UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K
             (Mark One)
[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934
                  For the fiscal year ended December 31, 2001
                                       or
[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
        EXCHANGE ACT OF 1934
                        For the transition period from to
                         Commission File Number 0-18672

                           ZOOM TECHNOLOGIES, INC.
                           -----------------------
            (Exact Name of Registrant as Specified in Its Charter)


                Delaware                                        04-2621506
                                                                ----------
            (State or Other Jurisdiction of                (I.R.S. Employer
             Incorporation or Organization)               Identification No.)

          207 South Street, Boston, Massachusetts               02111
          Address of Principal Executive Offices)             (Zip Code)

      Registrant's Telephone Number, Including Area Code: (617) 423-1072
      Securities Registered Pursuant to Section 12 (b) of the Act: None
         Securities Registered Pursuant to Section 12 (g) of the Act:

                          Common Stock, $.01 Par Value
                                (Title of Class)

Indicate  by check mark  whether  the  registrant:  (1) has filed all  reports
required to be filed by Section 13 or 15(d) of the Securities  Exchange Act of
1934  during the  preceding  12 months (or for such  shorter  period  that the
registrant  was  required to file such  reports),  and (2) has been subject to
such filing requirements for the past 90 days.
YES   [X]   NO   [ ]

Indicate by a check mark if disclosure of delinquent  filers  pursuant to Item
405 of Regulation S-K is not contained herein,  and will not be contained,  to
the  best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this  Form 10-K or any
amendment to this Form 10-K. [X]

The  aggregate  market  value of the  common  stock,  $0.01  par  value,  of the
registrant  held by  non-affiliates  of the  registrant  as of  March  20,  2002
(computed by reference to the closing price of such stock on The Nasdaq National
Market on such date) was approximately $8,646,953.

The number of shares  outstanding of the  registrant's  common stock,  $0.01 par
value, as of March 20, 2002 was 7,860,866 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's  proxy statement for the  registrant's  2002 annual
meeting of shareholders to be filed with the SEC in April 2002 are  incorporated
by reference into Part III, Items 10-13 of this Form 10-K.

<PAGE>
              SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements  contained in this report are forward-looking  statements
within the meaning of Section 27A of the  Securities Act of 1933 and Section 21E
of the  Securities  Exchange Act of 1934.  These  statements  involve  known and
unknown  risks,  uncertainties  and  other  factors  which  may cause our or our
industry's  actual  results,   performance  or  achievements  to  be  materially
different  from any future  results,  performance or  achievements  expressed or
implied by the forward-looking  statements.  Forward-looking statements include,
but are not limited to statements regarding:

o     the timing of and anticipated introduction of our advanced cable and
      ADSL modems and other broadband products;
o     timing of our goal of returning to profitability;
o     the development of new competitive technologies and products;
o     approvals, certifications and clearances for our products;
o     production schedules for our products;
o     market acceptance of new products;
o     business strategies;
o     dependence on significant suppliers;
o     dependence on significant  manufacturers,  distributors  and customers;
o     the availability of debt and equity financing;
o     general economic conditions;
o     the realization of cash improvement from  the  sale of  excess  inventory;
o     the realization of cash improvement from the utilization of no-charge
      components;
o     the impact of our cost-savings initiatives; and
o     our financial condition or results of operations.

In some cases,  you can  identify  forward-looking  statements  by terms such as
"may," "will," "should," "could," "would,"  "expects,"  "plans,"  "anticipates,"
"believes,"   "estimates,"   "projects,"  "predicts,"  "potential"  and  similar
expressions intended to identify  forward-looking  statements.  These statements
are only  predictions  and involve known and unknown risks,  uncertainties,  and
other  factors  that  may  cause  our  actual   results,   levels  of  activity,
performance, or achievements to be materially different from any future results,
levels of activity,  performance,  or achievements  expressed or implied by such
forward-looking  statements.  Given  these  uncertainties,  you should not place
undue reliance on these forward-looking statements.  Also, these forward-looking
statements  represent our estimates and assumptions  only as of the date of this
report. We expressly  disclaim any obligation or undertaking to release publicly
any updates or  revisions  to any  forward-looking  statement  contained in this
report to  reflect  any  change in our  expectations  or any  change in  events,
conditions or circumstances on which any of our  forward-looking  statements are
based.  Factors  that could cause or  contribute  to  differences  in our future
financial  results include those discussed in the risk factors set forth in Item
7 below as well as those discussed  elsewhere in this report.  We qualify all of
our forward-looking statements by these cautionary statements.

<PAGE>
PART I

ITEM 1 - BUSINESS

Overview

We design, produce and market dial-up and broadband modems,  wireless local area
network products, and other communications products. Our primary objective is to
build upon our position as a leading  supplier of Internet access devices and to
take advantage of a number of emerging trends in computer connectivity including
Internet access, higher data rates, broadband applications,  and alternatives to
traditional wired local area networks.

To date our revenues have come primarily from sales of our dial-up  modems.  Our
dial-up  modems  connect  personal  computers  and  other  devices  to the local
telephone line for  transmission  of data, fax,  voice,  and video.  Our dial-up
modems enable personal computers and other devices to connect to other computers
and networks, including the Internet and local area networks, at top data speeds
of 56,000  bits per  second.  Most of our modems  connect to a single  telephone
line,  but we also make  multi-line  modems  which can  connect to up to sixteen
telephone  lines.  We also have a line of integrated  services  digital  network
("ISDN") products,  which can transmit and receive data  simultaneously at up to
128,000 bits per second.

In response to increased demand for faster connection speeds and increased modem
functionality,  we have invested resources to expand our product line to include
cable and ADSL modems and other broadband access products.  Cable modems provide
a  high-bandwidth  connection  to the  Internet  through a  cable-TV  cable that
connects to compatible equipment at or near the cable service provider. We began
shipping cable modems during 2000. Our cable modem  customers in the US, the UK,
and other  countries  now include cable service  providers,  original  equipment
manufacturers, and retailers.

Our Asymmetric Digital Subscriber Line modems,  known as ADSL modems,  provide a
high-bandwidth connection to the Internet through a standard telephone line that
connects to compatible ADSL equipment in or near the central  telephone  office.
We are currently  shipping a USB model,  and plan to introduce  during the first
half of 2002 an  Ethernet/USB  model  designed to work with either  normal phone
service or ISDN service.

Other  products  that we market and sell  include  wireless  local area  network
products and a new generation of dialers. Our ZoomAirtm wireless products enable
the  connection  of a notebook  or desktop  computer  to another  computer or an
existing local area network using wireless data technology.  We currently ship a
variety of ZoomAirtm  models,  and are  continuing  to develop and introduce new
ZoomAirtm  products.  Our dialers are a new generation of the Demon Dialertm and
Hotshottm  dialers that we designed  and  produced in the early  1980s.  Dialers
simplify the placing of a phone call by dialing digits automatically.

We were  incorporated  in British  Columbia under the name 1519 Holdings Ltd. on
July 7, 1986 and  subsequently  changed  our name to Zoom  Telephonics,  Inc. on
October 1, 1987. On June 28, 1991, we changed our  jurisdiction of incorporation
from British Columbia to Canada. In February 2002, we completed a transaction to
change our  jurisdiction of  incorporation  from Canada to the State of Delaware
and  changed  our  corporate  name to Zoom  Technologies,  Inc.  Our  operations
continue to be carried out by our wholly  owned  subsidiary,  Zoom  Telephonics,
Inc., a Delaware corporation. Our principal executive offices are located at 207
South Street, Boston, MA 02111 and our telephone number is (617) 423-1072.

Products

General

The vast majority of our products  facilitate  communication of data through the
Internet.  Our dial-up modems and integrated  services digital network, or ISDN,
modems link PCs and portable  information  devices through the telephone network
and  connected  networks,  including  the  Internet  and  local  area  networks.
Similarly,  our cable modems use the cable-TV  cable and our ADSL modems use the
local telephone line to provide a high-speed link to the Internet.  Our advanced
networking  products,  including wireless local area network,  or LAN, products,
help to link PCs and other computing  devices to each other and to the Internet.
Starting with our acquisition of Tribe Computer Works in 1996, we began shipping
business  products that provide remote users shared access to the resources of a
LAN,  and  connect  users  of the LAN to the  Internet  and to  remote  LANs and
computers.
<PAGE>
Dial-Up Modems

We have a broad  line of  dial-up  modems  with top data  speeds of 56,000  bps,
available in internal,  external and PCMCIA models.  PC-oriented internal modems
are  designed  primarily  for  installation  in  the  PCI  or  ISA  slot  of IBM
PC-compatibles.  Embedded  internal modems are designed to be embedded in non-PC
equipment such as point-of-purchase  terminals,  kiosks, and set-top boxes. Many
of our  external  modems are  designed to work with any  terminal  or  computer,
including  IBM  PC-compatibles,  the Apple  Macintosh and other  computers.  Our
external models include desktop models and multi-line  modems with up to sixteen
modems in an enclosure. Our PCMCIA modems are designed for use with notebook and
sub-notebook  computers as well as PDAs (personal digital  assistants)  equipped
with standard PCMCIA slots.  When sold as packaged retail  products,  our modems
are shipped  complete  with  third-party  software  that  supports  the hardware
capabilities of the modem.

56K modems  allow users  connected to standard  phone lines to download  data at
speeds  up to  56,000  bps when  communicating  with  compatible  central  sites
connected to digital  lines such as ISDN or T1 lines.  Those  central  sites are
typically online  services,  Internet  Service  Providers,  or remote LAN access
equipment.  We began  shipping  pre-standard  K56flextm 56K modems in the second
quarter  of  1997.   In  February   1998,  a  committee  of  the   International
Telecommunications  Union ("ITU") agreed upon the V.90 standard for 56K. V.90 is
now widely deployed in equipment made by central site manufacturers, and most of
our dial-up  modem sales  include  V.90.  We are now also  shipping V.92 modems,
which offer  increased  functionality  and faster upstream data rates. We expect
V.92  modems to take an  increasing  and  ultimately  large share of the dial-up
modem market because of these increased functions.

In March and April of 1999, we acquired substantially all of the modem assets of
Hayes Microcomputer  Products,  Inc., a former leader in the modem industry.  In
July 2000,  we  acquired  the  trademark  and product  rights to Global  Village
products. Global Village is a leading modem brand for Apple MacIntosh computers.
We now sell and market dial-up  modems under the Zoom,  Hayes and Global Village
names, as well as under various other private-label brands developed for some of
our large accounts.

The following sets forth some of the key features incorporated in one or more of
our dial-up modems:

o     ZoomGuardtm.  ZoomGuard  represents the protective  circuitry added to our
      modems to improve  their  ability to  withstand  the effects of  lightning
      striking  a phone  line to which the modem is  connected.  For most  modem
      manufacturers, lightning is the number one cause of field failures.
o     PC Card Guard tm. PC Card Guard represents the protective  circuitry added
      to our PCMCIA modems to protect against destruction caused by plugging the
      modem into a digital PBX phone jack. We were one of the first companies to
      develop this useful feature.
o     Voice Mail.  Voice mail  capability  allows a PC to serve as an  answering
      machine with message storage and local or remote message retrieval.
o     Channel 2tm.  Channel 2 is our trademark for a feature that works with the
      optional Call Waiting feature available from some phone companies. Channel
      2  permits  the  modem to  recognize  an  incoming  call when the modem is
      on-line, so that the user can determine how to handle the call.
o     Distinctive Ring.  Distinctive Ring is a service offered by telephone
      companies that assigns more than one phone number to a single phone
      line, with each number ringing differently.  This service along with
      appropriate modem functionality allows someone to arrange for one phone
      number to be answered as a phone line, a second number to be answered
      as a fax line, and a third number to be answered as a data line. We
      have been issued a United States patent related to our distinctive ring
      technology.
o     Plug & Play. Microsoft's Windows software supports Plug & Play, a standard
      that is  intended  to allow  the  installation  of Plug &  Play-compatible
      peripherals  like  modems  with  limited  hardware  configuration  by  the
      end-user.

International Modems.

Most  foreign  countries  have  their  own   telecommunications   standards  and
regulatory  approval  requirements for sales of communications  products such as
those we offer. As a result, the introduction of new products into international
markets  can be costly and  time-consuming.  In 1993,  we  introduced  our first
dial-up modem approved for selected  Western European  countries.  Since then we
have continued to expand our product offerings internationally. We have received
regulatory  approvals for, and are currently  selling dial-up modems in a number
of countries,  including Australia, Austria, Belgium, Denmark, Finland, Germany,
<PAGE>
Hungary,  India,  Ireland,  Italy,  Japan,  the Netherlands,  Poland,  Portugal,
Russia,  Slovenia,  South Africa,  Spain,  Sweden,  Switzerland,  and the United
Kingdom.  We intend to continue  to expand and enhance our product  line for our
existing  markets  and to seek  approvals  for the sale of our  products  in new
countries throughout the world.

Multi-line Modems.

In 1996 we began  shipping a family of multi-line  dial-up  modems  targeted for
local area network fax and data server  applications,  computer bulletin boards,
multi-line voice mail, and other applications.  The Zoom/MultiLine products hold
up to eight voice  dial-up  faxmodems in one small  external  case that includes
status  indicators  for each  dial-up  modem.  The Hayes  Century  product  line
provides up to 16 dial-up modems in a single enclosure.

ISDN Products.

We have a family of modems for  Integrated  Service  Digital  Network,  or ISDN,
communications.  ISDN is a telephone service that allows existing phone lines to
be used to  transmit  data  digitally.  ISDN  service  permits  much higher data
transmission  rates  than  conventional  analog  telephone  service.  Basic ISDN
service provides two 64,000 bps channels and one 16,000 bps channel.  The higher
rates of data transmission  achievable with ISDN can be particularly  attractive
for  data-intensive  applications such as the transmission of graphics and video
images, World Wide Web browsing, or video telephony. In February 1997 we shipped
our  first  ISDN  product.   We  continue  to  expand  our  ISDN  product  line,
particularly  for Europe.  In addition,  we have integrated ISDN capability into
some of our LAN-oriented business products, including the ZoomAir AP128 wireless
access point.

We  have  a  line  of  ISDN  products,  which  can  transmit  and  receive  data
simultaneously  at up to 128,000 bits per second.  In addition,  in late 2000 we
introduced the following ISDN products:

o     a PCI model that  plugs into the PCI slot of a Windows  PC,
o     a USB model that plugs into the USB port of a PC, and
o     a serial  port model that plugs into the serial port of a PC.

Cable Modems

In general,  cable  service  providers  do not allow cable  modems to be used on
their  networks,  unless they have been approved for use on their cable network.
Each cable service provider has its own and evolving approval process,  in which
they may  require  CableLabs(R)  certification  in addition to their own company
approval.  We  have  obtained  CableLabs(R)  certification  for  four  types  of
DOCSIS-standard  cable modems - PCI, USB, Ethernet,  and Ethernet/USB models. We
are continuing to work with cable service  providers to further expand our reach
and the breadth of our approved product offerings. The approval process has been
and  continues  to  be a  significant  barrier  to  entry,  as  are  the  strong
relationships  with cable service providers enjoyed by incumbent cable equipment
providers like Motorola and Scientific Atlanta.

In 2002 we expect to continue to sell cable  modems to cable  service  providers
and  original  equipment  manufacturers  both  inside and outside the US. We are
already selling cable modems through some  high-volume  retailers in the US, and
we hope to expand sales  through that  channel.  So far sales through the retail
channel have been  handicapped  by a number of factors,  including  the approval
process  described  above and the fact that some cable service  providers do not
provide a financial  incentive to a customer who  purchases his own modem rather
than  leasing it from the cable  service  provider.  By  providing  a  financial
incentive,  typically  $10  to $15  per  month,  some  cable  service  providers
encourage purchase of the cable modem by their customers.

ADSL Modems.

Our ADSL  modems  incorporate  the  standards  that are most  popular  with U.S.
telephone companies and Internet Service providers,  including G.DMT and G.Lite.
In 2000,  we designed and shipped our first ADSL  modems,  an external USB model
and an internal PCI model.  In 2002 we expect to introduce an ADSL  Ethernet/USB
model with advanced router features.

Wireless LAN Products.

In December  1998 we began  shipping the first models in our  ZoomAirtm  line of
wireless  local area  network  products.  These  products  connect a notebook or
desktop  computer to another  computer or an existing local area network using a
wireless  data  communication  standard.  Our most recent  wireless LAN products
<PAGE>
provide an 11 Mbps data rate using the IEEE 802.11b standard.  We currently ship
network  interface  cards that plug into a USB port, or a PCMCIA or PCI slot. We
recently began shipping a wireless gateway with built-in firewall security.  Our
product line also includes  building-to-building  wireless bridges and an access
point for  connecting  wireless  network  devices to a wired local area network.
Many of our  competitors'  wireless  products have been difficult to install and
use and we attempt to design products that are exceptionally easy to install and
use.

Full-Color Live-Motion Cameras and Other Video Products.

In late 1997, we shipped the Zoom/Video  Cam, a full-color  live-motion  camera.
The Zoom/Video Cam can be used for video phone calls, video  conferences,  video
mail, and still image capture.  We have limited product development in the video
area,  and our primary sales come from cameras that connect to a USB port. We do
not view  cameras as key to our  product  strategy,  and do not intend to make a
significant product development effort in this area.

Dialers.

Our  dialers   simplify   the  placing  of  a  phone  call  by  dialing   digits
automatically.  We shipped our first telephone dialer,  the Demon Dialer(R),  in
1981, and, in 1983, began shipping the Hotshot(TM)  dialer. As the dialer market
diminished due to equal access,  we focused on modems and other  peripherals for
the  personal  computer  market.  In the second  quarter  of 2002,  we expect to
commence  shipping  a  new  generation  of  dialers  incorporating   proprietary
technology. Our proprietary technology includes proprietary hardware,  firmware,
and software,  and is currently protected by one U.S. patent.  These dialers are
well suited to easily route appropriate calls through money-saving long-distance
service  providers.  In 2001,  dialer  products  represented  under 1% of Zoom's
sales.

Sales Channels

General

We sell our products primarily through  high-volume  retailers and distributors,
value-added  resellers,  PC system  integrators,  and OEMs. We support our major
accounts in their  efforts to discern  strategic  directions  in the market,  to
maintain  appropriate  inventory  levels,  and to offer a balanced  selection of
products.  As we expand our product  offerings,  particularly in cable, ADSL and
other  broadband  modems,  we are  seeking to expand and  strengthen  our market
channels to include  cable  service  providers,  phone  companies,  and Internet
Service Providers. Expanding our market channels to include significant sales to
these  customers  has been  challenging  and we  cannot  assure  that we will be
successful.

During 2001, our customers which accounted for more than 10% of our total
sales were Best Buy Co., Inc., Ingram Micro, Inc., DSG Retail Limited, and
Staples, Inc.  Together, these 4 customers accounted for 52.7% of our total
sales. The loss of any of these customers, or a significant reduction in
sales to these customers, could have a material adverse effect on our
business.

High-volume Retailers.

In  the  United  States,  we  reach  the  PC  retail  market  primarily  through
high-volume  retailers.  Our extensive United States retail distribution network
includes Best Buy, CDW, Fry's, Micro Electronics,  PC Connection,  Staples,  and
many others.

Distributors.

We sell significant quantities of dial-up modems through distributors, who often
sell to corporate  accounts,  value-added  resellers and other channels that are
generally  not  served  by  our  high-volume   retailers.   Our  North  American
distributors include D&H Distributing, Gates-Arrow, Ingram Micro, and Tech Data.

System Integrators and Original Equipment Manufacturers.

Our OEM  customers  sell our products  under their own name or  incorporate  our
products as a component of their systems.  We seek to be responsive to the needs
of personal computer  manufacturers  including on-time delivery of high-quality,
reliable,  cost-effective products with strong engineering and sales support. We
believe  many of  these  customers  also  appreciate  the  improvement  in their
products' image due to use of a Zoom or Hayes brand modem.
<PAGE>
International Channels.

In international  markets,  we sell our products  primarily through  independent
distributors  and retailers.  Our  international  distributors  include Computer
2000,  Criterium,  Infotide  International,  Northamber,  and others.  Our major
European high-volume  retailers include Business Logic,  Centromail,  DSG Retail
Limited  (Dixons and PC World),  and others.  Our  international  net sales as a
percentage of total have grown from 8% in 1994 to 37% in 2001. Our revenues from
international  sales were $16.5  million in 2001 and $17.2  million in 2000.  We
believe  sales  growth  outside of the United  States will  require  substantial
additional  investments of resources for product design and testing,  regulatory
approvals, and native-language  instruction manuals, software,  packaging, sales
support, and technical support.

Sales, Marketing and Support

Our sales, support, and marketing are primarily managed from our headquarters in
Boston, Massachusetts. In North America we sell our Zoom, Hayes, Global Village,
and  private-label   dial-up  modem  products  primarily  through   commissioned
independent sales  representatives  managed and supported by our own staff. Most
major cable service  providers  are serviced by our  employees.  North  American
technical support is primarily handled from our Boston headquarters location and
from our technical  support offices in Boca Raton,  Florida.  We also maintain a
sales, support, and logistics office in the United Kingdom. Warehousing, customs
clearance,  shipping,  and  invoicing  for the  United  Kingdom  and some  other
European  countries  are  primarily  handled by  contract  with an  unaffiliated
specialist in these  services  located in England.  For countries  outside North
America  and  Europe,   our  in-house  staff   typically   works  directly  with
country-specific  distributors. Our worldwide OEM sales are primarily handled by
our staff in the United States and United Kingdom,  who are at times assisted by
our  sales  staff  or  commissioned  sales  representatives.  See note 17 to our
accompanying  financial  statements  for  geographic  information  regarding our
sales.

We believe that Zoom,  Hayes,  and Global  Village are widely  recognized  brand
names.  We  build  upon  our  brand  equity  in a  variety  of  ways,  including
cooperative advertising,  product packaging,  trade shows, and public relations.
We generally  provide our  high-volume  retailers  with funds to  advertise  our
products in conjunction with the customers' general advertising. We believe that
this type of advertising efficiently and effectively targets the end-user market
for our products.

We  attempt to develop  quality  products  that are  user-friendly  and  require
minimal  support.  We  typically  support  our  claims of quality  with  product
warranties  of one to seven years,  depending  upon the product.  To address the
needs of those end-users of our products who require assistance, we have our own
staff of technical  specialists who provide telephone support six days per week.
Our technical  support  specialists  also maintain a significant  World Wide Web
support facility that includes email,  firmware and software downloads,  and the
SmartFactstm  Q&A search  engine.  In 2001 we expanded  our  European  technical
support  to  enable  users in other  countries  to access  support  in their own
language.  This  support is generally  provided by our support  staff in Boston,
Florida, and the United Kingdom.

Research and Development

Our research and development  efforts are focused on developing new products for
PC  communications  markets,  further  enhancing  the  capabilities  of existing
products,  and reducing  production costs. We have developed close collaborative
relationships  with certain of our OEM customers and  component  suppliers,  who
work with us to identify and respond to emerging  technologies and market trends
by developing products that address these trends. In addition, we purchase modem
and  other  chipsets  that   incorporate   sophisticated   technology,   thereby
eliminating the need for us to develop this technology in-house.  As of December
31, 2001 we had 33 employees engaged primarily in research and development.  Our
research and development team performs  electronics  hardware design and layout,
mechanical design, prototype construction and testing,  component specification,
firmware  and  software  development,  product  testing,  foreign  and  domestic
regulatory   approval  efforts,   end-user  and  internal   documentation,   and
third-party software selection and testing.

During 1999,  2000,  and 2001 we expended $6.4 million,  $6.2 million,  and $5.3
million, respectively, on research and development activities.
<PAGE>
Manufacturing and Suppliers

Our products are currently designed for high-volume automated assembly in China,
Mexico,  and the United States to help assure reduced costs, rapid market entry,
short lead times,  and  reliability.  For some  products we supply large kits of
parts to one of several automated  contract  manufacturers.  For other products,
particularly those manufactured in China, our contract manufacturers also obtain
certain material required to assemble the products based upon a Zoom Telephonics
Approved  Vendor List and Parts List.  The contract  manufacturers  insert parts
onto the  printed  circuit  board,  with most parts  automatically  inserted  by
machine, solder the circuit board, and in-circuit test the completed assemblies.
Functional   test  and  packaging  are  sometimes   performed  by  the  contract
manufacturer.  For the United States and many other markets, functional test and
packaging are more commonly  performed at our facilities in Boston,  allowing us
to tailor the packaging and its contents for our  customers  immediately  before
shipping.  We also perform circuit design,  circuit board layout,  and strategic
component sourcing in our Boston office.

