UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K
             (Mark One)
[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934
                       For the year ended December 31, 2004
                                       or
[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
        EXCHANGE ACT OF 1934
                        For the transition period from to
                         Commission File Number 0-18672

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


                      Delaware                                  51-0448969
                      --------                                  ----------
           (State or Other Jurisdiction of                (I.R.S. Employer
             Incorporation or Organization)               Identification No.)

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

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

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

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

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

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2). YES [ ] NO [X]

The  aggregate  market  value of the  common  stock,  $0.01  par  value,  of the
registrant  held  by  non-affiliates  of the  registrant  as of  June  30,  2004
(computed by  reference  to the closing  price of such stock on The Nasdaq Small
Cap Market on such date) was approximately $34,175,358.

The number of shares  outstanding of the  registrant's  common stock,  $0.01 par
value, as of March 17, 2005 was 8,995,441 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's  proxy statement for the  registrant's  2005 annual
meeting of shareholders to be filed with the SEC in April 2005 are  incorporated
by reference into Part III, Items 10-14 of this Form 10-K.
<PAGE>
                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

o    the anticipated development,  timing and success of new product and service
     introductions;
o    the  anticipated  development  and expansion of our existing  technologies,
     markets and sales channels;
o    investment in resources for product design in foreign markets;
o    the development of new competitive technologies, products and services;
o    approvals, certifications and clearances for our products and services;
o    production schedules for our products;
o    market acceptance of new products and services;
o    business strategies;
o    the availability of debt and equity financing;
o    general economic conditions;
o    trends relating to our results of operations;
o    our ability to service our debt obligations; and
o    the sufficiency of our capital resources.

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

ITEM 1 - BUSINESS

OVERVIEW

     We design, produce, market, sell, and support broadband and dial-up modems,
Voice  over  Internet  Protocol  or  "VoIP"  products  and  services,  and other
communication-related  products.  Our  primary  objective  is to build  upon our
position as a leading producer of Internet access devices, and to take advantage
of a number of trends in  communications  including  enhanced  Internet  access,
higher data rates, and voice calls traveling over the Internet.

     Dial-up modems were Zoom(R)'s  highest revenue category for many years, but
generally  our sales of  dial-up  modems  have been  declining  and our sales of
broadband  modems  have  been  rising.  The last  quarter  of 2004 was the first
quarter in which our broadband modem revenues were higher than our dial-up modem
revenues.

     Our dial-up  modems  connect  personal  computers  and other devices to the
local  telephone line for  transmission of data,  fax,  voice,  and images.  Our
dial-up modems enable  personal  computers and other devices to connect to other
computers and networks,  including the Internet and local area networks,  at top
data  speeds up to 56,000  bits per  second.  We also have a line of  integrated
services digital network ("ISDN") products,  which can transmit and receive data
simultaneously at up to 128,000 bits per second.

     In response  to  increased  demand for faster  connection  speeds,  we have
expanded  our  product  line to include DSL modems,  cable  modems,  and related
broadband access products.  Our Asymmetric Digital Subscriber Line modems, known
as DSL modems,  provide a  high-bandwidth  connection to the Internet  through a
telephone  line that  typically  connects to compatible DSL equipment in or near
the central  telephone  office.  Zoom(R) is shipping a broad line of DSL modems,
mostly external. Some are fairly basic, designed to connect to the USB port of a
Windows  computer or the Ethernet port of a computer,  router,  or other device.
Other Zoom DSL modems are more  complex,  and may include a router,  a four-port
switch,  a  firewall,  or other  enhanced  features.  For a given  DSL  hardware
platform,  we often  provide  model  variations  with a different  power supply,
filters, firmware, packaging, or other customer-specific items.

     Cable modems provide a high-bandwidth  connection to the Internet through a
cable-TV  cable that  connects to compatible  equipment  that is typically at or
near the cable service provider. We began shipping cable modems during 2000. Our
cable modem  customers in the U.S.,  the U.K.,  and other  countries now include
cable service providers, original equipment manufacturers, and retailers.

