The following management's discussion and analysis of financial condition and results of operations gives effect to the restatement discussed in Note 21 of the Notes to Consolidated Financial Statements.

The following discussion should be read in conjunction with our consolidated financial statements and related notes included in this report, as well as the Company's other filings with the SEC. This discussion contains forward-looking statements based on current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions, as set forth under "Disclosure Regarding Forward-Looking Statements." Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the following discussion and under the caption "Risk Factors" in Item 1A and elsewhere in this report. Unless otherwise indicated, all references to a year reflect our fiscal year that ends on June 30.

OVERVIEW

The Company develops, manufactures, markets, and services a comprehensive line of high-quality audio conferencing products. The products range from personal conferencing products to tabletop conferencing phones to professionally installed audio systems. The Company also manufactures and sells conferencing furniture. Our products are used by organizations of all sizes to accomplish effective group communication. Our end-users range from some of the world's largest and most prestigious companies and institutions to small and medium-sized businesses, educational institutions, and government organizations as well as individual consumers. We sell our products to these end-users primarily through a network of independent distributors who in turn sell our products to dealers, systems integrators, and value-added resellers. The Company also sells products on a limited basis directly to dealers, systems integrators, value-added resellers, and end-users.

The Company derives a major portion (about 70%) of its revenue from North America. Despite the slow down in the U.S. economy during the fiscal year 2008, the Company was able to maintain nearly the same revenue as it had in the previous fiscal year.

The conferencing products market is characterized by intense competition and rapidly evolving technology. Our competitors vary within each product category. The Company continues to enjoy the leadership position with respect to professionally installed audio category and was able to expand its market share of personal conferencing products. However we face significant competition in premium and tabletop categories due to price pressures, evident from the decline in premium and tabletop revenues.

Our financial performance improved as a result of enhanced product cost efficiencies, selective channel price increases and lower sales and marketing expenses, a consequence of the realignment of our sales management team for more effective territory coverage. The fiscal 2008 financial results included the reversal of a $4.7 million valuation allowance recorded against deferred tax assets and a $3.3 million accrual for a contingent liability associated with indemnification agreements with two former officers.

During the fiscal year 2008, the Company repurchased 835,000 shares of its common stock at a total cost of approximately $4.3 million in open market and private block transactions.

DISCUSSION OF OPERATIONS

Results of Operations

The following table sets forth certain items from our consolidated statements of operations for the fiscal years ended June 30, 2008, 2007, and 2006, together with the percentage of total revenue which each such item represents.

                                                             Year Ended June 30,
                                    2008                             2007                             2006
                                                          (in thousands of dollars)
                                       % of Revenue                     % of Revenue                     % of Revenue

Revenue                 $  38,758             100.0%     $  39,783             100.0%     $  34,528             100.0%
Cost of goods sold         16,204              41.8%        17,637              44.3%        16,852              48.8%
Gross profit               22,554              58.2%        22,146              55.7%        17,676              51.2%
Operating expenses
(benefit):
 Sales & Marketing          6,673              17.2%         7,791              19.6%         7,866              22.8%
 Research and product
development                 7,070              18.2%         7,535              18.9%         8,299              24.0%
 General and
administrative              7,669              19.8%         3,091               7.8%         5,108              14.8%
 Settlement in
shareholders' class
action                          -               0.0%             -               0.0%        (1,205 )            -3.5%
Total operating
expenses                   21,412              55.2%        18,417              46.3%        20,068              58.1%
Operating income
(loss)                      1,142               2.9%         3,729               9.4%        (2,392 )            -6.9%
Other income, net           1,005               2.6%         1,523               3.8%         1,016               2.9%
Income (loss) from
continuing operations
   before income
taxes                       2,147               5.5%         5,252              13.2%        (1,376 )            -4.0%
Benefit from
(provision
for) income taxes           3,096               8.0%          (457 )            -1.1%         1,005               2.9%
Income (loss) from
continuing operations       5,243              13.5%         4,795              12.1%          (371 )            -1.1%
Income from
discontinued
operations, net of
tax                            16               0.0%           422               1.1%         2,156               6.2%
Net income              $   5,259              13.6%     $   5,217              13.1%     $   1,785               5.2%

The following is a discussion of our results of operations for our fiscal years ended June 30, 2008, 2007, and 2006. All items are discussed on a consolidated basis.