We  usually  use  one  primary  contract  manufacturer  for a given  design.  We
sometimes  maintain  back-up  production  tooling at a second  assembler for our
highest-volume  products.  Our contract  manufacturers  are normally adequate to
meet  reasonable and properly  planned  production  needs;  but a fire,  natural
calamity,  strike, or other  significant event at an assembler's  facility could
adversely affect our shipments and revenues. Currently, a substantial percentage
of our manufacturing is done by Vtech  Communication LTD ("Vtech").  The loss of
Vtech's  services  or a material  adverse  change in Vtech's  business or in our
relationship with Vtech could materially and adversely harm our business.

Our products  include a large number of parts,  most of which are available from
multiple sources with varying lead times.  However, most of our products include
a  sole-sourced  chipset  as the most  critical  component  of the  product.  We
currently buy dial-up modem  chipsets  exclusively  from the two  highest-volume
dial-up modem chipset manufacturers,  Conexant Systems, Inc. (formerly Rockwell)
and Agere Systems Inc.  (formerly  Lucent).  Conexant and Agere have significant
resources for  semiconductor  design and fabrication,  analog and digital signal
processing, and communications firmware development.  Integrated circuit product
areas covered by one or both  companies  include  dial-up  modems,  ADSL modems,
cable modems,  wireless  networking,  home phone line networking,  routers,  and
gateways.  We also buy chipsets  from  Globespan for some of our ADSL modems and
from Intersil Corporation for our ZoomAir wireless network interface cards.

Due to capacity  constraints,  we have experienced delays in receiving shipments
of modem chipsets in the past, and we may experience  such delays in the future.
Moreover, there can be no assurance that a chipset supplier will, in the future,
sell chipsets to us in  quantities  sufficient to meet our needs or that we will
purchase  the  specified   dollar  amount  of  products   necessary  to  receive
concessions and incentives from a chipset supplier. An interruption in a chipset
supplier's  ability to deliver  chipsets,  a failure of our suppliers to produce
chipset  enhancements  or new  chipsets  on a timely  basis  and at  competitive
prices,  a  material  increase  in the price of the  chipsets,  our  failure  to
purchase a specified  dollar amount of products or any other  adverse  change in
our  relationship  with modem component  suppliers could have a material adverse
effect on our results of operations.

Competition

The  PC   communication   products   industry  is  intensely   competitive   and
characterized by aggressive  pricing  practices,  continually  changing customer
demand  patterns  and  rapid   technological   advances  and  emerging  industry
standards.  These  characteristics  result  in  frequent  introductions  of  new
products with added  capabilities and features,  and continuous  improvements in
the  relative  functionality  and  price of modems  and other PC  communications
products.  Our  operating  results and our ability to compete could be adversely
affected if we are unable to:

o     successfully anticipate customer demand accurately;
o     manage our product transitions, inventory levels and manufacturing
      process efficiently;
o     distribute or introduce our products quickly in response to customer
      demand and technological advances;
o     differentiate our products from those of our competitors; or
o     otherwise compete successfully in the markets for our products.

Our primary competitors by product group include the following:

o     Dial-up modem competitors: Actiontec, Askey, Best Data, Creative Labs,
      Elsa, GVC, Intel, SONICblue, and US Robotics.
<PAGE>
o     Cable modem competitors: Motorola, Samsung, Scientific Atlanta, Thomson
      and Toshiba.
o     ADSL modem competitors: Siemens (formerly Efficient Networks) and
      Westell.
o     Wireless Local Area Network competitors: 3Com, Agere, Buffalo
      Technologies, Cisco Systems, D-link, Intel, Linksys, Proxim, and SMC.

Many of our competitors and potential competitors have more extensive financial,
engineering, product development, manufacturing, and marketing resources than we
do.

The principal competitive factors in our industry include the following:

o     product performance, features and reliability;
o     price;
o     brand image;
o     product availability and lead times;
o     size and stability of operations;
o     breadth of product line and shelf space;
o     sales and distribution capability;
o     technical support and service;
o     product documentation and product warranties;
o     relationships with providers of broadband access services; and
o     compliance with industry standards.

We believe we are competitive in each of these areas with respect to our dial-up
modems.  We believe we are  competitive  in many of these areas with  respect to
cable modems,  ADSL modems,  and wireless  local area  networking  products.  We
believe,  however, that with the decline of the dial-up modem market, our future
success will depend in large part on our ability to more successfully compete in
and penetrate the broadband, cable, and ADSL modem markets.

Cable and ADSL modems transmit data at significantly  faster speeds than dial-up
modems,  which still account for the vast  majority of our  revenues.  Cable and
ADSL modems,  however,  are generally  more  expensive  than dial-up  modems and
cannot be used with  conventional  telephone  service.  In addition,  the use of
cable  and ADSL  modems  is  currently  impeded  by a number  of  technical  and
infrastructure  limitations. We began shipping both cable and ADSL modems in the
year 2000. In the year 2001, our competitors' cable and ADSL modem products were
sold in the greatest number through cable service  operators,  phone  companies,
and Internet Service Providers. Large quantities of cable modems and ADSL modems
are still not sold through  retailers and  distributors,  our  strongest  market
channels.  We are continuing to attempt to sell our broadband  products  through
these new sales channels,  as well as our traditional sales channels,  but these
new sales channels have been challenging  markets. The high volume purchasers of
cable  and ADSL  modems  are  concentrated  in a  relatively  few  large  cable,
telecommunications  and internet  service  providers which offer broadband modem
services to their customers. The cable,  telecommunications and internet service
providers  also have  extensive and varied  approval  processes for modems to be
approved for use on their network. These approval processes are expensive,  time
consuming and continually changing. Successfully penetrating the broadband modem
market, therefore presents a number of challenges, including:

o     the current limited retail market for broadband modems;
o     the relatively small number of cable, telecommunications and internet
      service providers that make up a substantial part of the market for
      broadband modems;
o     the significant bargaining power of these large volume purchasers;
o     the time consuming, expensive, uncertain and varied approval process of
      the various cable service providers; and
o     the strong relationships with cable service providers enjoyed by incumbent
      cable equipment providers like Motorola and Scientific Atlanta.

Our initial sales of broadband  products have been adversely  affected by all of
these factors.  There can be no assurance that we will compete effectively or be
able to successfully penetrate these new market channels.

Intellectual Property Rights

We rely primarily on a combination of copyrights,  trademarks, trade secrets and
patents to protect our proprietary rights. We have trademarks and copyrights for
our firmware (software on a chip), printed circuit board artwork,  instructions,
packaging,  and  literature.  We also have four  patents and one pending  patent
<PAGE>
application  in the United  States.  There can be no  assurance  that any patent
application will be granted or that any patent obtained will provide  protection
or be of commercial  benefit to us, or that the validity of a patent will not be
challenged. Moreover, there can be no assurance that our means of protecting our
proprietary   rights  will  be  adequate  or  that  our  competitors   will  not
independently develop comparable or superior technologies.

We  license  certain  technologies  used  in  our  products,  typically  bundled
software,  on a  non-exclusive  basis.  In addition we  purchase  chipsets  that
incorporate  sophisticated  technology. We have received, and may receive in the
future,  infringement  claims from third  parties  relating to our  products and
technologies. We investigate the validity of these claims and, if we believe the
claims have merit, we respond through  licensing or other  appropriate  actions.
Certain of these  past  claims  have  related to  technology  included  in modem
chipsets.  We forwarded  these claims to the  appropriate  vendor.  If we or our
component  manufacturers  were  unable  to  license  necessary  technology  on a
cost-effective  basis, we could be prohibited from marketing products containing
that technology,  incur substantial costs in redesigning products  incorporating
that  technology,  or incur  substantial  costs defending any legal action taken
against it.

Government Regulation

In addition to obtaining  approvals and certifications of our broadband products
from  CableLabs(R)  and, in some cases, the actual cable,  telephone or internet
service provider, all of our North American products are required to meet United
States  government  regulations,  including  regulations  of the  United  States
Federal  Communication  Commission,  known as the FCC, which regulate equipment,
such as modems,  that  connects to the public  telephone  network.  The FCC also
regulates  electromagnetic radiation emissions. For each of our products sold in
most  foreign  countries,  specific  regulatory  approvals  must be obtained for
matters such as electrical  safety,  manufacturing  standards,  country-specific
telecommunications  equipment  requirements  and  electromagnetic  radiation and
susceptibility  requirements.  We have received regulatory approvals for certain
modems in  Australia,  Austria,  Belgium,  Bulgaria,  China,  Cypress,  Denmark,
Finland,  France,  Germany,  Greece, Hungary,  Iceland, India, Ireland,  Israel,
Italy, Japan, Luxembourg,  the Netherlands,  Norway, Poland,  Portugal,  Russia,
Slovenia,  South Africa,  South Korea,  Spain, Sri Lanka,  Sweden,  Switzerland,
Turkey,  and the  United  Kingdom.  We expect to  continue  to seek and  receive
approvals for new products in a large number of countries  throughout the world.
The regulatory  process can be time-consuming and can require the expenditure of
substantial resources. In many foreign countries,  obtaining required regulatory
approvals may take significantly  longer than in the United States. There can be
no  assurance  that  the FCC or  foreign  regulatory  agencies  will  grant  the
requisite approvals for any of our products on a timely basis, if at all. United
States  and  foreign   regulations   regarding  the   manufacture  and  sale  of
telecommunications  devices are subject to future change. We cannot predict what
impact, if any, such changes may have upon its business.

Seasonality

We believe our sales are  somewhat  seasonal,  with  increased  sales  generally
occurring in mid-August  through November.  We expect that our quarterly results
will  continue to fluctuate in the future as a result of  seasonality  and other
factors.

Backlog

Our backlog as of March 1, 2002 was $1.1 million,  and on March 1, 2001 was $2.9
million.  Many orders  included in backlog  may be  canceled or  rescheduled  by
customers without significant penalty.  Backlog as of any particular date should
not be relied upon as indicative of our net sales for any future period.

Employees

As of December  31, 2001 we had 214  full-time  employees  (including  employees
hired on a  temporary  basis)  versus 313 in 2000.  Of the 2001  total,  33 were
engaged in research and development,  95 were involved in purchasing,  assembly,
packaging, shipping and quality control, 51 were engaged in sales, marketing and
technical support,  and the remaining 35 performed  accounting,  administrative,
management information systems, and executive functions. Our temporary employees
were  comprised of 4 individuals at December 31, 2001.  Most of these  temporary
employees were employed in manufacturing.  None of our employees are represented
by a labor union.
<PAGE>
Our Executive Officers

The names and biographical  information of our current executive  officers,  are
set forth below:

Name                      Age        Position with Zoom
------------------------------------------------------------------------------

Frank B. Manning          53         Chief Executive Officer, President and
                                     Chairman of the Board
Peter R. Kramer           50         Executive Vice President and Director
Robert A. Crist           58         Vice President of Finance and Chief
                                     Financial Officer
Terry J. Manning          50         Vice President of Sales and Marketing
Dean N. Panagopoulos      44         Vice President of Network Products
Deena Randall             48         Vice President of Operations
Richard Kumpf             52         Vice President of Engineering

Frank B.  Manning is a  co-founder  of our  company.  Mr.  Manning  has been our
president, chief executive officer, and a director since May 1977. He has served
as our chairman of the board since 1986. He earned his BS, MS and PhD degrees in
Electrical Engineering from the Massachusetts Institute of Technology,  where he
was a  National  Science  Foundation  Fellow.  Mr.  Manning  was a  director  of
MicroTouch Systems, a NASDAQ-listed leader in touchscreen technology,  from 1993
until their  acquisition  by 3M in early 2001.  Since 1998 Mr. Frank Manning has
also been a director of the Massachusetts Technology Development Corporation,  a
public  purpose  venture  capital  firm  that  invests  in seed and  early-stage
technology companies in Massachusetts.

Peter R. Kramer is a co-founder of our Company.  Mr. Kramer has been our
executive vice president and a director since May 1977.  He earned his BA
degree in 1973 from SUNY Stony Brook and his MFA degree from C.W. Post
College in 1975.

Robert A. Crist  joined us in July 1997 as vice  president  of finance and chief
financial officer. From April 1992 until joining us, Mr. Crist served in various
capacities at Wang Laboratories, Inc., a computer software and services company,
including chief financial officer for the software  business.  Prior to 1992 Mr.
Crist served in various capacities at Unisys  Corporation,  including  assistant
corporate controller,  corporate director of business planning and analysis, and
corporate  manufacturing  and  engineering  controller.  Mr. Crist earned his BA
degree  from  Pennsylvania  State  University  and he  earned  his MBA  from the
University of Rochester in 1971.

Terry J.  Manning  joined  us in 1984 and  served  as  corporate  communications
director  from 1984  until  1989 when he became  the  director  of our sales and
marketing  department.  Terry Manning is Frank Manning's brother.  Terry Manning
earned his BA degree from  Washington  University  in St.  Louis in 1974 and his
MPPA degree from the University of Missouri at St. Louis in 1977.

Dean N.  Panagopoulos  joined us in February  1995 as  director  of  information
systems.  In July 2000 Mr.  Panagopoulos  was  promoted to the  position of vice
president of network products.  From 1993 to 1995, Mr. Panagopoulos worked as an
independent  consultant.  From 1991 to 1993, Mr. Panagopoulos served as director
of technical  services for Ziff  Information  Services,  a major  outsourcer  of
computing services.  He attended the Massachusetts  Institute of Technology from
1975 to 1978 and earned his BS degree in Information  Systems from  Northeastern
University in 1983.

Deena Randall joined us in 1977 as our first employee. Ms. Randall has served in
various senior positions within our organization and has directed our operations
since 1989. Ms. Randall  earned her BA degree from Eastern  Nazarene  College in
1975.

Richard  Kumpf  joined us in July 2000 as vice  president of  engineering.  From
March 1995 until  joining us Mr. Kumpf served in various  capacities  at Agilent
Technologies  (formerly  part of  Hewlett-Packard),  most  recently  as  general
manager of the cable-rf business unit. Prior to 1995 Mr. Kumpf served in various
capacities  at  Motorola  Inc.,  including  director  of product  development  &
information  technology.  Mr.  Kumpf  earned a BS  degree  in  Engineering  from
Northeastern  University in 1972 and an MS degree in Engineering from Washington
University in St. Louis in 1974.

ITEM 2 - PROPERTIES

Our  corporate  headquarters  occupies  approximately  56,000 square feet out of
approximately 72,000 square feet in adjacent, connected buildings at 201 and 207
<PAGE>
South Street,  Boston,  Massachusetts.  Approximately 16,000 square feet of this
property is leased to third parties. We purchased these buildings in April 1993.
In January 2001, we received $6.0 million in financing by securing a mortgage on
this property. This is a 20 year direct reduction mortgage. The interest rate is
fixed for one year, based on the one year Federal Home Loan Bank rate plus 2.5 %
per annum. The rate is adjusted on January 10th of each calendar year commencing
on January 10, 2002.  In 2001,  the interest  rate was 7.76%.  As of January 10,
2002, the rate of interest was changed to 4.97%.

In August  1996,  we entered  into a  five-year  lease for a 77,428  square foot
manufacturing  and  warehousing  facility at 645 Summer Street,  Boston,  MA. On
February  28,  2001,  we  exercised  our  option  to  extend  this  lease for an
additional  five  years.  We believe  that this space  provides  us with  enough
manufacturing  space for our current  operations  and could support  significant
growth.

In March 1999,  we assumed an office  lease from Hayes  Microcomputer  Products,
Inc. at 430  Frimley  Business  Park,  Camberly  Surrey,  UK. The  landlord  has
notified us that they would like to exercise  their option to exercise the break
clause  in the  lease  in  February  2003.  We  have  agreed  to  this  contract
termination  since the leased  space  exceeds our current  requirements.  We are
looking  for a smaller  office to lease which  should  result in savings in rent
expenses. We do not expect the moving expenses to be significant.

In July 2000, we entered into a sublease, as a tenant at will, for approximately
4,500 square feet at 1601 Clint Moore Road,  Boca Raton,  Florida.  We primarily
use this facility as a technical support facility. We entered into this sublease
when we acquired the modem assets of Global Village and Boca Global.

ITEM 3 - LEGAL PROCEEDINGS

No material litigation.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security  holders during the fourth quarter
of the fiscal year covered in this report.

<PAGE>

PART II


ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER                         MATTERS

Our  common  stock is traded on the  Nasdaq  National  Market  under the  symbol
"ZOOM." The following table sets forth, for the periods indicated,  the high and
low sale prices per share of common  stock,  as reported by the Nasdaq  National
Market.

<TABLE>
<S>                                                     <C>          <C>

Fiscal Year Ending December 31, 2000                       High          Low
                                                           ----          ---

      First Quarter......................                $ 18.875    $  7.188
      Second Quarter.....................                  14.125       4.250
      Third Quarter......................                  10.500       5.813
      Fourth Quarter.....................                   8.125       3.125

</TABLE>

<TABLE>
<S>                                                      <C>        <C>

Fiscal Year Ending December 31, 2001

      First Quarter......................                $ 4.500    $  2.188
      Second Quarter.....................                  3.320       2.250
      Third Quarter......................                  3.100       1.050
      Fourth Quarter.....................                  1.800       1.100

</TABLE>

As of  March  20,  2002,  there  were  7,860,866  shares  of  our  common  stock
outstanding and approximately 264 holders of record of our common stock.

Recent Sales of Unregistered Securities

We did not sell any unregistered securities during the fourth quarter of 2001.

Dividend Policy

We have never  declared or paid cash  dividends on our capital  stock and do not
plan to pay any cash dividends in the foreseeable  future. Our current policy is
to retain all of our earnings to finance future growth.

ITEM 6 - SELECTED FINANCIAL DATA

The following  table  contains our selected  consolidated  financial data and is
qualified in its entirety by the more detailed consolidated financial statements
and notes thereto included elsewhere in this report. Our statement of operations
data for the years  ending  December 31,  1999,  2000,  and 2001 and our balance
sheet  data as of  December  31,  2000  and  2001  have  been  derived  from our
consolidated  financial  statements,  which  have  been  audited  by  KPMG  LLP,
independent  certified public  accountants,  and are included  elsewhere in this
report.  Our statement of operations data for the years ending December 31, 1997
and 1998 and our balance sheet data as of December 31, 1997, 1998, and 1999 have
been derived from our consolidated financial statements, which have been audited
by KPMG LLP and are not  included  in this  report.  This data should be read in
conjunction with the consolidated financial statements and related notes thereto
and "Management's  Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere herein.

<PAGE>
<TABLE>
<S>                                       <C>         <C>         <C>         <C>         <C>

                                                           Years Ending December 31,
                                             ----------------------------------------------------
                                             1997        1998        1999        2000        2001
                                             ----        ----        ----        ----        ----
                                                           (In thousands) except share amounts
Statement of Operations Data:
Net sales.............................    $ 63,816    $ 61,894    $ 64,088    $ 59,750    $ 43,709
Cost of goods sold....................      55,636      45,181      40,550      39,404      35,193
                                            ------      ------      ------      ------      ------
   Gross profit.......................       8,180      16,713      23,538      20,346       8,516
                                             -----      ------      ------      ------       -----
Operating expenses:
   Selling............................      11,103      11,801      13,571      12,714       9,620
   General and administrative.........       4,957       4,976       6,276       6,228       7,938
   Research and development...........       4,182       4,449       6,425       6,249       5,328
                                             -----       -----       -----       -----       -----
   Total operating expenses                 20,242      21,226      26,272      25,191      22,886
                                            ------      ------      ------      ------      ------
   Operating income (loss)............      (4,513)     (2,734)     (4,845)    (14,370)    (12,062)
Other income (expense) net............         741       1,074         737         469        (159)
                                               ---       -----         ---         ---       -----
   Income (loss) before income taxes..     (11,321)     (3,439)     (1,997)     (4,376)    (14,529)
Income tax expense (benefit)..........      (4,189)     (1,287)       (588)     (1,299)      3,800
                                            -------     -------       -----     -------      -----
   Net income (loss)..................      (7,132)     (2,152)     (1,409)     (3,077)    (18,329)
                                            =======     =======     =======     =======    ========

Earnings (loss) per common and
common equivalent share:
   Basic and diluted..................    $  (0.95)   $ (0.29)    $ (0.19)    $ (0.40)    $  (2.33)
                                             ======     ======      ======      ======       ======
Weighted average common and
common equivalent shares:
   Basic and diluted..................       7,469       7,474       7,483       7,757       7,861
</TABLE>
<TABLE>
<S>                                       <C>         <C>         <C>          <C>        <C>

                                                           Years Ending December 31,
                                             ----------------------------------------------------
                                             1997        1998        1999        2000        2001
                                             ----        ----        ----        ----        ----
                                                                 (In thousands)
Balance Sheet Data:
Working capital                           $ 35,064    $ 33,376    $ 29,573     $ 23,562   $ 18,218
Total assets                                48,515      43,560      43,072       46,960     29,185
Long-term obligations                            -           -         481          369      6,001
Total stockholders' equity                  40,503      38,425      37,514       36,747     18,416

</TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following  discussion and analysis  should be read in  conjunction  with the
"Selected  Financial Data" and the consolidated  financial  statements  included
elsewhere in this report and the  information  described under the caption "Risk
Factors" below.

Overview

On February 28, 2002, we completed a change in our jurisdiction of incorporation
from  Canada  to the  State  of  Delaware.  In  connection  with the  change  in
jurisdiction,  we changed our corporate name from Zoom Telephonics, Inc. to Zoom
Technologies,  Inc. These changes were  accomplished  through a process called a
continuance  under the laws of Canada  and  domestication  under the laws of the
State of Delaware.  The Company continues to trade on the Nasdaq National Market
under the symbol  "ZOOM",  and to operate  through  its  wholly  owned  Delaware
subsidiary, Zoom Telephonics, Inc., which has not changed its name.

We were  established in 1977, and initially  produced and marketed speed dialers
and other specialty telephone accessories. We shipped our first dial-up modem in
1983 and our first dial-up faxmodem in 1990. In 2001, sales of dial-up faxmodems
and related products  comprised  approximately 83% of our net sales. We sell our
dial-up  modems and  related  products  both  domestically  and  internationally
through  high-volume  retailers and  distributors,  and to PC manufacturers  and
other OEMs.  In 2000 and 2001,  we made a  significant  investment  in broadband
<PAGE>
modems,  namely cable modems and ADSL modems, and wireless networking  products.
Our hope is to  increase  our  sales of these  products,  in  addition  to other
products including PC cameras and telephone dialers.

We continually seek to improve our product designs and manufacturing approach in
order to reduce  our costs.  We pursue a strategy  of  outsourcing  rather  than
internally  developing  our faxmodem  chipsets,  which are  application-specific
integrated circuits that form the technology base for our modems. By outsourcing
the chipset technology,  we are able to concentrate our research and development
resources  on  modem  system  design,   leverage  the  extensive   research  and
development  capabilities of our chipset  suppliers,  and reduce our development
time and associated  costs and risks. As a result of this approach,  we are able
to quickly  develop new and innovative  products while  maintaining a relatively
low level of research and development  expense as a percentage of sales. We also
outsource aspects of our  manufacturing to contract  manufacturers as a means of
reducing our fixed labor costs and capital expenditures,  and to provide us with
greater flexibility in our production capacity.

The markets for dial-up faxmodems have been characterized by rapid technological
change,  frequent product introductions,  evolving industry requirements,  short
product life cycles,  and declining average selling prices. In recent years, the
market for  after-market  sales of dial-up  faxmodems has declined,  as personal
computer (PC) manufacturers have incorporated a modem as a built-in component in
most consumer PCs. A new dial-up  modem  standard,  known as V.92 may provide an
improvement  in  after-market  dial-up  modem  sales,  but this  improvement  is
dependent on the  installation of compatible  equipment by the Internet  Service
Providers.  The installation of V.92 equipment by the Internet Service Providers
has begun, but so far this has been deployed slowly.