     We are  currently  shipping  Voice over IP products  that enable  broadband
users to make phone calls through the Internet, potentially lowering the cost of
the call and providing other benefits.  We have designed VoIP  capabilities into
one DSL modem and also into a router that can be used with either a DSL modem or
cable modem.  Our VoIP products can be purchased  with or without  Zoom's Global
Village(TM)  VoIP service.  Global Village's VoIP service enables an end-user to
make free VoIP phone  calls to  end-users  of several  VoIP  service  providers,
including Global Village, and also allows a user to pay to call almost any phone
in the world.

     We have been  designing a new  generation of telephone  dialers and related
telephony  products.  In the early 1980s Zoom introduced its first generation of
dialers,  including the Demon Dialer(R) and  Hotshot(TM).  Dialers  simplify the
placing of a phone call by dialing digits  automatically.  Zoom's new generation
of dialers  includes a model designed for alternative  long distance  companies,
and a second model designed for use with prepaid phone cards.

     We are incorporated in Delaware under the name Zoom  Technologies,  Inc. In
2002 we changed our  jurisdiction of  incorporation  from Canada to Delaware and
our name from Zoom Telephonics,  Inc. to Zoom Technologies,  Inc. We conduct our
business  through our  operating  subsidiary,  Zoom  Telephonics,  Inc.  and its
subsidiaries.  Zoom Telephonics, Inc. was originally incorporated in New York in
1977 and changed its state of  incorporation  to Delaware in 1993. Our principal
executive  offices are  located at 207 South  Street,  Boston,  MA 02111 and our
telephone number is (617) 423-1072.

AVAILABLE INFORMATION

     Our Internet website address is  www.zoom.com.  Through our website we make
available,  free of charge, our annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and any amendments to those reports,  as
soon as reasonably  practicable after we electronically file such material with,
or  furnish  it to, the SEC.  These SEC  reports  can be  accessed  through  the
investor relations section of our website.

PRODUCTS

General

     The vast majority of our products facilitate  communication of data through
the  Internet.  Our  dial-up  modems and ISDN  modems  can also link  computers,
point-of-purchase  terminals,  or other  modem-equipped  devices  to each  other
through the traditional network without using the Internet. Our cable modems use
the cable-TV cable and our DSL modems use the local  telephone line to provide a
high-speed link to the Internet. Our dialers can be used to route voice calls to
a VoIP network that may include the Internet.  Our modems and dialers  typically
connect to a single phone line in a home, office, or other location.

Dial-Up Modems

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

     56K modems allow users  connected to standard  phone lines to download data
at speeds up to 56,000 bps ("56K") 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.  Our 56K  modems  typically  support  the  V.90  standard  as well as
lower-speed  standards,  and many of our 56K modems also  support the newer V.92
standard.

     In March  and  April of 1999 we  acquired  substantially  all of the  modem
product and trademark  assets of Hayes  Microcomputer  Products,  Inc., an early
leader in the modem  industry.  In July 2000,  we  acquired  the  trademark  and
product rights to Global Village products.  Global Village was a modem brand for
Apple  Macintosh  computers.  We now sell and market  dial-up  modems  under the
Zoom(R),  Hayes(R) and Global  Village  names,  as well as under  various  other
private-label brands developed for some of our large accounts.  In addition,  we
offer a VoIP service under the Global Village name.

     In 2002, 2003 and 2004, our dial-up modems and related  products  accounted
for approximately 84%, 73% and 52% of our net sales, respectively.

