |   |                                  | 4,806  |   |   | 51.1% |   |   | 4,177 |   |   | 47.6% |   |
|                                                                        |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Operating                income (loss)                                      |   |                                  | 289    |   |   | 3.1% |   |   | 587 |   |   | 6.7% |   |
|                                                                        |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Other                income (expense), net:                                 |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Interest                income                                              |   |                                  | 307    |   |   | 3.3% |   |   | 159 |   |   | 1.8% |   |
| Other,                net                                                   |   |                                  | 25     |   |   | 0.3% |   |   | 7 |   |   | 0.1% |   |
| Total                other income (expense), net                            |   |                                  | 332    |   |   | 3.5% |   |   | 166 |   |   | 1.9% |   |
|                                                                        |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Income                (loss) from continuing operations before income taxes |   |                                  | 621    |   |   | 6.6% |   |   | 753 |   |   | 8.6% |   |
| (Provision)                benefit from income taxes                        |   |                                  | 19     |   |   | 0.2% |   |   | 222 |   |   | 2.5% |   |
| Income                (loss) from continuing operations                     |   |                                  | 640    |   |   | 6.8% |   |   | 975 |   |   | 11.1% |   |
|                                                                        |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Discontinued                operations:                                     |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Income                from discontinued operations                          |   |                                  | 55     |   |   | 0.6% |   |   | 118 |   |   | 1.3% |   |
| Gain                on disposal of discontinued operations                  |   |                                  | 3      |   |   | 0.0% |   |   | 1,496 |   |   | 17.0% |   |
| Income                tax provision                                         |   |                                  | (21    | ) |   | -0.2% |   |   | (602 | ) |   | -6.9% |   |
| Income                from discontinued operations                          |   |                                  | 37     |   |   | 0.4% |   |   | 1,012 |   |   | 11.5% |   |
|                                                                        |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Net                income                                                   |   | $                                     | 677    |   |   | 7.2% |   | $ | 1,987 |   |   | 22.6% |   |

----

**Three      Months Ended September 30, 2006 (“First Quarter of Fiscal      2007”)**

**Compared      to Three Months Ended September 30, 2005 (“First Quarter of Fiscal      2006”)**

**Revenue**

**Costs      of Goods Sold and Gross Profit**

|                              |   | **Three                Months Ended September 30,** |   |
|-----------------------------------|--------|-----------------------------------------------------|--------|
|                              |   | **(in                thousands)**                   |   |
|                              |   | **2006**                                            |   | **2005** |   |
|                              |   |                                                |   | **%                of Revenue** |   |   |   | **%                of Revenue** |   |
|                              |   |                                                |   |   |   |   |   |   |   |
| Cost                of goods sold |   | $                                                   | 4,316  |   |   | 45.9% |   | $ | 4,014 |   |   | 45.7% |   |
|                              |   |                                                |   |   |   |   |   |   |   |   |   |   |   |
| Gross                profit       |   | $                                                   | 5,095  |   |   | 54.1% |   | $ | 4,764 |   |   | 54.3% |   |

----

**Operating      Expenses**

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

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

|                                                                           |   | **Three                Months Ended****September                30,** |   |
|--------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|
|                                                                           |   | **(in                thousands)**                                     |   |
|                                                                           |   | **2006**                                                              |   | **2005** |   |
| Professional                fees (SEC investigation and subsequent litigation) |   | $                                                                     | 16     |   | $ | 267 |   |
| Professional                fees (Other)                                       |   |                                                                  | 134    |   |   | 672 |   |
| Compensation                cost related to SFAS No. 123R                      |   |                                                                  | 167    |   |   | 229 |   |
| Other                general and administrative expense                        |   |                                                                  | 492    |   |   | 603 |   |
| Total                G&A from continuing operations                        |   | $                                                                     | 809    |   | $ | 1,771 |   |