Revenue

Our revenues were $38.8 million for the fiscal year ended June 30, 2008 ("2008") compared to revenues of $39.8 million and $34.5 million for the fiscal years ended June 30, 2007 ("2007") and June 30, 2006 ("2006"), respectively.

Revenue during 2008 decreased $1.0 million or 3 percent from 2007 and increased $4.2 million or 12 percent over 2006. The decrease in revenue in 2008 from 2007 was due primarily to declines in our professional, premium, tabletop, conferencing furniture and conferencing accessories products which collectively decreased approximately $1.1 million partially offset by a collective increase of approximately $50,000 in our personal conferencing products. The competitive pressures in the tabletop category are not expected to ease while the outlook for personal conferencing products remains promising.

The $4.2 million increase in revenue in 2008 over 2006 was due to continued growth in our professional conferencing products which increased approximately $4.6 million in 2008 over 2006. We also realized growth in our tabletop and personal conferencing products which collectively increased about $780,000 in 2008 from 2006. These increases were partially offset by declines in our premium conferencing, conferencing furniture, configuration services, and other products which collectively decreased by about $1.2 million.

We evaluate, at each quarter-end, the inventory in the channel through information provided by certain of our distributors. The level of inventory in the channel will fluctuate up or down, each quarter, based upon our distributors' individual operations. Accordingly, each quarter-end revenue deferral is calculated and recorded based upon the underlying channel inventory at quarter-end. During the fiscal years ended June 30, 2008 and 2007, the change in deferred revenue based on the movement of inventory in the channel was a (deferral) recognition of ($670,000) and $946,000 in revenue, respectively.

Revenue from sales outside of the United States as a percent of total revenue was 30 percent for 2008, 29 percent for 2007 and 28 percent for 2006.

Costs of Goods Sold and Gross Profit

Costs of goods sold ("COGS") includes expenses associated with finished goods purchased from outsourced manufacturers, the manufacture of our products, including material and direct labor, our manufacturing and operations organization, property and equipment depreciation, warranty expense, freight expense, royalty payments, and the allocation of overhead expenses.

Our 2008 gross profit was $22.6 million compared to $22.1 million in 2007 and $17.7 million in 2006. Gross profit margins ("GPM"), gross profit as a percentage of sales, were 58.2, 55.7 and 51.2 percent in 2008, 2007 and 2006, respectively.

Despite the $1.0 million revenue decrease in 2008 from 2007, we achieved a $400,000 increase in gross profit and 2.5 percent GPM increase over the same period due primarily to the 2008 mix and magnitude of higher margin professional installed audio products, selective channel price increases in effect for all of 2008 and lower costs on several of our products realized from a combination of new product designs optimized for, among other things, lower manufacturing costs in addition to negotiating lower prices with certain of our outsourced manufacturing partners. However, we believe that the overall gross margin will decline in the near future as expected increases in the revenue of lower margin products would outpace the growth of higher margin professionally installed audio products. 2008 gross profit was $4.9 million higher and GPM increased 7.0 percent over 2006 due to a 2008 mix of higher margin products, a significant decrease in inventory cost variances and product write-off's from 2006 and the selective price increases and lower product costs discussed above.

Operating Expenses and Profits (Losses)

Operating profits (losses), or income from operations, is the surplus after operating expenses are deducted from gross profits. Operating expenses include sales & marketing ("S&M") expenses, research and development ("R&D") expenses and general and administrative ("G&A") expenses. Total operating expenses were $21.4 million in 2008 compared to $18.4 million in 2007 and $20.1 million in 2006. The following is a more detailed discussion of expenses related to sales and marketing, research and product development, general and administrative, and settlement in shareholders' class action.

Sales and Marketing. S&M expenses include selling, customer service, and marketing expenses such as employee-related costs, allocations of overhead expenses, trade shows, and other advertising and selling expenses. Total S&M expenses were $6.7 million in 2008 compared to $7.8 million in 2007 and $7.9 million in 2006. As a percentage of revenues, S&M expenses were 17.2 percent in 2008 compared to 19.6 percent in 2007 and 22.8 percent in 2006. 2008 S&M expenses were about $1.1 million or 14 percent lower than 2007 due primarily to lower labor and related expenses which demonstrated our ability to leverage existing S&M resources to generate a solid revenue result. 2008 S&M expenses were approximately $1.2 million lower than 2006 also due to a decrease of approximately $1.4 million of labor and related expenses partially offset by higher marketing related expenses.

