UNITED STATES
                    SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                  FORM 10-K

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
                  For the fiscal year ended December 31, 1996
                                                           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 TELEPHONICS, INC.
              (Exact Name of Registrant as Specified in its Charter)

               Canada                                    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 in the U.S   (Zip Code)

          1200 Royal Center
          1055 West Georgia Street, Vancouver, B.C.             V6E 3P3
          (Address of Principal Executive Offices in Canada)   (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, No 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.
YES  [    ]    NO [ X ]

The aggregate  market value of the Common Stock, No Par Value, of the registrant
held by  non-affiliates  of the  registrant  as of March 26, 1997  (computed  by
reference to the closing price of such stock on The Nasdaq National  Market) was
$65,383,246

The number of shares outstanding of the registrant's Common Stock, No Par Value,
as of March 26, 1997 was 7,472,371 shares.

                          DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Proxy Statement for the registrant's  1997 annual meeting
of  stockholders  to be filed  with the SEC in April  1997 are  incorporated  by
reference into Part III, Items 10-12 of this Form 10-K.


<PAGE>





                                       PART I


ITEM 1 - BUSINESS

Overview

Zoom Telephonics, Inc. ("Zoom" or the "Company"), a Canadian corporation, is the
parent  company  of its wholly  owned  subsidiary,  Zoom  Telephonics,  Inc.,  a
Delaware  corporation with its principal  executive offices located at 207 South
Street,  Boston,  Massachusetts 02111. The discussion of the business of Zoom in
this report  refers to the  business  conducted  through the  operations  of the
United States subsidiary and its subsidiaries.

The Company is a leading designer,  producer and marketer of faxmodems and other
personal  computer  communications  products  for the  home  and  office.  These
products  link  Personal  Computers  ("PCs")  through  the  worldwide  telephone
network,  enabling them to transmit data, fax, voice and video,  and to remotely
access on-line services,  the Internet,  corporate computer networks,  and other
computers.  The  Company  offers  a  broad  line  of  faxmodems  with  top  data
transmission  speeds of 33,600 bps,  available in internal,  external and PCMCIA
models.  Zoom expects to soon begin shipping "56K faxmodems,"  which are able to
download  data at speeds up to 56,000  bps.  The  Company  also  recently  began
shipping its first ISDN (Integrated Services Digital Network) product, which can
transmit and receive  simultaneously at up to 128,000 bps, and also has a number
of distinctive voice and fax capabilities.

Zoom's  objective  is to build  upon  its  position  as a  leading  supplier  of
faxmodems  and to  capitalize  on a number of  current  and  emerging  trends in
computer   connectivity,   including   Internet  access,   computer   telephony,
simultaneous  voice and data  transmission,  video  telephony,  and higher  data
rates.  The  Company  believes  that  the Zoom  name is  widely  recognized  and
associated with high performance per dollar, breadth of product line and product
innovation.

Industry Background

Demand for PC communications products and services has grown significantly.  The
Company  believes  that this  growth  has been  driven by a variety  of  factors
including  (i) the  popularity  of the  Internet  and on-line  services  such as
America Online, CompuServe and the Microsoft Network, (ii) the growing installed
base of PCs,  particularly in the home and mobile settings,  (iii) a significant
increase in the use of PCs for remote  access to  corporate  networks,  and (iv)
advances in  technology,  which have improved the  functionality  of the PC as a
means of transferring,  capturing and manipulating  data-intensive  information,
including  graphic  images and voice.  These trends have resulted in substantial
growth in modem  sales  for both the  installed  base of PCs,  as  upgrades  and
first-time purchases, and for new PCs as bundled peripherals.  Substantially all
modems sold for PCs are now faxmodems  (modems that have the ability to send and
receive faxes),  and many faxmodems have enhanced voice  capabilities  and other
enhanced extra features.

The rapid expansion of on-line  services and the Internet has greatly  increased
the utility of personal computers by making a multitude of information resources
available  to PC users.  Modems  are  commonly  used to  remotely  access  these
resources.  As the transfer of large text files and data-intensive  images (like
those on the World  Wide Web)  become  more  pervasive,  high data  transmission
speeds and other  advanced  modem  features are expected to become  increasingly
important to PC users.

Worldwide PC shipments continue to grow, and industry sources estimate that over
200 million PCs are  installed  worldwide.  The Company  believes that less than
one-third  of  the  worldwide  installed  base  of PCs  has a  modem  with  data
transmission  speeds of 28,000 bps or higher. As a result,  the Company believes
that a substantial  market exists for PC users to upgrade their existing modems,
and that  modems  will  continue  to achieve  increasing  penetration  of the PC
installed base as applications requiring data connectivity proliferate.

The growing use of PCs outside the traditional office setting has also increased
the demand for modems which enable users to remotely access corporate  networks,
the Internet and other PCs. In addition,  notebook  computers have become one of
the fastest growing segments of the PC market.

Advances in modem technology and lower modem prices have created rapid growth in
the installed base of modems. As a result, the high-volume segment of the market
has shifted from modems with a maximum transmission speed of 2400 bps in 1987 to
33,600 bps today. Modems with high data transmission speeds require less time to
transmit  text  files  and  graphics,  thereby  reducing  phone  call  costs and
facilitating  the  use  of  data-intensive  applications  like  World  Wide  Web
browsing,  video  telephony  and  remote  access to  corporate  networks.  Other
technological  advances  that  are  increasing  the use of  modems  in  personal
computing include new voice-related capabilities and new communications software
features.  For example,  voice modems can provide answering machine,  voice mail
and other  voice-related  functions by  digitizing  incoming  voice  signals for
storage in a computer and by retrieving  stored voice and sending it through the
telephone network to a remote person or computer. More advanced voice modems can
be  used  to  transmit  voice  and  data   simultaneously   (voice  over  data),
facilitating two-way  conversations  between computer users working on a project
or playing a computer game in separate locations.  Advances in computer software
are  also  stimulating   demand  for  modems  with  faster  speeds  and  greater
functionality.  For  example,  Microsoft's  Windows 95 includes  remote  access,
faxing and Internet access  capabilities that can only be used with a modem. The
demand for faster  transmission  speeds and  increased  modem  functionality  is
expected to drive sales of new  generations  of modems in the future,  including
56K modems, ISDN and ADSL (Asymmetric Digital Subscriber Line) data devices, and
cable modems, both as upgrades and as peripherals bundled with new PCs.

Zoom Strategy

Zoom focuses on PC communications  products tailored to high-volume  channels of
distribution.  The Company  believes that the Zoom name is associated  with high
performance per dollar, breadth of product line, broad distribution, and product
innovation.  The Company's  objective is to build upon its position as a leading
supplier of  faxmodems  and to  capitalize  on a number of current and  emerging
trends in computer  connectivity,  including  Internet access,  remote access to
corporate   networks,   computer   telephony,   simultaneous   voice   and  data
transmission,  video telephony,  and higher data speeds.  The Company's strategy
includes the following key elements:

Build Upon and Exploit Brand Equity. Zoom has a widely recognized brand name and
established channels of high-volume retailer,  distributor and OEM customers who
buy the Company's  products.  The Company believes that its success has been due
in part to (i)  offering  its  customers a broad range of products  that provide
high performance per dollar, (ii) supporting the installed base of its faxmodems
with multiple  technical  support options,  (iii) promoting its products through
cooperative  advertising  with  its  retailer  customers,   and  (iv)  designing
attractive  and  informative  packaging  for its products.  Personal  Technology
Research  reports  that in January  1997 Zoom brand  modems  have the third most
retail shelf space for modems in North America.  The Company intends to continue
to enhance its brand equity by further expanding its marketing channels base and
by broadening its product offerings through its established sales channels.

Introduce  Innovative  PC  Communications  Products.  Zoom seeks to identify new
high-volume opportunities for PC communications, to develop competitively priced
leading-edge  products  to address  these  opportunities,  and to build upon and
exploit its brand equity by delivering  these products  quickly and  effectively
through  its  established  sales  channels.  The  Company  was one of the  first
high-volume  producers of faxmodems  and voice  faxmodems.  Zoom will soon begin
shipping  internal and external "56K faxmodems," which are able to download data
at speeds up to 56,000 bps; and the Company  expects  "56K" to be a  significant
growth opportunity.  The Company recently began shipping its first ISDN product,
and plans to broaden  its ISDN  product  line in 1997 and  beyond.  The  Company
produces remote access products, and expects to broaden its product offerings in
this area.

Outsource Chipset Technology. Zoom pursues a strategy of outsourcing rather than
internally  developing  its faxmodem  chipsets,  which are  application-specific
integrated  circuits  that  form  the  technology  base  for its  faxmodems.  By
outsourcing  the  chipset  technology,  the Company is able to  concentrate  its
research and  development  resources  on faxmodem  system  design,  leverage the
extensive  research and development  capabilities  of its chipset  suppliers and
reduce its  development  time and  associated  costs and risks.  The Company has
established a strong relationship with Rockwell and is currently  purchasing all
of  its  modem  chipsets  from  Rockwell.   Rockwell  is  the  leading   chipset
manufacturer  and  has  significant   resources  for  semiconductor  design  and
fabrication,  analog and digital signal processing,  and communications firmware
development.



<PAGE>


Maintain Low Costs.  Zoom continually  seeks ways to improve its product designs
and manufacturing  approach in order to reduce its costs. The Company outsources
aspects of its  manufacturing to contract  assemblers as a means of reducing its
labor  costs  and  capital  expenditures,  and of  providing  the  Company  with
flexibility in its capacity planning.

Expand  International  Sales.  Zoom  introduced its first  faxmodems in selected
Western  European  countries  in 1993.  During  1995 the Company  also  received
approvals and began shipping its first  faxmodems for the Japanese  market.  The
Company's international sales (excluding sales to OEMs) increased from 8% of net
sales in 1994 to 19% of net sales in 1996.  The  Company  plans to  continue  to
expand its international  product line and distribution  network, and is seeking
regulatory  approvals for the sale of its products in  additional  international
markets.

Expand OEM Sales. Zoom has been increasing its original  equipment  manufacturer
("OEM") sales and support efforts. As a result, the Company's worldwide sales to
OEM  customers  increased  from 8% of net  sales in 1994 to 19% of net  sales in
1996. The Company  intends to continue to target the OEM market as a significant
opportunity for growth and diversification.

Explore  Acquisitions.  Zoom  acquired the products and certain  other assets of
Tribe  Computer  Works  ("Tribe")  in mid-1996,  and Zoom  continues to consider
acquisitions  of  businesses,  products  or  technologies  complementary  to the
Company's  business.  The Company  believes that  appropriate  acquisitions  can
reduce the development risk associated with new product offerings,  and that the
Company can leverage its brand equity and existing sales channels to enhance the
value  of  these  acquisitions.  There  can be no  assurance  that  any of these
discussions will lead to an acquisition or that any acquisitions,  if made, will
be successful.

Products

Zoom's products link personal computers through the worldwide telephone network,
enabling them to remotely  access  on-line  services,  the  Internet,  corporate
computer  networks,  and other  computers.  The  Company  offers a broad line of
faxmodems with top data transmission  speeds of 33,600 bps. Zoom expects that it
will soon begin shipping internal and external 56K faxmodems,  which are able to
download  data at speeds up to 56,000  bps;  and Zoom  expects  to  continue  to
broaden its line of 56K modems. The Company has also recently begun shipping its
first ISDN  product,  and the Company  expects to continue to introduce new ISDN
products.  Starting with its  acquisition  of Tribe,  the Company began shipping
remote  access  products  which  connect  local area  networks  to the wide area
network and connected computers and networks including the Internet. The Company
also makes other related products, including a series of multi-line modems and a
hub for AppleTalk networks.

Zoom has a broad line of faxmodems with top data speeds of 33,600 bps, available
in internal, external and PCMCIA models. The internal faxmodems are designed for
installation in IBM PC-compatibles.  The external faxmodems are designed to work
with any terminal or computer,  including IBM PC-compatibles,  the Macintosh and
other  computers.  The Company's  external  models  include  desktop and smaller
"pocket" faxmodems.  The PCMCIA faxmodems 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, the Company's
faxmodems  are shipped  complete  with  third-party  software  that supports the
hardware capabilities of the faxmodem.

