----

----

**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) |

| **1825                Research Way, Salt Lake City, Utah** |   | **84119**                 |
|------------------------------------------------------------|--------|---------------------------|
| (Address                of principal executive offices)    |   | (Zip                Code) |

**(801)      975-7200**

**APPLICABLE      ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY **

**PROCEEDINGS      DURING THE PRECEDING FIVE YEARS**

**APPLICABLE      ONLY TO CORPORATE REGISTRANTS**

----

----

----

**CLEARONE      COMMUNICATIONS, INC.**

**REPORT      ON FORM 10-Q**

**FOR      THE QUARTER ENDED DECEMBER 31, 2005**

**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 December 31, 2005                and June 30, 2005                                                                                                                                                        | 4                              |
|                                                                                |  Condensed                Consolidated Statements of Operations and                Comprehensive Income (Loss) for the three months ended December 31,                2005                and 2004 and the six months ended December 31, 2005 and                2004 | 5                              |
|                                                                                |  Condensed                Consolidated Statements of Shareholders’ Equity                for the six months ended December 31, 2005                                                                                                                             | 7                              |
|                                                                                |  Condensed                Consolidated Statements of Cash Flows for the                six months ended December 31, 2005 and 2004                                                                                                                                    | 8                              |
|                                                                                |  Notes                to Condensed Consolidated Financial                Statements                                                                                                                                                                                   | 10                             |
| Item                2                                                               |  Management’s                Discussion and Analysis of Financial Condition                and Results of Operations                                                                                                                                            | 25                             |
| Item                3                                                               |  Quantitative                and Qualitative Disclosures about Market                Risk                                                                                                                                                                             | 40                             |
| Item                4                                                               |  Controls                and Procedures                                                                                                                                                                                                                               | 40                             |
|  PART                II - OTHER INFORMATION                                    |
| Item                1                                                               |  Legal                Proceedings                                                                                                                                                                                                                                     | 42                             |
| Item                1A                                                              |  Risk                Factors                                                                                                                                                                                                                                          | 43                             |
| Item                2                                                               |  Unregistered                Sales of Equity Securities and Use of                Proceeds                                                                                                                                                                            | 49                             |
| Item                3                                                               |  Defaults                Upon Senior Securities                                                                                                                                                                                                                       | 49                             |
| Item                4                                                               |  Submission                of Matters to a Vote of Security                Holders                                                                                                                                                                                    | 50                             |
| Item                5                                                               |  Other                Information                                                                                                                                                                                                                                     | 50                             |
| Item                6                                                               |  Exhibits                                                                                                                                                                                                                                                             | 50                             |
|  Signatures                                                                    |                                                                                                                                                                                                                                                                       | 51                             |

----

**DISCLOSURE      REGARDING FORWARD-LOOKING      STATEMENTS**

----

**CLEARONE      COMMUNICATIONS, INC.**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

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

|                                                                                                                  |   | **December                31,** |    | **June                30,** |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|---------|-----------------------------|--------|
|                                                                                                                  |   | **2005**                        |    | **2005**                    |   |
|                                                                                                                  |   |                            |    |                        |   |
| **ASSETS**                                                                                                            |   |                            |    |                        |   |
| Current                assets:                                                                                        |   |                            |    |                        |   |
| Cash                and cash equivalents                                                                              |   | $                               | 2,509   |                        | $      | 1,892 |   |
| Marketable                securities                                                                                  |   |                            | 17,000  |                        |   | 15,800 |   |
| Accounts                receivable, net of allowance for doubtful accountsof                $49 and $46, respectively |   |                            | 7,518   |                        |   | 6,859 |   |
| Inventories,                net                                                                                       |   |                            | 4,797   |                        |   | 5,806 |   |
| Income                tax receivable                                                                                  |   |                            | 3,626   |                        |   | 3,952 |   |
| Deferred                income taxes, net                                                                             |   |                            | 144     |                        |   | 270 |   |
| Prepaid                expenses                                                                                       |   |                            | 521     |                        |   | 300 |   |
| Total                current assets                                                                                   |   |                            | 36,115  |                        |   | 34,879 |   |
|                                                                                                                  |   |                            |    |                        |   |   |   |
| Property                and equipment, net                                                                            |   |                            | 2,242   |                        |   | 2,805 |   |
| Intangibles,                net                                                                                       |   |                            | 238     |                        |   | 322 |   |
| Other                assets                                                                                           |   |                            | 15      |                        |   | 15 |   |
| Deferred                taxes                                                                                         |   |                            | -       |                        |   | - |   |
| Total                assets                                                                                           |   | $                               | 38,610  |                        | $      | 38,021 |   |
|                                                                                                                  |   |                            |    |                        |   |   |   |
| **LIABILITIES                AND SHAREHOLDERS' EQUITY**                                                               |   |                            |    |                        |   |   |   |
| Current                liabilities:                                                                                   |   |                            |    |                        |   |   |   |
| Accounts                payable                                                                                       |   | $                               | 1,537   |                        | $      | 2,163 |   |
| Accrued                liabilities                                                                                    |   |                            | 2,135   |                        |   | 5,622 |   |
| Deferred                product revenue                                                                               |   |                            | 4,936   |                        |   | 5,055 |   |
| Total                current liabilities                                                                              |   |                            | 8,608   |                        |   | 12,840 |   |
|                                                                                                                  |   |                            |    |                        |   |   |   |
| Deferred                income taxes, net                                                                             |   |                            | 144     |                        |   | 270 |   |
| Total                liabilities                                                                                      |   |                            | 8,752   |                        |   | 13,110 |   |
|                                                                                                                  |   |                            |    |                        |   |   |   |
| Commitments                and contingencies (see Note 8)                                                             |   |                            |    |                        |   |   |   |
|                                                                                                                  |   |                            |    |                        |   |   |   |
| Shareholders'                equity:                                                                                  |   |                            |    |                        |   |   |   |
| Common                stock, par value $0.001; 50,000,000 shares authorized;                                          |   |                            |    |                        |   |   |   |
| 12,184,727                and 11,264,233 shares issued and outstanding, respectively                                  |   |                            | 12      |                        |   | 11 |   |
| Additional                paid-in capital                                                                             |   |                            | 52,238  |                        |   | 49,393 |   |
| Deferred                compensation                                                                                  |   |                            | -       |                        |   | (33 | ) |
| Accumulated                deficit                                                                                    |   |                            | (22,392 | )                           |   | (24,460 | ) |
| Total                shareholders' equity                                                                             |   |                            | 29,858  |                        |   | 24,911 |   |
| Total                liabilities and shareholders' equity                                                             |   | $                               | 38,610  |                        | $      | 38,021 |   |
|                                                                                                                  |   |                            |    |                        |   |   |   |
| See                accompanying notes to condensed consolidated financial                statements                   |