In response to increased demand for faster connection speeds and increased modem
functionality,  we have invested resources to expand our product line to include
cable and ADSL modems and other broadband access products.  We are also planning
to  introduce a new  generation  of telephone  dialers in the second  quarter of
2002.

Critical Accounting Policies

The following is a discussion of what we view as our more significant accounting
policies.  These  policies are also  described in the notes to our  consolidated
financial  statements.  As described below,  management  judgments and estimates
must be made  and  used in  connection  with the  preparation  of our  financial
statements.  Material  differences  could result in the amount and timing of our
revenue  and  expenses  for any period if we made  different  judgments  or used
different estimates.

Revenue  Recognition.  We sell hardware products to our customers.  The products
include dial-up modems, embedded modems, cable modems, PC cameras, ISDN and ADSL
modems,  telephone  dialers,  and wireless and wired  networking  equipment.  We
generally do not sell  software or  services.  We earn a small amount of royalty
revenue.  We derive our revenue primarily from the sales of hardware products to
three types of customers:

o     computer peripherals retailers,
o     computer product distributors, and
o     original equipment manufacturers (OEMs).

We sell a very small amount of our hardware  products to direct  consumers or to
any  customers  via the  Internet.  We recognize  revenue for all three types of
customers at the point when the customers take legal  ownership of the delivered
products.  Legal  ownership  passes  from  Zoom  to the  customer  based  on the
contractual FOB point specified in signed contracts and purchase  orders,  which
are both used  extensively.  Many of our customer  contracts or purchase  orders
specify  FOB  destination.  Since it would be  impractical  to verify  ownership
change for each individual  delivery to the FOB  destination  point, we estimate
the day the customer  receives delivery based on our ship date and the carrier's
published delivery schedule specific to the freight class and location.

Our revenues are reduced by certain events which are  characteristic of hardware
sales to computer peripherals retailers. These events are product returns, price
protection refunds,  store rebates, and consumer mail-in rebates.  Each of these
is  accounted  for  as a  reduction  of  revenue  based  on  careful  management
estimates,  which are reconciled to actual customer or end-consumer  refunds and
credits on a monthly or quarterly  basis.  The estimates for product returns are
based on recent  historical  trends plus  estimates for returns  prompted by new
product  introductions,  announced  stock  rotations,  announced  customer store
closings, etc. Management analyzes historical returns,  current economic trends,
<PAGE>
and changes in customer  demand and  acceptance of our products when  evaluating
the adequacy of sales return  allowances.  Our  estimates  for price  protection
refunds  require a detailed  understanding  and tracking by  customer,  by sales
program.  Estimated price protection  refunds are recorded in the same period as
the   announcement   of   a   pricing   change.    Information   from   customer
inventory-on-hand  reports or from direct  communications  with the customers is
used to estimate  the refund,  which is recorded as a reserve  against  accounts
receivable and a reduction of current period revenue. Our estimates for consumer
mail-in  rebates are comprised of actual  rebate claims  processed by the rebate
redemption  centers  plus an accrual for an  estimated  lag in  processing.  Our
estimates for store  rebates are  comprised of actual  credit  requests from the
eligible customers.

For the quarter  ending March 31, 2002,  we plan to adopt FASB  Emerging  Issues
Task Force Issue No. 00-14  "Accounting for Certain Sales  Incentives" and Issue
No.  00-25  "Accounting  for  Consideration  from  a  Vendor  to a  Retailer  in
Connection  with the  Purchase  or  Promotion  of the  Vendor's  Products."  The
application  of the  guidance in Issue No.  00-14 and No. 00-25 will result in a
change in the manner in which we record certain types of discounts and sales and
marketing  incentives that are provided to our customers.  We have  historically
recorded  certain types of these incentives as marketing  expenses.  Under Issue
No.  00-14 and No.  00-25,  we will record these  incentives  as  reductions  of
revenue  for the current and prior  periods.  This change will reduce  revenues,
which, in turn, will reduce gross margins. The offset will be an equal reduction
of selling expenses.  There will not be a change in net income (loss) for either
the historical periods restated or the quarter ending March 31, 2002. The impact
of the adoption of Issue No. 00-14 and 00-25 on the years 2000 and 2001 is shown
in footnote 4 to our accompanying audited consolidated financial statements.  To
ensure that the discounts and sales and marketing incentives are recorded in the
proper period, we do extensive tracking and documenting by customer,  by period,
and by type of marketing event.  This tracking  includes  reconciliation  to the
accounts  receivable  records for  deductions  taken by our  customers for these
discounts and incentives.

Accounts  Receivable  Valuation.  We establish accounts  receivable reserves for
product  returns,  store rebates,  consumer  mail-in  rebates,  price protection
refunds,  and bad debt.  These  reserves  are drawn down as actual  credits  are
issued to the customer's accounts.  We purchase accounts receivable insurance on
virtually all of our invoices. In recent years, if any customer receivable could
not be insured and we determined  that  collection  of a fee was not  reasonably
assured,  we did not accept the customer's  order.  Our bad-debt  write-offs for
2000 and 2001 were .3% and .2% of total revenue, respectively.

Inventory  Valuation  and Cost of Goods Sold.  Inventory is valued on a standard
cost basis where the material  standards  are  periodically  updated for current
material pricing.  Reserves for obsolete inventory are established by management
based on usability  reviews  performed each quarter.  Our reserves  against this
inventory  range  from  0% to  100%,  based  on  management's  estimate  of  the
probability  that the materials will not be consumed.  At December 31, 2001, 44%
of the cost value of the excess over the projected  five month usage was covered
by our obsolescence reserve. We follow a different process for our broadband and
wireless  inventory.  We do not believe that at the present time we can reliably
determine  the  usability  of our  broadband  inventory  because of the inherent
unpredictability of securing orders with the large cable operators and telephone
companies  that  currently  represent  the  majority  of our  opportunities  for
broadband product sales. In the second half of 2000, when industry  expectations
were very high for expansion of the broadband and wireless markets, we purchased
parts to support our aggressive forecast for a ramp-up of sales of cable modems,
ADSL modems, and wireless  networking  products.  This resulted in a significant
excess inventory  position of materials.  During 2001, the market selling prices
for the broadband and wireless  products  declined  significantly  because of an
industry-wide  oversupply.  During  the year the  sales  prices  for many of the
products  dropped below our cost and we then valued our inventory on a "lower of
cost or market"  basis.  Our  valuation  process  is to compare  our cost to the
selling prices each quarter,  and if the selling price of a product is less than
the  "if  completed"  cost  of our  inventory,  we  permanently  write-down  the
inventory on a "lower of cost or market" basis. At December 31, 2001,  after the
write-downs and the recording of excess and obsolete reserves,  the net value of
our  broadband  and  wireless  inventory  is  $4.1  million.  Inventories,  once
reserved, are not written back up as such reserve adjustments are considered  to
be a permanent decrease to the cost basis of the excess or obsolete inventory.

We have entered into supply  arrangements with suppliers of some components that
include price and other concessions, including no-charge components, for meeting
certain purchase requirements or commitments.  Under these arrangements,  we are
committed  to purchase at least $8.0  million of  components  over the  30-month
period commencing on January 1, 2002, provided that those components are offered
<PAGE>
at  competitive  terms and prices.  We are also  required  to purchase  either a
minimum percentage,  as measured by unit purchases or dollar amount of a certain
type of component from a supplier over a two-year  period  commencing on January
1, 2002. In connection  with these  arrangements,  we are entitled to receive at
least $3.0 million of no-charge  components,  based upon the  supplier's  market
price for the components,  and other pricing concessions based upon our purchase
volumes.  We received $1.2 million of these  no-charge  components in the fourth
quarter of 2001. At December 31, 2001, the gross inventory value of $1.2 million
was  offset by a $1.2  million  profit  reserve  in  inventory,  yielding  a net
inventory  value of  zero.  We have  received  an  additional  $1.8  million  of
no-charge  components  during the first quarter of 2002. We expect that the $3.0
million  total  market value of "no charge"  components  will be consumed in our
manufacturing  process and shipped in finished products to customers in 2002. If
this occurs, our cash flow in 2002 will improve by $3.0 million, as we expect to
avoid the purchase and payment of an equivalent dollar amount.  Our statement of
operations  will not reflect this same impact in 2002.  The favorable  impact to
the Company's statement of operations will be recognized on a delayed basis as a
purchase  discount  over the total  number of  components  acquired  through the
supply agreement (see note 7 (b) to the consolidated financial statements).

Valuation and Impairment of Intangible  Assets.  We assess the impairment of our
goodwill assets whenever  events or changes in  circumstances  indicate that the
carrying  value  may  not  be   recoverable.   We  recorded   goodwill  for  two
acquisitions,  Tribe  Computer  Works,  Inc. in 1996 and certain assets of Hayes
Microcomputer  Products,  Inc. in 1998. The goodwill  values for Tribe and Hayes
were  being  amortized  over 13 years  and 5 years,  respectively.  In 2001,  we
decided  that based on our history of  negative  cash flows from  operations,  a
forecast of future positive cash flows could not be sufficiently  relied upon to
justify  retaining the remaining  goodwill  assets on the  consolidated  balance
sheet.  Therefore,  we recorded an impairment charge of $2.3 million in 2001. As
of December 31, 2001, our net goodwill asset value on our  consolidated  balance
sheet was zero.

Valuation and Impairment of Deferred Tax Assets.

As part of the process of preparing our consolidated financial statements we are
required to estimate our income taxes.  This process  involves the estimation of
our actual current tax exposure  together with assessing  temporary  differences
resulting  from differing  treatment of items for tax and  accounting  purposes.
These  differences  result in  deferred  tax assets and  liabilities,  which are
included in our  consolidated  balance sheet. We must then assess the likelihood
that our deferred tax assets will be recovered from future taxable income and to
the extent we believe that recovery is not likely, we must establish a valuation
allowance.  To the extent we establish a valuation  allowance  or increase  this
allowance in a period,  we must include an expense  within the tax  provision in
the statement of operations.

Significant  management  judgment is required in  determining  our provision for
income taxes and any valuation  allowance  recorded against our net deferred tax
assets.  In 2001,  we  recorded a $3.8  million  income tax charge to reflect an
additional increase in our deferred tax asset valuation allowance. This is equal
to 100% of the tax benefits  derived from our 2001 pre-tax losses and certain of
our pre-tax losses prior to 2001.  Management's decision to record the valuation
allowance  was based on the uncertain  recoverability  of the deferred tax asset
balance.  There is an exception  for our specific tax planning  strategy to sell
our headquarters building in Boston. The amount of the projected tax profit from
this  sale has been  used to  support  the  $2.012  million  deferred  tax asset
remaining  on our balance  sheet as of December  31,  2001.  We believe that our
accounting  treatment is in accordance  with the  provisions of the Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."

Results of Operations

The following table sets forth certain  financial data for the periods indicated
as a percentage of net sales:
<PAGE>
<TABLE>
<S>                                                <C>       <C>       <C>
                                                     Years Ending December 31,
                                                 ------------------------------
                                                    1999      2000      2001
                                                    ----      ----      ----
Net sales.................................         100.0%    100.0%    100.0%
Cost of goods sold........................          63.3      65.9      80.5
                                                    ----      ----      ----
    Gross profit..........................          36.7      34.1      19.5
Operating expenses:
    Selling...............................          21.2      21.3      22.0
    General and administration............           9.8      10.4      18.2
    Research and development..............          10.0      10.5      12.2
                                                    ----      ----      ----
    Total operating expenses..............          41.0      42.2      52.4
                                                    ----      ----      ----
Operating loss............................          (4.3)     (8.1)    (32.9)
     Other income, net....................           1.2        .8       (.3)
                                                     ---        --       ----
Loss before income taxes..................          (3.1)     (7.3)    (33.2)
     Income tax benefit...................          (0.9)     (2.2)      8.7
                                                    -----     -----      ---
Net loss..................................          (2.2)%    (5.1)%   (41.9)%
                                                    =====     =====    ======
</TABLE>
Year Ending December 31, 2001 Compared to Year Ending December 31, 2000

Net Sales.  Our net sales  decreased  26.8% to $43.7  million in 2001 from $59.8
million  in  2000.   Our  sales  decline   resulted   primarily   from  our  22%
year-over-year  net sales  decline of dial-up  modem units  combined  with a 10%
average sales price  decline.  Our sales mix shifted  slightly away from dial-up
modems in 2001  compared to 2000. In 2000,  92% of our net sales were  generated
from  sales of  dial-up  modem  products.  In 2001,  83% of our net  sales  were
generated  from  sales of  dial-up  modem  products.  The  change  was due to an
increased mix of sales for cable modems, embedded modems, and ISDN modems.

Our  net  sales  in North  America  decreased by 36.0% to $27.2 million in 2001,
compared  to our  net sales  in 2000. Our  2001 international sales decreased by
4.2% to $16.5 million, compared to our net sales in 2000.  The net sales decline
in 2001 compared to 2000 in North America resulted from the overall dial-up
modem U.S. market decline, the loss of Office Depot as a customer, and a decline
in the average selling price of dial-up modems.

Gross  Profit.  Our gross  profit  was $8.5  million in 2001  compared  to $20.3
million in 2000.  Our gross  profit as a  percentage  of net sales  decreased to
19.5% in 2001 from 34.1% in 2000.  The primary  reason for this  decline of 14.6
percentage  points was $4.6 million of  obsolescence  and inventory  revaluation
expenses in 2001  compared to $.3 million in similar  types of expenses in 2000.
The major portion of the $4.6 million  expense was for "lower of cost or market"
write-downs of broadband  inventory.  The inventories in question were purchased
in 2000.  Excluding  the $4.6 million and $.3 million of inventory  obsolescence
and revaluation in 2001 and 2000, respectively, our gross profit as a percentage
of net sales in 2001 was 30.0%  compared to 34.6% in 2000.  This  year-over-year
4.6 percentage  points drop was primarily due to a production  volume  decrease,
which resulted in higher fixed manufacturing costs per unit shipped, and the 10%
average selling price decline for dial-up modems.

Selling Expenses.  Selling expenses decreased 24.3% to $9.6 million in 2001 from
$12.7 million in 2000.  Selling  expenses as a percent of net sales increased to
22.0% in 2001 from 21.3% in 2000.  The $3.1  million  decrease was the result of
significant  reductions in both variable and fixed selling  expenses,  including
staff reductions,  cooperative  advertising,  and sales  commissions.  The staff
reductions took place throughout the year.

General  and  Administrative  Expenses.   General  and  administrative  expenses
increased  $1.7 million to $7.9  million in 2001 from $6.2 million in 2000.  The
year-over-year  increase  resulted  from a $2.3 million  write-off of all of our
positive goodwill assets discussed above under the caption "Critical  Accounting
Policies".  Excluding the goodwill asset write-offs,  general and administrative
expenses  decreased  $.5  million,  or 10%,  to $5.7  million  in 2001 from $6.2
million  in  2000,  or to  13.0%  from  10.3%  as a  percentage  of  net  sales,
respectively.  The $.5 million reduction of general and administrative  expenses
resulted primarily from reductions in personnel and related expenses,  partially
offset by increased legal expense and filing expenses associated with our recent
change of our  jurisdiction of  incorporation  from Canada to the United States.
Staff reductions occurred throughout the year.

Research and Development  Expenses.  Research and development expenses decreased
14.7%  to $5.3  million  in  2001  from  $6.2  million  in  2000.  Research  and
development  expenses as a percent of net sales  increased to 12.2% in 2001 from
<PAGE>
10.5% in 2000. The dollar decrease in research and development  expenses was due
to reduced  personnel and related expenses and industry and government  approval
costs, primarily associated with decreased engineering activity on broadband and
wireless product development. Staff reductions occurred throughout the year.

Other income  (expense).  Other income  (loss),  net changed from income of $.47
million in 2000 to a loss of $.16  million  in 2001.  Included  in other  income
(loss) are interest income (expense),  other income and non-interest income, and
equity losses of an affiliate.

o     Interest  Income.  Interest income  decreased to $.20 million in 2001 from
      $.48  million in 2000.  The  decrease  was the result of our lower  earned
      interest rate and lower average invested cash balance during 2001 compared
      to 2000. The average  interest rate earned in 2001 was  approximately  250
      basis points lower in 2001 than in 2000.
o     Interest expense.  Interest expense increased to $.45 million in 2001 from
      $0 in 2000. The interest expense increase is due to the interest  payments
      for  the  $6.0  million   mortgage  taken  out  in  January  2001  on  our
      headquarters building.
o     Equity in losses of  Affiliate.  Our  affiliate  equity  losses  were $.14
      million in 2001 compared to $.22 million in 2000. Our  investment  balance
      in the affiliate has been reduced to $.06 million at December 31, 2001.
o     Other Income,  Net. Other income and non-interest income remained constant
      at $.24 million in 2001 and 2000.  Activity in this account includes other
      income of $.12 million for an  unexpected  recovery of funds in a dispute.
      There was slightly lower rental income in 2001 compared to 2000.

Income Tax Expenses  (Benefit).  We did not record any net tax benefit to offset
our $14.3 million pre-tax loss in 2001. In addition,  we recorded a $3.8 million
income tax charge to increase our valuation  allowance  against our net deferred
tax asset due to our operating results, both recent and projected, and the lower
market  value of our real  estate.  This  accounting  treatment  is described in
further detail under the caption  "Critical  Accounting  Policies"  above and in
footnote 12 to the audited consolidated financial statements.

Year Ending December 31, 2000 Compared to Year Ending December 31, 1999

Net  Sales.  Our net sales  decreased  6.8% to $59.8  million in 2000 from $64.1
million in 1999. Our sales decline  resulted from overall lower average  selling
prices for our products,  which offset an  approximate 7% increase in unit sales
in 2000 compared to 1999. In both 2000 and 1999, more than 90% of our sales were
dial-up modem products.

Our net sales to retailers and  distributors  in the United States  decreased by
5.9% to $40.2 million in 2000. Our sales decline was considerably  less than the
total retail market sales decline of dial-up modems in the USA.  According to PC
Data, a point-of-sale  market tracking  organization for the computer  industry,
our market share of dial-up  modems at surveyed USA retailers  increased in 2000
versus 1999 both in dollars and in unit sales.

Our worldwide  net sales to OEM customers  increased by 84.7% to $4.5 million in
2000, reflecting our first significant sale in the OEM embedded modem market.

Our  international  sales to retailers  and  distributors  decreased by 21.0% to
$15.0 million in 2000.

Gross Profit.  Gross profit as a percentage  of net sales  decreased to 34.1% in
2000 from 36.7% in 1999. Our average  selling prices  declined year over year by
more than 10%.  Materials cost and manufacturing cost were also reduced but they
could not be reduced to the same extent, yielding a gross profit reduction.

Selling Expenses.  Selling expenses decreased 6.3% to $12.7 million in 2000 from
$13.6  million in 1999.  Selling  expenses  as a percent of net sales  increased
slightly to 21.3% in 2000 from 21.2% in 1999. The dollar  decrease was primarily
the result of reduced selling  expenses in our United Kingdom office and reduced
commissions.

General  and  Administrative  Expenses.   General  and  administrative  expenses
decreased  .8% to $6.2  million in 2000 from $6.3  million in 1999.  General and
administrative  expenses  as a percent of net sales  increased  to 10.4% in 2000
from 9.8% in 1999.  The  dollar  decrease  was  primarily  due to the  result of
reduced legal expenses, administrative support costs in our office in the United
Kingdom,  and bad debt  expense,  which were  partially  offset by  increases in
depreciation and amortization expenses and employee health insurance.

Research and Development  Expenses.  Research and development expenses decreased
2.8% to $6.2 million in 2000 from $6.4 million in 1999. Research and development
<PAGE>
expenses  as a percent  of net sales  increased  to 10.5% in 2000 from  10.0% in
1999. The dollar decrease in research and development expenses was primarily due
to  reduced  expenses  in our  United  Kingdom  office  and lower  spending  for
reproduction materials,  consultants,  and recruiting which was partially offset
by increases in spending for industry and government approvals.

Interest Income. Net interest income decreased to $.45 million in 2000 from $.55
million in 1999.  The decrease was the result of our lower average cash balances
during 2000 compared to 1999.  The interest  income impact of lower average cash
balances was partially offset by higher interest rates. The interest rate earned
in 2000 was approximately 90 basis points higher than earned in 1999.

Equity in Losses of Affiliate.  Our affiliate equity losses were $.22 million in
2000 compared to $.02 million in 1999. Our original  investment in the affiliate
was $.3 million.

Other  Income,  Net.  Other  income and  non-interest  income  increased to $.24
million in 2000 from $.22 million in 1999. The increase was primarily the result
of higher rental income in 2000 compared to 1999.

Income Tax  Benefit.  Our tax  benefit of $1.3  million  in 2000  represents  an
effective  tax rate of 29.7%  compared to a 29.5% rate in 1999. In both 1999 and
2000,  we  determined  that it was more likely than not that  certain  state tax
benefits would not be realized.  In assessing the  realizability of deferred tax
assets,  we consider  whether it is more likely than not that some or all of the
deferred tax assets will not be realized.  The ultimate  realization of deferred
tax assets is dependent  upon the  generation  of future  taxable  income during
periods in which those temporary differences become deductible.  We consider the
scheduled reversal of deferred tax liabilities, projected future taxable income,

and other matters in making this  assessment.  As a result of our  evaluation of
these  factors,  we recorded an  additional  valuation  allowance of $.4 million
against our deferred  tax asset.  The  additional  valuation  allowance  was the
result  of our  assessment  that  some  portion  of the  benefits  from  the net
operating losses for state tax purposes  incurred by us might not be realized in
future periods.

Liquidity and Capital Resources

For the past three years, we have incurred  negative cash flows from operations.
On December 31, 2001, we had working  capital of $18.2  million,  including $5.3
million in cash and cash equivalents.

In 2001,  our net cash used in operating  activities  was $2.6 million.  Uses of
cash were our operating loss of $18.3 million, a decrease of accounts payable of
$5.2  million,  and an increase in prepaid  expenses of $.3 million.  Sources of
cash included a decrease of inventory of $10.8  million (see below),  a decrease
in  accounts  receivable  of $2.3  million,  and  the  following  2001  non-cash
expenses: an impairment of deferred tax assets of $3.8 million, an impairment of
goodwill of $2.3 million,  depreciation  and  amortization of $1.8 million,  and
other non-cash expenses of $.2 million.

Our  significant  inventory  reduction  of $10.8  million  included  a  non-cash
write-down  of $4.6 million  related to the  write-down  to the lower of cost or
market and the  recording of excess and  obsolescence  reserves of $4.6 million,
reduced  inventories  needed  to  support  our  lower  sales  level in 2001,  an
operational  improvement in dial-up modem  inventory  turnover,  and to a lesser
extent, the usage of excess broadband and wireless inventories that were largely
purchased in 2000. The excess  inventories  were purchased in 2000 to support an
aggressive  production  plan for new broadband cable and ADSL modem products and
wireless  networking  products.  The  production  plan was a key  element of our
overall plan to aggressively  enter the broadband modem and wireless  networking
markets.  In 2000, these markets were widely forecasted to begin dramatic growth
in 2001,  which was  expected to  continue  throughout  the  decade.  The market
expansion in 2001 was more modest than expected and, partly as a result, we were
not as successful as we had planned. At December 31, 2001, after the consumption
of some of the excess  inventory in 2001,  the  write-down  for lower of cost or
market  valuation,  and the recording of excess and obsolescence  reserves,  the
remaining  value of the  excess  broadband  and  wireless  inventories  was $4.1
million.

In 2001,  our net cash  used in  investing  activities  was $.8  million,  which
consisted of additions to property,  plant and  equipment of $.7 million and the
investment in an affiliate of $.1 million.
<PAGE>
In 2001, we obtained a mortgage on our corporate  headquarters,  which  provided
financing of $6 million.  Currently we do not have a debt facility from which we
can borrow,  and we do not expect to obtain one on acceptable terms unless there
is operating  performance  improvement.  However, we believe we would be able to
obtain funds, if and when required,  by factoring accounts  receivable.  We have
engaged in preliminary negotiations with a financial organization, but we do not
plan to put anything in place until and unless it is necessary since there would
be an up-front cost to finalize the arrangement.