56K faxmodems allow users  connected to standard  phonelines 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.  56K is a new  technology,  and  there  is no  international  or U.S.
standard.  Instead there are two main competing 56K technologies,  K56flextm and
x2tm.  Zoom' s first 56K modems  will  incorporate  K56flex,  which is backed by
semiconductor   manufacturers   Rockwell  and  Lucent,  central  site  equipment
manufacturers  Ascend,  Cascade,  Cisco,  Microcom,  Shiva,  and  others;  modem
companies Boca,  Diamond,  Hayes,  Motorola,  Zoom, and others;  Compaq and many
other computer  manufacturers,  and hundreds of Internet  Service  Providers and
online  services.  x2 is backed by U.S.  Robotics;  semiconductor  manufacturers
Texas Instruments and Cirrus Logic, some other modem companies,  and a number of
computer manufacturers,  Internet Service Providers,  and online services. Until
standards  are set the market is likely to be confused  and  fragmented.  A U.S.
ANSI 56K standard may emerge in mid to late 1997 or beyond, and an international
56K standard is likely to emerge in 1998 or beyond.  Until the standard  emerges
56K will be  handicapped  by lack of standards and also by a number of unusually
complex  network-related  issues  that may impede  performance  for some  users.
Nevertheless 56K is expected to be a high-volume  market in 1997 and beyond, and
Zoom plans to have a broad line of 56K products, initially incorporating K56flex
and ultimately incorporating international standards.
<PAGE>

Faxmodem Product Features.  The following sets forth some of the key features
incorporated in one or more of the Company's faxmodems:

     Voice Mail. Voice mail capability allows a PC to serve as an answering
     machine with message storage and local or remote message retrieval.
     Advanced options include multiple mailboxes and pager notification.

     Full-duplex  Speakerphone.  This simultaneous two-way speakerphone
     capability allows one or more people to talk "hands free" rather than using
     a telephone handset or headset.  A speakerphone is commonly used for
     conference calls or for situations where someone needs hands free for other
     purposes, such as controlling a computer's mouse, keyboard, or joystick.
     Many  office speakerphones are half-duplex, permitting sound to travel in
     only one direction at a time, similar to a walkie-talkie.  Full-duplex
     speakerphones provide more natural two-way communication.

     Simultaneous  Voice and Data  ("SVD").  SVD capability allows PC users to
     converse over the phone line at the same time that data is being
     transferred, independent of the application software being used. This
     capability is useful for applications where two people are working on the
     same project, as well as for video telephony, technical support and
     interactive computer games.

     VoiceView.  VoiceView allows two users to switch quickly between voice and
     data modes during the same call.  This feature is useful for technical
     support, interoffice communication, on-line shopping and other interactive
     services.  For example, a VoiceView user is able to switch between data and
     voice modes to review, discuss and edit a remote document during a single
     phone call.

     Caller ID. Caller ID is a service offered by telephone companies that
     provides the incoming caller's  phone number, and in some cases the
     caller's name, through the incoming ring signal.  A faxmodem's Caller ID
     capability allows a PC to recognize, display and store this information.
     For example, Caller ID information can be tied to a database to display
     detailed information about the caller.

     Distinctive Ring.  Distinctive Ring is a service offered by telephone
     companies that assigns more than one phone number to a single phoneline,
     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 voice line, a second  number to be answered as a fax line,
     and a third number to be answered as a data line. Zoom has been issued a
     US patent related to its distinctive ring technology.

     Plug & Play.  Microsoft's Windows 95 supports Plug & Play, a standard  that
     is intended to allow the installation of Plug & Play-compatible peripherals
     like faxmodems with limited  hardware configuration by the end-user.  Zoom
     believes that Plug & Play will become an important feature of its faxmodems
     as the number of PCs running Windows 95 grows.

     Internet Software.  Most of the Company's faxmodems include software for
     using the Internet for Web browsing, file transfer and electronic mail, as
     well as a trial subscription to a number of online services and Internet
     service providers.

     Cellular-ready PCMCIA Faxmodems.  The Company's PCMCIA 14.4C and V.34C
     faxmodems include a cellular-ready feature that allows the faxmodem to be
     plugged into a cellular phone for wireless  communication of fax and data.
     The Company has developed a new generation of cellular-ready PCMCIA
     faxmodems with MNP10 EC capability, which  provides more reliable
     connection, better connection rates and higher data transmission rates than
     cellular ready faxmodems that do not have MNP10 EC.

     Combined Faxmodem/LAN PCMCIA Cards.  The PCMCIA slot in a notebook computer
     is most often used for either faxmodem or LAN capability.  Most notebook
     computers have only one or two PCMCIA  slots.  In early 1997 Zoom began
     shipping a PCMCIA card that integrates both faxmodem and LAN functionality
     into one card, thereby allowing one PCMCIA slot to serve both functions
     concurrently.


<PAGE>



North American Modem Products. The Company's most popular 33,600 bps faxmodems
for the North American market and their key features are summarized below.

-------------------------------------------------------------------------------
PRODUCT                                     KEY FEATURES
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Zoom/FaxModem V.34I+                        o  Internal
                                            o  Distinctive Ring
                                            o  Internet Software
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Zoom/FaxModem V.34X+                        o  External
                                            o  Distinctive Ring
                                            o  Internet Software
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Zoom/FaxModem 33.6 SVD                      o  Internal
                                            o  Voice Mail
                                            o  SVD
                                            o  Distinctive Ring
                                            o  Plug & Play
                                            o  Internet Software
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Zoom/ComStar SVD                            o  Internal
                                            o  Voice Mail
                                            o  Full-duplex Speakerphone
                                            o  SVD
                                            o  VoiceView
                                            o  Caller ID
                                            o  Distinctive Ring
                                            o  Plug & Play
                                            o  Internet Software
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Zoom/ComStar XT SVD                         o  External
                                            o  Voice Mail
                                            o  Full-duplex Speakerphone
                                            o  SVD
                                            o  VoiceView
                                            o  Caller ID
                                            o  Distinctive Ring
                                            o  Plug & Play
                                            o  Internet Software
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Zoom/PCMCIA V.34C                           o  PC Card
                                            o  Distinctive Ring
                                            o  Internet Software
                                            o  Cellular-ready
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Zoom/PCCARD LAN/FAXMODEM                    o  PC Card
                                            o  Distinctive Ring
                                            o  Internet Software
                                            o  Cellular-ready
                                            o  LAN Interface
-------------------------------------------------------------------------------


International    Faxmodems.    Most   foreign    countries    have   their   own
telecommunications  standards and regulatory approval  requirements for sales of
communications  products  such as  those  offered  by  Zoom.  As a  result,  the
introduction  of new  products  into  international  markets  can be costly  and
time-consuming.  In 1993 the Company  introduced its first faxmodem approved for
selected Western European countries, and since then the Company has continued to
expand its product offerings  internationally.  The Company entered the Japanese
market in mid-1995,  and the Company now sells a number of products approved for
the Japanese market.  The Company has received  regulatory  approvals for and is
currently  selling  faxmodems  in a number of  countries,  including  Australia,
Austria,   Belgium,  Denmark,  Finland,  Germany,  Ireland,  Italy,  Japan,  the
Netherlands,   Norway,  Poland,   Portugal,   Slovenia,  South  Africa,  Sweden,
Switzerland  and the United  Kingdom.  The Company intends to continue to expand
and enhance its product line for its existing  markets and to seek approvals for
the sale of its products in new countries  throughout the world.
<PAGE>

ISDN Products.  Zoom is developing a family of  modems  for ISDN communications.
ISDN is an increasingly available  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  typically  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 for World Wide Web  browsing or video  telephony.  In February
1997 Zoom  shipped  its first ISDN  product,  the  Zoom/ISDN  Duo,  an  internal
PC-compatible  card that supports use of the ISDN line for analog modem, fax, or
voice   communications;   and  also  supports   analog  modem,   fax,  or  voice
communications  over an analog  phoneline.  Zoom plans to develop other internal
and external ISDN products for the North American and international markets, and
also plans to  integrate  ISDN  capability  into some of its new  remote  access
products.

Multi-line  Faxmodems.  In 1996  Zoom  began  shipping  a family  of  multi-line
faxmodems  targeted  for local area  network fax and data  server  applications,
computer  bulleting  boards,  multi-line  voice  mail  applications,  and  other
applications.  The Zoom/MultiLine  products hold up to eight hot-swappable voice
faxmodems in one small  external case that includes  status  indicators for each
faxmodem.

Remote  Access  Products.  Zoom  currently  ships remote  access  products  that
primarily use technology  acquired from Tribe Computer Works. Zoom has a team of
software,  hardware,  and test engineers working to expand this line in a number
of ways.  Zoom plans to  integrate  analog  modem,  ISDN and 56 Kbps leased line
options  into its  remote  access  products,  and to expand the  product  lines'
software capabilities.

There can be no assurance  that the Company will be able to develop new products
on a timely basis and within  budget,  if at all, or that once  developed any of
these products will be commercially successful.

Sales Channels

Zoom  sells  its  products   primarily   through   high-volume   retailers   and
distributors,  and to PC manufacturers  and other OEMs. The Company supports its
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.

High-volume  Retailers.  In the United States, Zoom reaches the PC retail market
primarily through high-volume  retailers.  The Company's extensive United States
retail distribution  network includes Best Buy, Circuit City, CompUSA,  Computer
City,  Office  Depot,  OfficeMax,  and  Staples.  Personal  Technology  Research
reported  that in January  1997 the  Company  had the third  greatest  amount of
retail shelf space for modems in North America.

Distributors.  Zoom sells significant quantities of modems through distributors,
who often sell to corporate accounts,  value-added  resellers and other channels
that are generally not served by the Company's retailer customers. The Company's
North American distributors include Ingram Micro, MicroAge, and Tech Data.

OEMs.  Zoom  has been  increasing  its OEM  sales,  support,  and  manufacturing
efforts.  As a result, the Company's  worldwide sales to OEM customers increased
to 19% of net  sales in 1996  from 8% of net sales in 1994.  The  Company's  OEM
customers sell the Company's  products  under their own name or incorporate  the
Company's products as a component of their pre-packaged  systems.  The Company's
packaging design capability  enables the Company to respond to an OEM's need for
customized or generic  products and packaging.  The Company is responsive to the
needs  of  personal  computer   manufacturers   including  on-time  delivery  of
high-quality  cost-effective products that are supported by strong documentation
of the products and the products' quality.

International  Channels.  In  international  markets,  Zoom  sells its  products
primarily through independent distributors and retailers. The Company's European
distributors  include  Actebis,  Criterium,  Ingram  Micro,  Northamber,   Redco
Telematica,  Softeam,  and UMD. The Company's  major European  retail  customers
include  Schadt and Vobis.  In Japan,  the  Company  distributes  its  faxmodems
primarily through OEM customers.  The Company's  international  sales (including
sales to OEMs located  outside the United States) have grown from 10% in 1994 to
26% in 1996. The Company believes that its continued sales growth outside of the
United States will require substantial  additional  investments of resources for
product  design and testing,  regulatory  approvals,  production,  marketing and
tailoring of instruction manuals, packaging and software development for various
foreign languages.  The Company's  international sales are also subject to risks
generally  associated  with  international  sales,  including  United States and
international regulatory requirements and policy changes, political and economic
instability,  currency exchange  fluctuations,  inventory  management,  accounts
receivable collection, the management of distributors or representatives, tariff
regulations and seasonality of sales.

<PAGE>

Sales, Marketing and Support
In North America the Company sells its  Zoom-brand  products  primarily  through
commissioned  independent  sales  representatives  managed and  supported by the
Company's own staff.  For western  Europe,  in 1996 the Company  performed  most
European-based  marketing,  sales,  credit,  collections,  customer  support and
warehousing  through an  independent  organization  compensated  on a commission
basis.  Zoom  terminated this  relationship in early 1997. The Company  recently
established  a sales  office in  Munich,  Germany  which  services  accounts  in
continental  Western  Europe.  The Company  expects to establish  another  sales
office in the United Kingdom to service the U.K. and Irish markets. Warehousing,
customs  clearance,  shipping,  and invoicing for Europe are now primarily  done
under  contract  with Road Air, a specialist  in these  services  located in the
Netherlands.  Technical support for Europe is handled by Zoom's distributors and
under  contract  with a technical  support  specialist  company in the U.K.  For
countries  outside  North  America  and Europe,  the  Company's  in-house  staff
typically  works  directly  with  country-specific  distributors.  The Company's
worldwide OEM sales are primarily handled by Zoom's  Boston-based staff, who are
at times assisted by commissioned sales representatives.

The Company  believes that Zoom is a widely  recognized  brand name. The Company
builds  upon its  brand  equity  in a  variety  of ways,  including  cooperative
advertising,  product packaging,  trade shows and public relations.  The Company
generally provides its high-volume  retailers with an allowance to advertise the
Company's products in conjunction with the customers' general  advertising.  The
Company  believes  that  such   advertising   serves  to  both  efficiently  and
effectively target the end-user market for its products.

Zoom  seeks to develop  quality  products  that are  user-friendly  and  require
minimal  support.  The Company supports its claims of quality with warranties of
one to seven years,  depending  upon the product.  To address the needs of those
end-users of the Company's products who require  assistance,  the Company has an
in-house staff of technical specialists who provide telephone support six days a
week.  These  specialists  also maintain a bulletin board and a home page on the
World Wide Web, forums on America Online and CompuServe, and a fax-back service.