----

**CLEARONE      COMMUNICATIONS, INC.**

**CONDENSED      CONSOLIDATED STATEMENTS OF OPERATIONS AND**

**COMPREHENSIVE      INCOME (LOSS)**

**(Unaudited)**

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

|                                                                                                |   | **Three                Months Ended** |   | **Six                Months Ended** |   |
|-----------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|-------------------------------------|--------|
|                                                                                                |   | **December                31,**       |   | **December                31,**     |   | **December                31,** |   | **December                31,** |   |
|                                                                                                |   | **2005**                              |   | **2004**                            |   | **2005** |   | **2004** |   |
|                                                                                                |   |                                  |   |                                |   |   |   |   |   |
| Product                Revenue:                                                                     |   | $                                     | 9,675  |                                | $      | 8,692 |   | $ | 19,202 |   | $ | 15,439 |   |
|                                                                                                |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| Cost                of goods sold:                                                                  |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| Product                                                                                             |   |                                  | 4,759  |                                |   | 3,717 |   |   | 9,311 |   |   | 7,140 |   |
| Product                inventory write-offs                                                         |   |                                  | 184    |                                |   | 231 |   |   | 277 |   |   | 605 |   |
| Total                cost of goods sold                                                             |   |                                  | 4,943  |                                |   | 3,948 |   |   | 9,588 |   |   | 7,745 |   |
| Gross                profit                                                                         |   |                                  | 4,732  |                                |   | 4,744 |   |   | 9,614 |   |   | 7,694 |   |
|                                                                                                |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| Operating                expenses:                                                                  |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| Marketing                and selling                                                                |   |                                  | 1,810  |                                |   | 2,341 |   |   | 3,622 |   |   | 4,427 |   |
| General                and administrative                                                           |   |                                  | 1,457  |                                |   | 1,388 |   |   | 3,228 |   |   | 2,823 |   |
| Settlement                in shareholders' class action                                             |   |                                  | -      |                                |   | (734 | ) |   | (1,205 | ) |   | (1,754 | ) |
| Research                and product development                                                     |   |                                  | 1,778  |                                |   | 1,282 |   |   | 3,577 |   |   | 2,387 |   |
| Total                operating expenses                                                             |   |                                  | 5,045  |                                |   | 4,277 |   |   | 9,222 |   |   | 7,883 |   |
|                                                                                                |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| Operating                (loss) income                                                              |   |                                  | (313   | )                                   |   | 467 |   |   | 392 |   |   | (189 | ) |
|                                                                                                |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| Other                income (expense), net:                                                         |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| Interest                income                                                                      |   |                                  | 186    |                                |   | 98 |   |   | 345 |   |   | 182 |   |
| Interest                expense                                                                     |   |                                  | -      |                                |   | (48 | ) |   | - |   |   | (103 | ) |
| Other,                net                                                                           |   |                                  | 5      |                                |   | 14 |   |   | 12 |   |   | 19 |   |
| Total                other income (expense), net                                                    |   |                                  | 191    |                                |   | 64 |   |   | 357 |   |   | 98 |   |
|                                                                                                |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| (Loss)                income from continuing operations before income taxes                         |   |                                  | (122   | )                                   |   | 531 |   |   | 749 |   |   | (91 | ) |
| Benefit                (provision) from income taxes                                                |   |                                  | 109    |                                |   | (198 | ) |   | 287 |   |   | 34 |   |
| (Loss)                income from continuing operations                                             |   |                                  | (13    | )                                   |   | 333 |   |   | 1,036 |   |   | (57 | ) |
|                                                                                                |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| Discontinued                operations:                                                             |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| Income                from discontinued operations                                                  |   |                                  | -      |                                |   | 95 |   |   | - |   |   | 54 |   |
| Gain                on disposal of discontinued operations                                          |   |                                  | 150    |                                |   | - |   |   | 1,646 |   |   | 17,369 |   |
| Income                tax provision                                                                 |   |                                  | (56    | )                                   |   | (22 | ) |   | (614 | ) |   | (4,004 | ) |
| Income                from discontinued operations                                                  |   |                                  | 94     |                                |   | 73 |   |   | 1,032 |   |   | 13,419 |   |
|                                                                                                |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| Net                income                                                                           |   | $                                     | 81     |                                | $      | 406 |   | $ | 2,068 |   | $ | 13,362 |   |
|                                                                                                |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| Comprehensive                income:                                                                |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| Net                income                                                                           |   | $                                     | 81     |                                | $      | 406 |   | $ | 2,068 |   | $ | 13,362 |   |
| Foreign                currency translation adjustments                                             |   |                                  | -      |                                |   | 59 |   |   | - |   |   | 129 |   |
|                                                                                                |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| Comprehensive                income:                                                                |   | $                                     | 81     |                                | $      | 465 |   | $ | 2,068 |   | $ | 13,491 |   |
|                                                                                                |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| See                accompanying notes to condensed consolidated financial                statements |

----

**CLEARONE      COMMUNICATIONS, INC.**

**CONDENSED      CONSOLIDATED STATEMENTS OF OPERATIONS AND **

**COMPREHENSIVE      INCOME (LOSS) (CONTINUED)**

**(Unaudited)**

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

|                                                                                                |   | **Three                Months Ended** |       | **Six                Months Ended** |   |
|-----------------------------------------------------------------------------------------------------|--------|---------------------------------------|------------|-------------------------------------|--------|
|                                                                                                |   | **December                31,**       |       | **December                31,**     |   | **December                31,** |   | **December                31,** |   |
|                                                                                                |   | **2005**                              |       | **2004**                            |   | **2005** |   | **2004** |   |
|                                                                                                |   |                                  |       |                                |   |   |   |   |   |
| Basic                earnings (loss) per common share from continuing                operations     |   | $                                     | (0.00      | )                                   | $      | 0.03 |   | $ | 0.09 |   | $ | (0.01 | ) |
| Diluted                earnings (loss) per common share from continuing                operations   |   | $                                     | (0.00      | )                                   | $      | 0.02 |   | $ | 0.08 |   | $ | (0.00 | ) |
|                                                                                                |   |                                  |       |                                |   |   |   |   |   |   |   |   |   |
| Basic                earnings (loss) per common share from discontinued                operations   |   | $                                     | 0.01       |                                | $      | 0.01 |   | $ | 0.09 |   | $ | 1.21 |   |
| Diluted                earnings (loss) per common share from discontinued                operations |   | $                                     | 0.01       |                                | $      | 0.01 |   | $ | 0.08 |   | $ | 1.08 |   |
|                                                                                                |   |                                  |       |                                |   |   |   |   |   |   |   |   |   |
| Basic                earnings (loss) per common share                                               |   | $                                     | 0.01       |                                | $      | 0.04 |   | $ | 0.18 |   | $ | 1.20 |   |
| Diluted                earnings (loss) per common share                                             |   | $                                     | 0.01       |                                | $      | 0.03 |   | $ | 0.17 |   | $ | 1.08 |   |
|                                                                                                |   |                                  |       |                                |   |   |   |   |   |   |   |   |   |
| Basic                weighted average shares outstanding                                            |   |                                  | 12,184,727 |                                |   | 11,147,755 |   |   | 11,734,485 |   |   | 11,091,994 |   |
| Diluted                weighted average shares outstanding                                          |   |                                  | 12,195,466 |                                |   | 12,353,176 |   |   | 12,230,035 |   |   | 12,364,778 |   |
|                                                                                                |   |                                  |       |                                |   |   |   |   |   |   |   |   |   |
| See                accompanying notes to condensed consolidated financial                statements |