To  conserve  cash  and  manage  our  liquidity,  we  have  implemented  expense
reductions  throughout  2001 and in the  first  quarter  of 2002.  Our  employee
headcount  was 313 at December 31, 2000,  which has been reduced to 199 at March
20, 2002.  We will continue to assess  our cost  structure  as it relates to our
revenues  and cash position in 2002,  and we may make further  reductions if the
actions are deemed necessary.

In  addition  to expense  reductions,  our  liquidity  in 2002 is expected to be
enhanced  by the  utilization  of  approximately  $3.0  million  of "no  charge"
components,  as a result of  supply  agreements  entered  in 2001.  Under  these
arrangements,  we are  committed to purchase at least $8.0 million of components
over the  30-month  period  commencing  January  1,  2002,  provided  that those
components  are offered at  competitive  terms and prices.  The  utilization  of
"no-charge" components will supplement our cash flow in 2002, as we will be able
to avoid the purchase and payment of an  equivalent  dollar amount of inventory.
The  favorable  impact to our  statement of  operations  will be recognized on a
delayed  basis as a  purchase  discount  over the  total  number  of  components
acquired  through  the  supply  agreement (see  note 7 (b) to  the  consolidated
financial statements).

On  December  31, 2001 we  had  a $4.1  million  net inventory  in broadband and
wireless products and components.  This inventory was paid for in 2000 and 2001.
Sales of products in 2002 using  any portion of  this inventory will enhance our
liquidity in 2002, as we  will be able  to avoid  the purchase and payment of an
equivalent dollar amount of new materials. We are currently selling cable modems
and  wireless  products  that consume  a  portion  of  this inventory and we are
aggressively pursuing additional orders in markets worldwide.

Trends including the bundling of dial-up modems into computers and the increased
popularity  of broadband  modems lower the total  available  market  through our
sales  channels.  Because of this,  our dial-up modem sales are unlikely to grow
unless we grow our market share,  or the new V.92 and V.44 modem  standards grow
sales through our channels.  If our dial-up modem sales do not grow,  our future
success will depend in large part on our ability to  successfully  penetrate the
broadband modem, networking and dialer markets.

Our cash position at December 31, 2001 was $5.3 million. Management  believes it
has sufficient resources to fund its planned operations over the next 12 months.
However, if we  are unable to  increase our  revenues,  reduce our  expenses, or
raise  capital, our  longer-term  ability to  continue as  a going  concern  and
achieve our intended business objectives could be adversely  affected. See "Risk
Factors" below, for further information with respect to events and uncertainties
that could harm our business, operating results, and financial condition.

Commitments

We lease a manufacturing and warehousing facility in Boston,  Massachusetts,  an
office facility in Camberley,  United Kingdom,  and a technical support facility
in Boca Raton,  Florida. The Boston,  Massachusetts lease expires in August 2006
and the Boca Raton lease is a "tenant at will" lease.  In March 1999, we assumed
an office lease from Hayes Microcomputer  Products, Inc. at 430 Frimley Business
Park, Camberley Surrey, UK. The landlord has notified us that they would like to
exercise  their  option to  exercise  the break  clause in the lease in February
2003. We have agreed to this contract termination since the leased space exceeds
our current  requirements.  We are  looking for a smaller  office to lease which
should result in savings in rent expenses.  We do not expect the moving expenses
to be  significant.  Our total  rent  expense  under our  operating  leases  was
approximately  $0.5  million  in  2001.

Our estimated future minimum rental payments,  excluding  executory costs, under
these  operating  leases are set forth in the table below.  We are  currently in
dispute   over  the  amount  of  rent  due  under  our  lease  for  our  Boston,
<PAGE>
Massachusetts  facility.  Our estimates below use as an assumption the amount of
rent that is being  sought by our  landlord.  For our  Camberley  UK lease,  the
estimates use the assumption that our future lease costs will be the same as our
current lease costs.

See discussion of purchase  commitments  under Liquidity and Capital  Resources.
The purchase  commitment column reflects  management's estimate of the timing of
purchases under the 30 month purchase commitment.
<TABLE>
<S>             <C>            <C>              <C>               <C>
                                Operating        Purchase
                Year              Leases        Commitments         Total
                ----           ----------       -----------         -----
                2002           $ 696,735        $2,500,000        $3,196,735
                2003             678,647         5,500,000         6,178,647
                2004             691,174             -               691,174
                2005             692,313             -               692,313
                2006             466,481             -               466,481
                Thereafter     $ 170,488             -               170,488
</TABLE>

During  2001,  we paid  $513,500 in escrow as a deposit on a building in Boston,
Massachusetts  we  were  seeking  to  acquire.  Of  this  deposit,  $25,000  was
nonrefundable.  Subsequently, negotiations stalled. While we believe that we are
entitled to a return of the $488,500  refundable  portion of the  deposit,  plus
interest,  the property-owner has objected,  and the funds are being retained in
escrow.  Without pursuit of the  arrangement,  described  below, we would likely
need to seek legal remedies to obtain a return of the refundable  portion of our
original  deposit.  The  arrangement  being pursued is that we, along with other
investors related to us, including Frank Manning,  our President and a director,
and Peter Kramer,  our Executive Vice President and a director,  have engaged in
further  ongoing  negotiations  with the  property  owner,  whereby the group of
investors are intending to acquire the building,  with Zoom  participating  as a
minority investor. Under this arrangement,  upon acceptance,  we would receive a
pro rata portion,  anticipated to be $390,800,  of the refundable portion of our
deposit plus interest from the other investors. If the group ultimately acquires
the building,  the $390,000 plus interest  would be applied to our investment in
the entity acquiring the property, which we would not expect to exceed $540,000.
We would also have a right to sell our investment to the other investors through
January 5, 2003.  Should we exercise our sale right,  we would  recover the full
amount of the refundable portion of our deposit and any additional investment we
make in the entity acquiring the property. In addition,  under this arrangement,
we would  have the right to  purchase  the  other  investors'  interests  in the
building through December 31, 2005 in accordance with a prearranged formula.

Recently Issued Accounting Standards

In June 2001,  the FASB issued SFAS No. 141 "Business  Combinations"  (SFAS 141)
and SFAS No. 142 "Goodwill  and Other  Intangible  Assets" (SFAS 142).  SFAS 141
requires all business combinations initiated after June 30, 2001 to be accounted
for using the purchase method.  Under SFAS 142,  goodwill and intangible  assets
with indefinite lives are no longer amortized but are reviewed annually (or more
frequently if impairment indicators arise) for impairment.  Separable intangible
assets  that  are not  deemed  to have  indefinite  lives  will  continue  to be
amortized over their useful lives (but with no maximum life).  The  amortization
provisions of SFAS 142 apply to goodwill and  intangible  assets  acquired after
June 30, 2001. With respect to goodwill and intangible  assets acquired prior to
July 1,  2001,  the  amortization  and  impairment  provisions  of SFAS  142 are
effective  upon the  adoption of SFAS 142. We are required to adopt SFAS 141 and
SFAS 142 at the beginning of 2002.  We believe the adoption of these  accounting
standards  will not have  any  material  effect  on our  consolidated  financial
statements.

In August 2001,  the FASB issued SFAS No. 144,  Accounting for the Impairment on
Disposal of Long-Lived  Assets (SFAS 144),  effective for fiscal years beginning
after December 15, 2001. This statement  addresses the financial  accounting and
reporting for the  impairment and disposal of long-lived  assets.  It supersedes
SFAS No. 121,  Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed (SFAS 121). Under the new rules, the criteria required for
<PAGE>
classifying an asset as held-for-sale  have been significantly  changed.  Assets
held-for-sale  are stated at the lower of their fair values or carrying amounts,
and  depreciation  is no longer  recognized.  In addition,  the expected  future
operating losses from discontinued  operations will be displayed in discontinued
operations in the period in which the losses are incurred  rather than as of the
measurement  date. More  dispositions  will qualify for discontinued  operations
treatment  in  the statement  of  operations under the new rules. This statemenT
will not have a material impact on our operations or financial position.

FASB Emerging  Issues Task Force Issue No. 00-14  "Accounting  for Certain Sales
Incentives"  addresses  the  recognition,   measurement,  and  income  statement
classification  for certain types of sales  incentives.  The  application of the
guidance  in Issue No.  00-14 will result in a change in the manner in which the
Company  records  certain types of discounts and sales and marketing  incentives
that are  provided  to its  customers.  The Company  has  historically  recorded
certain types of these incentives as marketing expenses.  Under Issue No. 00-14,
the Company will record these discounts and incentives as reductions of revenue.
In April 2001, the FASB Emerging  Issues Task Force reached a consensus on Issue
No.  00-25  "Accounting  for  Consideration  from  a  Vendor  to a  Retailer  in
Connection with the Purchase or Promotion of the Vendor's  Products".  Issue No.
00-25  addresses  whether  certain  consideration  offered  by  a  vendor  to  a
distributor,  including slotting fees, cooperative advertising  arrangements and
"buy-down" programs, should be characterized as operating expenses or reductions
of revenue.  Issue No. 00-14 and 00-25 are required to be  implemented  no later
than the first  fiscal  quarter of 2002,  at which time  prior  period  reported
amounts  will be  reclassified  to  conform to the new  presentation.  Pro forma
disclosures  reflecting the reclassification of both previously reported as well
as current year reported revenues and sales and marketing  expenses based on the
application of the guidance in Issue No. 00-14 and Issue No. 00-25 are presented
in note 4 to the audited consolidated financial statements.  There is no current
year or historical impact on our consolidated balance sheets.
<TABLE>
<S>                                 <C>                  <C>                 <C>
                                                     Years ending December 31,
                                           1999                 2000                2001
Revenues:
As previously reported.......       $   64,088,384       $   59,750,187      $   43,709,528
As reclassified..............           62,228,216           57,708,456          41,570,276

Sales and Marketing expenses:
As previously reported.......           13,571,083           12,713,756          9,619,549
As reclassified                         11,710,915           10,672,025          7,480,297
</TABLE>
<PAGE>
RISK FACTORS

This  report  contains   forward-looking   statements  that  involve  risks  and
uncertainties,   such  as  statements  of  our  objectives,   expectations   and
intentions.  The  cautionary  statements  made in this report  should be read as
applicable  to all  forward-looking  statements  wherever  they  appear  in this
report.  Our actual results could differ materially from those discussed herein.
Factors  that  could  cause or  contribute  to such  differences  include  those
discussed below, as well as those discussed elsewhere in this report.

Our revenues  have  declined and we have  incurred  significant  losses and used
significant cash in operations over the last three years.

We incurred  net losses of  approximately  $18.3  million in fiscal  2001,  $3.1
million in fiscal 2000 and $1.4 million in fiscal 1999. During these periods our
revenue  declined  from $64.1 million in 1999 to $59.8 million in 2000 and $43.7
million in 2001.  The cash used in  operations  during  these  periods  was $2.6
million in 2001,  $8.0 million in 2000 and $2.7 million in 1999.  As of December
31, 2001 we had net working  capital of $18.2  million  including  cash and cash
equivalents of $5.3 million.

We attribute  the decline of our  business  primarily to a decline in the retail
dial-up modem market,  and delays in our  penetration of the broadband modem and
wireless  local area network  markets.  We  anticipate  that we will continue to
incur significant expenses for the foreseeable future as we:

o        continue  to develop  and seek  appropriate  approvals  for our dial-up
         modem, broadband access, wireless local area network, Internet gateway,
         and dialer products; and
o        continue to make efforts to expand our sales channels  internationally,
         and into new channels appropriate to our new product areas.

Although  we have  reduced  our  operating  expense  levels  significantly,  our
revenues must increase or we will continue to incur operating  losses. We cannot
guarantee that our expenditures will significantly  increase or halt the decline
in our revenues.  Although we believe that we have sufficient  resources to fund
our planned  operations over the next year, if we fail to increase our revenues,
our longer-term ability to stay in business and to achieve our intended business
objectives could be adversely  effected.  Our continuing  losses and use of cash
could  also  adversely  affect our  ability  to fund the growth of our  business
should our strategies prove successful.

To stay in business we may require  future  additional  funding  which we may be
unable to obtain on favorable terms, if at all.

Over the  next  twelve  months,  we may  require  additional  financing  for our
operations either to fund losses beyond those we anticipate or to fund growth in
our inventory and accounts  receivable  should growth occur. We currently do not
have a debt facility from which we can borrow and we do not expect to obtain one
on  acceptable  terms  unless our  operating  performance  improved.  Additional
financing  may not be  available  to us on a timely basis if at all, or on terms
acceptable  to us. If we fail to obtain  acceptable  additional  financing  when
needed,  we may be required to further  reduce  planned  expenditures  or forego
business  opportunities,  which could reduce our revenues,  increase our losses,
and harm our business.  Moreover,  additional  equity financing could dilute the
per  share  value  of our  common  stock  held by  current  shareholders,  while
additional   debt   financing   could  restrict  our  ability  to  make  capital
expenditures  or incur  additional  indebtedness,  all of which would impede our
ability to succeed.

Our existing  indebtedness could prevent us from obtaining  additional financing
and harm our liquidity.

In January 2001,  we obtained a $6 million,  20 year direct  reduction  mortgage
from a bank,  secured by our owned real  estate in  Boston,  Massachusetts.  Our
outstanding indebtedness could adversely affect our ability to obtain additional
financing for working  capital,  acquisitions  or other  purposes.  Our existing
indebtedness  could  also make us more  vulnerable  to  economic  downturns  and
competitive  pressures,  make  it  more  difficult  to  obtain  additional  debt
financing, and adversely affect our liquidity. In the event of a cash shortfall,
we could be forced to reduce other  expenditures to meet our  requirements  with
respect to our  outstanding  debt. Our ability to meet our  obligations  will be
dependent  upon our future  performance,  which  will be  subject to  financial,
business and other factors  affecting our operations.  Many of these factors are
beyond our  control.  If we are  unable to  generate  sufficient  cash flow from
operations  in the future to service our debt,  we may be required to  refinance
<PAGE>
all or a portion of these obligations or obtain additional financing in order to
stay in business.

Our revenues and operating  results have been  adversely  affected  because of a
decline in average  selling  prices for our  dial-up  modems and  because of the
decline in the retail market for dial-up modems.

The dial-up modem industry has been  characterized by declining  average selling
prices and a declining  retail market.  The decline in average selling prices is
due to a number of factors,  including  technological  change,  lower  component
costs, and competition. The decline in the size of the retail market for dial-up
modems is primarily due to the inclusion of dial-up modems as a standard feature
contained in new PCs, and the advent of  broadband  products.  As the market for
cable and ADSL modems  matures and  competition  between  cable and ADSL service
providers  intensifies,  it is  likely  that  there  will  be  increased  retail
distribution of cable and ADSL modems.  While increased retail sale of broadband
modems  could  increase our sales of these  products,  it could  further  reduce
demand for our dial-up  modems.  Decreasing  average  selling prices and reduced
demand for our dial-up  modems  would  result in  decreased  revenue for dial-up
modems.  In addition,  we have  experienced and we may in the future  experience
substantial period to period fluctuations in operating results.

We believe  that our future  success will depend in large part on our ability to
more  successfully  penetrate  the  broadband  modem  markets,  which  have been
challenging markets, with significant barriers to entry.

With the  shrinking  of the dial-up  modem  market,  we believe  that our future
success will depend in large part on our ability to more successfully  penetrate
the  broadband,   cable  and  ADSL,  modem  markets.  These  markets  have  been
challenging  markets,  with significant  barriers to entry,  that have adversely
affected  our sales to these  markets.  Although  some cable and ADSL modems are
sold at retail, the high volume purchasers of these modems are concentrated in a
relatively few large cable,  telecommunications  and internet service  providers
which offer  broadband  modem  services  to their  customers.  These  customers,
particularly cable services  providers,  also have extensive and varied approval
processes  for  modems  to be  approved  for use on  their  network  that can be
expensive, time consuming, and continue to evolve.  Successfully penetrating the
broadband modem market therefore presents a number of challenges including:

o     the current limited retail market for broadband modems;
o     the relatively small number of cable, telecommunications and internet
      service provider customers that make up a substantial part of the market
      for broadband modems;
o     the significant bargaining power of these large volume purchasers;
o     the time consuming, expensive, uncertain and varied approval process of
      the various cable service providers; and
o     the strong relationships with cable service providers enjoyed by
      incumbents cable equipment providers like Motorola and Scientific Atlanta.

Our initial sales of broadband  products have been adversely  affected by all of
these factors.  We cannot assure that we will be able to successfully  penetrate
these markets.

Continued  fluctuations in our operating results could cause the market price of
our common stock to fall.

Our operating results have fluctuated in the past and are likely to fluctuate in
the future. It is possible that our revenues and operating results will be below
the expectations of investors in future quarters.  If we fail to meet or surpass
the  expectations  of investors,  the market price of our common stock will most
likely  fall.  Factors  that have  affected  and may in the  future  affect  our
operating results include:

o    the overall  demand for  dial-up,  cable and ADSL  modems,  wireless local
     area  network  products,  Internet  gateway  products,  dialers, and other
     communications products;
o    the  timing  of  new  product  announcements  and  releases  by us and our
     competitors;
o    successful  testing,  qualification and approval of our products, such as
     Cablelabs(R) qualification of cable modems, telephone company qualification
     of  ADSL modems,  approval by service providers for use on their networks,
     and governmental approvals;
o    variations in the number and mix of products we sell;
o    the timing of customer orders and adjustments of delivery schedules to
     accommodate our customers' programs;
<PAGE>
o    the availability of components, materials and labor necessary to produce
     our products;
o    the timing and level of expenditures in anticipation of future sales;
o    pricing and other competitive conditions; and
o    seasonality.

Our customer base is  concentrated  and the loss of one or more of our customers
could harm our business.

Relatively  few customers  have  accounted for a significant  portion of our net
sales. In fiscal 2001,  approximately  53% of our net sales were attributable to
four  customers,  each of whom  accounted  for more  than 10% of our net  sales.
Because  our  customer  base is  concentrated,  a loss  of one or more of  these
significant  customers or a reduction or delay in orders or a default in payment
from any of our top customers could  significantly  reduce our sales which would
materially harm our business, results of operations, and financial condition.

Our  failure  to meet  changing  customer  requirements  and  emerging  industry
standards would adversely impact our ability to sell our products.

The  market for PC  communications  products  and  high-speed  broadband  access
products is characterized by aggressive pricing practices,  continually changing
customer  demand  patterns,  rapid  technological  advances,  emerging  industry
standards and short product life cycles.  Some of our product  developments  and
enhancements have taken longer than planned and have delayed the availability of
our products,  which adversely affected our sales and profitability in the past.
Any  significant  delays in the future may adversely  impact our ability to sell
our  products,  and our results of  operations  and  financial  condition may be
adversely  affected.  Our  future  success  will  depend in large  part upon our
ability to:

o     identify and respond to emerging technological trends in the market;
o     develop and maintain competitive products that meet changing customer
      demands;
o     enhance our products by adding innovative features that differentiate
      our products from those of our competitors;
o     bring products to market on a timely basis;
o     introduce products that have competitive prices;
o     manage our product transitions, inventory levels and manufacturing
      processes efficiently;
o     respond effectively to new technological changes or new product
      announcements by others; and

Our   product   cycles  tend  to  be  short,   and  we  may  incur   significant
non-recoverable  expenses or devote  significant  resources to sales that do not
occur when anticipated.  In the rapidly changing technology environment in which
we operate,  product cycles tend to be short. Therefore, the resources we devote
to product  development,  sales and marketing may not generate material revenues
for us. In addition,  short product cycles has resulted in and may in the future
result in excess  and  obsolete  inventory,  which has had and may in the future
have an adverse  affect on our  results of  operations.  In an effort to develop
innovative products and technology, we have incurred and may in the future incur
substantial development, sales, marketing, and inventory costs. If we are unable
to recover these costs, our financial  condition and operating  results could be
adversely  affected.  In addition,  if we sell our products at reduced prices in
anticipation  of cost  reductions  and we still have  higher  cost  products  in
inventory,  our  business  would be harmed  and our  results of  operations  and
financial condition would be adversely affected.

Our operating  results have been adversely  affected because of price protection
programs.

Our  operating  results have been  adversely  affected by  reductions in average
selling  prices  because we gave credits to some of our customers as a result of
contractual price protection guarantees.  Specifically, when we reduce the price
for a product,  the customer  receives a credit for the  difference  between the
customer's most recent purchase price and our reduced price for the product, for
all unsold  product at the time of the price  reduction.  For  fiscal  2001,  we
recorded a reduction of revenue of $.9 million for customer price protection.

We  may  be  subject  to  product  returns  resulting  from  defects,   or  from
overstocking  of our  products.  Product  returns could result in the failure to
attain market acceptance of our products, which would harm our business.
<PAGE>
If our products contain undetected defects, errors or failures, we could face:

o     delays in the development of our products;
o     numerous product returns; and
o     other losses to us or to our customers or end users.

Any of these  occurrences  could  also  result in the loss of or delay in market
acceptance of our products,  either of which would reduce our sales and harm our
business.  We are also exposed to the risk of product returns from our customers
as a result  of  contractual  stock  rotation  privileges  and our  practice  of
assisting some of our customers in balancing their inventories. Overstocking has
in the past led and may in the future lead to higher than normal returns.

Our failure to  effectively  manage our inventory  levels could  materially  and
adversely affect our liquidity and harm our business.

During fiscal 2000, in anticipation  of future sales of our recently  introduced
broadband access products, particularly cable modems, we significantly increased
our inventory for these products. We also built up this inventory in response to
shortages of  components  for these  products  earlier in that year.  Since that
time, most of these component  shortages have been alleviated.  We have also had
difficulty  in  generating   significant   orders  for  some  of  our  products,
particularly  broadband products,  and as a result, we experienced a significant
increase in our  inventory,  to $21.9  million on  December  31, 2000 from $14.3
million on December 31,  1999.  During  fiscal 2001,  we were able to reduce our
inventory levels to $11.1 million as a result of sales, and raw material returns
to suppliers and the  writedown of some of our  inventory by $4.6  million.  Our
failure to effectively  manage our inventory may adversely  affect our liquidity
and increases the risk of inventory  obsolescence,  a decline in market value of
the inventory, or losses from theft, fire or other casualty.
We may be unable to produce  sufficient  quantities  of our products  because we
depend on third party manufacturers.  If these third party manufacturers fail to
produce quality products in a timely manner, our ability to fulfill our customer
orders would be adversely impacted.

We use contract  manufacturers  to partially  manufacture  our products.  We use
these third party  manufacturers  to help ensure low costs,  rapid market entry,
and  reliability.  Any  manufacturing  disruption  could  impair our  ability to
fulfill orders,  and failure to fulfill orders would adversely affect our sales.
Although  we  currently  use  four  contract  manufacturers  for the bulk of our
purchases,  in some  cases a given  product  is only  provided  by one of  these
companies.  The loss of the services of our any of our  significant  third party
manufacturers   or  a  material  adverse  change  in  the  business  of  or  our
relationships  with any of these  manufacturers  could harm our business.  Since
third  parties  manufacture  our  products and we expect this to continue in the
future,  our success will depend,  in part,  on the ability of third  parties to
manufacture our products cost  effectively and in sufficient  quantities to meet
our customer demand.

We are subject to the  following  risks  because of our  reliance on third party
manufacturers:

o     reduced management and control of component purchases;
o     reduced control over delivery schedules;
o     reduced control over quality assurance;
o     reduced control over manufacturing yields;
o     lack of adequate capacity during periods of excess demand;
o     limited warranties on products supplied to us;
o     potential increases in prices;
o     interruption of supplies from assemblers as a result of a fire, natural
      calamity, strike or other significant event; and
o     misappropriation of our intellectual property.

We may be unable to produce  sufficient  quantities  of our products  because we
obtain key components from, and depend on, sole or limited source suppliers.