Research and Development. R&D expenses include research and development, product line management, engineering services, and test and application expenses, including employee-related costs, outside services, expensed materials, depreciation, and an allocation of overhead expenses. Total R&D expenses were $7.1 million in 2008 compared to $7.5 million in 2007 and $8.3 million in 2006. As a percentage of revenues, R&D expenses were 18.2 percent in 2008 compared to 18.9 percent in 2007 and 24.0 percent in 2006. 2008 R&D expenses decreased approximately $500,000 from 2007 due to lower project specific R&D costs, primarily related to our early fiscal 2008 completion and launch of our Converge Pro line of professional conferencing products. The 2008 decrease in R&D expenses of $1.2 million from 2006 was due to lower labor and related expenses and outside engineering expenses of approximately $900,000 in addition to lower R&D project specific expenses of about $400,000 each of which were related to ongoing R&D efforts including bringing our the majority of our products into compliance with environmental directives.

General and Administrative G&A expenses include employee-related costs, professional service fees, allocations of overhead expenses, litigation costs and corporate administrative costs, including finance and human resources. Total G&A expenses were $7.7 million in 2008 compared to $3.1 million in 2007 and $5.1 million in 2006. As a percentage of revenues, G&A expenses were 19.8 percent in 2008, 7.8 percent in 2007 and 14.8 percent in 2006. The significant $4.6 million increase in 2008 G&A expenses from 2007 was due primarily to estimating and establishing a $3.3 million accrual for a contingent liability. The Company's legal fees also increased approximately $1 million in 2008 from 2007 primarily associated with its theft of intellectual property and copyright complaints against WideBand Solutions, Inc. et al. (please refer to Item 3 "Legal Proceedings" in Part I of this Form 10-K/A for additional information on these legal proceedings). 2008 G&A expenses were about $2.6 million higher than 2006 due primarily to the $3.3 million accrual for a contingent liability and $1 million in legal fees discussed above, partially offset by lower payroll and related expenses of about $400,000 associated with lower G&A headcount, lower depreciation of about $250,000 and lower audit and related fees of $1.3 million required in much of 2006 to bring the Company's financial statements current.

Settlement in shareholders' class action expense (benefit). During June 2003, a consolidated complaint was filed against ClearOne, eight of our present or former officers and directors, and our former auditor, Ernst & Young, by a class consisting of purchasers of the Company's common stock during the period from April 17, 2001 through January 15, 2003. On December 4, 2003, we, on behalf of the Company and all other defendants with the exception of Ernst & Young, entered into a settlement agreement with the class pursuant to which we agreed to pay the class $5.0 million and issue the class 1.2 million shares of our common stock. The cash payment was made in two equal installments, the first on November 10, 2003 and the second on January 14, 2005. On May 23, 2005, the court order was amended to provide that odd-lot numbers of shares (99 or fewer shares) would not be issued from the settlement fund and claimants who would otherwise be entitled to receive 99 or fewer shares would be paid cash in lieu of such odd-lot numbers of shares. On September 29, 2005, we completed our obligations under the settlement agreement by issuing a total of 1,148,494 shares of our common stock to the plaintiff class, including 228,000 shares previously issued in November 2004, and paying an aggregate of $126,705 in cash in lieu of shares to those members of the class who would otherwise have been entitled to receive an odd-lot number of shares or who resided in states in which there was no exemption available for the issuance of shares. The cash payments were calculated on the basis of $2.46 per share which was equal to the higher of (i) the closing price for our common stock as quoted by the Pink Sheets on the business day prior to the date the shares were mailed or (ii) the average closing price over the five trading days prior to such mailing date.

During fiscal 2006 and fiscal 2005 we realized a (benefit) from this settlement in the amount of ($1.2 million) and ($2.1 million), respectively as a result of the quarterly mark-to-market of the liability associated with the 1.2 million shares of common stock that were issued in November 2004 (fiscal 2005) and September 2005 (fiscal 2006) to class members and their legal counsel as part of the December 2003 (fiscal 2004) settlement agreement. This mark-to-market adjustment of the stock to reflect the liability associated with the 1.2 million shares was based upon the closing price of our common stock at the end of each quarter through the date the shares were issued on September 29, 2005. Accordingly, the expense (benefit) associated with these stock price fluctuations is no longer recognized.