----

**CLEARONE      COMMUNICATIONS, INC.**

**CONDENSED      CONSOLIDATED STATEMENTS OF SHAREHOLDERS’EQUITY**

**(Unaudited)**

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

|                                                                                      |   |                            |       |        |   |           |   |             |   | **Retained**      |   |       |   |
|-------------------------------------------------------------------------------------------|--------|---------------------------------|------------|-------------|--------|----------------|--------|------------------|--------|-------------------|--------|------------|--------|
|                                                                                      |   |                            |       |        |   | **Additional** |   |             |   | **Earnings**      |   | **Total**  |   |
|                                                                                      |   | **Common                Stock** |       | **Paid-In** |   | **Deferred**   |   | **(Accumulated** |   | **Shareholders'** |   |
|                                                                                      |   | **Shares**                      |       | **Amount**  |   | **Capital**    |   | **Compensation** |   | **Deficit)**      |   | **Equity** |   |
|                                                                                      |   |                            |       |        |   |           |   |             |   |              |   |       |   |
| Balances                at June 30, 2005                                                  |   |                            | 11,264,233 |        | $      | 11             |   | $                | 49,393 |              | $      | (33        | )      | $ | (24,460 | ) | $ | 24,911 |   |
|                                                                                      |   |                            |       |        |   |           |   |             |   |              |   |       |   |   |   |   |   |   |   |
| Issuance                of Common Shares related to                                       |   |                            |       |        |   |           |   |             |   |              |   |       |   |   |   |   |   |   |   |
| shareholder                settlement agreement                                           |   |                            | 920,494    |        |   | 1              |   |             | 2,263  |              |   | -          |   |   | - |   |   | 2,264 |   |
| SFAS                No. 123R compensation cost                                            |   |                            | -          |        |   | -              |   |             | 567    |              |   | -          |   |   | - |   |   | 567 |   |
| Compensation                expense resulting from                                        |   |                            |       |        |   |           |   |             |   |              |   |       |   |   |   |   |   |   |   |
| the                modification of stock options                                          |   |                            | -          |        |   | -              |   |             | 15     |              |   | -          |   |   | - |   |   | 15 |   |
| Amortization                of deferred compensation                                      |   |                            | -          |        |   | -              |   |             | -      |              |   | 33         |   |   | - |   |   | 33 |   |
| Net                income                                                                 |   |                            | -          |        |   | -              |   |             | -      |              |   | -          |   |   | 2,068 |   |   | 2,068 |   |
| Balances                at December 31, 2005                                              |   |                            | 12,184,727 |        | $      | 12             |   | $                | 52,238 |              | $      | -          |   | $ | (22,392 | ) | $ | 29,858 |   |
|                                                                                      |   |                            |       |        |   |           |   |             |   |              |   |       |   |   |   |   |   |   |   |
| See                accompanying notes to consolidated financial                statements |

----

**CLEARONE      COMMUNICATIONS, INC.**

**CONDENSED      CONSOLIDATED STATEMENTS OF CASH      FLOWS**

**(Unaudited)**

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

|                                                                                                |   | **Six                Months Ended** |   |
|-----------------------------------------------------------------------------------------------------|--------|-------------------------------------|--------|
|                                                                                                |   | **December                31,**     |   | **December                31,** |   |
|                                                                                                |   | **2005**                            |   | **2004** |   |
| Cash                flows from operating activities:                                                |   |                                |   |   |   |
| Income                (loss) from continuing operations                                             |   | $                                   | 1,036  |   | $ | (57 | ) |
| Adjustments                to reconcile income (loss) from continuing operations                    |   |                                |   |   |   |   |   |
| to                net cash provided by operations:                                                  |   |                                |   |   |   |   |   |
| Depreciation                and amortization expense                                                |   |                                | 774    |   |   | 1,091 |   |
| Stock-based                compensation                                                             |   |                                | 613    |   |   | 34 |   |
| Write-off                of inventory                                                               |   |                                | 277    |   |   | 605 |   |
| Gain                on disposal of assets and fixed assets write-offs                               |   |                                | (48    | ) |   | (4 | ) |
| Provision                for doubtful accounts                                                      |   |                                | 3      |   |   | 36 |   |
| Purchase                accounting adjustment                                                       |   |                                | -      |   |   | 395 |   |
| Changes                in operating assets and liabilities:                                         |   |                                |   |   |   |   |   |
| Accounts                receivable                                                                  |   |                                | (662   | ) |   | (55 | ) |
| Inventories                                                                                         |   |                                | 732    |   |   | 1,016 |   |
| Prepaid                expenses and other assets                                                    |   |                                | (221   | ) |   | (226 | ) |
| Accounts                payable                                                                     |   |                                | (626   | ) |   | (735 | ) |
| Accrued                liabilities                                                                  |   |                                | (1,222 | ) |   | (1,425 | ) |
| Income                taxes                                                                         |   |                                | 326    |   |   | 2,209 |   |
| Deferred                product revenue                                                             |   |                                | (119   | ) |   | (1,362 | ) |
| Net                change in other assets/liabilities                                               |   |                                | -      |   |   | (1 | ) |
| Net                cash provided by continuing operating activities                                 |   |                                | 863    |   |   | 1,521 |   |
| Net                cash provided by discontinued operating activities                               |   |                                | -      |   |   | 421 |   |
| Net                cash provided by operating activities                                            |   |                                | 863    |   |   | 1,942 |   |
|                                                                                                |   |                                |   |   |   |   |   |
| Cash                flows from investing activities:                                                |   |                                |   |   |   |   |   |
| Purchase                of property and equipment                                                   |   |                                | (134   | ) |   | (835 | ) |
| Proceeds                from the sale of property and equipment                                     |   |                                | 55     |   |   | 6 |   |
| Purchase                of marketable securities                                                    |   |                                | (3,600 | ) |   | (40,000 | ) |
| Sale                of marketable securities                                                        |   |                                | 2,400  |   |   | 25,750 |   |
| Net                cash used in continuing investing activities                                     |   |                                | (1,279 | ) |   | (15,079 | ) |
| Net                cash provided by discontinued investing activities                               |   |                                | 1,033  |   |   | 14,383 |   |
| Net                cash used in investing activities                                                |   |                                | (246   | ) |   | (696 | ) |
|                                                                                                |   |                                |   |   |   |   |   |
| Cash                flows from financing activities:                                                |   |                                |   |   |   |   |   |
| Principal                payments on capital lease obligations                                      |   |                                | -      |   |   | (8 | ) |
| Principal                payments on note payable                                                   |   |                                | -      |   |   | (932 | ) |
| Net                cash used in continuing financing activities                                     |   |                                | -      |   |   | (940 | ) |
| Net                cash used in discontinued financing activities                                   |   |                                | -      |   |   | - |   |
| Net                cash used in financing activities                                                |   |                                | -      |   |   | (940 | ) |
|                                                                                                |   |                                |   |   |   |   |   |
| Net                increase in cash and cash equivalents                                            |   |                                | 617    |   |   | 306 |   |
| Cash                and cash equivalents at the beginning of the period                             |   |                                | 1,892  |   |   | 4,207 |   |
| Cash                and cash equivalents at the end of the period                                   |   | $                                   | 2,509  |   | $ | 4,513 |   |
|                                                                                                |   |                                |   |   |   |   |   |
| 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)**

|                                                                                                |   | **Six                Months Ended** |   |
|-----------------------------------------------------------------------------------------------------|--------|-------------------------------------|--------|
|                                                                                                |   | **December                31,**     |   | **December                31,** |   |
|                                                                                                |   | **2005**                            |   | **2004** |   |
| Supplemental                disclosure of cash flow information:                                    |   |                                |   |   |   |
| Cash                paid for interest                                                               |   | $                                   | -      |   | $ | 103 |   |
| Cash                paid (received) for income taxes                                                |   |                                | -      |   |   | 1,111 |   |
|                                                                                                |   |                                |   |   |   |   |   |
| Supplemental                disclosure of non-cash financing activities:                            |   |                                |   |   |   |   |   |
| Value                of common shares issued in shareholder settlement                              |   | $                                   | 2,264  |   | $ | 957 |   |
|                                                                                                |   |                                |   |   |   |   |   |
| 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** |   |
|-----------------------------------|--------|-------------------------------------|--------|------------------------------------------------|--------|------------------------------------------|--------|
|                              |   |                                |   |                                           |   |                                     |   |
| 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  |   |                                | 3,867  |                                           |   | 1,609                                    |   |   | 2,258 |   |
| September                30, 2004 |   |                                | 5,617  |                                           |   | 1,920                                    |   |   | 3,697 |   |
| June                30, 2004      |   |                                | 6,107  |                                           |   | 2,381                                    |   |   | 3,726 |   |