We obtain  certain  key parts,  components  and  equipment  from sole or limited
sources of supply. For example, we purchase dial-up and broadband modem chipsets
from Conexant  Systems  (formerly  Rockwell) and Agere Systems  (formerly Lucent
Technologies). Integrated circuit product areas covered by one or both companies
include dial-up modems,  ADSL modems,  cable modems,  networking,  routers,  and
gateways. We also purchase ADSL chipsets from Globespan and we purchase chipsets
for our wireless network interface cards from Intersil Corporation. In the past,
we have  experienced  delays in receiving  shipments of modem  chipsets from our
sole source  suppliers.  We may  experience  similar  delays in the  future.  In
addition,  some products may have other  components that are available from only
<PAGE>
one source.  If we are unable to obtain a sufficient  supply of components  from
our current sources, we could experience  difficulties in obtaining  alternative
sources or in altering product designs to use alternative components.  Resulting
delays or reductions in product  shipments could damage  relationships  with our
customers  and  our  customers  could  decide  to  purchase  products  from  our
competitors.  Inability  to meet our  customers'  demand or a decision by one or
more of our customers to purchase  products from our competitors  could harm our
operating results.

Our failure to satisfy minimum purchase requirements or commitments we have with
our sole  source  suppliers  could  have an  adverse  affect on our  results  of
operations.

We have entered into supply  arrangements with suppliers of some components that
include price and other concessions, including no-charge components, for meeting
minimum  purchase  requirements  or  commitments.  Our  business  and results of
operations  could  be  harmed  if  we  fail  to  satisfy  the  minimum  purchase
requirements or commitments contained in our supply arrangements.

The  market  for  high-speed  communications  products  and  services  has  many
competing  technologies  and,  as a result,  the  demand  for our  products  and
services is uncertain.

The market for high-speed  communications  products and services has a number of
competing technologies. For instance, Internet access can be achieved by:

o     using a standard telephone line and appropriate service for dial-up
      modems, ISDN modems, or ADSL modems, possibly in combination;
o     using a cable modem with a cable TV line and cable modem service;
o     using a router and some type of modem to service the computers connected
      to a local area network; or
o     other approaches, including wireless links to the Internet.

Although we currently sell products that include these technologies,  the market
for  high-speed  communication  products and services is fragmented and still in
its development  stage. The introduction of new products by competitors,  market
acceptance  of  products  based  on  new  or  alternative  technologies,  or the
emergence of new industry  standards  could render and have in the past rendered
our products less competitive or obsolete.  If any of these events occur, we may
be unable to sustain or grow our business. In addition, if any of one or more of
the  alternative  technologies  gain  market  share at the  expense  of  another
technology,  demand for our  products  may be  reduced,  and we may be unable to
sustain or grow our business.

We face significant competition,  which could result in decreased demand for our
products or services.

We may be unable to compete successfully.  A number of companies have developed,
or are  expected to develop,  products  that  compete or will  compete  with our
products.  Furthermore,  many of our  current  and  potential  competitors  have
significantly   greater  resources  than  we  do.  Intense  competition,   rapid
technological  change and evolving industry  standards could decrease demand for
our products or make our products obsolete.
Our competitors by product group include the following:

o     Dial-up modem competitors: Actiontec, Askey, Best Data, Creative Labs,
      Elsa, GVC, Intel,  SONICblue, and US Robotics.
o     Cable modem competitors: Motorola, Samsung, Scientific Atlanta, Thomson,
      and Toshiba.
o     ADSL modem  competitors  Siemens (formerly  Efficient  Networks) and
      Westell.
o     Wireless Local Area Network competitors:  3Com, Agere, Buffalo
      Technologies, Cisco Systems, D-link, Intel, Linksys, Proxim, and SMC.

The principal competitive factors in our industry include the following:

o     product performance, features and reliability;
o     price;
o     product availability and lead times;
o     size and stability of operations;
o     breadth of product line;
o     sales and distribution capability;
o     tailoring of product to local market needs, sometimes including packaging,
      documentation, software, and support in the local language;
o     ease of use and technical support and service;
<page>
o     relationships with providers of broadband access services; and
o     compliance with industry standards.

Our business is dependent  on the Internet and the  development  of the Internet
infrastructure.

Our  success  will  depend in large part on  increased  use of the  Internet  to
increase the demand for  high-speed  communications  products.  Critical  issues
concerning the commercial use of the Internet remain largely  unresolved and are
likely to affect the  development  of the market for our products.  These issues
include security, reliability, cost, ease of access, and quality of service.

Our success also will depend on the continued  growth of the use of the Internet
by businesses, particularly for applications that utilize multimedia content and
that require high  bandwidth.  The recent  growth in the use of the Internet has
caused  frequent  periods of  performance  degradation.  This has  required  the
upgrade of routers,  telecommunications  links and other components  forming the
infrastructure   of  the  Internet  by  Internet  service  providers  and  other
organizations with links to the Internet.

Any perceived  degradation  in the  performance of the Internet as a whole could
undermine  the  benefits  of our  products.  Potentially  increased  performance
provided by our products and the products of others ultimately is limited by and
reliant  upon  the  speed  and  reliability  of the  Internet  backbone  itself.
Consequently,  the  emergence  and growth of the market  for our  products  will
depend on  improvements  being made to the  entire  Internet  infrastructure  to
alleviate overloading.

Changes in current or future laws or  governmental  regulations  that negatively
impact our products and technologies could harm our business.

The jurisdiction of the Federal Communications  Commission,  or the FCC, extends
to the entire United States communications  industry including our customers and
their products and services that incorporate our products. Our products are also
required to meet the regulatory  requirements of other countries  throughout the
world where our products are sold. Obtaining government  regulatory approvals is
time-consuming  and very costly. In the past, we have encountered  delays in the
introduction  of our  products,  such  as  our  cable  modems,  as a  result  of
government certifications. We may face further delays if we are unable to comply
with governmental regulations. Delays caused by the time it takes to comply with
regulatory  requirements may result in cancellations or postponements of product
orders or purchases by our customers, which would harm our business.

Our  international  operations  are  subject  to a number of risks  inherent  in
international activities.

Our  international  sales  accounted  for  approximately  29% of our revenues in
fiscal 1999, 28% in fiscal 2000 and 37% in fiscal 2001. The revenues we received
from  international  sales were  significantly  impacted  by our Hayes  European
operation,  which we began operating in March 1999. Currently our operations are
significantly dependent on our international  operations,  and may be materially
and adversely affected by many factors including:

o     international regulatory and communications requirements and policy
      changes;
o     favoritism towards local suppliers;
o     local language and technical support requirements;
o     difficulties in inventory management, accounts receivable collection and
      the management of distributors or representatives;
o     difficulties in staffing and managing foreign operations;
o     political and economic changes and disruptions;
o     governmental currency controls;
o     shipping costs;
o     currency exchange rate fluctuations; and
o     tariff regulations.

We  anticipate  that our  international  sales will  continue  to account  for a
significant  percentage of our revenues.  If foreign markets for our current and
future products develop more slowly than currently expected,  our future results
of operations may be harmed.

Fluctuations  in the  foreign  currency  exchange  rates in relation to the U.S.
dollar could have a material adverse effect on our operating results.
<PAGE>
Changes in currency  exchange rates that increase the relative value of the U.S.
dollar may make it more  difficult for us to compete with foreign  manufacturers
on price,  or may  otherwise  have a  material  adverse  effect on our sales and
operating  results. A significant  increase in our foreign currency  denominated
sales would increase our risk associated with foreign currency fluctuations.

Our future  success  will  depend on the  continued  services  of our  executive
officers and key research and  development  personnel with expertise in hardware
and software development.

The  loss of any of our  executive  officers  or key  research  and  development
personnel,  the inability to attract or retain qualified personnel in the future
or delays in hiring skilled  personnel could harm our business.  Competition for
skilled personnel is significant. We may be unable to attract and retain all the
personnel necessary for the development of our business.  In addition,  the loss
of Frank B. Manning, our president and chief executive officer, or Peter Kramer,
our executive vice  president,  some other member of the management  team, a key
engineer,  or  other  key  contributors,  could  harm  our  relations  with  our
customers, our ability to respond to technological change, and our business.

Our business may be harmed by acquisitions we may complete in the future.

We may pursue acquisitions of related businesses, technologies, product lines or
products.  Our identification of suitable  acquisition  candidates involves risk
inherent in assessing the values, strengths, weaknesses, risks and profitability
of acquisition candidates,  including the effects of the possible acquisition on
our  business,  diversion  of our  management's  attention,  risk  of  increased
leverage, shareholder dilution, risk associated with unanticipated problems; and
risks associated with liabilities we assume.

We may have difficulty protecting our intellectual property.

Our  ability  to  compete  is heavily  affected  by our  ability to protect  our
intellectual  property. We rely primarily on trade secret laws,  confidentiality
procedures,  patents,  copyrights,  trademarks,  and licensing  arrangements  to
protect our intellectual  property.  The steps we take to protect our technology
may be  inadequate.  Existing  trade secret,  trademark and copyright laws offer
only limited  protection.  Our patents could be invalidated or circumvented.  We
have more  intellectual  property assets in some countries than we do in others.
In addition, the laws of some foreign countries in which our products are or may
be developed,  manufactured or sold may not protect our products or intellectual
property rights to the same extent as do the laws of the United States. This may
make the  possibility of piracy of our  technology and products more likely.  We
cannot  assure  that the steps that we have taken to  protect  our  intellectual
property will be adequate to prevent misappropriation of our technology.

We could infringe the intellectual property rights of others.

Particular  aspects  of  our  technology  could  be  found  to  infringe  on the
intellectual  property rights or patents of others.  Other companies may hold or
obtain  patents on  inventions  or may  otherwise  claim  proprietary  rights to
technology  necessary to our business.  We cannot predict the extent to which we
may be  required  to seek  licenses.  We  cannot  assure  that the  terms of any
licenses we may be required to seek will be reasonable. We are often indemnified
by our suppliers  relative to certain  intellectual  property rights;  but these
indemnifications do not cover all possible suits, and there is no guarantee that
a relevant indemnification will be honored by the indemnifying company.

Our executive  officers and directors may control certain matters to be voted on
by the  shareholders.  These officers and directors may vote in a manner that is
not in your best interests.

Our executive  officers and directors  beneficially  own, in the aggregate as of
March 20,  2002,  approximately  22.3% of our  outstanding  common  stock.  As a
result,  these shareholders could significantly  influence certain matters to be
voted on by the  shareholders.  These matters include the election of directors,
amendments  to our  certificate  of  incorporation  and approval of  significant
corporate  transactions.  These  executive  officers and  directors  may vote as
shareholders in a manner that is not in your best interests.
<page>
The  volatility of our stock price could  adversely  affect an investment in our
common stock.

The market  price of our  common  stock has been and may  continue  to be highly
volatile.  We believe  that a variety of  factors  have  caused and could in the
future cause the stock price of our common stock to fluctuate, including:

o     announcements of developments related to our business, including
      announcements of certification by the FCC or other regulatory
      authorities of our products or our competitors products;
o     quarterly fluctuations in our actual or anticipated operating results,
      assets, liabilities, and order levels;
o     general conditions in the US and worldwide economies;
o     announcements of technological innovations;
o     new products or product enhancements introduced by us or our competitors;
o     developments in patents or other intellectual property rights and
      litigation; and
o     developments in our relationships with our customers and suppliers.

In  addition,  in recent  years the stock  market in general and the markets for
shares of small  capitalization  and "high-tech"  companies in particular,  have
experienced  extreme price  fluctuations  which have often been unrelated to the
operating  performance of affected  companies.  Any  fluctuations  in the future
could adversely affect the market price of our common stock and the market price
of our common stock may decline.

ITEM 7A.

We own financial  instruments  that are sensitive to market risks as part of our
investment  portfolio.  The investment portfolio is used to preserve our capital
until we are required to fund operations, including our research and development
activities. None of these market-risk sensitive instruments are held for trading
purposes.  We do not own  derivative  financial  instruments  in our  investment
portfolio. The investment portfolio contains instruments that are subject to the
risk of a decline in interest rates.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ZOOM TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULE
                                                                            Page
Index to Consolidated Financial Statements                                   36
Independent Auditors' Report                                                 37
Consolidated Balance Sheets as of December 31, 2000 and 2001                 38
Consolidated Statements of Operations for the years ending December 31,      39
1999, 2000 and 2001
Consolidated Statements of  Stockholders' Equity and Comprehensive Loss
for the years ending December 31, 1999, 2000 and                             40
2001
Consolidated Statements of Cash Flows for the years ending December 31,      41
1999, 2000 and 2001
Notes to Consolidated Financial Statements                                 42-57
Schedule II:  Valuation and Qualifying Accounts for Fiscal Years Ending
December 31, 1999, 2000 and 2001                                             61

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There were no changes in or  disagreements  with  accountants  on  accounting or
financial disclosure during the period covered by this report.
<PAGE>
PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information  required  by this item  appears  under the caption  "Our  Executive
Officers " in Part 1, Item 1 -- Business,  and under the  captions  "Election of
Directors" and "Compliance With Section 16(a) of the Securities Exchange Act" in
our definitive proxy statement for our 2002 annual meeting of shareholders which
will be filed with the SEC in April 2002,  pursuant to  Regulation  14A,  and is
incorporated herein by reference.


ITEM 11 - EXECUTIVE COMPENSATION

Information  required  by  this  item  appears  under  the  captions  "Executive
Compensation," "Directors' Compensation",  in our definitive proxy statement for
our 2002  annual  meeting  of  shareholders  which will be filed with the SEC in
April 2002, pursuant to Regulation 14A, and is incorporated herein by reference.


ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information  required  by this item  appears  under the  captions  "Election  of
Directors" and "Security  Ownership of Certain Beneficial Owners and Management"
in our definitive  proxy  statement for our 2002 annual meeting of  shareholders
which will be filed with the SEC in April 2002,  pursuant to Regulation 14A, and
is incorporated herein by reference.


ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information  required  by this  item  may  appear  under  the  caption  "Certain
Transactions"  in our definitive  proxy statement for our 2002 annual meeting of
shareholders  which  will be  filed  with  the SEC in April  2002,  pursuant  to
Regulation 14A, and is incorporated herein by reference.
<PAGE>

PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)           Financial Statements, Schedules and Exhibits:

    (1),      (2) The consolidated  financial  statements and required schedules
              are indexed on page F-1.

    (3)       Exhibits  required  by  the  Exhibit  Table  of  Item  601  of SEC
              Regulation S-K.  (Exhibit  numbers refer to numbers in the Exhibit
              Table of Item 601.)

        2.1   Asset Purchase Agreement Between Zoom Telephonics, Inc. and Hayes
              Microcomputer Products, Inc. dated March 8, 1999, filed as Exhibit
              2.1 to  the Quarterly  Report on  Form 10-Q for the fiscal quarter
              ended March 31, 1999 (the "March 1999 Form 10-Q"). *

        2.2   Asset Purchase Agreement Between Zoom Telephonics, Inc. and Hayes
              Microcomputer  Products,  Inc.  dated  March  28, 1999, filed  as
              Exhibit 2.2 to the March 1999 Form 10-Q. *

        3.1   Certificate  of  Incorporation,  filed  as  Exhibit  3.1  to  Zoom
              Technologies,  Inc.  Current Report on Form 8-K dated February 28,
              2002,  filed with the Commission on March 4, 2002 (the "March 2002
              Form 8-K). *

        3.2   By-Laws of Zoom  Technologies, Inc., filed as  Exhibit 3.2  to the
              March 2002 Form 8-K. *

     **10.1   1990  Stock  Option Plan, as  amended, of  Zoom Telephonics, Inc.,
              filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the
              fiscal quarter ended June 30, 1998. *

     **10.2   1991 Director Stock Option Plan, as amended,  of Zoom Telephonics,
              Inc.,  filed as Exhibit 10.2 to the Quarterly  Report on Form 10-Q
              for the fiscal  quarter  ended June 30,  1996 (the "June 1996 Form
              10-Q") * and as further amended on June 14, 2001.

       10.3   Lease  between  Zoom Telephonics, Inc. and "E" Street  Associates,
              filed as Exhibit 10.5 to the June 1996 Form 10-Q. *

       10.4   Form  of Indemnification  Agreement, filed as Exhibit 10.6 to  the
              June 1996 Form 10-Q. *

     **10.5   Letter Agreement between Zoom and an executive  officer,  filed as
              Exhibit 10.1 to the  Quarterly  Report on Form 10-Q for the fiscal
              quarter ending September 30, 2000. *

     **10.6   Employment Agreement, filed as Exhibit 10.9 to the 1997 Form 10-K.
              *

       10.7   Mortgage,  Security  Agreement  and  Assignment  between  Zoom and
              Wainwright  Bank & Trust  Company,  filed as  Exhibit  10.1 to the
              Quarterly  Report on Form 10-Q for the fiscal  quarter ended March
              31, 2001 (the "March 2001 Form 10-Q"). *

       10.8   Commercial Real Estate Promissory Note, between Zoom and
              Wainwright Bank & Trust Company, filed as Exhibit 10.2 to the
              March 2002 Form 10-Q. *

       21.    Subsidiaries. *

       23.    Consent of KPMG LLP.

  (b)         Reports on Form 8-K.

              No current  reports  on Form 8-K have been  filed  during the last
              quarter for the period covered by this report.

  (c)         Exhibits  - See  Item  14(a)(3)  above  for  a  list  of  Exhibits
              incorporated herein by reference or filed with this Report.
<PAGE>
  (d)         Schedules - Schedule II: Valuation and Qualifying Accounts.
              Schedules other than those listed above have been omitted since
              they are either inapplicable or not required.

    *         In accordance  with Rule 12b-32 under the Securities  Exchange Act
              of 1934, as amended, reference is made to the documents previously
              filed with the Securities and Exchange Commission, which documents
              are hereby incorporated by reference.

   **         Compensation Plan or Arrangement.

<PAGE>


                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                         ZOOM TELEPHONICS, INC.
                                         (Registrant)


                                         By:  /s/ Frank B. Manning
                                            ----------------------------
                                            Frank B. Manning, President

Date:  March 29, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities indicated.


        Signature                     Title(s)                        Date




/s/ Frank B. Manning       Principal Executive Officer and        March 29, 2002
--------------------       Chairman of the Board
Frank  B. Manning



/s/ Robert A. Crist        Principal Financial and                March 29, 2002
--------------------       Accounting Officer
Robert A. Crist



/s/ Peter R. Kramer        Director                               March 29, 2002
--------------------
Peter R. Kramer


                           Director                               March 29, 2002
--------------------
Bernard Furman



/s/ L. Lamont Gordon       Director                               March 29, 2002
--------------------
L. Lamont Gordon



/s/ J. Ronald Woods        Director                               March 29, 2002
--------------------
J. Ronald Woods

<PAGE>



                    ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                                  AND SCHEDULE

                                                                            Page

Independent Auditors' Report                                                37
Consolidated Balance Sheets as of December 31, 2000 and 2001                38
Consolidated Statements of Operations for the years ending December 31,     39
1999, 2000 and 2001
Consolidated Statements of Stockholders' Equity and Comprehensive Loss
for the years ending December 31, 1999, 2000 and 2001                       40
Consolidated Statements of Cash Flows for the years ending December 31,     41
1999, 2000 and 2001
Notes to Consolidated Financial Statements                                 42-57
Schedule II:  Valuation and Qualifying Accounts for Fiscal Years Ending
December 31, 1999, 2000 and 2001                                            61



<PAGE>


                          Independent Auditors' Report


The Board of Directors and Stockholders
Zoom Technologies, Inc.:


We  have  audited  the   accompanying   consolidated   balance  sheets  of  Zoom
Technologies,  Inc. and  subsidiary  as of December  31, 2000 and 2001,  and the
related  consolidated   statements  of  operations,   stockholders'  equity  and
comprehensive loss and cash flows for each of the years in the three-year period
ended  December  31,  2001.  These  consolidated  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Zoom Technologies,
Inc. and  subsidiary as of December 31, 2000 and 2001,  and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 2001 in  conformity  with  accounting  principles  generally
accepted in the United States of America.




                                                   KPMG LLP



Boston, Massachusetts
February 11, 2002, except as to Note 3 and Note 7
  which are as of March 29, 2002

<PAGE>
                    ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<S>                                                      <C>                 <C>

                                                                    December 31,
                                                         ----------------------------------
    Assets                                                     2000                 2001
    ------                                                     ----                 ----
Current assets:
   Cash and cash equivalents                             $   2,906,270        $   5,252,058
   Investment securities                                             -                    -
   Accounts receivable, net of reserves for doubtful
      accounts, returns, and allowances of $3,127,455
      in 2000 and $2,816,449 in 2001 (note 12)               7,923,967            5,652,035
   Inventories, net (note 4)                                21,896,883           11,083,143
   Prepaid expenses and other current assets                   678,271              999,662
                                                            ----------           ----------
             Total current assets                           33,405,391           22,986,898
                                                            ----------           ----------

Property, plant and equipment, net (note 5)                  4,580,634            4,128,916
Goodwill, net of accumulated amortization of
  $1,827,459 in 2000 (note 7)                                3,076,224                    -
Net deferred tax assets (note 11)                            5,812,844            2,012,844
Other assets                                                    84,902               56,666
                                                            ----------           ----------
              Total assets                               $  46,959,995        $  29,185,324
                                                            ==========           ==========

    Liabilities and Stockholders' Equity
    ------------------------------------

Current liabilities:
    Accounts payable                                     $   7,428,832        $   2,750,174
    Accrued expenses                                         2,414,917            1,879,566
    Current Portion of long term debt (note 9)                       -              139,201
                                                            ----------           ----------
             Total current liabilities                       9,843,749            4,768,941
                                                            ----------           ----------

Long-term debt, less current portion (note 9)                        -            5,745,368
Other non-current liabilities (note 7)                         368,800              255,287
                                                            ----------           ----------
              Total liabilities                             10,212,549           10,769,596
                                                            ----------           ----------

Stockholders' equity (note 10):
  Common stock, no par value. Authorized 25,000,000
    shares; issued and outstanding 7,860,866 shares
    at December 31, 2000 and 7,860,866 shares at
    December 31, 2001                                       28,145,375           28,245,215
  Retained earnings (accumulated deficit)                    8,694,230           (9,634,692)
  Accumulated other comprehensive loss                         (92,159)            (194,795)
                                                            ----------           ----------
             Total stockholders' equity                     36,747,446           18,415,728
                                                            ----------           ----------

             Total liabilities and stockholders'
               equity                                   $   46,959,995        $  29,185,324
                                                            ==========           ==========
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>


                            ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                            CONSOLIDATED STATEMENTS OF OPERATIONS
                        Years Ending December 31, 1999, 2000 and 2001
<TABLE>
<S>                                                     <C>               <C>             <C>

                                                                1999            2000            2001
                                                        ------------    ------------    ------------

Net sales (notes 4, 13 and 17) ..............           $ 64,088,384    $ 59,750,187    $ 43,709,528
Cost of goods sold (note 5) .................             40,549,909      39,404,320      35,193,449
                                                        ------------    ------------    ------------
                     Gross profit ...........             23,538,475      20,345,867       8,516,079
                                                        ------------    ------------    ------------

Operating expenses:
        Selling .............................             13,571,083      12,713,756       9,619,549
        General and administrative ..........              6,275,827       6,228,317       7,938,175
        Research and development ............              6,425,584       6,249,092       5,327,968
                                                        ------------    ------------    ------------
                     Total operating expenses             26,272,494      25,191,165      22,885,692
                                                        ------------    ------------    ------------

                     Operating loss .........             (2,734,019)     (4,845,298)    (14,369,613)
                                                        ------------    ------------    ------------
Other income (expense):
        Interest income .....................                546,329         447,148         198,805
        Interest expense.....................                      -               -        (454,708)
        Equity losses of affiliate ..........                (24,000)       (215,834)       (145,165)
        Other, net ..........................                214,999         237,820         241,759
                                                        ------------    ------------    ------------
                     Total other income (expense), net       737,328         469,134        (159,309)
                                                        ------------    ------------    ------------

                     Loss before income taxes             (1,996,691)     (4,376,164)    (14,528,922)

Income tax expense (benefit)(note 12) .......               (587,935)     (1,298,916)      3,800,000
                                                        ------------    ------------    ------------

                     Net loss ...............           $ (1,408,756)   $ (3,077,248)   $(18,328,922)
                                                        ============    ============    ============

Net loss per share (note 2):
        Basic and diluted....................           $       (.19)   $       (.40)   $      (2.33)
                                                        ============    ============    ============

Weighted average common and common equivalent
shares:
        Basic and diluted....................              7,482,586       7,756,815       7,860,866
                                                        ============    ============    ============
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

                             ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
                                        COMPREHENSIVE LOSS
<TABLE>
<S>                                      <C>          <C>          <C>         <C>            <C>
                                                                                 Accumulated
                                                                                     Other         Total
                                               Common Stock          Retained    Comprehensive  Stockholders'
                                            Shares       Amount      Earnings     Income Loss      Equity
                                            ------      --------     --------    -------------  ------------
Balance at December 31, 1998 ..........    7,474,871   25,190,579   13,180,234        54,554    38,425,367


Net loss ..............................            -            -   (1,408,756)            -    (1,408,756)
Foreign currency translation
adjustment ............................            -            -            -       (11,318)      (11,318)
Unrealized holding (loss) on
investments ...........................            -            -            -       (80,862)      (80,862)
Comprehensive loss ....................                                                         (1,500,936)
Exercise of stock options (note 11)....       85,425      487,330            -             -       487,330
Tax effect of exercises of nonqualified
stock options (notes 11 and 12) .......            -      102,322            -             -       102,322
                                           ---------   ----------   ----------     ---------    ----------
Balance at December 31, 1999 ..........    7,560,296   25,780,231   11,771,478       (37,626)   37,514,083
                                           ---------   ----------   ----------     ---------    ----------

Net loss ..............................            -            -   (3,077,248)            -    (3,077,248)
Foreign currency translation
adjustment ............................            -            -            -       (80,788)      (80,788)
Unrealized holding gain on
investments ...........................            -            -            -        26,255        26,255
Comprehensive loss ....................                                                         (3,131,781)
Exercise of stock options (note 11)....      300,570    1,822,722            -             -     1,822,722
Compensation expense related to
issuance of restricted stock ..........            -       52,577            -             -        52,577
Tax effect of exercises of nonqualified
stock options (notes 11 and 12) .......            -      489,845            -             -       489,845
                                           ---------   ----------   ----------     ---------    ----------
Balance at December 31, 2000 ..........    7,860,866 $ 28,145,375 $  8,694,230  $    (92,159) $ 36,747,446
                                          ==========  ===========   ==========     =========   ===========

Net loss ..............................            -            -   (18,328,922)           -   (18,328,922)
Foreign currency translation
adjustment ............................            -            -            -      (102,689)     (102,689)
Unrealized holding gain on
investments ...........................            -            -            -            53            53
Comprehensive loss ....................                                                        (18,431,558)
Exercise of stock options (note 11)....            -            -            -             -             -
Compensation expense related to
issuance of restricted stock .........             -       99,840            -             -        99,840
                                           ---------   ----------   ----------     ---------    ----------
Balance at December 31, 2001 ..........    7,860,866 $ 28,245,215 $ (9,634,692)  $  (194,795) $ 18,415,728
                                          ==========  ===========   ==========     =========   ===========

</TABLE>
See accompanying notes to consolidated financial statements.