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

----

**Operating      income (loss).**

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

**Income      (loss) from continuing operations before income taxes**
***.***

**Benefit      (provision) for income taxes**
*Accounting      for Income Taxes*

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

**LIQUIDITY      AND CAPITAL RESOURCES**

----

**Off-Balance      Sheet Arrangements**

**Contractual      Obligations**

|                                                             |   | Payments                Due by Period (in thousands of U.S. Dollars) |   |
|------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
| Contractual                Obligations                           |   | Total                                                                |   | Remainder                of Fiscal                2007 |   | Fiscal                2008 and                2009 |   | Fiscal                2010 and                2011 |   | Thereafter |   |
|                                                             |   |                                                                 |   |   |   |   |   |   |   |   |   |
| Operating                Leases                                  |   | $                                                                    | 4,974  |   | $ | 584 |   | $ | 1,469 |   | $ | 1,313 |   | $ | 1,608 |   |
|                                                             |   |                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                Contractual Cash                Obligations |   | $                                                                    | 4,974  |   | $ | 584 |   | $ | 1,469 |   | $ | 1,313 |   | $ | 1,608 |   |

----

----

**Item      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET      RISK**

**Item      4.**
**CONTROLS      AND PROCEDURES**

| ·   | *Ineffective                financial statement close process*.                We had a material weakness in the timeliness of the monthly close                process                to effect a timely and accurate financial statement close with the                necessary level of review and supervision. Accounting personnel were                not                able to focus full attention to correcting this weakness due to their                focus on the preparation, audit, and issuance for the restated fiscal                2001, restated fiscal 2002, and fiscal 2003, 2004, and 2005 consolidated                financial statements as well as the interim fiscal 2006 condensed                consolidated financial statements. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

----

**PART      II - OTHER INFORMATION**

**Item      1. LEGAL PROCEEDINGS**

*The      Shareholders’ Class Action*

*The      Shareholder Derivative Actions*

----

*The      Insurance Coverage Action.*

**Item      1A. RISK FACTORS **

*Investors      should carefully consider the risks described below. The risks described below      are not the only ones we face, and there are risks that we are not presently      aware of or that we currently believe are immaterial that may also impair our      business operations. Any of these risks could harm our business. The trading      price of our common stock could decline significantly due to any of these risks      and investors may lose all or part of their investment. In assessing these      risks, investors should also refer to the other information contained or      incorporated by reference in this Quarterly Report on Form 10-Q, including      our      September 30, 2006 unaudited condensed consolidated financial statements and      related notes.*

***Risks      Relating to Our Business***

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

----

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

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

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

----

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

| · | meeting                required specifications and regulatory standards;                                               |
|--------|------------------------------------------------------------------------------------------------------------------------|
| · | meeting                market expectations for performance;                                                            |
| · | hiring                and keeping a sufficient number of skilled developers;                                           |
| · | obtaining                prototype products at anticipated cost levels;                                                |
| · | having                the ability to identify problems or product defects in the development                cycle; and |
| · | achieving                necessary manufacturing                efficiencies.                                          |

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

*Reporting      of channel inventory by certain distributors.*

----

*We      depend on an outsourced manufacturing strategy.*

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

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

----

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

| · | unexpected                changes in, or the imposition of, additional legislative or regulatory                requirements;                                                                                            |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | unique                environmental regulations;                                                                                                                                                                         |
| · | fluctuating                exchange rates;                                                                                                                                                                               |
| · | tariffs                and other barriers;                                                                                                                                                                               |
| · | difficulties                in staffing and managing foreign sales operations;                                                                                                                                           |
| · | import                and export restrictions;                                                                                                                                                                           |
| · | greater                difficulties in accounts receivable collection and longer payment                cycles;                                                                                                          |
| · | potentially                adverse tax consequences;                                                                                                                                                                     |
| · | potential                hostilities and changes in diplomatic and trade                relationships;                                                                                                                   |
| · | disruption                in services due to natural disaster, economic or political difficulties,                quarantines, transportation, or other restrictions associated with                infectious diseases. |