Research and Development

The Company's  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. The Company has developed close
collaborative  relationships  with certain of its OEM  customers  and  component
suppliers,  who work with the  Company  to  identify  and  respond  to  emerging
technologies and market trends by developing products that address these trends.
In addition, the Company purchases modem chipsets from Rockwell that incorporate
sophisticated modem technology,  thereby eliminating the need for the Company to
develop this  technology  in-house.  As of February 5, 1997,  the Company had 40
employees  engaged  primarily in research  and  development.  This  research and
development  team performs  electronics  hardware design and layout,  mechanical
design, prototype construction and testing,  component  specification,  firmware
development,  product testing, foreign and domestic regulatory approval efforts,
end-user and internal  documentation,  and  third-party  software  selection and
testing.  During 1996,  1995 and 1994, the Company  expended $2.9 million,  $1.8
million and $1.2 million, respectively, on research and development activities.

Manufacturing and Suppliers

The Company's products are currently designed for high-volume automated assembly
in North America to help assure low cost,  rapid market entry,  short lead times
and  reliability.  The  Company  supplies  large kits of parts to one of several
automated contract assemblers in Mexico, India, and the Northeast United States.
The contract assemblers insert most parts  automatically by machine,  solder the
circuit board,  and in-circuit test the completed  assemblies.  These assemblies
are then typically  shipped to the Company,  which  completes the  manufacturing
process and performs a computerized functional test for further quality control.
Completed  boards are  typically  then  packaged by the  Company,  allowing  the
Company to tailor the packaging  and its contents for its customers  immediately
before shipping. Circuit design, circuit board layout and component sourcing are
currently performed by the Company.

Zoom typically uses only one contract assembler for a given design,  although in
some cases production tooling is in place for high-volume  products at a back-up
facility. These assemblers 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  the
Company's shipments and revenues.  The Company's products include a large number
of parts,  most of which are available  from multiple  sources with varying lead

<PAGE>
times. However,  there are only a limited number of suppliers of modem chipsets,
the most critical  component of the Company's  faxmodems.  Currently Rockwell is
the  Company's  only modem  chipset  supplier.  Due to capacity  constraints  of
Rockwell,  the Company has experienced delays in receiving shipments of chipsets
in the past,  and the Company  may  experience  such  delays in the future.  The
Company believes its relationship with Rockwell is good.  However,  there can be
no assurance that Rockwell will, in the future,  sell chipsets to the Company in
quantities sufficient to meet the Company's needs. An interruption in Rockwell's
ability  to  deliver  chipsets,   a  failure  of  Rockwell  to  produce  chipset
enhancements  or new chipsets on a timely  basis and at  competitive  prices,  a
material  increase  in the price of  Rockwell's  chipsets  or any other  adverse
change in the Company's relationship with Rockwell would have a material adverse
effect on the Company's results of operations.

Competition

The  PC   communications   products   industry  is  intensely   competitive  and
characterized by rapid  technological  advances and emerging industry standards,
resulting  in  constant  pricing  pressures.  These  changes  result in frequent
introductions  of  new  products  with  added  capabilities  and  features,  and
continuous improvements in the relative functionality and price of faxmodems and
other PC communications  products.  The failure of the Company to keep pace with
technological advances would adversely affect the Company's competitive position
and results of operations.

The Company's primary  competitors  include Boca Research,  Diamond  Multimedia,
GVC, Global Village, Hayes Microcomputer  Products,  Motorola and U.S. Robotics.
Many of the Company's  competitors and potential competitors have more extensive
financial,   engineering,  product  development,   manufacturing  and  marketing
resources than the Company.

The Company's products compete on the basis of product features, price, quality,
reliability, brand name recognition,  product breadth and shelf space, developed
sales channels, product documentation,  product warranties and technical support
and service. The Company believes that it is competitive in each of these areas.
However,  there  can  be  no  assurance  that  competitors  will  not  introduce
comparable or superior products  incorporating more advanced technology at lower
prices,  or that  other  changes in market  conditions  or  technology  will not
adversely affect the Company's ability to compete successfully in the future.

Products  recently  introduced by certain other companies include ADSL and cable
modems that can transmit  data and other  information  at  significantly  faster
speeds than analog  modems such as those sold by the  Company.  These  products,
however, are generally more expensive than analog modems and cannot be used with
conventional telephone service. In addition, the use of ADSL and cable modems is
currently  impeded  by a lack of  widely  accepted  standards  and a  number  of
technical and  infrastructure  limitations.  It is likely that if these types of
modems reach the high market  volume  suited to Zoom's  business  and  marketing
channels,  that the Company will seek to introduce appropriate modems. There can
be no assurance that the Company will develop these modems on a timely basis, if
at all, or that once developed, these modems will compete effectively.

Intellectual Property Rights

Zoom relies primarily on a combination of copyrights,  trademarks, trade secrets
and patents to protect its  proprietary  rights.  The Company has trademarks and
copyrights for its firmware (software on a chip), printed circuit board artwork,
instructions,  packaging and literature.  The Company also has three patents and
one pending patent application in the United States.  The patents,  which expire
in 2011, 2013 and 2013,  respectively,  generally relate to faxmodem distinctive
ring,  use  of  a  faxmodem  as  a  scanner,  and  modified  ringback  answering
capabilities.  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 the Company, or that the validity of a patent will not be challenged.
Moreover,  there can be no assurance that the Company's  means of protecting its
proprietary  rights will be adequate or that the Company's  competitors will not
independently develop comparable or superior technologies.

Zoom  licenses  certain  technologies  used in its products,  typically  bundled
software,  on a  nonexclusive  basis.  In addition the Company  purchases  modem
chipsets that incorporate sophisticated modem technology from Rockwell.

Zoom has received, and may receive in the future, infringement claims from third
parties  relating  to the  Company's  products  and  technologies.  The  Company
investigates  the  validity of these  claims and, if it believes the claims have
merit, responds through licensing or other appropriate actions. Certain of these
claims have related to technology  included in Rockwell and other chipsets.  The
Company forwards these claims to the appropriate  vendor.  If the Company or its

<PAGE>
component  manufacturers were unable to license necessary  technology on a cost-
effective  basis,  the  Company  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. See Item 3 - LEGAL PROCEEDINGS.

Government Regulation

All of the Company's North American  products are required to meet United States
and Canadian government regulations,  including regulations of the United States
Federal  Communication  Commission  ("FCC") and Industry Canada,  which regulate
equipment,  such as modems,  that connects to the public telephone network.  The
FCC  also  regulates  electromagnetic  radiation  emissions.  For  each  of  the
Company's products sold in most foreign countries, specific regulatory approvals
must be obtained for such matters as electrical safety, manufacturing standards,
country-specific  telecommunications  equipment requirements and electromagnetic
radiation and susceptibility  requirements.  The Company has received regulatory
approvals  for  certain  faxmodems  in  Australia,  Austria,  Belgium,  Denmark,
Finland,  Germany,  Ireland,  Italy,  Japan,  the Netherlands,  Norway,  Poland,
Portugal,  Slovenia,  South Africa, Sweden,  Switzerland and the United Kingdom.
The Company  expects 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 the Company's  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. The Company cannot predict what impact, if
any, such changes may have upon its business.

Backlog

The Company's  backlog at January 31, 1997 and January 31, 1996 was $4.4 million
and $5.1 million,  respectively,  most of which was for delivery within 120 days
or less.  Orders included in backlog generally may be canceled or rescheduled by
customers without significant penalty.  Backlog as of any particular date should
not be relied  upon as  indicative  of the  Company's  net sales for any  future
period.

Employees

As of February 5, 1997, Zoom had 324 full-time  employees  (excluding  employees
hired on a temporary  basis).  Of this total,  40 were  engaged in research  and
development, 189 were involved in purchasing,  assembly, packaging, shipping and
quality control, 58 were engaged in sales,  marketing and technical support, and
the remaining 37 performed  accounting,  administrative and executive functions.
The Company also hires employees on a temporary  basis.  This group comprised 30
individuals at February 5, 1997. Most of these temporary employees were employed
in  manufacturing.  The Company considers its relationship with its employees to
be good. None of the Company's employees is represented by a labor union.

Executive Officers

The names of the current  executive  officers  of Zoom and certain  biographical
information furnished by them, are set forth below:

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

Frank B. Manning      48   Chief Executive Officer, President and Director
Peter R. Kramer       45   Executive Vice President and Director
Eugene Chang          42   Vice President of Strategic Business Development
Terry J. Manning      45   Vice President of Sales and Marketing
Dean N. Panagopoulos  39   Vice President of Information Systems
Deena Randall         43   Vice President of Operations
Steven T. Shedd       44   Vice President of Finance and Chief Financial Officer
Dana Whitney          34   Vice President of Engineering

Frank B. Manning is a co-founder  of the Company and has been  President,  Chief
Executive  Officer and a Director of the Company since May 1977, and 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.  Since 1993 Mr. Manning has been a director
of MicroTouch Systems, a NASDAQ-listed leader in touchscreen technology.

Peter R.  Kramer is a  co-founder  of the Company  and has been  Executive  Vice
President  and a Director of the Company 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.

Eugene  Chang  joined Zoom in December 1995. In 1990 Mr. Chang founded Extension
Technology, Inc.,  a  venture-funded  ISDN  company  specializing  in high-speed
remote access devices, and served as its president and  chief  executive officer
until it was sold to  Microcom in 1995.   After the  sale, Mr. Chang became Vice
President  of  ISDN  Technology  at  Microcom.  Mr. Chang  earned  his BS and MS
degrees in Computer Science and Electrical Engineering  from  the  Massachusetts
Institute of Technology.

Terry J.  Manning  joined  Zoom in 1984 and served as  corporate  communications
director from 1984 until 1989 when he became the director of the Company's sales
and marketing.  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 Zoom in February of 1995 as Director of Information
Systems.  For three  years prior to joining  Zoom,  Mr.  Panagopoulos  served as
Director of Technical Services for Ziff Information Services, a major outsourcer
of  computing  services.  Prior to that,  Mr.  Panagopoulos  worked for  General
Electric's  Aircraft  Engines  Division,   where  he  was  responsible  for  the
development and implementation of advanced  manufacturing  systems for automated
facilities.  He earned his BS degree in  Information  Systems from  Northeastern
University.

Deena Randall joined Zoom in 1977 as its first  employee. Ms. Randall has served
in various senior positions within the Company and  has directed  the  Company's
operations  since  1989.  Ms. Randall earned her BA degree from Eastern Nazarene
College in 1975.

Steven T. Shedd joined Zoom in March 1996 as Vice President of Finance and Chief
Financial Officer.  From April 1995 until joining the Company,  Mr. Shedd served
as the Corporate Vice President,  Finance and Chief Financial Officer of Versyss
Incorporated,  a computer support and service company.  From 1992 to April 1995,
Mr. Shedd served in various capacities with TSI Corporation, a contract research
organization   providing  job  testing  services  to  the   pharmaceutical   and
biotechnology industries,  including as a Vice President and the Chief Financial
Officer from 1993 to 1995, and as Corporate  Controller  from 1992 to 1993. From
1989 to 1992, Mr. Shedd served in various capacities at Millipore Corporation, a
manufacturer of purification and analytical products,  including as the Director
of Accounting from 1990 to 1992 and as a Division  Controller from 1989 to 1990.
Mr. Shedd earned his BA degree from Brandeis University in 1974 and his MBA from
Boston University in 1978.

Dana Whitney joined Zoom in 1994 as director of engineering.  From 1991 to 1994,
Mr.  Whitney  served  in  various   capacities   with  Motorola  Codex,  a  data
communications company, including as a senior design engineer from 1990 to 1991,
and as an engineering  manager from 1991 to 1994. As engineering  manager he was
responsible  for the  design and  development  of  digital  data  communications
products.  Mr. Whitney earned his BSEE from the University of  Massachusetts  at
Dartmouth in 1984 and his MBA degree from Bryant College in 1993.


ITEM 2 -  PROPERTIES

Zoom  currently  occupies  approximately  57,000  square  feet  of two  adjacent
buildings with a total of approximately  72,000 square feet at 201 and 207 South
Street, Boston, Massachusetts.  These buildings were purchased by the Company in
April 1993 and currently  serve as the corporate  headquarters.  In August 1996,
the  Company   entered  into  a  five  year  lease  for  a  77,428  square  foot
manufacturing and warehousing facility at 655 Summer Street,  Boston, MA. At the
end of the initial lease term, the Company has an option to extend the lease for
an additional  five year term.  Under the lease  agreement,  the Company has the
right to cancel the lease at any time after 24 months of the initial lease term.
During  the first half of 1996,  the  Company  periodically  leased up to 20,000
square feet off-site  warehouse space on a month-to-month  basis.  This practice
was terminated  when the new facility on Summer Street was leased.  In July 1996
the Company  entered into a two year lease for a 5,276  square foot  facility in

<PAGE>

Alameda,  California in connection  with the Company's  acquisition of a product
line from Tribe Computer Works.  The facility has been closed by the Company and
is currently being sublet to another corporation.  The Company remains obligated
for the lease  through June 1998.  The Company also leases co-op office space in
Dallas, Texas.