<PAGE>
                           ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                            CONSOLIDATED STATEMENTS OF CASH FLOWS
                        Years Ending December 31, 1999, 2000 and 2001
<TABLE>
<S>                                                       <C>               <C>             <C>
                                                               1999             2000             2001
                                                               ----             ----             ----

Cash flows from operating activities:
       Net loss                                            $(1,408,756)     $(3,077,248)    $(18,328,922)

       Adjustments to reconcile net loss to net
         cash used in operating activities:
                  Depreciation and amortization              1,318,450        1,665,853        1,769,608
                  Impairment of goodwill                             -                -        2,294,881
                  Amortization of unearned compensation
                    expense                                          -           52,577           99,840
                  Equity in losses of Affiliate                 24,000          215,834          145,165
                  Net deferred income taxes                   (742,737)      (1,843,874)       3,800,000
                  Tax benefit from exercise of
                    nonqualified stock options                 102,322          489,845                -
                 Changes in assets and liabilities:
                    Accounts receivable                        811,283       (2,514,401)       2,271,930
                    Inventories                             (1,978,308)      (7,593,276)      10,813,741
                    Prepaid expenses and other
                      current assets                            56,315         (106,651)        (296,655)
                    Refundable income taxes                     63,378                -                -
                    Accounts payable and accrued
                      expenses                                (911,873)       4,766,116       (5,214,008)
                                                             ----------       ----------       ----------
                          Net cash used in
                            operating activities            (2,665,926)      (7,997,802)      (2,664,421)
                                                            ----------        ----------      ----------

Cash flows from investing activities:
       Cash paid for the acquisition of Hayes, net of
         cash acquired                                      (4,912,258)               -                -
       Sales (purchases) of investment securities           10,259,116        3,215,329               53
       Investment in affiliates                               (300,000)               -         (141,665)
       Additions to licenses                                   (40,000)               -                -
       Additions to property, plant and equipment             (912,400)      (1,324,268)        (650,060)
                                                            ----------       ----------       ----------
                           Net cash provided by (used in)
                             investing activities            4,094,458        1,891,061         (791,672)
                                                            ----------       ----------        ----------
Cash flows from financing activities:
       Proceeds from the issuance of long-term debt                  -                -        6,000,000
       Repayment of long-term debt                                   -                -         (115,430)
       Exercise of nonqualified stock options                  487,330        1,875,299                -
                                                            ----------       ----------       ----------
                           Net cash provided by
                             financing activities              487,330        1,875,299        5,884,570
                                                            ----------       ----------       ----------

Effect of exchange rate changes on cash                       ( 21,941)         (80,788)        (102,689)
                                                            ----------       ----------       ----------

Net increase (decrease) in cash and cash equivalents        1,893,921       (4,312,230)        2,345,788
                                                            ----------       ----------       ----------

Cash and cash equivalents at beginning of year              5,324,579        7,218,500         2,906,270
                                                            ----------       ----------       ----------

Cash and cash equivalents at end of year                   $ 7,218,500      $ 2,906,270      $ 5,252,058
                                                            ==========       ==========       ==========
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>

                        ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                  Notes to Consolidated Financial Statements
                Years Ending December 31, 1999, 2000 and 2001

(1)   Incorporation and Nature of Operations

      Zoom Telephonics,  Inc. (the "Company") was incorporated under the federal
        laws  of  Canada  (Canada  Business  Corporations  Act).  Its  principal
        business activity,  the design,  production,  and marketing of faxmodems
        and  other   communication   peripherals,   is  conducted   through  its
        wholly-owned subsidiary, Zoom Telephonics,  Inc. ("Zoom US"), a Delaware
        corporation based in Boston, Massachusetts.

       In February 2002, the Company completed a transaction in which it changed
         its jurisdiction of incorporation  from Canada to the State of Delaware
         effective March 1, 2002. In connection with the change in jurisdiction,
         the Company changed its name to Zoom  Technologies,  Inc. These changes
         were accomplished through a process called a continuance under the laws
         of Canada and a domestication  under the laws of the State of Delaware,
         and were  approved by the  Company's  shareholders  at a  stockholders'
         meeting on February  15,  2002.  The Company  continues to trade on the
         Nasdaq  National Market under the symbol ZOOM; and continues to operate
         through its wholly owned Delaware subsidiary,  Zoom Telephonics,  Inc.,
         which has not changed its name.

       As part  of  the  continuation, each  share  of  Zoom  Telephonics,  Inc.
         automatically is converted into one share of Zoom Technologies, Inc. It
         will not be necessary for stockholders to exchange their existing stock
         certificates for stock  certificates of the Delaware  corporation.  All
         new shares will be issued by Zoom Technologies, Inc.

(2)       Summary of Significant Accounting Policies

      (a)Basis of Presentation and Use of Estimates
      The  consolidated  financial  statements  are prepared in accordance  with
        accounting principles generally accepted in the United States of America
        and are stated in US dollars.  Any  differences  between US and Canadian
        generally accepted accounting principles have an insignificant impact on
        the consolidated financial statements.

      The  preparation  of financial  statements in  conformity  with  generally
        accepted accounting principles requires management to make estimates and
        assumptions  that affect the reported  amounts of assets and liabilities
        and disclosure of contingent  assets and  liabilities at the date of the
        financial  statements  and the reported  amounts of revenue and expenses
        during the  reporting  period.  Actual  results  may  differ  from those
        estimates.  Significant estimates made by the Company include the useful
        lives of property,  plant and equipment and goodwill, the recoverability
        of long-lived  assets, the  collectibility of accounts  receivable,  the
        valuation  allowance  for  deferred tax assets,  the  valuation of sales
        returns  and  allowances,  the  reserves  for  obsolete  and slow moving
        inventory,  and the write-downs of inventory  valuation for the lower of
        cost or market.

      (b)Principles of Consolidation
      The consolidated  financial statements include the accounts of the Company
        and its wholly  owned  subsidiary,  Zoom US, and all of its wholly owned
        subsidiaries.  All  intercompany  balances  and  transactions  have been
        eliminated in consolidation.

      (c)Cash and Cash Equivalents
      The Company  considers all  investments  with original  maturities of less
        than  90  days  to be  cash  equivalents.  Included  in  cash  and  cash
        equivalents  at  December  31,  2001  was a  deposit  for  approximately
        $418,000 in a duty deferment  account  approved by HM Customs and Excise
        in the  United  Kingdom  for the  deferment  of value  added  taxes  for
        imports.

      (d)  Investment Securities
      The Company's investment securities are classified as  available-for-sale.
        Available-for-sale  securities  are stated at fair value and  unrealized
        gains and losses are  excluded  from  earnings,  and are  reported  as a
        separate  component of other  comprehensive  income until realized.  The
        cost of securities sold is based on the specific  identification  method
        and interest earned is included in other income.
<PAGE>
                  ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

       (e)  Inventories
      Inventories  are  stated  at the  lower  of cost  or  market,  cost  being
        determined using the first-in, first-out (FIFO) method.

      (f)Property, plant and equipment
      Property, plant and equipment is stated and recorded at cost. Depreciation
        of property,  plant and equipment is provided by using the straight-line
        method at rates  sufficient  to amortize  the costs of the fixed  assets
        over their estimated useful lives.

      (g)Goodwill and Impairment of Long-lived Assets
      Goodwill  resulted  from the  excess of cost over fair value of net assets
        acquired in purchase  business  combinations and is being amortized on a
        straight-line  basis over periods of 5 to 10 years.  In accordance  with
        the Financial Accounting Standards Board ("FASB") Statement of Financial
        Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
        Long-Lived  Assets and for  Long-Lived  Assets to be  Disposed  Of," the
        Company reviews its long-lived assets for impairment  whenever events or
        changes in  circumstances  indicate that the carrying amount of an asset
        may not be recoverable. Management performs ongoing business reviews and
        evaluates  impairment  indicators  based on qualitative and quantitative
        factors. If it is determined that the carrying amount of an asset cannot
        be fully  recovered,  an  impairment  loss is  recognized.  The  Company
        periodically  evaluates the  recoverability  and  remaining  life of its
        goodwill and  determines  whether the goodwill  should be  completely or
        partially  written  off  or the  amortization  period  accelerated.  The
        Company  will  recognize  an  impairment  of  goodwill  if  undiscounted
        estimated future operating cash flows are determined to be less than the
        carrying amount of goodwill. If the Company determines that the goodwill
        has been impaired,  the  measurement of the impairment  will be equal to
        the excess of the  carrying  amount of the  goodwill  over the amount of
        discounted  estimated  future cash flows. An appropriate  discount rate,
        determined  through  an  analysis  of  the  risks  associated  with  the
        goodwill,  would be applied to the  estimated  future cash flows.  If an
        impairment  of goodwill  were to occur,  the Company  would  reflect the
        impairment  through a reduction in the carrying  value of goodwill.  The
        assessment of  recoverability  of goodwill will be impacted if estimated
        future operating cash flows are not achieved (see note 8).

      (h)   Income Taxes
      The Company  accounts  for  income  taxes  under  the asset and  liability
        method.  Under this  method,  deferred  tax assets and  liabilities  are
        recognized for the future tax  consequences  attributable to differences
        between the financial  statement carrying amounts of existing assets and
        liabilities  and their  respective  tax basis and operating loss and tax
        credit carry forwards.  Deferred tax assets and liabilities are measured
        using enacted tax rates expected to apply to taxable income in the years
        in which those  temporary  differences  are  expected to be recovered or
        settled.  The effect on deferred tax assets and  liabilities of a change
        in tax rates is  recognized  in income in the period that  includes  the
        enactment date.

      (i)   Earnings (Loss) Per Common Share
      Basic earnings  (loss) per share is computed by dividing net income (loss)
        by the weighted average number of common shares  outstanding  during the
        period. Diluted loss per share is computed by dividing net income by the
        weighted  average number of common shares and dilutive  potential common
        shares outstanding  during the period.  Under the treasury stock method,
        the unexercised  options are assumed to be exercised at the beginning of
        the period or at issuance,  if later. The assumed proceeds are then used
        to purchase common shares at the average market price during the period.

                                           1999            2000            2001
                                           ----            ----            ----

Basic weighted
   average shares outstanding         7,482,586       7,756,815       7,860,866
Net effect of dilutive potential
   common shares outstanding,
   based on the treasury stock                -               -               -
                                      ---------       ---------       ---------
Diluted weighted
   average shares outstanding         7,482,586       7,756,815       7,860,866
                                      =========       =========       =========
<PAGE>
                  ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

   Potential  common  shares  for  which  inclusion  would  have the  effect  of
      increasing  diluted earnings per share (i.e.,  antidilutive)  are excluded
      from the computation.  The dilutive effect of options to purchase 661,355,
      419,039 and 13,870 shares of common stock at December 31, 1999,  2000, and
      2001, respectively,  were outstanding, but not included in the computation
      of diluted earnings per share as their effect would be antidilutive.

(j)   Revenue Recognition
   The Company  sells  hardware  products  to its  customers.  The products  are
      dial-up modems,  embedded modems, cable modems, PC cameras,  ISDN and ADSL
      modems,  telephone dialers,  and wireless and wired networking  equipment.
      The Company does not sell software or services.  The Company earns a small
      amount of royalty revenue.  The Company derives its revenue primarily from
      the sales of hardware  products to three types of  customers  (1) computer
      peripherals retailers, (2) computer product distributors, and (3) original
      equipment  manufacturers  (OEMs). The Company sells a very small amount of
      its  hardware  products to direct  consumers or to any  customers  via the
      Internet.  As described below,  management judgments and estimates must be
      made and used in connection with the revenue  recognized in any accounting
      period.  Material  differences  may result in the amount and timing of the
      Company's  revenue  for  any  period  if its  management  makes  different
      judgments or utilizes different estimates.

   Revenue is  recognized by the Company for all three types of customers at the
      point when the customers take legal  ownership of the delivered  products.
      Legal  ownership  passes  from the  Company to the  customer  based on the
      contractual FOB point specified in signed  contracts and purchase  orders,
      which are both used extensively.  Many of the Company's customer contracts
      or purchase orders specify FOB destination.  Since it would be impractical
      to  verify  ownership  change  for  each  individual  delivery  to the FOB
      destination  point,  the Company  estimates the day of delivery receipt by
      the customer based on its ship date and the carrier's  published  delivery
      schedule specific to the freight class and location.

   The Company's revenues are reduced by certain events which are characteristic
      of hardware  sales to computer  peripherals  retailers.  These  events are
      product returns,  price protection  refunds,  store rebates,  and consumer
      mail-in rebates.  Each of these is accounted for as a reduction of revenue
      based on careful  management  estimates,  which are  reconciled  to actual
      customer or  end-consumer  refunds  and credits on a monthly or  quarterly
      basis.  The estimates for product  returns are based on recent  historical
      trends plus estimates for returns  prompted by new product  introductions,
      announced  stock  rotations,   announced  customer  store  closings,  etc.
      Management  analyzes  historical  returns,  current economic  trends,  and
      changes in customer  demand and acceptance of the Company's  products when
      evaluating  the  adequacy  of  sales  return  allowances.   The  Company's
      estimates for price  protection  refunds require a detailed  understanding
      and tracking by customer,  by sales program.  Estimated  price  protection
      refunds are recorded in the same period as the  announcement  of a pricing
      change. Information from customer inventory-on-hand reports or from direct
      communications with the customers is used to estimate the refund, which is
      recorded as a reserve  against  accounts  receivable  and a  reduction  of
      current  period  revenue.  The Company's  estimates  for consumer  mail-in
      rebates are  comprised  of actual  rebate  claims  processed by the rebate
      redemption centers plus an accrual for an estimated lag in processing. The
      Company's  estimates  for store  rebates are  comprised  of actual  credit
      requests from the eligible customers.

   (k)  Financial Instruments
   Financial  instruments of the Company  consist of cash and cash  equivalents,
      investment  securities,  accounts  receivable,  accounts payable,  accrued
      expenses,  and  borrowings.   Due  to  the  short  term  nature  of  these
      instruments of conversion to cash or the  corresponding  variable interest
      rate  attached  to the  debt,  the  carrying  amount  of  these  financial
      instruments approximates fair value.

   (l) Stock-Based Compensation
   The Company  accounts  for  stock  based  compensation  under  SFAS  No. 123,
      "Accounting for Stock-Based  Compensation."  As permitted by SFAS No. 123,
      the Company  measures  compensation  cost in  accordance  with  Accounting
      Principles  Board  Opinion  (APB) No. 25 (APB 25),  "Accounting  for Stock
      Issued  to  Employees,"   and  FASB   interpretation   No.  44  (FIN  44).
      Accordingly,  no accounting  recognition is given to stock options granted
      at fair  market  value  until  they  are  exercised.  Upon  exercise,  net
<PAGE>
                  ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

      proceeds, including tax benefits realized, if any, are credited to equity.

   (m)  Advertising Costs
   Advertising costs are expensed as incurred and reported in selling,  general,
      and administrative expenses in the accompanying consolidated statements of
      operations and include costs of advertising,  production, trade shows, and
      other  activities  designed to enhance demand for the Company's  products.
      There are no deferred  advertising costs in the accompanying  consolidated
      balance sheets.

   (n)  Investments in Affiliates
   Investments  in which  the  Company  has no  significant  influence  over the
      investee  are  accounted   for  under  the  cost  method  of   accounting.
      Investments in which the Company exercises significant influence but which
      the Company does not control are  accounted for under the equity method of
      accounting.  Under the equity method,  investments  are stated at cost and
      are adjusted for the Company's share of earnings and losses, contributions
      and distributions.

   (o)  Foreign Currencies
   The Company  generates a portion of its revenues in international markets and
      denominated  in foreign  currencies,  which  subjects  its  operations  to
      exposure  to  foreign  currency  fluctuations.   The  impact  of  currency
      fluctuations can be positive or negative in any given period. Realized and
      unrealized foreign exchange transaction gains and losses are recognized in
      operating  income and offset  foreign  gains and losses on the  underlying
      exposures.  During the years  ending  December 31,  1999,  2000,  and 2001
      foreign  currency  transaction  activity,   gains,  and  losses  were  not
      material. At December 31, 2001, the Company's foreign currency-denominated
      net  assets  were  not  material.  The  Company  has no  involvement  with
      derivative financial instruments.

   The Company considers the local  currency to be the  functional  currency for
      its  international  subsidiary.  Assets  and  liabilities  denominated  in
      foreign  currencies are translated  using the exchange rate of the balance
      sheet date. Revenues and expenses are translated at average exchange rates
      prevailing during the year.  Translation  adjustments  resulting from this
      process are charged or credited to accumulated other comprehensive loss.

   (p)  Warranty Costs
   The Company  provides currently for the estimated  costs that may be incurred
      under its standard warranty obligations.

(3)   Liquidity

   For the past three years, the Company has incurred  negative  cash flows from
      operations.  In 2001, the Company's net cash used in operating  activities
      was  $2.6  million  and net  cash  used in  investing  activities  was $.8
      million.  In 2001,  the  Company  obtained  a  mortgage  on its  corporate
      headquarters, which provided financing of $6 million. On December 31, 2001
      Zoom  had  cash  and  cash  equivalents  of  approximately  $5.3  million.
      Currently  the  Company  does not have a debt  facility  from which it can
      borrow,  and it does not expect to obtain one on  acceptable  terms unless
      there is operating performance improvement.

   In 2000 the Company made a  significant  investment to build up its broadband
      access products,  particularly cable modems.  However, the Company was not
      able to penetrate  the  broadband  modem and  wireless  local area network
      markets to the extent it had expected.  This resulted in the write down of
      the inventory values by approximately $4.6 million in 2001.  Additionally,
      during the  past several  years, the Company has  experienced  a declining
      demand for our dial-up modem products.

   To conserve  cash and manage  our  liquidity,  the  Company  has  implemented
      expense  reductions  throughout 2001 and in the first quarter of 2002. The
      employee headcount was 313 at December 31, 2000, which has been reduced to
      199  at  March 20, 2002.  The Company  will continue  to  assess  its cost
      structure  as  it relates  to its  revenues and  cash  position  in  2002,
      and may make further reductions if these actions are deemed necessary.

   In addition  to  expense  reductions,  the  Company's  liquidity  in  2002 is
      expected to be enhanced by the utilization of  approximately $3 million of
<PAGE>
                  ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

      "no charge" components, as a result of supply agreements entered in 2001.
      Under these arrangements, the Company is committed to purchase at least $8
      million of components over the 30-month period commencing January 1, 2002,
      provided  that  those  components  are  offered at  competitive  terms and
      prices.  The  utilization of "no-charge"  components  will  supplement the
      Company's  cash flow in 2002, as it will be able to avoid the purchase and
      payment of an equivalent dollar amount of inventory.  The favorable impact
      to the Company's  statement of operations  will be recognized on a delayed
      basis as a purchase discount over the total number of components  acquired
      through the supply agreement (see note 7 (b)).

  On December 31, 2001 the Company had a $4.1 million net inventory in broadband
      and wireless products and components.  This inventory was paid for in 2000
      and 2001.  Sales of products in 2002 using  any portion of  this inventory
      will enhance The Company's liquidity in 2002, as the Company will be  able
      to avoid the  purchase and  payment of an  equivalent dollar amount of new
      materials.  The Company  is  currently selling  cable modems and  wireless
      products  that  consume a portion  of this  inventory and  is aggressively
      pursuing additional orders in markets worldwide.

   Trends  including  the  bundling  of dial-up  modems into  computers  and the
      increased  popularity of broadband modems lower the total available market
      through our sales  channels.  Because of this, our dial-up modem sales are
      unlikely to grow unless the Company's market share grows, or the new V.92
      and V.44 modem standards grow sales through the Company's channels. If the
      Company's  dial-up modem  sales do  not grow, the Company's future success
      will depend  in large  part on its ability  to successfully  penetrate the
      broadband  modem,  networking,  and  dialer markets.

   The Company's cash position at December 31, 2001 was $5.3 million. Management
      believes it has sufficient resources to fund  its planned  operations over
      the next 12 months. However, if the Company is unable to increase its
      revenues, reduce its expenses, or raise capital, the Company's longer-
      term ability to continue as a going concern and achieve its intended
      business objectives could be adversely affected.

(4)   New Accounting Pronouncements

   In June 2001, the FASB issued SFAS No. 141 "Business Combinations" (SFAS 141)
      and SFAS No. 142 "Goodwill and Other  Intangible  Assets" (SFAS 142). SFAS
      141 requires all business combinations initiated after June 30, 2001 to be
      accounted  for using the  purchase  method.  Under SFAS 142,  goodwill and
      intangible  assets with indefinite  lives are no longer  amortized but are
      reviewed annually (or more frequently if impairment  indicators arise) for
      impairment.  Separable  intangible  assets  that  are not  deemed  to have
      indefinite  lives will  continue to be  amortized  over their useful lives
      (but with no maximum life). The amortization  provisions of SFAS 142 apply
      to goodwill and  intangible  assets  acquired  after June 30,  2001.  With
      respect to goodwill and intangible  assets acquired prior to July 1, 2001,
      the amortization and impairment  provisions of SFAS 142 are effective upon
      the  adoption  of SFAS 142.  The Company is required to adopt SFAS 141 and
      SFAS 142 at the  beginning  of 2002.  We  believe  the  adoption  of these
      accounting standards will not have any material effect  on  the  Company's
      consolidated financial statements.