----

**CLEARONE            COMMUNICATIONS, INC.**

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

**(Unaudited)**

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

*Share-Based      Payment*

|                                                                          |   | **Three                Months Ended** |   | **Six                Months Ended** |   |
|-------------------------------------------------------------------------------|--------|---------------------------------------|--------|-------------------------------------|--------|
|                                                                          |   | **December                31,**       |   | **December                31,**     |   |
|                                                                          |   | **2004**                              |   | **2004**                            |   |
| Net                income (loss):                                             |   |                                  |   |                                |   |
| As                reported                                                    |   | $                                     | 406    |                                | $      | 13,362 |   |
| Stock-based                employee compensation expense included in          |   |                                  |   |                                |   |   |   |
| reported                net loss, net of income taxes                         |   |                                  | 3      |                                |   | 7 |   |
| Stock-based                employee compensation expense determined           |   |                                  |   |                                |   |   |   |
| under                the fair-value method of all awards, net of income taxes |   |                                  | (166   | )                                   |   | (332 | ) |
| Pro                forma                                                      |   | $                                     | 243    |                                | $      | 13,037 |   |
|                                                                          |   |                                  |   |                                |   |   |   |
| Basic                earnings (loss) per common share:                        |   |                                  |   |                                |   |   |   |
| As                reported                                                    |   | $                                     | 0.04   |                                | $      | 1.20 |   |
| Pro                forma                                                      |   |                                  | 0.02   |                                |   | 1.18 |   |
| Diluted                earnings (loss) per common share:                      |   |                                  |   |                                |   |   |   |
| As                reported                                                    |   | $                                     | 0.03   |                                | $      | 1.08 |   |
| Pro                forma                                                      |   |                                  | 0.02   |                                |   | 1.05 |   |

----

**CLEARONE          COMMUNICATIONS, INC.**

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

**(Unaudited)**

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

*Recent      Accounting Pronouncements*

----

**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** |       | **Six                Months Ended** |   |
|-------------------------------------------------------------------------------|--------|---------------------------------------|------------|-------------------------------------|--------|
|                                                                          |   | **December                31,**       |       | **December                31,**     |   | **December                31,** |   | **December                31,** |   |
|                                                                          |   | **2005**                              |       | **2004**                            |   | **2005** |   | **2004** |   |
| Numerator:                                                                    |   |                                  |       |                                |   |   |   |   |   |
| (Loss)                income from continuing operations                       |   | $                                     | (13        | )                                   | $      | 333 |   | $ | 1,036 |   | $ | (57 | ) |
| Income                (loss) from discontinued operations, net of tax         |   |                                  | -          |                                |   | 73 |   |   | - |   |   | 41 |   |
| Gain                (loss) on disposal of discontinued operations, net of tax |   |                                  | 94         |                                |   | - |   |   | 1,032 |   |   | 13,378 |   |
| Net                income                                                     |   | $                                     | 81         |                                | $      | 406 |   | $ | 2,068 |   | $ | 13,362 |   |
| Denominator:                                                                  |   |                                  |       |                                |   |   |   |   |   |   |   |   |   |
| Basic                weighted average shares outstanding                      |   |                                  | 12,184,727 |                                |   | 11,147,755 |   |   | 11,734,485 |   |   | 11,091,994 |   |
| Dilutive                common stock equivalents using treasury stock method  |   |                                  | 10,739     |                                |   | 1,205,421 |   |   | 495,550 |   |   | 1,272,784 |   |
| Diluted                weighted average shares outstanding                    |   |                                  | 12,195,466 |                                |   | 12,353,176 |   |   | 12,230,035 |   |   | 12,364,778 |   |
|                                                                          |   |                                  |       |                                |   |   |   |   |   |   |   |   |   |
| Basic                earnings (loss) per common share:                        |   |                                  |       |                                |   |   |   |   |   |   |   |   |   |
| Continuing                operations                                          |   | $                                     | (0.00      | )                                   | $      | 0.03 |   | $ | 0.09 |   | $ | (0.01 | ) |
| Discontinued                operations                                        |   |                                  | -          |                                |   | 0.01 |   |   | - |   |   | 0.00 |   |
| Disposal                of discontinued operations                            |   |                                  | 0.01       |                                |   | - |   |   | 0.09 |   |   | 1.21 |   |
| Net                income (loss)                                              |   |                                  | 0.01       |                                |   | 0.04 |   |   | 0.18 |   |   | 1.20 |   |
| Diluted                earnings (loss) per common share:                      |   |                                  |       |                                |   |   |   |   |   |   |   |   |   |
| Continuing                operations                                          |   | $                                     | (0.00      | )                                   | $      | 0.02 |   | $ | 0.08 |   | $ | (0.00 | )  |
| Discontinued                operations                                        |   |                                  | -          |                                |   | 0.01 |   |   | - |   |   | 0.00 |   |
| Disposal                of discontinued operations                            |   |                                  | 0.01       |                                |   | - |   |   | 0.08 |   |   | 1.08 |   |
| Net                income (loss)                                              |   |                                  | 0.01       |                                |   | 0.03 |   |   | 0.17 |   |   | 1.08 |   |