ITEM 3 -    LEGAL PROCEEDINGS

On March 21,  1996,  James A. Storer and REFAC  International,  Ltd.,  a company
engaged in the business of acquiring and licensing patents, filed a complaint in
the United  States  District  Court,  District of  Massachusetts,  naming  Hayes
Microcomputer  Products, Inc. and the Company as defendants in a patent lawsuit.
The  complaint  alleges  that  the  V.42  bis  international  telecommunications
standard for data compression in computer modems is covered by a patent owned by
the  plaintiffs,  and the  defendants'  modems that  incorporate  this  standard
infringe  the  patent.  While the  complaint  seeks to  permanently  enjoin  the
defendants   from   infringing   the  patent  and  monetary   damages  for  past
infringement, REFAC has offered to negotiate a royalty for licensing the patent.
The  Company  believes  that  the  alleged   infringement   involves  technology
incorporated in chipsets provided to it from Rockwell International and that, if
so, the Company will be indemnified by Rockwell.  By an agreement dated July 12,
1996 Rockwell has agreed,  subject to certain  conditions,  to assume defense of
Zoom against the action.


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

No matter  was  submitted  to a vote of  securities  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

The  Company's  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.

Fiscal Year Ending December 31, 1995                    High               Low
                                                        ----               ---
            First Quarter...........................   $10.25           $  7.00
            Second Quarter..........................     9.13              6.88
            Third Quarter...........................    17.25              6.75
            Fourth Quarter..........................    20.75             13.63

Fiscal Year Ending December 31, 1996

            First Quarter...........................  $20.875            $13.75
            Second Quarter..........................    27.00            13.375
            Third Quarter...........................   16.125              7.50
            Fourth Quarter..........................   13.125              8.25

As of March 25, 1997,  there  were  approximately  382  holders of record of the
Company's Common Stock.

Recent Sales of Unregistered Securities

On June 24,  1996 the Company  issued  102,641  shares of Common  Stock to Tribe
Computer Works, Inc. to acquire certain assets, including inventory and property
and equipment.  The shares of Common Stock so issued were not  registered  under
the Securities Act of 1933 in reliance upon the exemption from  registration set
forth in Section 4 (2) under said Act.

Dividend Policy

The Company has never  declared or paid cash  dividends on its capital stock and
does not plan to pay any cash dividends in the foreseeable future. The Company's
current policy is to retain all of its earnings to finance  future  growth.  The
Company's bank credit facility restricts the payment of cash dividends.

Limitations Affecting Holders of Common Stock

An  investment  in Common  Stock  which  results  in a change of  control of the
Company may be subject to review and approval  under the  Investment  Canada Act
(Canada) (the "ICA"),  if the person acquiring control is not a Canadian person;
provided, however, that if the person acquiring control is a national of a World
Trade Organization member country (which includes the United States),  then such
investment  shall not be  subject  to review  under the ICA so long as the gross
assets  of the  Company  have an  aggregate  value  of less  than  $160  million
Canadian.  This process may have the effect of delaying or preventing the change
in control of the Company.  Under the Canada Business Corporations Act, not less
than  one-third  of the  members of the Board of  Directors  and any  committees
thereof must be resident  Canadians (and not less than one-half if the Company's
sales in Canada exceed 5% of net sales).

Certain Income Tax Considerations

The  following  summary is based on the tax laws of the United States and Canada
as in effect on the date of this  Report,  and is  subject  to changes in United
States and Canadian law,  including changes that could have retroactive  effect.
The summary is further  based on the  Convention  between  Canada and the United
States of America  with  respect to Taxes on Income and on  Capital,  as amended
(the "Convention"),  the published  administrative  practices of Revenue Canada,
Taxation and the Internal Revenue Service and judicial  decisions,  all of which
are subject to change.  The  discussion  summarizes  certain tax  considerations
relevant to individual and corporate holders of Common Stock who, for income tax
purposes, are resident in the United States and not in Canada, hold Common Stock
as  capital  assets,  and do not use or hold the  Common  Stock in  carrying  on

<PAGE>

business through a permanent establishment or in connection with a fixed base in
Canada  (collectively,  "Unconnected US Shareholders").  The tax consequences of
holding the Common Stock by individuals or corporations  who are not Unconnected
US Shareholders may differ  substantially  from the tax  consequences  discussed
herein.  The  summary  does not take into  account  the tax laws of the  various
provinces  or  territories  of Canada or the tax laws of the  various  state and
local jurisdictions in the United States.

The summary is intended to be a general  description  of the Canadian and United
States  tax  considerations.  It does  not  take  into  account  the  individual
circumstances of any particular holder of Common Stock. Therefore,  Stockholders
should  consult their own tax advisors with respect to the tax  consequences  of
holding Common Stock.

Canadian Federal Income Tax Considerations

Any  dividends  on the Common  Stock paid or  credited,  or deemed to be paid or
credited to  Unconnected US  Shareholders  generally will be subject to Canadian
withholding  tax. Under the  Convention,  the rate of withholding  tax generally
applicable to Unconnected US Shareholders is 15%. In the case of a United States
corporate  shareholder  owning 10% or more of the voting  shares of the Company,
the applicable  withholding tax is 6% for dividends paid or credited in 1996 and
5% thereafter.

Capital gains  realized on the  disposition  of Common Stock by  Unconnected  US
Shareholders  will not be subject to tax under the Income Tax Act (Canada)  (the
"Tax Act")  unless such Common  Stock is taxable  Canadian  property  within the
meaning of the Tax Act.  Common  Stock will  generally  not be taxable  Canadian
property to a holder unless, at any time during the five year period immediately
preceding a  disposition,  the holder,  or persons  with whom the holder did not
deal at arm's  length,  or any  combination  thereof,  owned  25% or more of the
issued  shares of any class or series of the  Company.  If the  Common  Stock is
considered  taxable Canadian property to a holder, the Convention will generally
exempt  Unconnected US  Shareholders  from tax under the Tax Act in respect of a
disposition  of Common Stock  provided the value of the shares of the Company is
not derived  principally from real property  situated in Canada.  Neither Canada
nor any  province  thereof  currently  imposes  any estate  taxes or  succession
duties.

United States Federal Income Tax Considerations

Unconnected  US  Shareholders  generally will treat the gross amount of any cash
dividends paid by the Company,  without  reduction for the Canadian  withholding
tax, as dividend  income for United  States  federal  income tax purposes to the
extent of the  Company's  current or  accumulated  earnings and profits.  If the
dividend  distribution  is  paid  in  Canadian  dollars,  the  dividend  will be
includable  in income  when  received  in an amount  equal to the United  States
dollar value, on the date of  distribution,  of the amount so  distributed;  any
gain or loss on the  conversion  of the  distribution  into US  dollars  will be
ordinary in nature.  Subject to the  limitations set forth in Section 904 of the
Internal  Revenue Code of 1986, as amended (the "Code") (which limits the extent
to which a United States  taxpayer may credit  against its United States federal
income tax  liability any taxes paid by it to a foreign  country),  the Canadian
tax withheld or paid with respect to distributions on the Common Stock generally
may be credited  against the United  States  federal  income tax liability of an
Unconnected US Shareholder if such holder makes an appropriate  election for the
taxable  year in  which  such  taxes  are  paid  or  accrued;  alternatively,  a
shareholder  who does not elect to credit  any  foreign  taxes  paid  during the
taxable  year may deduct  such  taxes in such  taxable  year.  In  addition,  an
Unconnected US Shareholder that is a domestic  corporation that owns 10% or more
of the Common Stock and receives a dividend and elects to credit  foreign  taxes
is deemed to have  received  (and to have paid as a foreign tax eligible for the
foreign tax credit,  subject to the limitations of Section 904) a portion of the
foreign taxes paid by the Company.  Because the foreign tax credit provisions of
the Code are complex,  investors  should  consult  their own tax  advisors  when
claiming foreign tax credits.  Dividends paid on the Common Stock will generally
not be eligible for the dividends received deduction otherwise allowed to United
States corporate shareholders.

The sale of Common Stock  generally  will result in the  recognition  of gain or
loss to an  Unconnected  US  Shareholder  in an amount  equal to the  difference
between the amount realized and the holder's adjusted basis in the Common Stock.
Gain or loss upon the sale of  Common  Stock  will be  short-term  or  long-term
capital  gain or loss,  depending  on whether the shares have been held for more
than one year.


<PAGE>



ITEM 6 - SELECTED FINANCIAL DATA

The following table contains certain selected consolidated financial data of the
Company  and is  qualified  in its  entirety by the more  detailed  Consolidated
Financial  Statements and Notes thereto included  elsewhere in this report.  The
statement of operations  data for the years ending  December 31, 1994,  1995 and
1996 and the  balance  sheet  data as of  December  31,  1995 and 1996 have been
derived from the Consolidated  Financial  Statements of the Company,  which have
been audited by KPMG Peat Marwick LLP, independent certified public accountants,
and are included  elsewhere in this report.  The statement of operations data of
the  Company  for the years  ending  December  31, 1992 and 1993 and the balance
sheet  data as of  December  31,  1992,  1993 and 1994  have been  derived  from
consolidated  financial  statements  of the Company,  which have been audited by
KPMG Peat Marwick 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.
<TABLE>
<CAPTION>

                                            Years Ending December 31,
                                                       1992         1993         1994        1995            1996
                                                       ----         ----         ----        -----           ----
                                                              (In thousands, except per share data)
<S>                                                 <C>          <C>          <C>          <C>           <C>
Statement of Operations Data:
Net sales...................................        $41,896      $55,230      $68,180      $96,997       $100,195
Cost of goods sold..........................         30,341       42,324       53,875      73,402          79,803
                                                     ------       ------       ------      -------         ------
     Gross profit...........................         11,555       12,906       14,305       23,595         20,392
Operating expenses:
       Selling..............................          3,286        4,562        6,573        9,023         10,216
       General and administrative...........          1,739        1,204        1,776        2,840          3,674
       Research and development.............            646        1,101        1,250        1,835          2,940
                                                    -------      -------      -------      -------       --------
         Total operating expenses...........          5,671        6,867        9,599      13,698          16,830
                                                  ---------     --------     --------     --------       --------
     Income from operations.................          5,884        6,039        4,706        9,897          3,562
Interest income (expense) net ..............             28           90          (75)         (33)           293
                                                -----------  -----------    ---------- ------------     ----------
     Income before income taxes.............          5,912        6,129        4,631        9,864          3,855
Income tax expense..........................          2,326        2,342        1,817        3,800          1,375
                                                  ---------    ---------     ---------   ----------      ---------
     Net income.............................       $  3,586    $   3,787     $  2,814    $   6,064       $  2,480
                                                   ========    =========     ========    =========       ========

Income per common and common equivalent share:
     Primary................................     $    0.62    $    0.63    $    0.47    $    0.99       $    0.35
                                                 ==========   ==========   ==========   ==========      =========
     Fully diluted..........................     $    0.62    $    0.63    $    0.47    $    0.98       $    0.35
                                                 ==========   ==========   ==========   ==========      =========

Weighted average common and common equivalent shares:
     Primary................................          5,777        6,010        6,010        6,126          7,162
     Fully diluted..........................          5,815        6,010        6,014        6,173          7,162


                                                                  December 31,


                                                         1992        1993         1994       1995            1996
                                                         ----        ----         ----       -----           ----
                                                                         (In thousands)
Balance Sheet Data:
Working capital                                       $11,263     $14,618      $17,146     $24,135        $41,557
Total assets                                           14,347      23,993       26,816      49,595         56,782
Long-term debt                                             --          --           --          --             --
Total stockholders' equity                             11,524      16,199       19,303      27,274         47,355
</TABLE>


<PAGE>


ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

          This report contains  forward-looking  statements  which involve risks
and  uncertainties.  The Company's actual results may differ  significantly from
the results  discussed  in the  forward-looking  statements.  Factors that might
cause such a  difference  include,  but are not limited to,  those  discussed in
"Risk Factors" contained in the Company's registration statement on Form S-3, as
amended,  as filed with the Securities  and Exchange  Commission on February 16,
1996 (the "Registration Statement").

Overview

Zoom was established in 1977, and initially  produced and marketed speed dialers
and other specialty telephone  accessories.  The Company shipped its first modem
in 1983 and its first  faxmodem  in 1990.  Faxmodems  and related  products  now
comprise  substantially  all of the  Company's  revenues.  The Company sells its
products both domestically and internationally through high-volume retailers and
distributors, and to PC manufacturers and other OEMs.

In 1996 the  Company's  net  sales  grew by 3.3% to $100.2  million.  In 1996 as
compared to 1995,  the  Company's  sales to retailers  and  distributors  in the
United States decreased by 12% to $61.0 million,  the Company's  worldwide sales
to  OEM  customers  increased  by  57%  to  $19.0  million,  and  the  Company's
international sales (excluding sales to OEMs) increased by 28% to $18.7 million.