   In August 2001, the FASB issued SFAS No.144, Accounting for the Impairment on
     Disposal of  Long-Lived  Assets  (SFAS  144),  effective  for fiscal  years
     beginning after December 15, 2001.  This statement  addresses the financial
     accounting  and  reporting  for the  impairment  and disposal of long-lived
     assets.  It  supersedes  SFAS No. 121,  Accounting  for the  Impairment  of
     Long-Lived  Assets and Long-Lived  Assets to be Disposed (SFAS 121).  Under
     the  new  rules,  the  criteria   required  for  classifying  an  asset  as
     held-for-sale have been  significantly  changed.  Assets  held-for-sale are
     stated  at the  lower  of  their  fair  values  or  carrying  amounts,  and
     depreciation  is no longer  recognized.  In addition,  the expected  future
     operating  losses  from  discontinued   operations  will  be  displayed  in
     discontinued  operations  in the period in which the  losses  are  incurred
     rather than as of the measurement  date. More dispositions will qualify for
     discontinued  operations treatment in the statement of operations under the
     new rules. This statement will not have a material impact on our operations
     or financial position.

   FASB  Emerging  Issues Task  Force  Issue No. 00-14  "Accounting  for Certain
     Sales  Incentives"  addresses  the  recognition,  measurement,  and  income
<PAGE>
                  ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

     statement  classification  for  certain  types  of  sales  incentives.  The
     application  of the  guidance in Issue No. 00-14 will result in a change in
     the manner in which the Company  records  certain  types of  discounts  and
     sales and  marketing  incentives  that are provided to its  customers.  The
     Company has  historically  recorded  certain  types of these  incentives as
     marketing  expenses.  Under Issue No. 00-14,  the Company will record these
     discounts and incentives as reductions of revenue.  In April 2001, the FASB
     Emerging  Issues  Task  Force  reached  a  consensus  on  Issue  No.  00-25
     "Accounting  for  Consideration  from a Vendor to a Retailer in  Connection
     with the Purchase or Promotion of the Vendor's  Products".  Issue No. 00-25
     addresses  whether  certain   consideration   offered  by  a  vendor  to  a
     distributor,  including slotting fees, cooperative advertising arrangements
     and "buy-down"  programs,  should be characterized as operating expenses or
     reductions  of  revenue.  Issue No.  00-14 and  00-25  are  required  to be
     implemented  no later than the first fiscal  quarter of 2002, at which time
     prior period  reported  amounts will be  reclassified to conform to the new
     presentation.  The pro forma disclosures below reflect the reclassification
     of both previously  reported as well as current year reported  revenues and
     sales and marketing  expenses  based on the  application of the guidance in
     Issue No. 00-14 and Issue No. 00-25. There is no current year or historical
     impact on our consolidated balance sheets.
<TABLE>
<S>                       <C>                 <C>                 <C>
                                          Years ending December 31,
                                 1999                2000                2001
Revenues:
As previously reported    $   64,088,384      $   59,750,187      $   43,709,528
As reclassified               62,228,216          57,708,456          41,570,276

Sales and Marketing
expenses:
As previously reported        13,571,083          12,713,756           9,619,549
As reclassified               11,710,915          10,672,025           7,480,297
</TABLE>

(5)   Inventories

    Inventories consist of the following at December 31:

                                                     2000            2001
                                                     ----            ----
        Raw materials                           $ 10,335,673   $  6,276,480
        Work in process                            5,101,037        462,389
        Finished goods                             6,460,173      4,344,274
                                                  ----------    -----------
                      Net Inventory             $ 21,896,883   $ 11,083,143
                                                  ==========     ==========

      During 2001 the Company  recorded  lower of cost or market  write-downs of
      $4.6 million related to broadband and wireless inventory.

(6)     Property, Plant and Equipment

      Property, plant and equipment consists of the following at December 31:

                                                                     Estimated
                                            2000           2001     useful lives
                                            ----           ----     ------------
        Land                            $  309,637    $   309,637      -
        Buildings and improvements       2,491,667      2,643,457   31.5 years
        Leasehold improvements             470,777        473,723   5 years
        Computer hardware and software   3,251,335      3,509,445   3 years
        Machinery and equipment          1,597,355      1,751,453   5 years
        Molds, tools and dies            1,422,073      1,489,484   5 years
        Office furniture and fixtures      259,811        275,516   5 years
                                        ----------    -----------
                                         9,802,655     10,452,715
        Less accumulated depreciation   (5,222,021)    (6,323,799)
                                         ---------      ---------
                                      $  4,580,634    $ 4,128,916
                                         =========      =========
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

(7)   Commitments and Contingencies

   (a) Lease Obligations
   The Company leases  a  manufacturing  and  warehousing  facility  in  Boston,
      Massachusetts,  an office  facility in Camberley,  United  Kingdom,  and a
      technical   support   facility  in  Boca  Raton,   Florida.   The  Boston,
      Massachusetts  lease expires in August 2006 and the Boca Raton lease is an
      at-will  lease.  In March 1999,  the Company  assumed an office lease from
      Hayes Microcomputer Products, Inc. at 430 Frimley Business Park, Camberley
      Surrey,  UK. The  Camberley  landlord  has  notified the Company that they
      would like to exercise  their  option to exercise  the break clause in the
      lease  in  February   2003.  The  Company  has  agreed  to  this  contract
      termination since the leased space exceeds its current  requirements.  The
      Company is looking for a smaller  office to lease which  should  result in
      savings in rent expenses.  The Company does not expect the moving expenses
      to be  significant.  The Boca Raton,  Florida lease is a sublease of 4,500
      square  feet as a  tenant-at-will,  and is used  primarily  as a technical
      support  facility.  Total rent  expense,  under  non-cancelable  operating
      leases, was $420,086, $463,693, and $546,034 for the years ending December
      31, 1999, 2000, and 2001, respectively.

    The   Company's   total  rent  expense   under  its  operating   leases  was
      approximately $0.5 million in 2001. The Company's estimated future minimum
      rental payments,  excluding  executory costs, under these operating leases
      are set  forth in the  table  below.  As a result  of a  dispute  with its
      landlord,  the Company has withheld  certain  payments under its lease for
      its  Boston,  Massachusetts  manufacturing  facility,  in  the  amount  of
      approximately  $150,000.  The landlord  recently notified the Company of a
      lease  default and asserted  its  termination  right under the lease.  The
      Company has tendered  payment in full of the amount  demanded by landlord,
      but has reserved its rights to dispute  maintenance issues and the renewal
      term rent rate.  There is a risk that  landlord  could refuse the tendered
      payment  and take  legal  action  asserting  a  default  from the delay of
      payment.
    The Company's  estimates  below use as an assumption the amount of rent that
      is being sought by its landlord. For the Camberley UK lease, the estimates
      use the assumption that the Company's  future lease costs will be the same
      as its current lease costs.

                          Year              Total
                          2002           $ 696,735
                          2003             678,647
                          2004             691,174
                          2005             692,313
                          2006             466,481
                          Thereafter     $ 170,488

   (b) Purchase Commitments
   The Company  has entered  into  supply arrangements  with  suppliers  of some
      components that include price and other concessions,  including  no-charge
      components,  for meeting  certain  purchase  requirements  or commitments.
      Under these  arrangements,  the Company is  committed to purchase at least
      $8.0 million of components over the 30-month period  commencing on January
      1, 2002,  provided that those components are offered at competitive  terms
      and  prices.  The Company is also  required  to purchase  either a minimum
      percentage,  as measured by unit  purchases or dollar  amount of a certain
      type of component  from a supplier  over a two-year  period  commencing on
      January 1, 2002. In  connection  with these  arrangements,  the Company is
      entitled to receive at least $3.0 million of no-charge  components,  based
      upon the  supplier's  market price for the  components,  and other pricing
      concessions  based upon its purchase  volumes.  The Company  received $1.2
      million of these  no-charge  components in the fourth  quarter of 2001. At
      December 31, 2001, the gross inventory value of $1.2 million was offset by
      a $1.2 million profit reserve in inventory, yielding a net inventory value
      of zero.  The Company  received an  additional  $1.8  million of no-charge
      components  during the first quarter of 2002. The Company expects that the
      $3.0 million total market value of "no charge" components will be consumed
      in its manufacturing process and shipped in finished products to customers
      in 2002.  The favorable  impact to the  Company's  statement of operations
      will be  recognized  on a delayed  basis as a purchase  discount  over the
      total number of components  acquired through the supply agreement.

  (c) Contingencies
  During 2001, the Company paid  $513,500  in escrow as a deposit on a  building
<PAGE>
                    ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

      in  Boston,   Massachusetts   the  Company  was   seeking  to acquire.  Of
      this   deposit, $25,000  was  nonrefundable.  Subsequently,  negotiations
      stalled.  While the Company  believes that it is entitled  to a return of
      the $488,500  refundable  portion  of  the  deposit,  plus  interest, the
      property-owner has  objected,  and the funds are being retained in escrow.
      Without  pursuit of the arrangement,  described below, the  Company  would
      likely need to seek legal remedies to  obtain a  return  of its refundable
      portion of the original deposit. The arrangement being pursued is that the
      Company, along  with other  investors  related to  the  Company, including
      Frank Manning, President  and  a  director  of  the Company, Peter Kramer,
      Executive Vice President and a  director of the  Company, have  engaged in
      further ongoing  negotiations with the property owner,  whereby the  group
      of investors  are  intending to  acquire the  building,  with the  Company
      participating  as  a  minority  investor. Under  this  arrangement,  upon
      acceptance,  the Company would receive a pro rata portion,  anticipated to
      be $390,800,  of the refundable  portion of its deposit plus interest from
      the other investors.  If the group ultimately  acquires the building,  the
      $390,000 plus interest  would be applied to its investment in the acquired
      property.

   If this arrangement is successfully negotiated,  the Company anticipates that
      its initial required investment would not exceed $.54 million. The Company
      would  also have a right to sell its  investment  to the  other  investors
      through January 5, 2003 for the Company's original purchase price.  Should
      the Company  exercise its sale right,  the Company  would recover the full
      amount  of  the  refundable  portion  of the  Company's  deposit  and  any
      additional  investment  the  Company  makes  in the entity  acquiring the
      property.   In  addition,   under  this  arrangement,  the  Company  would
      have the right to purchase the other investors' interests in the  building
      through December 31, 2005 in accordance with a prearranged formula.

   Additionally,  the Company is party to various  lawsuits  and  administrative
      proceedings  arising  in the  ordinary  course of  business.  The  Company
      evaluates such lawsuits and proceedings on a case-by-case  basis,  and its
      policy is to  vigorously  contest  any such claims  which it believes  are
      without  merit.  The  Company's  management  believes  that  the  ultimate
      resolution  of such pending  matters  will not  materially  and  adversely
      affect the Company's business,  financial position,  results of operations
      or cash flows.

      The Company had no Letters of Credit outstanding at December 31, 2001.

   (d)  Concentrations
   The Company  participates   in  the  PC   peripherals   industry,   which  is
      characterized  by  aggressive  pricing  practices,   continually  changing
      customer  demand  patterns  and  rapid  technological  developments.   The
      Company's operating results could be adversely affected should the Company
      be unable to successfully  anticipate  customer demand accurately;  manage
      its  product  transitions,  inventory  levels  and  manufacturing  process
      efficiently;  distribute  its  product  quickly in  response  to  customer
      demand;  differentiate  its  products  from  those of its  competitors  or
      compete successfully in the markets for its new products.

   The Company depends  on  many   third-party   suppliers  for  key  components
      contained  in its product  offerings.  For some of these  components,  the
      Company may only use a single source supplier,  in part due to the lack of
      alternative  sources of supply. If the supply of a key material  component
      is delayed or curtailed, the Company's ability to ship the related product
      or  solution  in  desired  quantities  and in a  timely  manner  could  be
      adversely  affected,  possibly  resulting in reductions  in net sales.  In
      cases where alternative sources of supply are available,  qualification of
      the sources and  establishment of reliable supplies could result in delays
      and  possible  reduction  in net sales.  In the event  that the  financial
      condition of the Company's third-party suppliers for key components was to
      erode,  the delay or curtailment of deliveries of key material  components
      could occur. Additionally, the Company's reliance on third-party suppliers
      of key  material  components  exposes  the  Company to  potential  product
      quality issues that could affect the  reliability  and  performance of its
      products and solutions. Any lesser ability to ship its products in desired
      quantities  and in a timely  manner due to a delay or  curtailment  of the
      supply of material  components,  or product  quality  issues  arising from
      faulty components  manufactured by third-party suppliers,  could adversely
      affect the market for the  Company's  products  and lead to a reduction in
      the Company's net sales.
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

(8)   Impairment

   In March 1999,  the  Company entered into a series of independent  agreements
     to acquire most of the modem assets of Hayes Microcomputer  Products,  Inc.
     for $5.0  million in cash.  The  purchase  included  the  Hayes,  Practical
     Peripherals,  Accura,  Optima,  Century 2, and Cardinal  brands and product
     rights for the USA, Canada, South & Central America, Europe, and the Middle
     East. In July 1999 the Company finalized the purchase of Hayes Asia Pacific
     for $1.1 million in cash. The acquisitions were accounted for as purchases.
     The  excess  of cost  over  fair  value of net  assets  acquired  was being
     amortized on a  straight-line  method over five years. In 2001, the Company
     determined   that  based  on  its  history  of  negative  cash  flows  from
     operations,  a  forecast  of  future  positive  cash  flows  could  not  be
     sufficiently relied upon to support retaining the remaining goodwill assets
     on the  consolidated  balance  sheet.  Therefore,  the Company  recorded an
     impairment  charge of $2.3 million in 2001.  As of December  31, 2001,  the
     Company's  net goodwill  asset value on its  consolidated  balance sheet is
     zero.

   The Company also recorded  negative  goodwill that resulted from the purchase
      of the Hayes UK., business,  where the value of the net  assets  acquired
      exceeded  the  cost.  This  transaction  was  independent  of other  Hayes
      purchases.  The negative goodwill is reflected on the consolidated balance
      sheets  as  a  non-current  liability.  The  negative  goodwill  is  being
      amortized on a straight-line method over five years.

   The Company assesses the impairment of its goodwill  assets  whenever  events
      or changes in  circumstances  indicate that the carrying  value may not be
      recoverable.  The Company recorded  goodwill for two  acquisitions,  Tribe
      Computer  Works,  Inc. in 1996 and certain  assets of Hayes  Microcomputer
      Products, Inc. in 1998. The goodwill values for Tribe and Hayes were being
      amortized  over 13 years and 5 years,  respectively.  In 2001, the Company
      determined  that  based  on  its  history  of  negative  cash  flows  from
      operations,  a  forecast  of  future  positive  cash  flows  could  not be
      sufficiently  relied  upon to support  retaining  the  remaining  goodwill
      assets on the consolidated balance sheet. Therefore,  the Company recorded
      an impairment charge of $2.3 million in 2001. As of December 31, 2001, the
      Company's net goodwill  asset value on its  consolidated  balance sheet is
      zero.

(9)   Comprehensive Income (Loss)

   The components of comprehensive loss, net of tax, are as follows:
<TABLE>
<S>                                         <C>              <C>              <C>
                                                 1999             2000            2001
                                                 ----             ----            ----
        Net loss                            $(1,408,756)     $(3,077,248)     $(18,328,922)
        Foreign currency translation
         adjustment                             (11,318)         (80,788)         (102,689)
        Net unrealized holding gain
         (loss) on investment securities        (80,862)          26,255                53
                                              ---------        ---------        ----------
        Comprehensive loss                  $(1,500,936)     $(3,131,781)     $(18,431,558)
                                             ==========       ==========       ===========
</TABLE>
(10)  Long-Term Debt

   On January 10,  2001,  the Company  obtained a mortgage for $6 million on the
      real  estate  property  located  at  201and  207  South  Street,   Boston,
      Massachusetts.  This is a 20 year direct reduction mortgage.  The interest
      rate is fixed for one year,  based on the one year  Federal Home Loan Bank
      rate plus 2.5 % per annum.  The rate is adjusted  on January  10th of each
      calendar  year  commencing  on January 10, 2002.  The rate was adjusted to
      4.97% on January 10, 2002.  Future minimum  principle  payments are due as
      follows at December 31, 2001.

                          Year                Total
                          2002           $   139,201
                          2003               151,360
                          2004               163,532
                          2005               176,683
                          2006               190,892
                          Thereafter     $ 5,062,901
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

(11)      Stock Option Plans

   At December  31, 2001 the Company had three  stock  option  plans,  which are
      described below:

   Employee Stock Option Plan

   The Employee Stock  Option Plan (the  "Employee  Stock  Option  Plan") is for
      officers and certain  full-time  and  part-time  employees of the Company.
      Non-employee  directors  of the  Company are not  entitled to  participate
      under  this  plan.  The  Employee  Stock  Option  Plan  provides  for  the
      availability  of 2,800,000  shares of common  stock for issuance  upon the
      exercise of stock options  granted under the plan.  Shares of common stock
      were  registered  for  issuance  under  this plan in  accordance  with the
      Securities Act of 1933.  Under this plan, stock options are granted at the
      discretion  of the Stock Option  Committee of the Board of Directors at an
      option price not less than the fair market value of the stock. The options
      are  exercisable  in accordance  with terms  specified by the Stock Option
      Committee  not to  exceed  ten  years  from  the  date of  grant.  Options
      outstanding under this plan are as follows:

EMPLOYEE STOCK OPTION PLAN

<TABLE>
<S>                                           <C>                     <C>
                                                                      Weighted average
                                              Number of shares         exercise price

        Balance at December 31, 1998            1,130,002                $   7.27

          Granted                                  65,000                    4.33
          Exercised                               (80,775)                   5.80
          Expired                                 (82,760)                   7.06
                                                ---------                    ----
        Balance at December 31, 1999            1,031,467                $   7.21
                                                =========                    ====

          Granted                                 377,000                    7.43
          Exercised                              (196,181)                   7.09
          Expired                                (254,675)                  10.67
                                                  -------                   -----
        Balance at December 31, 2000              957,611                $   6.40
                                                  =======                   =====

          Granted                                 631,000                    2.77
          Exercised                                     -                       -
          Expired                                (550,611)                   5.85
                                                 --------                    ----
        Balance at December 31, 2001            1,038,000                 $  4.48
                                                =========                    ====

</TABLE>

      The following table summarizes information about fixed stock options under
      the Employee Stock Option Plan outstanding on December 31, 2001:

<TABLE>
<S>                  <C>              <C>                 <C>                  <C>            <C>
                                     Options Outstanding                             Options Exercisable
                     -----------------------------------------------------     -------------------------------
                                      Weighted Average
  Range of              Number           Remaining        Weighted Average       Number       Weighted Average
Exercise Prices      Outstanding      Contractual Life     Exercise Price      Exercisable     Exercise Price

$ 1.75 to $ 3.50       380,000              2.60               $ 2.20                  -           $    -
  3.50 to   5.25       296,000              1.80                 3.74             45,000             4.35
  5.25 to   7.00       100,000              1.50                 6.36             50,000             6.36
  7.00 to   8.75       260,000              1.10                 7.90            131,000             7.90
----------------       -------              ----                 ----            -------             ----
$ 1.75 to $ 8.63       958,001              1.90 years         $ 4.48            226,000           $ 6.86
================       =======              ==========         ======            =======           ======

</TABLE>

   The Company recognized  a tax benefit of $489,845 in 2000,  upon the exercise
      of nonqualified  stock options under the Employee Stock Option Plan. These
      benefits have been recorded as an increase to the value of common stock.
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

   1991 Director Stock Option Plan

   In 1991,  the  Company  established  the  Director  Stock  Option  Plan  (the
      "Directors  Plan").  Shares of common stock were  registered  for issuance
      under  this  plan in  accordance  with the  Securities  Act of  1933.  The
      Directors Plan was established for all directors of the Company except for
      any  director  who is a  full-time  employee or  full-time  officer of the
      Company. Under the Directors Plan, each eligible director is automatically
      granted an option to purchase  6,000 shares of common stock on July 10 and
      January 10 of each year,  beginning July 10, 1991. The option price is the
      fair market  value of the common  stock on the date the option is granted.
      There are 198,000 shares authorized for issuance.  Each option expires two
      years  from the grant  date.  Options  outstanding  under this plan are as
      follows:
<TABLE>
<S>                                           <C>                        <C>
                                                                         Weighted average
                                              Number of shares            exercise price

        Balance at December 31, 1998               72,000                   $   7.39

          Granted                                  36,000                       4.95
          Exercised                                     -                          -
          Expired                                 (36,000)                      7.88
                                                  --------                      ----
        Balance at December 31, 1999               72,000                   $   5.93

          Granted                                  36,000                       7.69
          Exercised                               (42,000)                      5.99
          Expired                                  (6,000)                      7.75
                                                  --------                      ----
        Balance at December 31, 2000               60,000                   $   6.76

          Granted                                  36,000                       3.26
          Exercised                                     -                          -
          Expired                                 (24,000)                      5.37
                                                  --------                      ----
        Balance at December 31, 2001               72,000                   $   5.48
                                                   ======                       ====
</TABLE>

   The following table  summarizes  information  about fixed stock options under
   the Directors Plan on December 31, 2001:
<TABLE>
<S>                  <C>              <C>                 <C>                  <C>            <C>
                                     Options Outstanding                             Options Exercisable
                     -----------------------------------------------------     -------------------------------
                                      Weighted Average
  Range of              Number           Remaining        Weighted Average       Number       Weighted Average
Exercise Prices      Outstanding      Contractual Life     Exercise Price      Exercisable     Exercise Price

$ 1.75 to $ 3.50       18,000               1.500              $ 2.40                 -           $    -
  3.50 to   5.25       18,000               1.000                4.13            18,000             4.13
  5.25 to   7.00       18,000               0.500                6.75            18,000             6.75
  7.00 to   8.75       18,000               0.001                8.63            18,000             8.63
----------------      -------               -----                ----            ------             ----
$ 1.75 to $ 8.75       72,000              .8 years            $ 5.48            54,000           $ 6.50
================       ======              ========            ======            ======           ======
</TABLE>

   1998 Employee Equity Incentive Stock Option Plan

   The 1998 Employee  Equity  Incentive  Stock Option Plan (the "1998 Plan") was
      adopted to attract and retain  employees and provide an incentive for them
      to assist the  Company to achieve  long-range  performance  goals,  and to
      enable  them  to  participate  in the  long-term  growth  of the  Company.
      Non-employee  directors of the Company and certain officers of the Company
      are not  entitled  to  participate  under this plan.  In 2000 the Board of
      Directors increased the authorized number of shares available for issuance
      under the 1998 Plan from 600,000 to 950,000 shares of common stock. Shares
      of  common  stock  were  registered  for  issuance  under the 1998 Plan in
      accordance with the Securities Act of 1933. Under this plan, stock options
      may  be  granted at the discretion  of the Stock  Option Committee  of the
      Board of  Directors  at an option  price determined  by the  Stock  Option
      Committee.  In addition, in  1999, the  Board of Directors  authorized the
      Chief  Executive  Officer of  the Company  to grant up  to an aggregate of
      100,000  stock  options to  employees  who are  not executive  officers or
      directors of the  Company and in 2000, the  Board of Directors  authorized
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

      the Chief  Executive  Officer to  grant to  such persons  stock options to
      purchase up to 100,000 shares  in any  fiscal  quarter,  not  to exceed an
      aggregate of 350,000 stock options in  any fiscal  year. All options under
      this grant have been at fair  market  value on the date of the grant.  The
      options are  exercisable in accordance with terms  specified  by the Stock
      Option Committee or, in certain cases, the Chief Executive Officer.Options
      outstanding under this plan are as follows:
 <TABLE>
<S>                                           <C>                        <C>
                                                                         Weighted average
                                              Number of shares            exercise price

        Balance at December 31, 1998               27,650                   $   4.13

          Granted                                 338,350                       4.26
          Exercised                                (4,650)                      4.13
          Expired                                 (33,300)                      4.25
                                                  --------                      ----
        Balance at December 31, 1999              328,050                   $   4.25

          Granted                                 514,650                       6.36
          Exercised                               (42,050)                      4.27
          Expired                                (150,275)                      5.01
                                                  --------                      ----
        Balance at December 31, 2000              650,375                   $   5.74

          Granted                                 248,825                       2.45
          Exercised                                     -                          -
          Expired                                (199,300)                      5.82
                                                 --------                       ----
        Balance at December 31, 2001              699,900                   $   4.55
                                                  =======                       ====
</TABLE>
The following table summarizes  information  about fixed stock options under the
1998 Plan outstanding on December 31, 2001:
<TABLE>
<S>                  <C>              <C>                 <C>                  <C>            <C>
                                     Options Outstanding                             Options Exercisable
                     -----------------------------------------------------     -------------------------------
                                      Weighted Average
  Range of              Number           Remaining        Weighted Average       Number       Weighted Average
Exercise Prices      Outstanding      Contractual Life     Exercise Price      Exercisable     Exercise Price

$ 1.13 to $ 1.75       34,500               2.80               $ 1.18                 -           $    -
  1.75 to   3.50      231,250               2.30                 2.73            24,337             3.31
  3.50 to   5.25      154,025               0.60                 4.21           142,025             4.26
  5.25 to   7.00      198,625               1.40                 5.83           101,750             5.82
  7.00 to   8.75       54,000               1.10                 7.97            28,750             7.94
  8.75 to  10.50       27,500               0.90                10.00            17,500            10.00
----------------      -------               ----                -----            ------            -----
$ 1.13 to $10.50      699,900               1.6 years          $ 4.55           314,112           $ 5.35
================      =======               ========           ======           =======           ======
</TABLE>
   On December  31, 2001 there were  886,046  additional  shares  available  for
      issuance   under   all   three   stock   option   plans.   The  per  share
      weighted-average  fair value of stock options  granted during 1999,  2000,
      and 2001 was $4.33,  $6.84 and $2.70,  respectively,  on the date of grant
      using  the  Black   Scholes   option-pricing   model  with  the  following
      weighted-average  assumptions:  1999  -  expected  dividend  yield  0.00%,
      risk-free  interest rate of 6.16%,  volatility 90% and an expected life of
      2.75 years; 2000 - expected dividend yield 0.0%,  risk-free  interest rate
      of  5.90%,  volatility  110% and an  expected  life of 3.0  years;  2001 -
      expected dividend yield 0.0%, risk-free interest rate of 4.63%, volatility
      101% and an expected life of 1.7 years.