DSL Modems

     Our DSL modems  incorporate  the ADSL  standards  that are  currently  most
popular worldwide, including G.dmt, G.Lite, and ANSI T1.413 issue 2. In 2000, we
designed and shipped our first DSL modems, an external USB model and an internal
PCI model. In 2002 we introduced new USB and PCI models,  and also introduced an
Ethernet  model  and a  USB/Ethernet  model  with  router  features.  In 2003 we
introduced a DSL modem with a built-in  router,  a USB port,  and four  switched
Ethernet  ports.  In September 2004 Zoom began shipping its first DSL modem with
built-in VoIP,  which also included a router,  a 4-port switch,  and a firewall.
During the fourth quarter of 2004,  Zoom  introduced new modem hardware  designs
for its USB, Ethernet, Ethernet/USB, and 4-port router models, shifting to newer
modem  chipsets and lowering  Zoom's cost of goods.  Zoom expects to continue to
add DSL modems to our  product  line  during  2005.  One new model is planned to
include wireless network capability incorporating the wireless standards 802.11b
and 802.11g.

     The maximum  speed for the ADSL standard has been 8 megabits per second for
short  phone  lines,  with lower  speeds for longer  phone  lines.  In 2005 Zoom
expects to begin shipping some models with ADSL 2 and 2+ standards. These modems
work with central site equipment  incorporating the ADSL standard, and typically
offer enhanced functionality for central site equipment incorporating the ADSL 2
and ADSL 2+ standards.  This  enhanced  functionality  includes  speeds up to 24
megabits  per second for short phone  lines,  generally  higher  speeds for most
phone line  lengths,  the ability to  transmit  at high speeds for longer  phone
lines  (extended  "reach"),  and other  features  including  lower overall power
consumption and better diagnostics. Zoom believes that it has completed the ADSL
2/2+ hardware  design for Ethernet,  Ethernet/USB,  4-port switch,  and wireless
models,  and that Zoom should be able to ship these  models  when the  chipsets,
firmware, and testing are complete for these models.

     In 2002, 2003 and 2004, our DSL modems and related  products  accounted for
approximately 3%, 14% and 38% of our net sales.

Bluetooth(R) Modems and Adapters

     In 2003 we began shipping a Bluetooth modem, a Bluetooth USB adapter, and a
Bluetooth PC Card adapter.  Bluetooth is a  wire-elimination  technology that is
increasingly popular for mobile phone and computer products. We plan to continue
expanding our Bluetooth product line.

ISDN Products

     We have a  family  of  modems  for  ISDN  communications.  Basic  ISDN is a
telephone  service  that uses  existing  phone  lines to provide  two 64,000 bps
channels  and one 16,000 bps  channel.  ISDN has higher data rates than  dial-up
modems, and this can be particularly attractive for data-intensive  applications
such as the  transmission of graphics and video images,  Internet  browsing,  or
video  telephony.  ISDN also provides much faster  response times to a source of
data than those  associated  with dial-up  modems.  However,  generally our ISDN
sales are declining  due to  competition  from DSL and cable modem  products and
services, which provide higher speeds than ISDN.

Cable Modems

     Each cable  service  provider  has its own approval  process,  in which the
cable service provider may require CableLabs(R) certification in addition to the
cable service  provider's own company  approval.  We have obtained  CableLabs(R)
certification  for  four  types of  DOCSIS-standard  cable  modems  - PCI,  USB,
Ethernet, and Ethernet/USB models. Some of these models have also received cable
service  provider  approvals;  for instance,  one  Ethernet/USB  model  includes
approvals by AT&T, Adelphia, Charter, Comcast, Cox Communications, and Mediacom.
The  approval  process has been and  continues  to be a  significant  barrier to
entry, as are the strong  relationships  with cable service providers enjoyed by
incumbent cable equipment providers like Motorola and Scientific Atlanta.

     In 2004 we continued to sell cable modems to cable  service  providers  and
original  equipment  manufacturers,  both  inside  and  outside  the US,  and to
computer  retailers in the US. So far sales through the retail channel have been
handicapped  by a number of factors,  including the approval  process  described
above, the fact that most cable service  providers offer cable modems with their
service,  and the fact  that  some  cable  service  providers  do not  provide a
financial  incentive  to a customer  who  purchases  his own modem  rather  than
leasing it from the cable service provider.