The Company's  results of operations have been and may continue to be subject to
significant  quarterly  fluctuations.  The results for a particular  quarter may
vary due to a number of factors,  including  the overall  state of the PC and PC
communications markets, pricing and other competitive conditions,  the timing of
orders,  market acceptance of the Company's or its OEM customers' products,  the
timing of the  announcement  and introduction of new products by the Company and
its  competitors,  variations in the Company's  product mix and component costs,
variations in the proportion of sales made to retailers,  distributors and OEMs,
the financial health and inventory levels of the Company's  customers,  seasonal
promotions  by the  Company,  its  customers  and  competitors,  the  timing  of
expenditures in anticipation of future sales, the timing of product  development
costs,  the  availability  of  materials  and labor  necessary  to  produce  the
Company's  products and general economic  conditions.  The Company also believes
that its sales are seasonal,  with increased  sales  generally  occurring in the
fourth quarter  reflecting holiday sales. The Company expects that its quarterly
operating  results will continue to fluctuate in the future as a result of these
and other factors.

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

The Company's gross margins were 20.3%,  24.3% and 21.0% in 1996, 1995 and 1994,
respectively. The Company's gross margins are typically significantly higher for
its branded  product  sales to retailers  and  distributors,  both in the United
States  and  internationally,  than for sales to OEMs.  However,  the  increased
margins for sales to retailers and  distributors  are generally offset by higher
operating  expenses  associated  with those sales than for sales to OEMs.  These
increased   operating   expenses   typically   include  costs  for   cooperative
advertising, technical support and sales commissions.

The market for faxmodems has been characterized by rapid  technological  change,
frequent product introductions, evolving industry requirements and short product
life cycles.  When component costs drop and  competitive  and enhanced  products
become available, the Company's products are susceptible to price decreases. The
Company has a policy of offering price protection to certain of its retailer and
distributor  customers  for some or all of  their  inventory,  whereby  when the
Company reduces its prices for a product, the customer receives a credit for the
difference  between the original purchase price and the Company's reduced price.
In 1994,  1995 and 1996 the  Company's  results  of  operations  were  adversely
affected by reductions in prices which  resulted in relatively  high charges for
price  protection.  The impact of price reductions is mitigated by the Company's
introduction  of new  products,  the  adoption of  lower-cost  technologies  and
product  designs,  and the  implementation  of  other  measures  to  reduce  its
manufacturing and other costs.

Results of Operations

The following table sets forth certain  financial data for the periods indicated
as a percentage of net sales:

<TABLE>
<CAPTION>
                                                                                   Year Ending December 31,
<S>                                                                        <C>            <C>              <C>
                                                                           1994           1995             1996
                                                                           ----           ----             ----
Net sales.......................................................            100.0%         100.0%          100.0%
Cost of goods sold..............................................             79.0           75.7            79.7
                                                                           --------       ------          ------
     Gross profit...............................................             21.0           24.3            20.3
Operating expenses:
    Selling.....................................................              9.7            9.3            10.2
    General and administration..................................              2.6            2.9             3.7
    Research and development....................................              1.8            1.9             2.9
                                                                          -------        -------         -------
         Total operating expenses...............................             14.1           14.1            16.8
                                                                           ------         ------          ------
Operating income................................................              6.9           10.2             3.5
     Interest income (expense), net.............................             (0.1)          (0.0)            0.3
                                                                           ------         -------        -------
Income before income taxes......................................              6.8           10.2             3.8
     Income tax expense.........................................              2.7            3.9             1.3
                                                                          -------         ------          ------

Net income......................................................              4.1%           6.3%            2.5%
                                                                          =======         ======          ======
</TABLE>

Year Ending December 31, 1996 Compared to Year Ending December 31, 1995

Net Sales.  Net sales  increased 3% to $100.2 million in 1996 from $97.0 million
in 1995.  Unit  volumes  declined as  significant  increases  in V.34 28,800 and
33,600 bps  shipments  did not fully  offset  dramatic  declines in shipments of
14,400 bps faxmodems. Average selling prices for V.34 faxmodems dropped 21% from
1995 to 1996,  due to  severe  price  competition  and  lower  prices  for modem
chipsets. However, overall average selling price of the Company's faxmodems rose
as the product mix shifted to V.34 faxmodems, which typically have higher prices
than 14,400  faxmodems.  The Company  experienced  increases in net sales in its
worldwide OEM and international  (excluding sales to OEMs) sales channels during
1996 compared to 1995 as worldwide OEM sales  increased 57% to $19.0 million and
international sales (excluding sales to OEMs) increased by 28% to $18.7 million.
Sales to retailers and  distributors in the United States decreased 12% to $61.0
million in 1996 compared to 1995.

Gross  Profit.  Gross profit as a percentage  of net sales  declined to 20.3% in
1996 from 24.3% in 1995.  This  decline in gross  margin  was  primarily  due to
increased price  protection  afforded certain  retailers and inventory  reserves
against slower speed modems recognized during the year. In addition, the Company
increased its percentage of sales to OEM customers,  which typically carry lower
gross margins.  These  decreases were partially  offset by declining parts costs
for most faxmodem models.

Selling  Expenses.  Selling expenses  increased 13% to $10.2 million or 10.2% of
net sales in 1996 from $9.0  million or 9.3% of net sales in 1995.  The increase
was  primarily  due to added costs  associated  with the sales and  marketing of
products  acquired from Tribe Computer Works and to increased  payroll  expenses
for sales,  technical  support and customer service  personnel.  These increases
were  partially  offset by lower  selling  costs  associated  with the Company's
increased  percentage  of OEM sales,  which  generally  require a lower level of
selling expense than other sales.

General  and  Administrative  Expenses.   General  and  administrative  expenses
increased  29% to $3.7 million or 3.7% of net sales in 1996 from $2.8 million or
2.9% of net sales in 1995. This increase was primarily due to increased  payroll
expense for  management  information  systems and new business  development,  to
enhance infrastructure and explore new areas for growth.

Research and Development  Expenses.  Research and development expenses increased
60% to $2.9  million  or 2.9% of net sales in 1996 from $1.8  million or 1.9% of
net sales in 1995.  The increase was  primarily due to the addition of personnel
to support the Company's development efforts in a number of new areas, including
the remote  access and ISDN areas,  and to costs  associated  with  domestic and
international regulatory approvals.


<PAGE>

Interest Income,  Net. Net interest income increased to $293,000 in 1996 from an
expense of $33,000 in 1995. The increase was the result of the Company's  higher
average cash balances  during the last three  quarters of 1996 compared to 1995.
The Company  completed a secondary  offering in April of 1996 which raised a net
$11,573,218.  These funds were used to pay off the line of credit which was used
during  1995 as well as to fund  future  operations.  Any  remaining  funds were
invested in various financial instruments generating interest income.

Provision for Income Taxes. The Company's  effective tax rate decreased to 35.7%
in 1996 from 38.5% in 1995 due to the benefit of increased foreign sales through
the Company's Foreign Sales Corporation  ("FSC") and a decrease in the effective
state income tax rate.

Year Ending December 31, 1995 Compared to Year Ending December 31, 1994

Net Sales.  Net sales  increased 42% to $97.0 million in 1995 from $68.2 million
in 1994. This increase was primarily  attributable to increased unit sales,  and
to a small increase in the average selling price of the Company's  products as a
result of a change in product  mix.  During 1995 sales of the  Company's  higher
priced  V.34  faxmodems  (products  with  28,800 bps data  transmission  speeds)
increased as a percentage of net sales  throughout  the year. The effect of this
change in sales mix was partially offset by price reductions. However, the price
declines in most product  categories  were more modest than in prior years.  The
Company  believes  that  this  relative  price  stability  was  due in part to a
widespread  shortage of modem chipsets during the year. The Company  experienced
increases in net sales in all of its major sales  channels  during 1995 compared
to 1994. The Company's sales in the United States (excluding sales to OEMs) grew
18% to $66.8 million in 1995 compared to 1994,  international  sales  (excluding
sales to OEMs) grew 217% to $17.3 million, with Western Europe and Japan leading
the growth, and worldwide OEM sales grew 118% to $12.1 million.

Gross  Profit.  Gross profit as a percentage  of net sales  improved to 24.3% in
1995  from  21.0% in  1994.  This  improvement  in gross  margin  was  primarily
attributable to the increased  percentage of net sales of the higher priced V.34
faxmodems,  increased  production  efficiencies  related to the higher volume of
sales and decreased raw materials  costs for certain of the Company's  products.
These  increases  were partially  offset by lower margins  received on increased
sales to OEMs, price  reductions for certain of its products,  and the Company's
additions to inventory reserves reflecting its increased inventory levels at the
end of the year.  In 1994 the  Company's  gross  margin  of 21.0% was  partially
attributable to unusually  rapid price declines during the year,  which resulted
in significant charges for price protection.

Selling Expenses.  Selling expenses increased 37% to $9.0 million or 9.3% of net
sales in 1995 from $6.6  million or 9.7% of net sales in 1994.  The increase was
primarily  attributable  to costs  related  to the  Company's  increased  sales,
including an increase in selling commissions,  increased cooperative advertising
allowances to the Company's high-volume retailer customers in North America, and
increased  payroll  expenses  attributable  to  personnel  additions  in  sales,
technical  support and customer  service.  The decrease in selling expenses as a
percentage of net sales was primarily  attributable  to the Company's  increased
percentage  of OEM  sales,  which  generally  require a lower  level of  selling
expense than other sales.

General  and  Administrative  Expenses.   General  and  administrative  expenses
increased  60% to $2.8 million or 2.9% of net sales in 1995 from $1.8 million or
2.6% of net sales in 1994. The increase was primarily  attributable to increased
expenses  incurred to support  the  Company's  increased  sales,  including  the
addition of personnel,  and the increase in the  Company's  reserve for doubtful
accounts.

Research and Development  Expenses.  Research and development expenses increased
47% to $1.8  million  or 1.9% of net sales in 1995 from $1.2  million or 1.8% of
net sales in 1994.  The increase was primarily  attributable  to the addition of
personnel to support the Company's development efforts,  including the hiring of
specialists  in ISDN  technology,  and to costs  associated  with  international
regulatory approvals, reflecting the Company's international expansion.

Interest  Expense,  Net. Net interest  expense  declined to $33,000 in 1995 from
$75,000 in 1994.  The decrease was the result of the  Company's  higher  average
cash balances  during the first three  quarters of 1995 compared to 1994,  which
partially  offset a higher net interest  expense in the fourth  quarter of 1995,
reflecting the Company's borrowings to support its higher inventory and accounts
receivable levels.


<PAGE>

Provision for Income Taxes. The Company's  effective tax rate decreased to 38.5%
in 1995 from 39.2% in 1994 due to the benefit of increased foreign sales through
the Company's  Foreign Sales  Corporation  ("FSC").  The effective tax rates are
lower than statutory  rates because of research and  development tax credits and
FSC tax credits.

Liquidity and Capital Resources

On December 31, 1996 the Company had working capital of $41.6 million, including
$9,172,186 in cash and cash  equivalents,  an increase in working capital of 73%
from $24.1  million on  December  31,  1995.  In  addition,  the  Company  had a
commitment  from a bank to renew a $10.0 million  revolving  bank line of credit
which expired on May 31, 1996 of which $2.5 million was  outstanding at December
31, 1995. The renewed line of credit  agreement was  consummated in January 1997
and expires  August 30, 1997.  This line of credit bears  interest at the bank's
prime rate (8.25% on December 31, 1996). At the Company's  option,  it may elect
to borrow funds at the London Interbank Borrowing Rate (LIBOR) plus 1.5%. (7.03%
on December  31,  1996).  The line of credit is unsecured  and contains  certain
financial  and other  covenants.  On April 11,  1996,  the  Company  completed a
secondary  offering of 800,000 shares of its Common Stock.  The offering  raised
net  proceeds  of  $11,573,218.  The  Company  used  the net  proceeds  to repay
$2,500,000  outstanding  under  its line of  credit  and for  general  corporate
purposes,  including  working  capital,  new product  development,  expansion of
facilities,  expansion of the Company's  presence in  international  markets and
potential  acquisitions.  Any amounts  repaid under the Company's line of credit
may be reborrowed by the Company.

In 1996 the Company's net cash used in operating  activities  was  approximately
$1.4 million.  During that period inventory and accounts receivable decreased by
$5.2  million and $1.9  million  respectively.  The  decrease in  inventory  was
primarily due to the Company's efforts to reduce inventory levels,  particularly
with  respect to lower speed  faxmodems.  The Company  designs its  faxmodems to
accommodate  last-minute  insertion of the  high-cost  chipsets  and  unexpected
delays in the delivery of these  chipsets can result in increased  raw materials
and  work-in-process  inventory.  Increased  levels of inventory  may  adversely
affect the Company's  liquidity and increase the risk of inventory  obsolescence
or a decline in the market  value of such  inventory.  The  decrease in accounts
receivable was primarily  attributable  to lower fourth quarter sales in 1996 as
compared to fourth quarter sales in 1995. These sources of cash flow were offset
by  reduction  of accounts  payable and accrued  expenses of $10.2  million.  An
additional  source  of funds was the  Company's  $2.5  million  net  income.  An
additional  use of funds was the  increase in prepaid  and other  assets of $1.2
million.