**4.       Discontinued Operations**

----

**CLEARONE          COMMUNICATIONS, INC.**

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

**(Unaudited)**

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

|                                                                           |   | **Three                Months Ended** |   | **Six                Months Ended** |   |
|--------------------------------------------------------------------------------|--------|---------------------------------------|--------|-------------------------------------|--------|
|                                                                           |   | **December                31,**       |   | **December                31,**     |   | **December                31,** |   | **December                31,** |   |
|                                                                           |   | **2005**                              |   | **2004**                            |   | **2005** |   | **2004** |   |
|                                                                           |   |                                  |   |                                |   |   |   |   |   |
| Income                from discontinued operations:                            |   |                                  |   |                                |   |   |   |   |   |
| OM                Video                                                        |   | $                                     | -      |                                | $      | 95 |   | $ | - |   | $ | 54 |   |
|                                                                           |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| Gain                on disposal of discontinued operations:                    |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| Conferencing                services business                                  |   | $                                     | -      |                                | $      | - |   | $ | - |   | $ | 17,369 |   |
| OM                Video                                                        |   |                                  | 150    |                                |   | - |   |   | 300 |   |   | - |   |
| Burk                                                                           |   |                                  | -      |                                |   | - |   |   | 1,346 |   |   | - |   |
| Total                gain on disposal of discontinued operations               |   |                                  | 150    |                                |   | - |   |   | 1,646 |   |   | 17,369 |   |
|                                                                           |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| Income                tax provision:                                           |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| Conferencing                services business                                  |   | $                                     | -      |                                | $      | - |   | $ | - |   | $ | (3,991 | ) |
| OM                Video                                                        |   |                                  | (56    | )                                   |   | (22 | ) |   | (112 | ) |   | (13 | ) |
| Burk                                                                           |   |                                  | -      |                                |   | - |   |   | (502 | ) |   | - |   |
| Total                income tax provision                                      |   |                                  | (56    | )                                   |   | (22 | ) |   | (614 | ) |   | (4,004 | ) |
|                                                                           |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| Total                income from discontinued operations, net of income taxes: |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| Conferencing                services business                                  |   | $                                     | -      |                                | $      | - |   | $ | - |   | $ | 13,378 |   |
| OM                Video                                                        |   |                                  | 94     |                                |   | 73 |   |   | 188 |   |   | 41 |   |
| Burk                                                                           |   |                                  | -      |                                |   | - |   |   | 844 |   |   | - |   |
| Total                income from discontinued operations,                      |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| net                of income taxes                                             |   | $                                     | 94     |                                | $      | 73 |   | $ | 1,032 |   | $ | 13,419 |   |

*Conferencing      Services*

*OM      Video*

----

**CLEARONE          COMMUNICATIONS, INC.**

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

**(Unaudited)**

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

*Burk*

**5.       Income Taxes**

*“Accounting      for Income Taxes,”*

**6.       Inventory**

|                               |   | **December                31,** |   | **June                30,** |   |
|------------------------------------|--------|---------------------------------|--------|-----------------------------|--------|
|                               |   | **2005**                        |   | **2005**                    |   |
|                               |   |                            |   |                        |   |
| Raw                materials       |   | $                               | 441    |                        | $      | 1,804 |   |
| Finished                goods      |   |                            | 2,157  |                        |   | 1,705 |   |
| Consigned                inventory |   |                            | 2,199  |                        |   | 2,297 |   |
| Total                inventory     |   | $                               | 4,797  |                        | $      | 5,806 |   |

----

**CLEARONE          COMMUNICATIONS, INC.**

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

**(Unaudited)**

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

**7.       Accrued Liabilities**

|                                                   |   | **December                31,** |   | **June                30,** |   |
|--------------------------------------------------------|--------|---------------------------------|--------|-----------------------------|--------|
|                                                   |   | **2005**                        |   | **2005**                    |   |
|                                                   |   |                            |   |                        |   |   |   |
| Accrued                salaries and other compensation |   | $                               | 938    |                        | $      | 977 |   |
| Other                accrued liabilities               |   |                            | 1,197  |                        |   | 1,049 |   |
| Class                action settlement                 |   |                            | -      |                        |   | 3,596 |   |
| Total                                                  |   | $                               | 2,135  |                        | $      | 5,622 |   |

**8.       Commitments and Contingencies**

*Legal      Proceedings.*

*The      Shareholders’ Class Action*

----

**CLEARONE          COMMUNICATIONS, INC.**

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

**(Unaudited)**

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

*The      Shareholder Derivative Actions*

*The      Insurance Coverage Action. *

----

**CLEARONE          COMMUNICATIONS, INC.**

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

**(Unaudited)**

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

*Wells      Submission.*

**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** |                     | **Six                Months Ended** |   |
|---------------------------------------------------|--------|---------------------------------------|--------------------------|-------------------------------------|--------|
|                                              |   | **December                31,**       |                     | **December                31,**     |   | **December                31,** |   | **December                31,** |   |
|                                              |   | **2005**                              |                     | **2004**                            |   | **2005** |   | **2004** |   |
|                                              |   |                                  |                     |                                |   |   |   |   |   |
| Risk-free                interest rate, average   |   |                                  | 4.5%                     |                                |   | 3.8% |   |   | 4.4% |   |   | 4.1% |   |
| Expected                option life, average      |   |                                  | 5.9                years |                                |   | 5.8                years |   |   | 5.9                years |   |   | 5.8                years |   |
| Expected                price volatility, average |   |                                  | 87.3%                    |                                |   | 92.1% |   |   | 87.5% |   |   | 92.6% |   |
| Expected                dividend yield            |   |                                  | 0.0%                     |                                |   | 0.0% |   |   | 0.0% |   |   | 0.0% |   |
| Expected                annual forfeiture rate    |   |                                  | 10.0%                    |                                |   | 0.0% |   |   | 10.0% |   |   | 0.0% |   |

----

**CLEARONE          COMMUNICATIONS, INC.**

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

**(Unaudited)**

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

|                                                                 |   | **Three                Months Ended** |   |
|----------------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                                 |   | **December                31,**       |   |
|                                                                 |   | **2005**                              |   |
|                                                                 |   |                                  |   |   |   |
|                                                                 |   |                                  |   | **SFAS** |   |
|                                                                 |   |                                  |   | **No.                123R** |   |
|                                                                 |   |                                  |   | **Compensation** |   |
|                                                                 |   | **As                Reported**        |   | **Expense** |   |
|                                                                 |   |                                  |   |   |   |
| Revenue                                                              |   | $                                     | 9,675  |   | $ | - |   |
| Cost                of goods sold                                    |   |                                  | 4,943  |   |   | (12 | ) |
| Gross                profit                                          |   |                                  | 4,732  |   |   | 12 |   |
| Operating                expenses:                                   |   |                                  |   |   |   |   |   |
| Marketing                and selling                                 |   |                                  | 1,810  |   |   | (26 | ) |
| General                and administrative                            |   |                                  | 1,457  |   |   | (190 | ) |
| Settlement                in shareholders' class action              |   |                                  | -      |   |   | - |   |
| Research                and product development                      |   |                                  | 1,778  |   |   | (44 | ) |
| Total                operating expenses                              |   |                                  | 5,045  |   |   | (260 | ) |
| Operating                income                                      |   |                                  | (313   | ) |   | 272 |   |
| Other                income (expense), net                           |   |                                  | 191    |   |   | - |   |
| Income                from continuing operations before income taxes |   |                                  | (122   | ) |   | 272 |   |
| Benefit                from income taxes                             |   |                                  | 109    |   |   | (243 | ) |
| Income                from continuing operations                     |   |                                  | (13    | ) |   | 29 |   |
| Income                from discontinued operations, net of tax       |   |                                  | 94     |   |   | - |   |
| Net                income                                            |   | $                                     | 81     |   | $ | 29 |   |
|                                                                 |   |                                  |   |   |   |   |   |
| Basic                earnings per common share:                      |   |                                  |   |   |   |   |   |
| Continuing                operations                                 |   | $                                     | (0.00  | ) | $ | 0.00 |   |
| Discontinued                operations                               |   |                                  | 0.01   |   |   | - |   |
| Net                income                                            |   |                                  | 0.01   |   |   | 0.00 |   |
| Diluted                earnings per common share:                    |   |                                  |   |   |   |   |   |
| Continuing                operations                                 |   | $                                     | (0.00  | ) | $ | 0.00 |   |
| Discontinued                operations                               |   |                                  | 0.01   |   |   | - |   |
| Net                income                                            |   |                                  | 0.01   |   |   | 0.00 |   |