Other operating income, net. Other income, net, includes our interest income, interest expense, capital gains, gain (loss) on the disposal of assets, and currency gain (loss). Other income was $1.0 million in 2008 compared to $1.5 million in 2007 and $1.0 million in 2006. The $500,000 decrease in 2008 from 2007 was due primarily to the Company's 2007 receipt of approximately $300,000 in interest which accompanied a $3.1 million IRS refund payment in addition to lower interest income associated lower interest rates in the Company's investments and lower cash and marketable securities balances as the Company used $4.3 million of its cash during 2008 to repurchase its common stock. Other operating income was about the same in both 2008 and 2006.

Benefit from (Provision for) income taxes. The Company's benefit for income taxes from continuing operations was $3.1 million in 2008 compared to a provision of about ($457,000) in 2007 and a benefit of $1.0 million in 2006. The $3.1 million benefit in 2008 was due primarily to the reversal of the Company's valuation allowance during the fiscal fourth quarter that the Company had recorded against its deferred tax assets. Given the Company's past history of losses from continuing operations, prior to its fiscal 2007, a valuation allowance was recorded against all of the Company's deferred tax assets. The valuation allowance was initially established, in accordance with SFAS No. 109, "Accounting for Income Taxes, because it was not considered more likely than not that the deferred tax assets would be realized. However, as a result of our analysis and in accordance with generally accepted accounting principles, the previously established valuation allowance of approximately $4.7 million was reversed. The Company's income taxes were negatively impacted in 2008 by its adoption of FIN 48 Accounting for Uncertainty in Income Taxes in addition to its recognition of tax on the undistributed earnings of the Company's foreign subsidiaries which together added approximately $541,000 to the Company's 2008 income tax expense.

In 2007 the Company recorded a ($457,000) income tax provision. Due to the Company's 2007 profitability, it was able to begin taking advantage of R&D tax credits and state operating loss deductions resulting in a relatively low, 8.7 percent effective income tax rate on 2007 income from continuing operations. The Company realized a tax benefit in 2006 due to its losses from continuing operations.

Income from discontinued operations, net of tax. Income from discontinued operations, net of tax, includes the gain on the sale of our conferencing services business and the funds from the Indemnity Escrow account from Premiere related to the sale of our conferencing services business which was sold on July 1, 2004; income from discontinued operations related to our Canadian audiovisual integration business ("OM Video"); the gain on the March 4, 2005 sale of OM Video; payments on our note receivable related to the sale of OM Video; payments on our note receivable related to the sale to Burk; and income from discontinued operations to our Document and Educational Camera business sold to Ken-A-Vision Manufacturing Company, Inc. ("KAV") on August 23, 2006. Accordingly, the results of operations and the financial position have been reclassified in the accompanying consolidated financial statements as discontinued operations. The total income from discontinued operations, net of tax, was $16,000 for 2008 compared to $422,000 for 2007 and $2.2 million in 2006. Summary operating results of the discontinued operations are set forth below (in thousands of dollars).

                                                              Years Ended June 30,
                                                        2008           2007          2006

Total income from discontinued operations, net of
income taxes
Conferencing services business                       $        -      $       -     $     729
OM Video                                                     16            381           248
Burk Technology                                               -              -           953
Ken-A-Vision                                                  -             41           226
Total income from discontinued operations, net of
income taxes                                         $       16      $     422     $   2,156

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2008, our cash and cash equivalents were approximately $3.3 million and our marketable securities were approximately $17.1 million, which represented an overall decrease of $2.2 million in our balances from June 30, 2007 which had cash and cash equivalents of approximately $2.8 million and marketable securities of approximately $19.9 million. We had an overall decrease of approximately $1.4 million from our balances at June 30, 2006, which had cash and cash equivalents of approximately $1.2 million and marketable securities totaling $20.6 million.