The  Company's  capital  expenditures  in 1996  of  approximately  $1.4  million
consisted  primarily of the Company's purchase of leasehold  improvements to the
new manufacturing facility occupied in the third quarter,  computer hardware and
software,  continued  renovations  to its  headquarters,  and purchases of other
equipment and tooling. In addition, on June 24, 1996, the Company issued 102,641
shares of common stock to acquire certain assets of Tribe Computer  Works,  Inc.
including  intellectual  property,  inventory,  and property and equipment.  The
acquisition  was recorded using the purchase  method of accounting,  whereby the
net assets  acquired were recorded at their estimated fair values and the excess
of the cost over the fair  value of the  assets  acquired  of $1.7  million  was
allocated to goodwill that is being amortized over 10 years.

During 1996 financing activities provided the Company $11.9 million of cash. The
Company  realized net proceeds of $11.6 million from the sale of 800,000  shares
of its common stock in a registered  offering on a direct  placement  basis, and
proceeds of $2.8 million from the exercise of stock options. These proceeds were
offset by $2.5 million of repayments of the Company's revolving line of credit.

The Company believes that its existing cash,  together with funds generated from
operations  and available  sources of financing,  will be sufficient to meet its
normal working capital requirements.


<PAGE>

Other

A portion of the  Company's  revenues are subject to the risks  associated  with
international  sales.   Although  most  of  the  Company's  product  prices  are
denominated  in the United  States  currency,  customers  in  foreign  countries
generally  evaluate  purchases of products  such as those sold by the Company on
the purchase price expressed in the customer's currency.  Therefore,  changes in
foreign  currency  exchange  rates  may  adversely  affect  the  demand  for the
Company's products.

The company has adopted  Statement of Financial  Accounting  Standards  No. 123,
"Accounting  for Stock Based  Compensation"  ("SFAS 123").  As permitted by SFAS
123, the Commpany  measures  compensation  cost in  accordance  with  Accounting
Principles  Board  Opinion  No. 25 (APB  25),  "Accounting  for Stock  Issued to
Employees".  Therefore,  the  adoption  of  SFAS  123 was  not  material  to the
Company's  financial condition or results of operations;  however,  the proforma
impact on earnings and  earnings  per share have been  disclosed in the Notes to
the Consolidated Financial Statements as required by SFAS 123 for companies that
continue to account for stock options under APB25

<PAGE>



ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                                ZOOM TELEPHONICS, INC.
                                      INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                                                     AND SCHEDULE

<TABLE>
<S>                                                                                                                   <C>
                                                                                                                      Page
Index to Consolidated Financial Statements                                                                              26
Independent Auditors' Report                                                                                            27
Consolidated Balance Sheets as of December 31, 1995 and 1996                                                            28
Consolidated Statements of Income for the years ending December 31, 1994, 1995 and 1996                                 29
Consolidated Statements of Stockholders' Equity for the years ending December 31, 1994, 1995 and 1996                   30
Consolidated Statements of Cash Flows for the years ending December 31, 1994, 1995 and 1996                             31
Notes to Consolidated Financial Statements                                                                              32
Schedule II:  Valuation and Qualifying Accounts Fiscal Years Ending December 31, 1994, 1995 and 1996
</TABLE>

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 "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 the
Company's  definitive  proxy statement for its 1997 annual meeting which will be
filed with the SEC in April 1997 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" and "Proposal No. 2", in the Company's
definitive  proxy statement for its 1996 annual meeting which will be filed with
the SEC in April, 1997,  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 the Company's  definitive  proxy  statement for its 1997 annual meeting which
will be filed with the SEC in April,  1997,  pursuant to Regulation  14A, and is
incorporated herein by reference.


ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.



<PAGE>


                                                         PART IV

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

<TABLE>
<S><C>         <C>  <C>
(a)                 Financial Statements, Schedules and Exhibits:

   (1),(2)          The financial statements and required schedules are indexed under
                    Item 8.

   (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.)

               3.1  Articles  of  Continuance,  filed as  Exhibit  3.1 to the  Annual  Report on Form 10-K for the fiscal year ended
                    December 31, 1991 (the "1991 Form 10-K"). *

               3.2  By-Law  No. 1 of Zoom Telephonics, Inc., filed as Exhibit 3.2 to the 1991 Form 10-K. *

               3.3  By-Law  No. 2 of Zoom Telephonics, Inc., filed as Exhibit 3.3 to the 1991 Form 10-K. *

            **10.1  1991 Stock Option Plan,  as amended,  of Zoom  Telephonics,  Inc.,
                    filed as Exhibit  10.1 to the  Annual  Report on Form 10-K for the
                    fiscal year ended December 31, 1994 (the "1994 Form 10-K"). *

            **10.2  1991 Director Stock Option Plan, of Zoom Telephonics, Inc., filed as Exhibit 10.2 to the 1994 Form 10-K. *

              10.3  Commercial  Revolving  Line  of  Credit  Agreement  by  and  between  Zoom Telephonics, Inc. and  Shawmut  Bank,
                    N.A., filed as Exhibit 10.3 to the 1995 Form 10-K. *

              10.4  Commercial  Revolving  Line of  Credit  Promissory  Note of Zoom  Telephonics,  Inc. in favor of  Shawmut  Bank,
                    N.A. , filed as Exhibit 10.4 to the 1995 Form 10-K. *

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

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

              10.7  Revolving Credit Facility Provided by Fleet National Bank for Zoom Telephonics, Inc..

              11.   Statement re computation of per share earnings.

              21.   Subsidiaries.

              23.   Consent of KPMG Peat Marwick LLP.

              27.   Financial Data Schedule

(b)                 Reports on Form 8-K.

                    No 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 orfiled with this
                    Report.

(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
</TABLE>
-------------
      *       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 28 , 1997

          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 Director
---------------------------                        March 28, 1997
Frank  B. Manning




/s/ Steven T. Shedd             Principal Financial and Accounting Officer
---------------------------                        March 28, 1997
Steven T. Shedd




/s/ Peter R. Kramer             Director
---------------------------                        March 28, 1997
Peter R. Kramer




/s/ Bernard Furman              Director
---------------------------                        March 28, 1997
Bernard Furman



/s/ L. Lamont Gordon            Director
---------------------------                        March 28, 1997
L. Lamont Gordon




/s/ J. Ronald Woods             Director
---------------------------                        March 28, 1997
J. Ronald Woods

<PAGE>




                                               ZOOM TELEPHONICS, INC.
                                     INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                                                  AND SCHEDULE

<TABLE>
<CAPTION>
                                                                                                                      Page


<S>                                                                                                                     <C>
Independent Auditors' Report                                                                                            27
Consolidated Balance Sheets as of December 31, 1995 and 1996                                                            28
Consolidated Statements of Income for the years ending December 31, 1994, 1995 and 1996                                 29
Consolidated Statements of Stockholders' Equity for the years ending December 31, 1994, 1995 and 1996                   30
Consolidated Statements of Cash Flows for the years ending December 31, 1994, 1995 and 1996                             31
Notes to Consolidated Financial Statements                                                                              32
Schedule II: Valuation and Qualifying Accounts Fiscal Year Ending December 31, 1994, 1995 and 1996                      41
</TABLE>


<PAGE>







                          Independent Auditors' Report


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


We have audited the consolidated financial statements of Zoom Telephonics,  Inc.
and  subsidiaries  as listed in the  accompanying  index. In connection with our
audits  of the  consolidated  financial  statements,  we have also  audited  the
financial  statement  schedule  as  listed  in  the  accompanying  index.  These
consolidated  financial  statements and the financial statement schedule 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  generally   accepted  auditing
standards.  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 Telephonics,
Inc. and subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 1996,  in  conformity  with  generally  accepted  accounting
principles.  Also in our opinion, the related 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.




                                                   KPMG Peat Marwick LLP



Boston, Massachusetts
February 18, 1997


<PAGE>


                             ZOOM TELEPHONICS, INC.
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                                      December 31
     Assets                                                                                      1995              1996
     ------                                                                                      ----              ----

<S>                                                                                 <C>                  <C>
Current assets:
     Cash and cash equivalents                                                      $         150,671         9,172,186
     Accounts receivable, net of reserves for doubtful
        accounts, returns, and allowances of $2,717,463
        in 1995 and $3,564,101 in 1996 (notes 9 and 10)                                    20,396,314        18,970,041
     Inventories (note 3)                                                                  24,173,557        19,057,575
     Recoverable income taxes                                                                       -         1,219,000
     Deferred tax assets (note 8)                                                           1,513,461         2,032,683
     Prepaid expenses and other assets                                                        221,907           532,808
                                                                                       --------------    --------------
               Total current assets                                                        46,455,910        50,984,293
                                                                                       --------------    --------------

Property, plant and equipment, net (note 4)                                                 3,138,907         4,081,406
Goodwill, net of accumulated amortization of $76,149                                                -         1,558,764
Other assets                                                                                        -           157,691
                                                                                       --------------    --------------

                                                                                    $      49,594,817        56,782,154
                                                                                       ==============    ==============

               Liabilities and Stockholders' Equity

Current liabilities:
     Credit line payable (note 5)                                                   $       2,500,000                 -
     Accounts payable                                                                      18,635,269         8,074,472
     Accrued expenses                                                                         948,911         1,352,725
     Income tax payable                                                                       236,493                 -
                                                                                       --------------    --------------
               Total current liabilities                                                   22,320,673         9,427,197
                                                                                       --------------    --------------

Commitments and contingencies (note 4)

Stockholders' equity (notes 6 and 7):
     Common stock, no par value.  Authorized 25,000,000 shares;
        issued and outstanding 6,200,930 shares at December 31,
        1995 and 7,446,842 shares at December 31, 1996                                      7,289,577        24,890,468
     Retained earnings                                                                     19,984,567        22,464,489
                                                                                       --------------    --------------
               Total stockholders' equity                                                  27,274,144        47,354,957
                                                                                       --------------    --------------

                                                                                    $      49,594,817        56,782,154
                                                                                       ==============    ==============
</TABLE>



See accompanying notes to consolidated financial statements.


<PAGE>


                             ZOOM TELEPHONICS, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                        December 31, 1994, 1995 and 1996

<TABLE>
<CAPTION>

                                                                                1994             1995              1996
                                                                                ----             ----              ----

<S>                                                               <C>                  <C>               <C>
Net sales (note 9)                                                $       68,179,619       96,997,313       100,195,021
Cost of goods sold                                                        53,875,107       73,401,620        79,803,297
                                                                      --------------   --------------    --------------
           Gross profit                                                   14,304,512       23,595,693        20,391,724
                                                                      --------------   --------------    --------------

Operating expenses:
     Selling                                                               6,573,150        9,023,443        10,215,528
     General and administrative                                            1,775,853        2,839,775         3,674,134
     Research and development                                              1,249,819        1,835,482         2,940,152
                                                                      --------------   --------------    --------------
                                                                           9,598,822       13,698,700        16,829,814
                                                                      --------------   --------------    --------------

           Operating income                                                4,705,690        9,896,993         3,561,909

Interest income                                                                6,905           81,893           461,762
Interest expense                                                             (81,632)        (115,206)         (169,248)
                                                                      --------------   --------------    --------------
           Interest income (expense), net                                    (74,727)         (33,313)          292,514
                                                                      ---------------  --------------    --------------

           Income before income taxes                                      4,630,963        9,863,680         3,854,423

Income tax expense (note 8)                                                1,817,385        3,800,000         1,374,501
                                                                      --------------   --------------    --------------

           Net income                                             $        2,813,578        6,063,680         2,479,922
                                                                      ==============   ==============    ==============

Income per common and common equivalent share (note 2):
     Primary                                                            $    .47              .99               .35
                                                                           =====              ===             =====

     Fully diluted                                                      $    .47              .98               .35
                                                                           =====              ===             =====

Weighted average common and common equivalent shares:
     Primary                                                               6,010,282        6,126,203         7,162,391
                                                                      ==============   ==============    ==============
     Fully diluted                                                         6,013,668        6,173,265         7,162,391
                                                                      ==============   ==============    ==============
</TABLE>


See accompanying notes to consolidated financial statements.