   The Company applies APB Opinion No. 25 in accounting  for its  stock  options
      and,  accordingly,  no  compensation  cost  has  been  recognized  in  the
      accompanying consolidated financial statements for stock grants issued  at
      fair market value. Had the Company determined compensation  cost  based on
      the fair value at the grant date for its  options  under SFAS No. 123, the
      Company's  net loss and  basic and  diluted net  loss per share would have
      been  reduced  to the pro  forma  amounts indicated below:
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)
<TABLE>
<S>                                         <C>                 <C>                <C>
                                                    1999               2000                2001
                                                    ----               ----                ----
Net loss              As reported           $    (1,408,756)    $    (3,077,248)   $    (18,328,922)
                      Pro forma             $    (1,869,478)    $    (3,914,789)   $    (19,012,443)

Net loss per share    As  reported-basic    $       (.19)       $       (.40)      $       (2.33)
                      and diluted
                      Pro forma-basic
                      and diluted                   (.25)               (.50)              (2.42)
</TABLE>
(12)  Income Taxes

      The provision for income taxes consists of the following:
<TABLE>
<S>                                           <C>                 <C>                  <C>
                                                Current              Deferred                Total
        Year ending December 31, 1999:
          US federal                          $    63,699         $    (532,146)       $    (468,447)
          State and local                          (6,571)             (112,917)            (119,488)
                                                   -------             ---------            ---------
                                              $    57,128         $    (645,063)       $    (587,935)
                                                   ======              =========            =========
        Year ending December 31, 2000:
          US federal                          $    48,160         $  (1,539,591)       $  (1,491,431)
          State and local                               -               192,515              192,515
                                                  -------            -----------          -----------
                                              $    48,160         $  (1,347,076)       $  (1,298,916)
                                                   ======            ===========          ===========
        Year ending December 31, 2001:
          US federal                          $        (0)        $   3,337,900        $   3,337,900
          State and local                               -               462,100              462,100
                                                 ---------           -----------          -----------
                                              $        (0)        $   3,800,000        $   3,800,000
                                                 =========           ===========          ===========
</TABLE>
      Income tax expense  (benefit) was ($587,935),  ($1,298,916) and $3,800,000
      for the years ending December 31, 1999, 2000 and 2001,  respectively,  and
      differed  from the amounts as computed by applying  the US  statutory  tax
      rate of 34% to pretax loss as a result of the following:
<TABLE>
<S>                                                                <C>               <C>             <C>
                                                                        1999             2000             2001
                                                                        ----             ----             ----
        Computed "expected" US tax benefit                         $ (678,980)     $ (1,487,896)     $ (4,939,834)
        Increase (reduction) in income taxes resulting from:
          State and local income taxes, net of federal
            income tax benefit                                        (78,862)          127,061           304,986
          Increase in valuation allowance                                    -                 -         8,427,351
          Other, net                                                  169,907            61,919             7,497
                                                                       ---------        -------            ------
                                                                    $ (587,935)     $ (1,298,916)     $  3,800,000
                                                                     ===========       =========       ===========
</TABLE>
<TABLE>
<S>                                                                <C>               <C>             <C>
        Income Tax Expense
        Total income tax expense (benefit) was allocated
          as follows:
                                                                        1999             2000             2001
                                                                        ----             ----             ----
        Loss from operations                                       $ (587,935)     $ (1,298,916)     $  3,800,000
        Stockholders' equity, for compensation expense
          for tax purposes in excess of amounts
          recognized for financial statement purposes                (102,322)         (489,845)                -
                                                                     -----------       ---------       -----------
                                                                   $ (690,257)     $ (1,788,761)     $  3,800,000
                                                                     ===========       =========       ===========
</TABLE>
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

      The tax effects of  temporary  differences  that give rise to  significant
      portions  of the  deferred  tax assets and  deferred  tax  liabilities  at
      December 31, 1999, 2000, and 2001 are presented below:
<TABLE>
<S>                                                                <C>               <C>             <C>
                                                                        1999             2000             2001
                                                                        ----             ----             ----
        Deferred tax assets:
        Inventories, primarily
          non-deductible reserves                                  $ 1,832,101       $ 1,830,940     $ 2,862,364
        Accounts receivable,
          primarily returns and allowances                             645,517           534,204         497,510
        Accrued expenses, principally provisions
          not currently deductible                                     367,761           392,011         345,249
        Net operating loss carryforwards and
          credits                                                    1,542,861         3,697,196       8,307,793
        Other                                                          350,846           525,493       1,224,952
                                                                       -------           -------       ---------
        Total gross deferred tax assets                              4,739,086         6,979,844       6,979,844
                                                                     ---------         ---------      ----------
        Less valuation allowance                                      (770,116)       (1,167,000)    (11,225,024)
                                                                     ---------        -----------    ------------
        Net deferred tax assets                                    $ 3,968,970        $ 5,812,844    $ 2,012,844
                                                                     =========          =========      =========
</TABLE>

   On December  31, 2001 the Company  has federal and state net  operating  loss
      carryforwards of approximately $17,720,517 and $29,656,069,  respectively.
      These  federal  and state net  operating  losses are  available  to offset
      future  taxable  income,  and are due to expire  beginning  2018 and 2002,
      respectively.   The  Company  recorded  a  deferred  tax  asset  valuation
      allowance  against a portion of the  deferred  tax assets that  management
      believes may expire unused.  The valuation  allowance reduces deferred tax
      assets to reflect the estimated amount of deferred tax assets,  which will
      more  likely  not be  realized.  Realization  of  deferred  tax  assets is
      dependent upon the generation of future  taxable  income or gains from the
      sale or certain real estate.The Company has recorded a valuation allowance
      against its deferred  tax assets because  management  believes that, after
      considering   all   the  available  objective  evidence,   historical  and
      prospective, with greater weight given to historical evidence, it is  more
      likely than not that these assets will not be realized.

(13)  Significant Customers

   Two customers accounted  for  approximately  17% and 10% of net sales for the
      year ending December 31, 1999. Two customers  accounted for  approximately
      15% and 11% of net sales  for the year  ending  December  31,  2000.  Four
      customers  each  comprised  over  10% of net  sales  for the  year  ending
      December  31,  2001.  On  December  31,  2000,  two  customers   comprised
      approximately  48% of net accounts  receivable.  On December 31, 2001, two
      customers comprised approximately 40% of net accounts receivable.

(14)  Investment in Affiliates

   In September  1999,  the Company made an  investment  in a limited  liability
      company  ("LLC").  The  Company  granted  the LLC the rights to a software
      license in  exchange  for  300,000  Class A shares of the LLC,  which were
      valued  by the  Company  at  $300,000.  The  value  at which  the  outside
      investors  paid  cash  for  shares  received  as part of the  same  equity
      infusion was used by the Company to value their shares received. A gain of
      $75,000 was  recognized  on the  transaction,  which was reported as other
      income  in  fiscal  1999.  In  May  2000,  the  LLC  converted  to  a  "C"
      corporation. In March 2001, and December 2001, the Company made additional
      investments in the affiliate for a total of $141,665, maintaining the same
      percent of  ownership.  As a result of the  recognition  of the  Company's
      share of equity in losses of the affiliate,  the investment  balance as of
      December 31, 2001 has been reduced to $56,666.
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

(15)  Supplemental Disclosure of Cash Flow Information
<TABLE>
<S>                                                       <C>           <C>         <C>
                                                           1999          2000          2001
                                                           ----          ----          ----
         Cash paid during year for interest               $    -        $    -      $ 426,803
                                                          ======        ======        =======
         Cash paid during year for income taxes           $    -        $    -      $       -
                                                          ======        ======        =======
</TABLE>
   The tax benefit of the  exercise of stock  options  resulted in  increases to
      common  stock of $102,322 in 1999 and $ 489,845 in 2000.  No options  were
      exercised in 2001.

(16)  Dependence on Key Suppliers and Contract Manufacturers

   The Company produces its products using components or subassemblies purchased
      from third-party suppliers. An important factor in the Company's liquidity
      is the receipt and use of "no-charge components".  The Company has entered
      into supply  arrangements  with suppliers of some  components that include
      price and other concessions,  including no-charge components,  for meeting
      certain purchase  requirements or commitments.  Under these  arrangements,
      the Company is committed  to purchase at least $8.0 million of  components
      over the 30-month  period  commencing  on January 1, 2002,  provided  that
      those components are offered at competitive terms and prices.  The Company
      is also required to purchase either a minimum  percentage,  as measured by
      unit  purchases or dollar  amount of a certain  type of  component  from a
      supplier  over a  two-year  period  commencing  on  January  1,  2002.  In
      connection with these arrangements,  the Company is entitled to receive at
      least $3.0  million of  no-charge  components,  based upon the  supplier's
      market price for the components,  and other pricing concessions based upon
      the Company's purchase volumes. The Company received $1.2 million of these
      no-charge  components in the fourth quarter of 2001. At December 31, 2001,
      the gross  inventory  value of $1.2  million was offset by a $1.2  million
      profit reserve in inventory,  yielding a net inventory  value of zero. The
      Company  expects to  receive  an  additional  $1.8  million  of  no-charge
      components in the first quarter of 2002. The Company expects that the $3.0
      million total market value of "no charge"  components  will be consumed in
      its manufacturing process and shipped in finished products to customers in
      2002. If this occurs, the Company's cash flow in 2002 will improve by $3.0
      million,  as it expects to avoid the purchase and payment of an equivalent
      dollar amount. The Company's statement of operations will not reflect this
      same impact in 2002. The favorable impact to operations will be  amortized
      over the life of the supply agreement.

   A  substantial percentage of the Company's manufacturing in 2001was done by a
      contract  manufacturer,  Vtech  Communications LTD ("Vtech");  the loss of
      Vtech's  services or a material  adverse change in Vtech's  business or in
      the Company's  relationship with Vtech could materially and adversely harm
      the Company's business.

(17)  Segment and Geographic Information

   The Company's   operations  are  classified   into  one  reportable  segment.
      Substantially all of the Company's operations and long-lived assets reside
      primarily in the United  States.  The Company's net sales to North America
      and net sales to  international  locations for 1999,  2000,  and 2001 were
      comprised as follows:
<TABLE>
<S>              <C>              <C>          <C>            <C>         <C>             <C>
                        1999      % of Total         2000     % of Total       2001       % of Total
                        ----      ----------         ----     ----------       ----       ----------
North America    $   45,624,737       71%      $  42,566,187      72%     $  27,240,528       63%
International        18,463,647       29%         17,184,000      28%        16,469,000       37%
                     ----------       ---         ----------      ---        ----------       ---
Total            $   64,088,384      100%      $  59,750,187     100%     $  43,709,528      100%
                     ==========      ====         ==========     ====        ==========      ====
</TABLE>
<PAGE>
               ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

(18)  Retirement Plan

   The Company  established  a 401(k)  retirement  savings plan for employees in
      January 1996. Under the provisions of the plan, the Company matches 25% of
      an employee's contribution, up to a maximum of $350 per employee per year.
      Total Company contributions  in 1999, 2000 and 2001 were $56,605, $55,314,
      and $46,749, respectively.

(19)  Selected Quarterly Financial Information (in thousands, except per share
      data, unaudited)

      The following table sets forth selected quarterly  financial for the years
        ended  December 31, 2000 and 2001.  The operating  results for any given
        quarter are not necessarily indicative of results for any future period.
<TABLE>
<S>                          <C>        <C>       <C>       <C>       <C>       <C>     <C>       <C>
                                  Fiscal 2000 Quarter Ending              Fiscal 2001 Quarter Ending
                              Mar. 31   June 30   Sept. 30  Dec. 31    Mar. 31  June 30  Sept.30  Dec. 31
                              -------   -------   --------  -------    -------  -------  -------  -------
Net sales                     $14,033   $13,267   $16,178   $16,272    $10,265  $10,825  $12,318  $10,301
Costs of goods sold             9,652     8,682     9,992    11,078      9,875    8,091    8,889    8,338
                               ------    ------    ------    ------     ------   ------   ------   ------
  Gross profit                  4,381     4,585     6,186     5,194        390    2,734    3,429    1,963
                               ------    ------    ------    ------     ------   ------   ------   ------
Operating expenses:
  Selling                       2,943     2,852     3,540     3,379      2,462    2,392    2,401    2,365
  General and administrative    1,346     1,454     1,601     1,827      1,635    1,505    1,433    3,367
  Research and development      1,591     1,814     1,256     1,588      1,479    1,341    1,334    1,174
                               ------    ------    ------    ------     ------   ------   ------   ------
   Total operating expenses     5,880     6,120     6,397     6,794      5,576    5,236    5,168    6,906
                               ------    ------    ------    ------     ------   ------   ------   ------

    Operating loss             (1,499)   (1,535)     (211)   (1,600)    (5,186)  (2,502)  (1,739)  (4,934)

Other income, net                 115       168       136        50        (29)    (128)      22      (24)
                                  ---       ---       ---        --         --      ---       --       --
    Loss before income taxes   (1,384)   (1,367)      (75)   (1,550)    (5,215)  (2,630)  (1,717)  (4,967)

Income tax expense (benefit)     (443)     (430)      (25)     (401)         -        -    3,800        -
                                ------    ------    ------    ------     ------   ------   ------   ------

      Net loss                $  (941)  $  (937)  $   (50)  $(1,149)   $(5,215) $(2,630) $(5,517) $(4,967)
                                ======    ======    ======    ======     ======   ======   ======   ======
Net loss per common share:

        Basic and diluted     $ (0.12)  $ (0.12)  $ (0.01)  $ (0.15)   $ (0.66) $ (0.33) $ (0.70) $ (0.63)

Weighted average common
   And common equivalent
   Shares:

        Basic and diluted       7,640     7,745     7,799     7,860      7,860    7,860    7,860    7,860

</TABLE>

<PAGE>

                                  EXHIBIT INDEX


        2.1   Asset Purchase Agreement Between Zoom Telephonics, Inc. and Hayes
              Microcomputer Products, Inc. dated March 8, 1999, filed as Exhibit
              2.1 to the  Quarterly Report  on Form 10-Q for  the fiscal quarter
              ended March 31, 1999 (the "March 1999 Form 10-Q"). *

        2.2   Asset Purchase Agreement Between Zoom Telephonics, Inc. and Hayes
              Microcomputer  Products,  Inc.  dated  March  28,  1999,  filed as
              Exhibit 2.2 to the March 1999 Form 10-Q. *

        3.1   Certificate  of  Incorporation,  filed  as  Exhibit  3.1  to  Zoom
              Technologies,  Inc.  Current Report on Form 8-K dated February 28,
              2002,  filed with the Commission on March 4, 2002 (the "March 2002
              Form 8-K). *

        3.2   By-Laws of  Zoom Technologies, Inc., filed as  Exhibit 3.2 to  the
              March 2002 Form 8-K. *

     **10.1   1990 Stock Option  Plan, as  amended, of  Zoom  Telephonics, Inc.,
              filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the
              fiscal quarter ended June 30, 1998. *

     **10.2   1991 Director Stock Option Plan, as amended,  of Zoom Telephonics,
              Inc.,  filed as Exhibit 10.2 to the Quarterly  Report on Form 10-Q
              for the fiscal  quarter  ended June 30,  1996 (the "June 1996 Form
              10-Q") * and as further amended on June 14, 2001.

       10.3   Lease  between  Zoom Telephonics, Inc. and "E" Street  Associates,
              filed as Exhibit 10.5 to the June 1996 Form 10-Q.*

       10.4   Form of  Indemnification Agreement, filed  as  Exhibit 10.6 to the
              June 1996 Form 10-Q. *

     **10.5   Letter Agreement between Zoom and an executive  officer,  filed as
              Exhibit 10.1 to the  Quarterly  Report on Form 10-Q for the fiscal
              quarter ending September 30, 2000. *

     **10.6   Employment Agreement, filed as Exhibit 10.9 to the 1997 Form 10-K.
              *

       10.7   Mortgage,  Security  Agreement  and  Assignment  between  Zoom and
              Wainwright  Bank & Trust  Company,  filed as  Exhibit  10.1 to the
              Quarterly  Report on Form 10-Q for the fiscal  quarter ended March
              31, 2001 (the "March 2001 Form 10-Q"). *

       10.8   Commercial   Real   Estate  Promissory   Note,  between  Zoom  and
              Wainwright Bank &  Trust  Company, filed  as  Exhibit 10.2 to  the
              March 2002 Form 10-Q. *

       21.    Subsidiaries. *

       23.    Consent of KPMG LLP.

    *         In accordance  with Rule 12b-32 under the Securities  Exchange Act
              of 1934, as amended, reference is made to the documents previously
              filed with the Securities and Exchange Commission, which documents
              are hereby incorporated by reference.

   **         Compensation Plan or Arrangement.


<PAGE>


          Exhibit 10.2.  Amendment to Zoom  Telephonics,  Inc., 1991 Directors
          Stock Option Plan


                                    AMENDMENT
                                       TO
                             ZOOM TELEPHONICS, INC.
                        1991 DIRECTORS STOCK OPTION PLAN


      The following  amendment to the Zoom  Telephonics,  Inc.,  1991  Directors
Stock Option Plan (the "Directors  Plan") was approved by the Board of Directors
of the  Company  on March  26,  2001,  subject  to the  receipt  of  stockholder
approval, which was obtained on June 14, 2001:

          1.  Article 15 of  the  Directors  Plan is  amended by  replacing  the
              first sentence of  Article 15 in  its entirety,  so that the first
              sentence reads in its entirety as follows:

              "The Plan shall expire on April 30, 2011 (except  as to  options
              outstanding on that date)."


          2.  All  other  terms  of the Directors Plan remain unaffected by this
              amendment.

                                        ZOOM TELEPHONICS, INC.


                                   By:  /s/ Frank  B. Manning
                                   --------------------------------
                                   Name:   Frank B. Manning
                                   Title:  President and Chief Executive Officer

 <PAGE>
          Exhibit 23.  Report on Financial  Statement  Schedule and Consent of
          KPMG LLP


                  REPORT ON FINANCIAL STATEMENT SCHEDULE AND
                         CONSENT OF INDEPENDENT AUDITORS



The Board of Directors;
Zoom Technologies, Inc.


The audits referred to in our report dated February 11, 2002,  except as to Note
3 and Note 7, which are as of March 29,  2002,  included  the related  financial
statement schedule for each of the years in the three-year period ended December
31, 2001  included in the annual report on Form 10-K.  The  financial  statement
schedule is the responsibility of the Company's  management.  Our responsibility
is to  express  an  opinion on the  financial  statement  schedule  based on our
audits. In our opinion,  such financial statement  schedule,  when considered in
relation  to the  basic  consolidated  financial  statements  taken  as a whole,
presents fairly in all material respects the information set forth therein.

We consent to  incorporation  by reference in the  registration  statements (No.
33-42834,  No. 33-90930,  No.  333-60565,  No.  333-75575,  No. 33-90191 and No.
333-47188) on Form S-8 and No. 333-38590 on Form S-3 of Zoom Technologies, Inc.,
of our report dated  February 11, 2001,  except for Note 3 and Note 7, which are
as of March  29,  2002,  relating  to the  consolidated  balance  sheets of Zoom
Technologies,  Inc. and  subsidiary  as of December  31, 2000 and 2001,  and the
related  consolidated   statements  of  operations,   stockholders'  equity  and
comprehensive  loss and cash flows and related schedule for each of the years in
the  three-year  period ended  December 31,  2001,  which report  appears in the
December 31, 2001 annual report on Form 10-K of Zoom Technologies, Inc.



                                          KPMG LLP




Boston, Massachusetts
March 29, 2002


<PAGE>
                                                                     Schedule II

                    ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                      VALUATION AND QUALIFYING ACCOUNTS
                Years ending December 31, 1999, 2000 and 2001


<TABLE>
<S>                            <C>            <C>            <C>          <C>           <C>



                                Balance at       Charged                                   Balance
                                 Beginning   (Credited) to                    Amount       at end
        Description               of year        Expense        Other       written off    of year
                                  --------       -------        -----       -----------    -------
Reserve for doubtful accounts  $   805,000    $ 1,289,244 (a)$ 761,901    $ 1,897,482   $   958,663
Reserve for price protection     1,567,115        653,007            -      1,570,436       649,686
Reserve for sales returns        3,513,285      5,893,014            -      6,472,280     2,934,019
COOP advertising and other
allowances                       2,367,049      4,714,611            -      4,853,437     2,228,223
                                 ---------     ----------      -------     ----------     ---------
Year ending December 31, 1999  $ 8,252,449    $12,549,876    $ 761,901    $14,793,635   $ 6,770,591
                                 =========     ==========      =======     ==========     =========
Reserve for doubtful accounts  $   958,663    $   (43,608)           -    $   560,849   $   354,206
Reserve for price protection       649,686        235,651            -        686,588       198,749
Reserve for sales returns        2,934,019      7,532,526            -      9,401,130     1,065,415
COOP advertising and other
allowances                       2,228,223      6,566,840            -      7,285,978     1,509,085
                                 ---------      ---------      -------     ----------     ---------
Year ending December 31, 2000  $ 6,770,591    $14,291,409    $       -    $17,934,545   $ 3,127,455
                                 =========     ==========      =======     ==========     =========
Reserve for doubtful accounts  $   354,206    $   162,416            -    $   284,351   $   232,271
Reserve for price protection       198,749        943,820            -        403,456       739,113
Reserve for sales returns        1,065,415      5,628,163            -      6,013,536       680,042
COOP advertising and other
allowances                       1,509,085      4,332,751            -      4,676,813     1,165,023
                                 ---------      ---------      -------     ----------     ---------
Year ending December 31, 2001  $ 3,127,455    $11,067,150    $       -    $11,378,156   $ 2,816,449
                                 =========     ==========      =======     ==========     =========

</TABLE>

(a) Represents allowance for doubtful accounts of Hayes Microcomputer Products,
Inc. as of March 9, 1999.