Net cash flows provided by operating activities were $3.5 million in 2008 compared to $6.8 million in 2007 and $2.2 million in 2006. 2008 net cash provided by operating activities was lower than 2007 by $3.3 million primarily due to the Company's reversal of its previously established valuation allowance recorded against deferred tax assets which resulted in a ($4.7 million) non-cash adjustment in its statement of cash flows and $524,000 decrease in inventory write-off's partially offset by the $448,000 increase in net income and $1.6 million increase in changes in other operating assets and liabilities. The $1.3 million increase in net cash provided by operating activities in 2008 over 2006 was due to the $5.6 million increase in net income from continuing operations offset by a $2.4 million decrease in changes in other operating assets and liabilities which includes the ($4.7 million) deferred tax asset valuation allowance reversal in addition to lower depreciation, stock-based compensation, inventory write-offs and cash provided by discontinued operating activities which collectively decreased approximately $2.3 million.

Net cash flows provided by (used in) investing activities were $700,000 in 2008 compared to $748,000 in 2007 and ($2.8 million) in 2006. The 2008 $48,000 decrease in net cash provided by investing activities from 2007 was due primarily to $925,000 less cash provided by discontinued investing activities in 2008 from 2007 related to the Company's sale of its educational camera product line in August 2006 and the sale of its stock of ClearOne Canada to OM Video. This decrease was partially offset by a $838,000 increase in the sale of marketable securities, net of purchases of marketable securities in 2008. 2008 net cash provided by investing activities increased about $3.5 million from 2006 due primarily to increased sales of marketable securities of $6.2 million, net of purchases of marketable securities in 2008, partially offset by $1.9 million less cash provided by discontinued operating activities and an increase of $560,000 in cash used to purchase of property and equipment.

Net cash (used in) provided by financing activities during 2008 totaled approximately ($3.7 million) compared to ($6.0 million) in 2007 and $0 in 2006. During 2008, we repurchased 835,000 shares of our common stock for $4.3 million. Also during 2008 we received $800,000 and issued 228,000 of stock upon the exercise of employee stock options. We received a $70,000 tax benefit from option exercises in 2008. During 2007 we repurchased approximately 1.4 million shares of our common stock for approximately $6.1 million. We did not have any net cash flows (used in) financing activities in fiscal 2006.

Additionally, in 2008 we paid approximately $1.7 million in income taxes and reduced our July 1, 2007 balance of retained earnings by $295,000 upon adoption of FASB issued Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes." During 2007, we recorded $1.1 million in non-cash financing activities related to leasehold improvements to our headquarters, the majority of which was paid as an incentive by the lessor as part of the lease agreement. These improvements are being accounted for in accordance with FASB Technical Bulletin No. 88-1, Issues Relating to Accounting for Leases, which states among other things that landlord incentives which fund leasehold improvements should be recorded as deferred rent and amortized as reductions to lease expense over the term of the lease.

We believe that future income from operations and effective management of working capital will provide the liquidity needed to meet our short-term and long-term operating requirements and finance our growth plans. In addition to capital expenditures, we may use cash during fiscal 2009 for selective infusions of technological, marketing or product manufacturing rights to broaden our product offerings; for continued share repurchases; and if available for a reasonable price, acquisitions that may strategically fit our business and are accretive to performance.

At June 30, 2008, we had open purchase orders related to our contract manufacturers and other contractual obligations of approximately $6.2 million primarily related to inventory purchases.

As of June 30, 2008, we had approximately $12.3 million par value of auction rate securities, less a temporary valuation adjustment of approximately $1.1 million to reflect the current lack of liquidity of these investments. We recorded this temporary valuation adjustment in other comprehensive income, net of the related tax benefit of $413,000, which did not affect fiscal 2008 earnings, and reclassified these investments to long-term investment securities to reflect the lack of liquidity of these investments. Due to current market conditions, these investments have experienced failed auctions beginning in mid-February 2008. These failed auctions result in a lack of liquidity in the securities, but do not affect the underlying collateral of the securities and we believe that given their high credit quality, it will ultimately recover at par all amounts invested in these securities. We do not anticipate that any potential lack of liquidity in these auction rate securities will affect our ability to finance our operations and growth plans.

On March 4, 2005, we sold all of the issued and outstanding stock of ClearOne Canada to 6351352 Canada Inc. ClearOne Canada owned all the issued and outstanding stock of Stechyson Electronics, Ltd., which conducts business under the name OM Video. For the first two quarters of fiscal 2006 and during all of fiscal 2005, we received total payments, including interest, of $300,000 and $150,000, respectively, on the note receivable. Through December 31, 2005, all . . .