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

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

*We      may have difficulty in collecting outstanding receivables.*

----

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

***Risks      Relating to Our Company***

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

| · | statements                or changes in opinions, ratings, or earnings estimates made by brokerage                firms or industry analysts relating to the market in which we do                business                or relating to us specifically;                                                                              |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | disparity                between our reported results and the projections of                analysts;                                                                                                                                                                                                                                  |
| · | the                shift in sales mix of products that we currently sell to a sales                mix of                lower-gross profit product offerings;                                                                                                                                                                         |
| · | the                level and mix of inventory levels held by our                distributors;                                                                                                                                                                                                                                          |
| · | the                announcement of new products or product enhancements by us or our                competitors;                                                                                                                                                                                                                       |
| · | technological                innovations by us or our competitors;                                                                                                                                                                                                                                                                     |
| · | success                in meeting targeted availability dates for new or redesigned                products;                                                                                                                                                                                                                           |
| · | the                ability to profitably and efficiently manage our supplies of products                and                key components;                                                                                                                                                                                             |
| · | the                ability to maintain profitable relationships with our                customers;                                                                                                                                                                                                                                     |
| · | the                ability to maintain an appropriate cost structure;                                                                                                                                                                                                                                                                  |
| · | quarterly                variations in our results of operations;                                                                                                                                                                                                                                                                      |
| · | general                consumer confidence or general market conditions or market conditions                specific to technology industries;                                                                                                                                                                                         |
| · | domestic                and international economic conditions;                                                                                                                                                                                                                                                                         |
| · | the                adoption of the new accounting standard, SFAS No. 123R, “Share-Based                Payments,” which requires us to record compensation expense for certain                options issued before July 1, 2005 and for all options issued or                modified                after June 30, 2005; |
| · | our                ability to report financial information in a timely manner;                and                                                                                                                                                                                                                                      |
| · | the                markets in which our stock is                traded.                                                                                                                                                                                                                                                                |

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

*Our      directors and officer own a significant percentage of the Company,and may exert      significant influence over us.*

**Item      2. UNREGISTERED SALES OF EQUITY SECURITIES      AND USE OF      PROCEEDS**

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**Item      3. DEFAULTS UPON SENIOR SECURITIES**

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

**Item      5. OTHER INFORMATION**

**Item      6. **
**EXHIBITS**

| Exhibit | SEC                Ref. |                                                                                                                                                                                    |                                             |
|---------|-------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------|
| No.     |  No.               | Title                of Document                                                                                                                                                        | Location                                         |
| 3.1     | 3                       | Articles                of Incorporation and amendments thereto                                                                                                                         | Incorp,                by reference1   |
| 3.2     | 3                       | Bylaws                                                                                                                                                                                  | Incorp.                by reference1        |
| 10.1    | 10                      | Asset                Purchase Agreement between Ken-A-Vision Manufacturing Company and                ClearOne                Communications, Inc., dated August 30, 2006               | This                filing                       |
| 10.2    | 10                      | Memorandum                of Asset Purchase Agreement between Ken-A-Vision Manufacturing Company                and                ClearOne Communications, Inc., dated August 30, 2006 | This                filing                       |
| 10.3    | 10                      | Warehouse                Lease Agreement between Alder Construction Company and ClearOne                Communications, Inc. dated September 20, 2006                                   | This                filing                       |
| 10.4    | 10                      | Settlement                Agreement and Release between ClearOne Communications, Inc. and Werner                Pekarek dated August 11, 2006*                                          | This                filing                       |
| 31.1    | 31                      | Section                302 Certification of Chief Executive Officer                                                                                                                     | This                filing                       |
| 31.2    | 31                      | Section                302 Certification of Chief Financial Officer                                                                                                                     | This                filing                       |
| 32.1    | 32                      | Section                906 Certification of Chief Executive Officer                                                                                                                     | This                filing                       |
| 32.2    | 32                      | Section                906 Certification of Chief Financial Officer                                                                                                                     | This                filing                       |

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**SIGNATURES**

|                             | CLEARONE                COMMUNICATIONS, INC. |
|----------------------------------|----------------------------------------------|
|                             |                                         |   |
|                             |                                         |   |
|                             |                                         |   |
| November                13, 2006 | By:                                          | /s/                Zeynep Hakimoglu |
|                             |                                         | Zeynep                Hakimoglu |
|                             |                                         | President                and Chief Executive Officer |
|                             |                                         | *(Principal                Executive Officer)* |
|                             |                                         |   |
|                             |                                         |   |
|                             |                                         |   |
| November                13, 2006 | By:                                          | /s/                Greg A. LeClaire |
|                             |                                         | Greg                A. LeClaire |
|                             |                                         | Chief                Financial Officer |
|                             |                                         | *(Principal                Financial and Accounting                Officer)* |