Voice Over Internet Protocol

     In 2004 we  introduced a line of products  that support VoIP or "Voice over
Internet  Protocol".  Our  first  two  VoIP  products,  the X5v and V3,  use the
standards-based  Session  Initiation  Protocol,  or SIP  protocol,  and are thus
compatible with a wide range of other SIP-compatible VoIP products and services.
SIP allows  devices to establish  and manage voice calls on the  internet.  Both
products  have a  Teleport(TM) phone port that lets an end-user plug in a normal
phone to place  and  receive  voice  calls  over the  Internet,  or to place and
receive calls over the familiar  switched  telephone  network.  Some versions of
these  two  products  are  bundled  with  Global   Village  phone   service,   a
Zoom-developed  SIP-based service that includes a free VoIP phone service and an
optional paid service for communicating  with phones that can be reached through
the switched  phone  network.  Other versions of the X5v and V3 do not come with
Global Village service,  since they are designed to be used by service providers
offering some other VoIP service. The X5v also includes a DSL modem, a router, a
firewall,  a 4-port  switching  hub,  and  other  features.  The V3 has the same
features as the X5v,  except instead of having a built-in DSL modem,  the V3 has
an Ethernet port for connecting to the Ethernet port of an external DSL modem or
cable  modem.  Zoom  devoted  significant  resources to the VoIP product area in
2004,  and we  continue  to  devote  considerable  resources  to VoIP  hardware,
firmware, and test, and to Zoom's Global Village phone service.

     Our Global Village  service has a wide array of features for routing calls,
recording voice mail, conference calling, and tracking customer usage and costs.
Global  Village phone  service  helps Zoom to address the specific  needs of its
end-user,  retailer,  and service provider customers.  For instance,  Zoom makes
Global Village available in a number of different languages and with a number of
payment options to address specific market needs.  Global Village can be offered
to end-users,  but it can also be offered to service  providers either under the
Global  Village brand or as a  private-label  VoIP service.  Our Global  Village
service has only been  recently  introduced  and has not  generated  significant
revenues.

     In 2005 Zoom expects to extend its VoIP product line by adding new hardware
products and by enhancing the functionality of Global Village. Zoom expects that
some of its products will be targeted toward businesses that want to add VoIP to
their existing phone system to save money on long distance calls.

Wireless Local Area Networking

     In early 2005 Zoom  expects to begin  shipping  DSL modems with  Wireless-G
local  area  network  capability.  Zoom  currently  plans  to also  offer  other
Wireless-G  products,  including  USB and PC Card clients and a wireless  access
point.

Dialers and Related Telephony Products

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

International Products

     Products for countries  outside the US often differ from a similar  product
for the US due to  different  regulatory  requirements,  country-specific  phone
jacks  and  AC  power,  and  language-related   specifics.   As  a  result,  the
introduction  of new  products  into  international  markets  can be costly  and
time-consuming.  In 1993,  we introduced  our first  dial-up modem  approved for
selected Western European countries.  Since then we have continued to expand our
product  offerings  internationally,  including DSL modems and VoIP products and
services.  We have received regulatory  approvals for, and are currently selling
our products in a number of countries,  including  many European Union and South
American countries,  Canada, Mexico, Poland, Saudi Arabia, Switzerland,  Turkey,
the USA,  and  Vietnam.  We intend to continue to expand and enhance our product
line for our existing markets and to seek approvals for the sale of our products
in new countries throughout the world.

SALES CHANNELS

General

     We  sell  our  products  primarily  through  high-volume  distributors  and
retailers,  Internet service  providers,  voice service  providers,  value-added
resellers, PC system integrators, and original equipment manufacturers ("OEMs").
We support our major accounts in their efforts to discern  strategic  directions
in the market, to maintain appropriate inventory levels, and to offer a balanced
selection of products.

     During 2004 our customers who  accounted for  approximately  10% or more of
our total net sales were Olusum  (Turkey),  Dixons  Group  (Dixons,  Currys,  PC
World, and PC City), and Staples.  Together these three customers  accounted for
35.1% of our total net sales.