<PAGE>


                             ZOOM TELEPHONICS, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY



<TABLE>
<CAPTION>
                                                                                                               Total
                                                             Common stock                  Retained        stockholders'
                                                         Shares           Amount           earnings           equity

<S>                                                    <C>            <C>              <C>                 <C>
Balance at December 31, 1993                           5,989,430         5,091,835       11,107,309          16,199,144

    Net income                                                -                 -         2,813,578           2,813,578
    Exercise of stock options                             25,050           275,549               -              275,549
    Tax benefit from exercise of nonqualified stock
      options (note 7)                                        -             14,750               -               14,750
                                                       ---------         ---------        ---------          ----------

Balance at December 31, 1994                           6,014,480         5,382,134       13,920,887          19,303,021

    Net income                                               -                 -          6,063,680           6,063,680
    Exercise of stock options                            186,450         1,570,350              -             1,570,350
    Tax benefit from exercise of nonqualified stock
      options (note 7)                                       -             337,093              -               337,093
                                                       ---------         ---------        ---------          ----------

Balance at December 31, 1995                           6,200,930         7,289,577       19,984,567          27,274,144

    Net income                                               -                 -          2,479,922           2,479,922
    Proceeds from stock offering (note 6)                800,000        11,573,218              -            11,573,218
    Stock issuance for product line acquisition          102,641         1,590,929              -             1,590,929
    Exercise of stock options                            343,271         2,825,543              -             2,825,543
    Tax benefit from exercise of nonqualified stock
      options (note 7)                                       -           1,611,201              -             1,611,201
                                                       ---------        ----------        ---------         ----------


Balance at December 31, 1996                           7,446,842      $ 24,890,468     $ 22,464,489        $ 47,354,957
                                                       =========        ==========       ==========          ==========

</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>


                             ZOOM TELEPHONICS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        December 31, 1994, 1995 and 1996

<TABLE>
<CAPTION>
                                                                                1994             1995              1996
                                                                                ----             ----              ----

Cash flows from operating activities:
<S>                                                                    <C>             <C>               <C>
     Net income                                                        $   2,813,578        6,063,680         2,479,922
     Adjustments to reconcile net income to net cash
        provided by (used in) operating activities:
           Depreciation and amortization                                     193,697          252,400           674,162
           Deferred income taxes                                            (558,277)        (416,789)         (519,222)
           Changes in assets and liabilities:
               Accounts receivable                                        (4,263,435)      (7,609,226)        1,426,273
               Inventories                                                 1,705,332      (14,624,140)        5,211,667
               Prepaid expenses and other assets                             135,607           28,553          (715,728)
               Recoverable income taxes                                       72,915                -        (1,219,000)
               Accounts payable and accrued expenses                        (232,872)      12,280,557       (10,156,983)
               Income tax payable                                            209,241           27,252          (236,493)
               Tax benefit upon exercise of nonqualified
                  stock options                                               14,750          337,093         1,611,201
                                                                       -------------   --------------    --------------
                         Net cash provided by (used in)
                             operating activities                             90,536       (3,660,620)       (1,444,201)
                                                                       -------------   --------------    ---------------

Cash flows from investing activities:
     Purchase of certain assets of a business product line                       -                -             (81,375)
     Additions to property, plant and equipment                             (769,077)      (1,234,459)       (1,351,670)
                                                                       -------------   --------------    --------------

                         Net cash used in investing activities              (769,077)      (1,234,459)       (1,433,045)
                                                                       --------------  ---------------   ---------------

Cash flows from financing activities:
     Net borrowings (repayments) under revolving
        bank line of credit                                                      -          2,500,000        (2,500,000)
     Proceeds from the issuance of common stock                                  -                -          11,573,218
     Exercise of nonqualified stock options                                  275,549        1,570,350         2,825,543
                                                                       -------------    -------------     -------------
                         Net cash provided by financing
                             activities                                      275,549        4,070,350        11,898,761
                                                                       -------------    -------------     -------------

Net increase (decrease) in cash and cash equivalents                        (402,992)        (824,729)        9,021,515

Cash and cash equivalents at beginning of year                             1,378,392          975,400           150,671
                                                                       -------------    -------------     -------------

Cash and cash equivalents at end of year                           $         975,400          150,671         9,172,186
                                                                       =============    =============     =============

</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>


                             ZOOM TELEPHONICS, INC.
                   Notes to Consolidated Financial Statements
                           December 31, 1995 and 1996

(1)     Incorporation and Nature of Operations

        Zoom  Telephonics,  Inc.  (the  "Company")  is  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.

(2)     Significant Accounting Policies

        (a)  Basis of Presentation
        Theconsolidated  financial  statements  are prepared in accordance  with
           United States generally accepted accounting principles and are stated
           in US dollars.  Any  differences  between US and  Canadian  generally
           accepted accounting  principles would 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 estimates.

        (b)  Principles of Consolidation
        The consolidated   financial  statements  include  the  accounts of  the
           Company   and  its   wholly-owned   subsidiary,   Zoom  US,  and  its
           wholly-owned  subsidiaries,  Zoom  Foreign  Sales  Corporation,  Zoom
           Telephonics,   Ltd.  (a  United   Kingdom   Corporation)   and  Tribe
           Acquisition  Corporation.  All intercompany balances and transactions
           have been eliminated in consolidation.

        (c)  Cash and Cash Equivalents
        The Company considers all investments having original maturities of less
           than 90 days to be cash equivalents.

        (d)  Inventories
        Inventories  are  carried  at the  lower  of  cost  or  market.  Cost is
           determined using the first-in, first-out (FIFO) method.

        (e)  Property, Plant and Equipment
        Property,  plant  and  equipment  is  stated  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.  In accordance  with  Financial
           Accounting  Standards  Board  statement 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.  If it is
           determined  that the  carrying  amount  of an asset  cannot  be fully
           recovered, an impairment loss is recognized.
                                                                    (Continued)


<PAGE>


                             ZOOM TELEPHONICS, INC.
                   Notes to Consolidated Financial Statements

        (f)  Goodwill
        Goodwill  results  from the excess of cost over fair value of net assets
            acquired  for  the  purchase  of a  product  line  in  June  1996 is
            amortized  on a  straight-line  basis  over 10  years.  The  Company
            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 of the acquired  product line 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 the  undiscounted  estimated  future
            estimated  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.

        (g)  Income Taxes
        TheCompany  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 bases and
           operating loss and tax credit carryforwards.  Deferred tax assets and
           liabilities are measured using enacted tax rates expected to apply to
           taxable income in the years in which those  temporary  differencs 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.

        (h)  Income Per Common Share
        Primary and fully  diluted  earnings per share are based on the weighted
           average number of common shares  outstanding,  including the dilutive
           effect of stock options.

        (i)  Revenue Recognition
        Sales are recognized upon shipment of products to customers.

        (j) Financial Instruments
        Financial   instruments  of  the  Company   consist  of  cash  and  cash
            equivalents,  accounts  receivable,  accounts  payable  and  accrued
            expenses.   The  carrying  amount  of  these  financial  instruments
            approximates fair value.

        (k)  Stock Based Compensation
        The Company has adopted Statement of Financial Accounting  Standards No.
           123,  "Accounting  for Stock Based  Compensation"  ("SFAS  123").  As
           permitted  by  SFAS 123, the Company  measures  compensation  cost in
           accordance with Accounting  Principles Board Opinion No. 25 (APB 25),
           "Accounting for Stock Issued to Employees".  Therefore,  the adoption
           of SFAS 123 was not material to the Company's  financial condition or
           results of operations;  however,  the proforma impact on earnings and
           earnings  per  share  have  been   disclosed  in  the  Notes  to  the
           Consolidated  Financial  Statements  as  required  by  SFAS  123  for
           companies that continue to account for stock options under APB25.

        (l)  Reclassifications
        Certain reclassifications to the 1994 and 1995 financial statements have
           been   made   to   conform   to   the   1996   presentation.    These
           reclassifications were not material.
                                                                   (Continued)


<PAGE>


                             ZOOM TELEPHONICS, INC.
                   Notes to Consolidated Financial Statements


(3)     Inventories

        Inventories consist of the following at December 31:

<TABLE>
<CAPTION>
                                                                                    1995                  1996
                                                                                    ----                  ----

<S>                                                                      <C>                        <C>
           Raw materials                                                 $    14,612,670            11,778,311
           Work in process                                                     5,582,922             2,968,064
           Finished goods                                                      3,977,965             4,311,200
                                                                           -------------             ---------

                                                                         $    24,173,557            19,057,575
                                                                           =============            ==========
</TABLE>

(4)     Property, Plant and Equipment

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


<TABLE>
<CAPTION>
                                                                                                            Estimated
                                                                                    1995            1996    useful lives
                                                                                    ----            ----    ------------

<S>                                                                      <C>                   <C>          <C>
           Land                                                          $       309,637         309,637       -
           Buildings and improvements                                          1,808,814       1,939,071    31.5 years
           Leasehold improvements                                                    -           469,583    5 years
           Machinery and equipment                                             1,398,919       2,093,361    5 years
           Molds, tools and dies                                                 645,978         807,573    5 years
           Office furniture and fixtures                                         349,333         433,968    5 years
                                                                            ------------       ---------
                                                                               4,512,681       6,053,193

           Less accumulated depreciation                                       1,373,774       1,971,787
                                                                            ------------       ---------

                                                                         $     3,138,907       4,081,406
                                                                            ============       =========
</TABLE>

        In August  1996,  the  Company  entered  into a  five-year  lease  for a
           manufacturing and warehousing facility in Boston,  Massachusetts.  At
           the end of the  initial  lease  term,  the  Company  has an option to
           extend the lease for an  additional  five  years.  In July 1996,  the
           Company  entered  into a  two-year  lease for an office  facility  in
           Alameda,  California. The Company also leases office space in Dallas,
           Texas and off-site storage facilities in Boston, Massachusetts.  Rent
           expense  was  $39,211,  $46,897  and  $275,673  for the years  ending
           December  31,  1994,  1995 and  1996,  respectively.  Minimum  rental
           payments,  excluding  executory  costs required under these operating
           leases  for the next five  years are as  follows:  $342,008  in 1997;
           $336,978 in 1998;  $337,134 in 1999; $348,426 in 2000 and $203,249 in
           2001.

                                                                    (Continued)


<PAGE>


                             ZOOM TELEPHONICS, INC.
                   Notes to Consolidated Financial Statements



(5)     Available Credit

        At December 31, 1995, the Company had available a revolving bank line of
           credit of $10,000,000 which expired on May 31, 1996.  Interest on the
           note was payable at the bank's prime rate of interest  (8.25 and 8.5%
           at December  31, 1996 and 1995).  No amounts were  outstanding  under
           this line of credit as of December  31,  1996.  There was  $2,500,000
           outstanding  under this line of credit as of December 31,  1995.  The
           Company has a commitment  by the bank to renew the line again through
           August 30, 1997. This agreement was consummated in January 1997. This
           revolving line of credit is unsecured and contains certain  financial
           and other covenants.

(6)     Secondary Stock Offering

        On  April 11, 1996 the Company sold  800,000  shares of its common stock
            in a registered offering on a direct placement basis for proceeds of
            $11,573,218 net of expenses and underwriters  fees of $926,782.  The
            net proceeds were used to repay certain  obligations  of the Company
            and to fund future growth.

(7)     Stock Option Plans

        Employee Stock Option Plan
        The 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 Stock
           Option Plan  provides for the  availability  of  1,500,000  shares of
           common stock for the granting of employee stock  options.  Under this
           plan stock  options  shall be 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:

<TABLE>
<CAPTION>
                                                                        Number of shares          Option price
                                                                          under option              per share

<S>                                                                      <C>                   <C>
           Balance at December 31, 1993                                      389,900                      9.54
               Granted                                                       460,500                      8.00
               Exercised                                                     (25,050)                    11.00
               Expired                                                      (382,550)                    11.85
                                                                         -----------            --------------

           Balance at December 31, 1994                                      442,800                      8.00
               Granted                                                       229,950                     11.13
               Exercised                                                    (150,450)                     8.00
               Expired                                                       (56,100)                     8.00
                                                                         -----------            --------------

           Balance at December 31, 1995                                      466,200                      9.54
               Granted                                                       972,850                     12.44
               Exercised                                                    (343,271)                     8.23
               Expired                                                      (526,562)                    16.37
                                                                         -----------            --------------

           Balance at December 31, 1996                                      569,217           $          8.29
                                                                         ===========            ===============
</TABLE>

                                                                    (Continued)


<PAGE>


                             ZOOM TELEPHONICS, INC.
                   Notes to Consolidated Financial Statements


        There were 57,000  options  exercisable  under this plan at December 31,
        1996.

        The Company recognized a tax benefit of $14,750, $337,093 and $1,611,201
           in  1994,  1995  and  1996,   respectively,   upon  the  exercise  of
           nonqualified  stock options under the  aforementioned  employee stock
           option plan. These benefits have been recorded to common stock.

        1991 Directors Stock Option Plan

        In 1991, the Company established the Directors Stock Option Plan. Shares
           of common  stock  were  registered  for  issuance  under this plan in
           accordance with the Securities Act of 1933. This 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
           plan, each eligible director shall automatically be granted an option
           to purchase  6,000 shares of common stock on each July 10 and January
           10 of each year  beginning  July 10, 1991.  The option price shall be
           the fair market value of the stock on the date the option is granted.
           Each option shall expire two years from the grant date. There were 0,
           36,000 and 0 options exercised in 1994, 1995 and 1996,  respectively.
           At December 31, 1996 there were 54,000 options outstanding,  of which
           36,000 were  exercisable,  at exercise  prices  ranging from $7.00 to
           $17.19 per share.