----

**CLEARONE          COMMUNICATIONS, INC.**

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

**(Unaudited)**

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

|                                                                 |   | **Six                Months Ended** |   |
|----------------------------------------------------------------------|--------|-------------------------------------|--------|
|                                                                 |   | **December                31,**     |   |
|                                                                 |   | **2005**                            |   |
|                                                                 |   |                                |   |   |   |
|                                                                 |   |                                |   | **SFAS** |   |
|                                                                 |   |                                |   | **No.                123R** |   |
|                                                                 |   |                                |   | **Compensation** |   |
|                                                                 |   | **As                Reported**      |   | **Expense** |   |
|                                                                 |   |                                |   |   |   |
| Revenue                                                              |   | $                                   | 19,202 |   | $ | - |   |
| Cost                of goods sold                                    |   |                                | 9,588  |   |   | (24 | ) |
| Gross                profit                                          |   |                                | 9,614  |   |   | 24 |   |
| Operating                expenses:                                   |   |                                |   |   |   |   |   |
| Marketing                and selling                                 |   |                                | 3,622  |   |   | (50 | ) |
| General                and administrative                            |   |                                | 3,228  |   |   | (419 | ) |
| Settlement                in shareholders' class action              |   |                                | (1,205 | ) |   | - |   |
| Research                and product development                      |   |                                | 3,577  |   |   | (87 | ) |
| Total                operating expenses                              |   |                                | 9,222  |   |   | (556 | ) |
| Operating                income                                      |   |                                | 392    |   |   | 580 |   |
| Other                income (expense), net                           |   |                                | 357    |   |   | 34 |   |
| Income                from continuing operations before income taxes |   |                                | 749    |   |   | 614 |   |
| Benefit                from income taxes                             |   |                                | 287    |   |   | (173 | ) |
| Income                from continuing operations                     |   |                                | 1,036  |   |   | 441 |   |
| Income                from discontinued operations, net of tax       |   |                                | 1,032  |   |   | - |   |
| Net                income                                            |   | $                                   | 2,068  |   | $ | 441 |   |
|                                                                 |   |                                |   |   |   |   |   |
| Basic                earnings per common share:                      |   |                                |   |   |   |   |   |
| Continuing                operations                                 |   | $                                   | 0.09   |   | $ | 0.04 |   |
| Discontinued                operations                               |   |                                | 0.09   |   |   | - |   |
| Net                income                                            |   |                                | 0.18   |   |   | 0.04 |   |
| Diluted                earnings per common share:                    |   |                                |   |   |   |   |   |
| Continuing                operations                                 |   | $                                   | 0.08   |   | $ | 0.04 |   |
| Discontinued                operations                               |   |                                | 0.08   |   |   | - |   |
| Net                income                                            |   |                                | 0.17   |   |   | 0.04 |   |

----

**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)** |   | **Aggregate                Intrinsic Value** |                     |
|-------------------------------------------------|--------|-------------------------------------|-----------|----------------------------------------------------|--------|----------------------------------------------------------------|--------|----------------------------------------------|--------------------------|
|                                            |   |                                |      |                                               |   |                                                           |   |                                         |                     |
| Outstanding                at June 30, 2005     |   |                                | 1,493,112 |                                               | $      | 6.21                                                           |   |                                         |                     |   |   |   |   |
|                                            |   |                                |      |                                               |   |                                                           |   |                                         |                     |   |   |   |   |
| Granted                                         |   |                                | 23,500    |                                               |   | 2.49                                                           |   |                                         |                     |   |   |   |   |
| Expired                and canceled             |   |                                | (30,750   | )                                                  |   | 0.75                                                           |   |                                         |                     |   |   |   |   |
| Forfeited                prior to vesting       |   |                                | (96,170   | )                                                  |   | 7.82                                                           |   |                                         |                     |   |   |   |   |
| Exercised                                       |   |                                | -         |                                               |   | -                                                              |   |                                         |                     |   | $ | - |   |
| Outstanding                at December 31, 2005 |   |                                | 1,389,692 |                                               |   | 6.15                                                           |   |                                         | 6.6                years |   | $ | 5 |   |
| Exercisable                                     |   |                                | 833,416   |                                               |   | 5.87                                                           |   |                                         | 6.3                years |   | $ | 0 |   |

| **Non-vested                Shares**           |   | **Number                of Shares** |     | **Weighted                Average Grant Date Fair Value** |   |
|------------------------------------------------|--------|-------------------------------------|----------|-----------------------------------------------------------|--------|
|                                           |   |                                |     |                                                      |   |
| Non-vested                at June 30, 2005     |   |                                | 802,400  |                                                      | $      | 4.73 |   |
|                                           |   |                                |     |                                                      |   |   |   |
| Granted                                        |   |                                | 23,500   |                                                      |   | 1.86 |   |
| Vested                                         |   |                                | (142,704 | )                                                         |   | 3.45 |   |
| Expired                and canceled            |   |                                | (30,750  | )                                                         |   | 5.10 |   |
| Forfeited                prior to vesting      |   |                                | (96,170  | )                                                         |   | 5.87 |   |
| Non-vested                at December 31, 2005 |   |                                | 556,276  |                                                      | $      | 4.72 |   |

----

**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** |   | **Six                Months Ended** |   |
|------------------------------------|--------|---------------------------------------|--------|-------------------------------------|--------|
|                               |   | **December                31,**       |   | **December                31,**     |   | **December                31,** |   | **December                31,** |   |
|                               |   | **2005**                              |   | **2004**                            |   | **2005** |   | **2004** |   |
|                               |   |                                  |   |                                |   |   |   |   |   |
| United                States       |   | $                                     | 7,311  |                                | $      | 6,302 |   | $ | 14,648 |   | $ | 11,247 |   |
| All                other countries |   |                                  | 2,364  |                                |   | 2,390 |   |   | 4,554 |   |   | 4,192 |   |
| Total                              |   | $                                     | 9,675  |                                | $      | 8,692 |   | $ | 19,202 |   | $ | 15,439 |   |

**11.       Manufacturing Transition**

|                                        |   | **Severance** |   | **Manufacturing                Facilities Lease** |   | **Total** |   |
|---------------------------------------------|--------|---------------|--------|---------------------------------------------------|--------|-----------|--------|
|                                        |   |          |   |                                              |   |      |   |
| Balance                at June 30, 2005     |   | $             | 70     |                                              | $      | 40        |   | $ | 110 |   |
| Utilized                                    |   |          | (70    | )                                                 |   | (59       | )      |   | (129 | ) |
| Sublease                payments received   |   |          | -      |                                              |   | 55        |   |   | 55 |   |
| Balance                at December 31, 2005 |   | $             | -      |                                              | $      | 36        |   | $ | 36 |   |

----

**CLEARONE          COMMUNICATIONS, INC.**

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

**(Unaudited)**

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

**12.       Subsequent Events **

*Sale      of OM Video.*

*Sale      of Conferencing Services.*

*Settlement      Agreement and Release*

----

| **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, 2005 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** |   |
|-----------------------------------|--------|-------------------------------------|--------|------------------------------------------------|--------|------------------------------------------|--------|
|                              |   |                                |   |                                           |   |                                     |   |
| 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  |   |                                | 3,867  |                                           |   | 1,609                                    |   |   | 2,258 |   |
| September                30, 2004 |   |                                | 5,617  |                                           |   | 1,920                                    |   |   | 3,697 |   |
| June                30, 2004      |   |                                | 6,107  |                                           |   | 2,381                                    |   |   | 3,726 |   |