International Distributors and Retailers

     In markets  outside  North America we sell our products  primarily  through
independent distributors and retailers.  Our international  distributors include
Computer 2000, Criterium, Informatics, Micro Peripherals, Olusum, Pouliadis, Tan
Thanh, and UMD. Our major European high-volume retailers include Business Logic,
Centromail,  Dixons Group (Dixons, Currys, PC World, and PC City), and Granville
Technology Group Ltd. Our  international  net sales as a percentage of total net
sales have grown from 8% in 1994 to 55% in 2004. Our revenues from international
sales were $14.9 million in 2002,  $15.1  million in 2003,  and $17.4 million in
2004.  See  note  17  to  our  accompanying  financial  statements  for  further
information  regarding our geographic sales.  Approximately 75%, 69%, and 36% of
our international net sales in 2002, 2003 and 2004, respectively, were customers
in the United  Kingdom.  In 2004,  sales to Turkey  accounted for 28% of our net
sales outside North  America.  We believe sales growth  outside of North America
will continue to require  substantial  additional  investments  of resources for
product  design  and  testing,   regulatory   approvals,   and   native-language
instruction manuals, software,  packaging, sales support, and technical support.
We have made this  investment in the past for many  countries,  and we expect to
make this investment for many countries and products in the future.

North American High-volume Retailers and Distributors

     In the  North  America,  we reach the PC retail  market  primarily  through
high-volume  retailers.  Our North American retail distribution network includes
CDW, Fry's, Micro Electronics, PC Connection, Staples, and many others. Although
we  offer a  number  of our  products  through  high-volume  retailers  in North
America,  most of our  sales in North  America  to  high-volume  retailers  have
historically been sales of our dial-up modems.

     We  sell   significant   quantities  of  dial-up  and  DSL  modems  through
distributors,  who often  sell to  corporate  accounts,  retailers,  value-added
resellers and other customers.  Our North American  distributors  include Border
State Electric Supply, D&H Distributing, Ingram Micro, and Tech Data.

Internet Service Providers and Voice Service Providers

     A rapidly  growing  portion of our  business has been sale of DSL modems to
DSL service providers.  We plan to continue to devote significant efforts toward
selling and supporting  these customers in the U.S. and in many other countries.
In addition,  we expect to offer some of our VoIP products and services to voice
service providers.

System Integrators and Original Equipment Manufacturers

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

SALES, MARKETING AND SUPPORT

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

     We believe that Zoom, Hayes, and Global Village are widely recognized brand
names.  We  build  upon  our  brand  equity  in a  variety  of  ways,  including
cooperative advertising, product packaging, trade shows, and public relations.

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

RESEARCH AND DEVELOPMENT

     Our  research  and  development  efforts  are  focused  on  developing  new
communications network access products and VoIP services,  further enhancing the
capabilities  of existing  products,  and  reducing  production  costs.  We have
developed close  collaborative  relationships  with certain of our OEM customers
and  component  suppliers.  We work with  these  partners  and other  sources to
identify and respond to emerging  technologies  and market  trends by developing
products  that address these trends.  In addition,  we purchase  modem and other
chipsets that incorporate  sophisticated  technology from third parties, thereby
eliminating the need for us to develop this technology in-house.  As of December
31, 2004 we had 24 employees engaged primarily in research and development.  Our
research and development team performs  electronics  hardware design and layout,
mechanical design, prototype construction and testing,  component specification,
firmware and software  development,  VoIP service development,  product testing,
foreign  and  domestic  regulatory  approval  efforts,   end-user  and  internal
documentation, and third-party software selection and testing.

     During 2002, 2003 and 2004 we expended $3.5 million,  $2.8 million and $2.9
million, respectively, on research and development activities.