        At  December 31, 1996,  there were 326,762  additional  shares available
            for grant  under both  Plans.  The per share  weighted-average  fair
            value of stock  options  granted  during 1996 and 1995 was $4.03 and
            $3.58,  respectively  on the date of grant  using the Black  Scholes
            option-pricing    model   with   the   following    weighted-average
            assumptions: 1996 - expected dividend yield 0.0%, risk-free interest
            rate of 5.05%, volatility 70%  and an  expected  life of two to four
            years;  1995 - expected dividend yield 0.0%, risk-free interest rate
            of 5.07, volatility 70% and and expected life of two years.

        The company  applies APB Opinion No. 25 in accounting  for its Plan and,
           accordingly,  no compensation  cost has been recognized for its stock
           options  in the  financial  statements.  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 income and net income
           per common and common equivalent share would have been reduced to the
           pro forma amounts indicated below.

<TABLE>
<CAPTION>
                                                                                       1995          1996
                                                                                       ----          ----

<S>                                                                             <C>              <C>
                           Net income                As reported                $ 6,063,680      2,479,922
                                                     Pro forma                  $ 5,929,829      2,100,665

                           Earnings per share        As reported                $      0.99           0.35
                                                     Pro forma                  $      0.97           0.29
</TABLE>

        Proforma net  income  reflects  only  options  granted in 1996 and 1995.
           Therefore, the full impact of calculating compensation cost for stock
           options  under  SFAS No.  123 is not  reflected  in the pro forma net
           income amounts presented above because compensation cost is reflected
           over the  options'  vesting  period of 18  months  to four  years and
           compensation cost for options granted prior to January 1, 1995 is not
           considered.
                                                                    (Continued)


<PAGE>


                             ZOOM TELEPHONICS, INC.
                   Notes to Consolidated Financial Statements

(8)     Income Taxes

        Income tax expense  (benefit)  attributable  to income  from  operations
        consists of:

<TABLE>
<CAPTION>
                                                                              Current          Deferred           Total
           Year ending December 31, 1994:
<S>                                                                  <C>                  <C>              <C>
               US federal                                            $     1,821,548         (430,566)        1,390,982
               State and local                                               554,114         (127,711)          426,403
                                                                         -----------      -----------      ------------

                                                                     $     2,375,662         (558,277)        1,817,385
                                                                         ===========      ===========      ============

<CAPTION>
           Year ending December 31, 1995:
<S>                                                                  <C>                  <C>              <C>
               US federal                                            $     3,299,680         (343,359)        2,956,321
               State and local                                               917,109          (73,430)          843,679
                                                                        ------------      -----------      ------------

                                                                     $     4,216,789         (416,789)        3,800,000
                                                                        ============      ===========      ============

<CAPTION>
           Year ending December 31, 1996:
<S>                                                                  <C>                  <C>              <C>
               US federal                                            $     1,632,391         (428,502)        1,203,889
               State and local                                               261,332          (90,720)          170,612
                                                                        ------------      -----------      ------------

                                                                     $     1,893,723         (519,222)        1,374,501
                                                                        ============      ===========      ============
</TABLE>

        Income tax expense was  $1,817,385,  $3,800,000,  and $1,374,501 for the
           years  ending  December 31, 1994,  1995 and 1996,  respectively,  and
           differed from the amounts  computed by applying the US federal income
           tax rate of 34% to pretax  income  from  continuing  operations  as a
           result of the following:

<TABLE>
<CAPTION>
                                                                                  1994            1995             1996
                                                                                  ----            ----             ----

<S>                                                                    <C>                <C>              <C>
           Computed "expected" US tax expense                          $     1,574,527       3,353,651        1,310,504
           Increase (reduction) in income taxes resulting from:
               State and local income taxes, net of federal
                  income tax benefit                                           281,426         556,829          112,604
               Tax benefit from foreign sales corp                             (22,950)       (116,382)         (66,271)
               General business credits                                        (14,400)           -                 -
               Other, net                                                       (1,218)          5,902           17,664
                                                                          ------------    ------------     ------------

                                                                       $     1,817,385       3,800,000        1,374,501
                                                                          ============    ============     ============
</TABLE>


                                                                  (Continued)
<PAGE>



                             ZOOM TELEPHONICS, INC.
                   Notes to Consolidated Financial Statements

        Total income tax expense (benefit) was allocated as follows:

<TABLE>
<S>                                                                       <C>             <C>              <C>
           Income from operations                                            1,817,385       3,800,000          1,374,501
           Stockholders' equity, for compensation expense
               for tax purposes in excess of amounts
               recognized for financial statement purposes                     (14,750)       (337,093)        (1,611,201)
                                                                          -------------   -------------    ---------------

                                                                             1,802,635       3,462,907           (236,700)
                                                                          ============    ============     ===============
</TABLE>

        The tax effects of temporary differences  that give rise to  significant
           portions of the deferred tax assets and deferred tax  liabilities for
           the years ended December 31, 1995 and 1996 are presented below:

<TABLE>
<CAPTION>
                                                                                                 1995              1996
                                                                                                 ----              ----
           Deferred tax assets:
<S>                                                                                  <C>                   <C>
               Allowance for bad debt                                                $        335,119           421,298
               Sales returns reserve                                                          284,437           280,029
               Price protection reserve                                                       116,460           160,281
               Other accounts receivable reserves                                              37,836            43,896
               Uniform capitalization                                                         197,390           236,007
               Inventory reserve                                                              497,100           816,690
               Vacation accrual                                                                54,867            81,073
               Warranty reserve                                                                73,140             6,035
               Other                                                                                -            40,597
                                                                                         ------------      ------------
                      Total current gross deferred tax assets                               1,596,349         2,085,906

               Canadian net operating loss carryforwards                                       40,200                 -
                                                                                         ------------      ------------

                      Total gross deferred tax assets                                       1,636,549         2,085,906
                      Less:  valuation allowance                                              (40,200)                -
                                                                                         -------------     ------------
                      Total deferred tax assets                                             1,596,349         2,085,906

           Deferred tax liabilities:
               Plant and equipment, principally due to differences in
                  depreciation                                                                (82,888)         (53,223)
                                                                                         ---------------  -------------

                      Net deferred tax assets                                        $      1,513,461      2,032,683
                                                                                         ============      =========
</TABLE>

        In assessing  the  realizability  of deferred  tax  assets,  the Company
           considered  whether it is more likely  than not that some  portion or
           all of the deferred tax asset will be realized.  Due to the fact that
           the Company has sufficient  taxable  income in the federal  carryback
           periods and  anticipates  future taxable income over periods in which
           the deductible  temporary  differences are  deductible,  the ultimate
           realizability  of  deferred  tax  assets  for  federal  and state tax
           purposes  appears more likely than not.  Federal  taxable  income for
           1994  and  1995  equaled  approximately  $5,310,000  and  $9,018,000,
           respectively.
                                                                 (Continued)


<PAGE>


                             ZOOM TELEPHONICS, INC.
                   Notes to Consolidated Financial Statements


(9)     Significant Customers

        Two customers accounted  for 24% of  total  sales  revenue  for the year
           ending  December 31, 1994. One customer  accounted for  approximately
           19% of total sales revenue for the year ending  December 31, 1995 and
           15% of total sales  revenue for the year ending  December  31,  1996.
           Individually,  each of these customers comprised 10% or more of total
           sales revenue during the specified  period. At December 31, 1996, two
           customers comprised approximately 40% of net accounts receivable.  At
           December 31, 1995, one customer  comprised  approximately  23% of net
           accounts receivable.

(10)    Financial Instruments

        The Company  generates  a  portion  of  its  revenues  in  international
           markets,  which  subjects its  operations  to the exposure of foreign
           currency  fluctuations.  The impact of currency  fluctuations  can be
           positive or negative in any given period.

        To minimize the adverse impact of foreign  currency  fluctuations on its
           foreign  currency-denominated net assets, the Company may use certain
           financial instruments,  primarily forward exchange contracts,  in its
           management of foreign currency exposure.  These contracts require the
           Company  to  sell  certain  foreign  currencies  for  US  dollars  at
           contractual  rates.  The Company  does not hold any forward  exchange
           contracts for trading purposes.

        Realized and unrealized foreign exchange gains and losses are recognized
           in  operating  income  and  offset  foreign  gains and  losses on the
           underlying  exposures.  During the years ending December 31, 1995 and
           1996,  foreign  currency  gains and  losses  were not  material.  The
           Company's  forward  exchange  contracts  are  revalued at the balance
           sheet date and the carrying amount approximates the fair value of the
           instruments.   At  December   31,   1996,   the   Company's   foreign
           currency-denominated  net  assets not  covered  by  forward  exchange
           contracts  were  not  material.   Other  than  the  forward  exchange
           contracts  described above, the Company has no other involvement with
           derivative financial instruments.

(11)    Product Line Acquisition

        On June 24, 1996,  the Company  issued 102,641 shares of common stock to
           acquire  certain  assets,   including   inventory  and  property  and
           equipment,  associated  with a product line of Tribe Computer  Works,
           Inc.  The  acquisition  was  recorded  using the  purchase  method of
           accounting,  whereby the net assets  acquired  were recorded at their
           estimated  fair  values and the excess of cost over the fair value of
           the assets  acquired of  $1,634,913  was allocated to goodwill and is
           being amortized over 10 years.



                                                                (Continued)
<PAGE>




                             ZOOM TELEPHONICS, INC.
                   Notes to Consolidated Financial Statements



(12)    Supplemental Disclosure of Cash Flow Information

<TABLE>
<CAPTION>
                                                                                         1994           1995         1996
                                                                                         ----           ----         ----

<S>                                                                              <C>               <C>          <C>
           Cash paid during the year for interest                                $     81,632        115,206      169,248
                                                                                       ======        =======      =======

           Cash paid during the year for income taxes                              $1,995,674      3,516,000    1,873,000
                                                                                    =========      =========    =========
</TABLE>


        During the second  quarter of 1996, the Company issued 102,641 shares of
           common stock to acquire certain assets of Tribe Computer Works, Inc.,
           including   inventory  of  $95,685  and  property  and  equipment  of
           $107,467.  In  addition,  the tax  effect  of the  exercise  of stock
           options  resulted  in  increases  to common  stock and an increase in
           refundable  income taxes of  $1,611,201.  These noncash  transactions
           have been excluded from the statements of cash flows.

(13)     Dependence on a Single Supplier

        The Company produces  its products  using  components  or  subassemblies
           purchased from third-party suppliers. Certain of these components are
           available only from a single or limited sources. In 1995 and 1996 the
           Company purchased  substantially all of its integrated  circuits from
           only  one  supplier.   An  interruption  in  the  delivery  of  these
           components  could have a  material  adverse  effect on the  Company's
           results of operations.

(14)     Geographic Information

        The Company's net sales for 1996 were comprised of $73,085,475 in North
           America, $18,227,729 in Europe and $8,881,827 in other locations.


<PAGE>



                                                                EXHIBIT INDEX

<TABLE>
<S>       <C>               <C>
             3.1            Articles of  Continuance,  filed as Exhibit 3.1 to the Annual  Report on Form 10-K for the
                            fiscal year ended December 31, 1991 (the "1991 Form 10-K"). *

             3.2            By-Law  No. 1 of Zoom Telephonics, Inc., filed as Exhibit 3.2 to the 1991 Form 10-K. *

             3.3            By-Law  No. 2 of Zoom Telephonics, Inc., filed as Exhibit 3.3 to the 1991 Form 10-K. *

          **10.1            1991  Stock  Option  Plan,   as  amended,   of  Zoom
                            Telephonics,  Inc.,  filed  as  Exhibit  10.1 to the
                            Annual Report on Form 10-K for the fiscal year ended
                            December 31, 1994 (the "1994 Form 10-K"). *

          **10.2            1991 Director Stock Option Plan, of Zoom  Telephonics,  Inc., filed as Exhibit 10.2 to the
                            1994 Form 10-K. *

            10.3            Commercial  Revolving Line of Credit Agreement by and between Zoom  Telephonics,  Inc. and
                            Shawmut Bank, N.A. filed as Exhibit 10.3 to the 1995 Form 10-K. *

            10.4            Commercial Revolving Line of Credit Promissory Note of Zoom Telephonics,  Inc. in favor of
                            Shawmut Bank, N.A. filed as Exhibit 10.4 to the 1995 Form 10-K. *

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

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

            10.7            Revolving Credit Facility Provided by Fleet National Bank for Zoom Telephonics, Inc..

            11.             Statement re computation of per share earnings.

            21.             Subsidiaries.

            23.             Consent of KPMG Peat Marwick LLP.

            27.             Financial Data Schedule
</TABLE>





----------------
*          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.