**Goodwill      and Purchased Intangibles**

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

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

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

----

**Impairment      of Long-Lived Assets**

**Accounting      for Income Taxes **

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

**Share-Based      Payment**

----

**SEASONALITY**

**BUSINESS      OVERVIEW**

----

**DISCUSSION      OF OPERATIONS**

**Results      of Operations for the three months and six months ended December 31, 2005 and      2004**

|                                                                        |   | **Three                Months Ended** |   | **Six                Months Ended** |   |
|-----------------------------------------------------------------------------|--------|---------------------------------------|--------|-------------------------------------|--------|
|                                                                        |   | **(in                thousands)**     |   | **(in                thousands)**   |   |
|                                                                        |   | **December                31,**       |   | **December                31,**     |   | **December                31,** |   | **December                31,** |   |
|                                                                        |   | **2005**                              |   | **2004**                            |   | **2005** |   | **2004** |   |
|                                                                        |   |                                  |   | **%                of Revenue**     |   |   |   | **%                of Revenue** |   |   |   | **%                of Revenue** |   |   |   | **%                of Revenue** |   |
|                                                                        |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenue                                                                     |   | $                                     | 9,675  |                                |   | 100.0% |   | $ | 8,692 |   |   | 100.0% |   | $ | 19,202 |   |   | 100.0% |   | $ | 15,439 |   |   | 100.0% |   |
| Cost                of goods sold                                           |   |                                  | 4,943  |                                |   | 51.1% |   |   | 3,948 |   |   | 45.4% |   |   | 9,588 |   |   | 49.9% |   |   | 7,745 |   |   | 50.2% |   |
| Gross                profit                                                 |   |                                  | 4,732  |                                |   | 48.9% |   |   | 4,744 |   |   | 54.6% |   |   | 9,614 |   |   | 50.1% |   |   | 7,694 |   |   | 49.8% |   |
| Operating                expenses:                                          |   |                                  |   |                                |   |   |  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Marketing                and selling                                        |   |                                  | 1,810  |                                |   | 18.7% |   |   | 2,341 |   |   | 26.9% |   |   | 3,622 |   |   | 18.9% |   |   | 4,427 |   |   | 28.7% |   |
| General                and administrative                                   |   |                                  | 1,457  |                                |   | 15.1% |   |   | 1,388 |   |   | 16.0% |   |   | 3,228 |   |   | 16.8% |   |   | 2,823 |   |   | 18.3% |   |
| Settlement                in shareholders' class action                     |   |                                  | -      |                                |   | 0.0% |   |   | (734 | ) |   | -8.4% |   |   | (1,205 | ) |   | -6.3% |   |   | (1,754 | ) |   | -11.4% |   |
| Research                and product development                             |   |                                  | 1,778  |                                |   | 18.4% |   |   | 1,282 |   |   | 14.7% |   |   | 3,577 |   |   | 18.6% |   |   | 2,387 |   |   | 15.5% |   |
| Total                operating expenses                                     |   |                                  | 5,045  |                                |   | 52.1% |   |   | 4,277 |   |   | 49.2% |   |   | 9,222 |   |   | 48.0% |   |   | 7,883 |   |   | 51.1% |   |
| Operating                income (loss)                                      |   |                                  | (313   | )                                   |   | -3.2% |   |   | 467 |   |   | 5.4% |   |   | 392 |   |   | 2.0% |   |   | (189 | ) |   | -1.2% |   |
| Other                income (expense), net                                  |   |                                  | 191    |                                |   | 2.0% |   |   | 64 |   |   | 0.7% |   |   | 357 |   |   | 1.9% |   |   | 98 |   |   | 0.6% |   |
| Income                (loss) from continuing operations before income taxes |   |                                  | (122   | )                                   |   | -1.3% |   |   | 531 |   |   | 6.1% |   |   | 749 |   |   | 3.9% |   |   | (91 | ) |   | -0.6% |   |
| Benefit                (provision) from income taxes                        |   |                                  | 109    |                                |   | 1.1% |   |   | (198 | ) |   | -2.3% |   |   | 287 |   |   | 1.5% |   |   | 34 |   |   | 0.2% |   |
| Income                (loss) from continuing operations                     |   |                                  | (13    | )                                   |   | -0.1% |   |   | 333 |   |   | 3.8% |   |   | 1,036 |   |   | 5.4% |   |   | (57 | ) |   | -0.4% |   |
| Income                from discontinued operations, net of tax              |   |                                  | 94     |                                |   | 1.0% |   |   | 73 |   |   | 0.8% |   |   | 1,032 |   |   | 5.4% |   |   | 13,419 |   |   | 86.9% |   |
| Net                income (loss)                                            |   | $                                     | 81     |                                |   | 0.8% |   | $ | 406 |   |   | 4.7% |   | $ | 2,068 |   |   | 10.8% |   | $ | 13,362 |   |   | 86.5% |   |

----

**Three      Months Ended December 31, 2005 (“Second Quarter of Fiscal      2006”)**

**Compared      to Three Months Ended December 31, 2004 (“Second Quarter of Fiscal      2005”)**

**Revenue**

|                                             | **Three                Months Ended December 31,** |
|--------------------------------------------------|----------------------------------------------------|
|                                             | **(by                individual unit)**            |
|                                             | **2005**                                           | **2004** |
| Professional                audio conferencing   | 3,610                                              | 2,599 |
| Premium                and tabletop conferencing | 5,193                                              | 2,352 |

**Costs      of Goods Sold and Gross Profit**

|                              |   | **Three                Months Ended December 31,** |   |
|-----------------------------------|--------|----------------------------------------------------|--------|
|                              |   | **(in                thousands)**                  |   |
|                              |   | **2005**                                           |   | **2004** |   |
|                              |   |                                               |   | **%                of Revenue** |   |   |   | **%                of Revenue** |   |
|                              |   |                                               |   |   |   |   |   |   |   |
| Cost                of goods sold |   | $                                                  | 4,943  |   |   | 51.1% |   | $ | 3,948 |   |   | 45.4% |   |
|                              |   |                                               |   |   |   |   |   |   |   |   |   |   |   |
| Gross                profit       |   | $                                                  | 4,732  |   |   | 48.9% |   | $ | 4,744 |   |   | 54.6% |   |

----

**Operating      Expenses**

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

----

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

|                                                                           |   | **Three                Months Ended****December                31,** |   |
|--------------------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
|                                                                           |   | **(in                thousands)**                                    |   |
|                                                                           |   | **2005**                                                             |   | **2004** |   |
|                                                                           |   |                                                                 |   |   |   |
| Total                G&A before discontinued operations                    |   | $                                                                    | 1,457  |   | $ | 1,467 |   |
| OM                Video G&A                                                |   |                                                                 | -      |   |   | (79 | ) |
| Total                G&A from continuing operations                        |   | $                                                                    | 1,457  |   | $ | 1,388 |   |
|                                                                           |   |                                                                 |   |   |   |   |   |
| Professional                fees (SEC investigation and subsequent litigation) |   | $                                                                    | 157    |   | $ | 342 |   |
| Professional                fees (Other)                                       |   |                                                                 | 558    |   |   | 456 |   |
| Compensation                cost related to SFAS No. 123R                      |   |                                                                 | 190    |   |   | - |   |
| Other                general and administrative expense                        |   |                                                                 | 552    |   |   | 590 |   |
| Total                G&A from continuing operations                        |   | $                                                                    | 1,457  |   | $ | 1,388 |   |

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

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

**Operating      income (loss).**

----

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

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

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

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

**Six      Months Ended December 31, 2005 (“First and Second Quarters of Fiscal      2006”)**

**Compared      to Six Months Ended December 31, 2004 (“First and Second Quarters of Fiscal      2005”)**

**Revenue**

----

|                                             | **Six                Months Ended December 31,** |
|--------------------------------------------------|--------------------------------------------------|
|                                             | **(by                individual unit)**          |
|                                             | **2005**                                         | **2004** |
| Professional                audio conferencing   | 6,726                                            | 4,836 |
| Premium                and tabletop conferencing | 10,584                                           | 3,945 |

**Costs      of Goods Sold and Gross Profit**

|                              |   | **Six                Months Ended December 31,** |   |
|-----------------------------------|--------|--------------------------------------------------|--------|
|                              |   | **(in                thousands)**                |   |
|                              |   | **2005**                                         |   | **2004** |   |
|                              |   |                                             |   | **%                of Revenue** |   |   |   | **%                of Revenue** |   |
|                              |   |                                             |   |   |   |   |   |   |   |
| Cost                of goods sold |   | $                                                | 9,588  |   |   | 49.9% |   | $ | 7,745 |   |   | 50.2% |   |
|                              |   |                                             |   |   |   |   |   |   |   |   |   |   |   |
| Gross                profit       |   | $                                                | 9,614  |   |   | 50.1% |   | $ | 7,694 |   |   | 49.8% |   |

----

**Operating      Expenses**

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

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

|                                                                           |   | **Six                Months Ended****December                31,** |   |
|--------------------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|
|                                                                           |   | **(in                thousands)**                                  |   |
|                                                                           |   | **2005**                                                           |   | **2004** |   |
|                                                                           |   |                                                               |   |   |   |
| Total                G&A before discontinued operations                    |   | $                                                                  | 3,228  |   | $ | 3,000 |   |
| OM                Video G&A                                                |   |                                                               | -      |   |   | (177 | ) |
| Total                G&A from continuing operations                        |   | $                                                                  | 3,228  |   | $ | 2,823 |   |
|                                                                           |   |                                                               |   |   |   |   |   |
| Professional                fees (SEC investigation and subsequent litigation) |   | $                                                                  | 424    |   | $ | 478 |   |
| Professional                fees (Other)                                       |   |                                                               | 1,230  |   |   | 968 |   |
| Compensation                cost related to SFAS No. 123R                      |   |                                                               | 419    |   |   | - |   |
| Other                general and administrative expense                        |   |                                                               | 1,155  |   |   | 1,377 |   |
| Total                G&A from continuing operations                        |   | $                                                                  | 3,228  |   | $ | 2,823 |   |

----

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

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

**Operating      income (loss).**

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

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

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

----

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

**THIRD-PARTY      MANUFACTURING AGREEMENT**

**SUBSEQUENT      EVENTS**

**Sale      of OM Video.**

**Sale      of Conferencing Services.**

**Settlement      Agreement and Release.**

----

**LIQUIDITY      AND CAPITAL RESOURCES**

|                                              |   | Payments                Due by Period |   |
|---------------------------------------------------|--------|---------------------------------------|--------|
| Contractual                Obligations            |   | Total                                 |   | Remainder                of Fiscal 2006 |   | Fiscal                2007 and 2008 |   | Fiscal                2009 and 2010 |   | Thereafter |   |
|                                              |   |                                  |   |   |   |   |   |   |   |   |   |
| Operating                Leases                   |   | $                                     | 489    |   | $ | 247 |   | $ | 240 |   | $ | 2 |   | $ | - |   |
|                                              |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                Contractual Cash Obligations |   | $                                     | 489    |   | $ | 247 |   | $ | 240 |   | $ | 2 |   | $ | - |   |

----

**RECENT      ACCOUNTING PRONOUNCEMENTS **

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

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

**Inventory      Costs**

----

**Accounting      Changes and Error Corrections**

**Other-Than-Temporary      Impairment**

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

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

----

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

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

| ·   | Evaluation                of the staffing, organizational structure, systems, policies and                procedures, and other reporting processes, to improve the timeliness                of                closing the Company’s accounting records and to enhance the level of                review and supervision. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

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

----

**PART      II - OTHER INFORMATION**

**Item      1. LEGAL PROCEEDINGS**

*Legal      Proceedings.*

*The      Shareholders’ Class Action*

*The      Shareholder Derivative Actions*

----

*The      Insurance Coverage Action. *

*Wells      Submission.*

**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      December 31, 2005 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 gross      profit.*

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

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

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

*Proposed      sale of our camera business.*

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

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

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

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

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

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

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

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

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

----

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

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

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

----

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

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

*Our      directors and officers own 18.6 percent of the Company and may exert significant      influence over us.*

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

**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                             |
| 10.8    | 10                      | Asset                Purchase Agreement among Clarinet, Inc., American Teleconferencing                Services, Ltd. doing business as Premiere Conferencing, and ClearOne                Communications, Inc., dated July 1, 2004 | Incorp.                by reference4 |
| 10.9    | 10                      | Stock                Purchase Agreement dated March 4, 2005 between 6351352 Canada Inc.                and                Gentner Ventures, Inc., a wholly owned subsidiary of ClearOne                Communications, Inc.         | Incorp.                by reference1 |
| 10.10   | 10                      | Settlement                Agreement and Release between ClearOne Communications, Inc. and DeLonie                Call dated February 20, 2006*                                                                                      | Incorp.                by reference3 |
| 10.18   | 10                      | Mutual                Release and Waiver between ClearOne Communications, Inc. and Burk                Technology, Inc. dated August 22, 2005                                                                                       | Incorp.                by reference2 |
| 31.1    | 31                      | Section                302 Certification of Chief Executive Officer                                                                                                                                                                 | This                filing           |
| 31.2    | 31                      | Section                302 Certification of Interim Chief Financial Officer                                                                                                                                                         | This                filing           |
| 32.1    | 32                      | Section                906 Certification of Chief Executive Officer                                                                                                                                                                 | This                filing           |
| 32.2    | 32                      | Section                906 Certification of Interim Chief Financial Officer                                                                                                                                                         | This                filing           |

**______________**

----

**SIGNATURES**

|                         | CLEARONE                COMMUNICATIONS, INC. |
|------------------------------|----------------------------------------------|
|                         |                                         |   |
|                         |                                         |   |
|                         |                                         |   |
| June                13, 2006 | By:                                          | /s/                Zeynep Hakimoglu |
|                         |                                         | Zeynep                Hakimoglu |
|                         |                                         | President                and Chief Executive Officer |
|                         |                                         | *(Principal                Executive Officer)* |
|                         |                                         |   |
|                         |                                         |   |
|                         |                                         |   |
| June                13, 2006 | By:                                          | /s/                Craig E. Peeples |
|                         |                                         | Craig                E. Peeples |
|                         |                                         | Interim                Chief Financial Officer and Corporate Controller |
|                         |                                         | *(Principal                Financial and Accounting                Officer)* |