MANUFACTURING AND SUPPLIERS

     Our products are currently  designed for high-volume  automated assembly to
help  assure  reduced  costs,   rapid  market  entry,   short  lead  times,  and
reliability.  High-volume  assembly typically occurs in China, Taiwan, or Korea.
For some  products  we supply  large kits of parts to one of  several  automated
contract  manufacturers.  For other products,  our contract manufacturers obtain
some or all of the material  required to assemble the products based upon a Zoom
Technologies  Approved Vendor List and Parts List. Our  manufacturers  typically
insert  parts onto the  printed  circuit  board,  with most parts  automatically
inserted by machine, solder the circuit board, and in-circuit test the completed
assemblies.  Functional  test  and  packaging  are  sometimes  performed  by the
contract manufacturer.  For the United States and many other markets, functional
test and packaging are more commonly  performed at our manufacturing  facilities
in Boston,  Massachusetts  allowing us to tailor the  packaging and its contents
for our customers  immediately before shipping.  We also perform circuit design,
circuit board layout,  and strategic  component sourcing at our Boston facility.
Wherever the product is built,  our quality systems are used to help assure that
the product meets our specifications.

     We usually use one primary  contract  manufacturer  for a given design.  We
sometimes  maintain  back-up  production  tooling at a second  assembler for our
highest-volume  products.  Our contract  manufacturers  are normally adequate to
meet  reasonable and properly  planned  production  needs;  but a fire,  natural
calamity,   strike,   financial  problem,  or  other  significant  event  at  an
assembler's   facility  could  adversely  affect  our  shipments  and  revenues.
Currently a substantial percentage of our manufacturing is performed by SameTime
Electronics  ("SameTime")  and Vtech.  The loss of these  services or a material
adverse change in their  business or in our  relationship  could  materially and
adversely harm our business.  To lessen the risk associated with these companies
being the primary manufacturers of a substantial portion of our products and for
a number of other reasons  including  cost and  availability,  we are also using
contract manufacturers to manufacture various products.

     Our products  include a large number of parts,  most of which are available
from  multiple  sources with varying lead times.  However,  most of our products
include a sole-sourced chipset as the most critical component of the product. We
currently buy dial-up modem chipsets  exclusively  from two high-volume  dial-up
modem chipset  manufacturers,  Conexant Systems,  Inc. and Agere Systems Inc. We
also buy the majority of our DSL and cable modem chipsets from Conexant. We also
purchase DSL chipsets from Analog  Devices and LSI Logic.  We believe  Conexant,
Agere, and Analog Devices have significant  resources for  semiconductor  design
and production,  analog and digital signal processing,  communications  firmware
development, and application sales and support. Integrated circuit product areas
covered by these companies  together include dial-up modems,  DSL modems,  cable
modems, wireless networking, home phone line networking,  routers, and gateways.
Some  of  our  chipset  suppliers  have  provided  us  certain  concessions  and
incentives,  such as reduced prices or free chipsets,  if we purchased or agreed
to purchase a certain dollar amount of products from these suppliers.

     We have experienced delays in receiving  shipments of modem chipsets in the
past,  and we may  experience  such  delays in the future.  Moreover,  we cannot
assure  that a chipset  supplier  will,  in the future,  sell  chipsets to us in
quantities  sufficient  to meet our needs or that we will purchase the specified
dollar amount of products necessary to receive concessions and incentives from a
chipset  supplier.  An interruption in a chipset  supplier's  ability to deliver
chipsets,  a failure of our  suppliers to produce  chipset  enhancements  or new
chipsets on a timely basis and at competitive prices, a material increase in the
price of the  chipsets,  our failure to purchase a  specified  dollar  amount of
products or any other adverse change in our  relationship  with modem  component
suppliers could have a material adverse effect on our results of operations.

     We are also subject to price  fluctuations in our cost of goods.  Our costs
may increase if component shortages develop or lead-times stretch out.

COMPETITION

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

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

     Some of our primary competitors by product group include the following:

o    Dial-up modem competitors:  Best Data, Creative Labs, Lite-On, Sitecom, and
     US Robotics.
o    Cable modem  competitors:  Arris Systems,  D-Link,  Hon Hai Network Systems
     (formerly  Ambit  Microsystems),  Linksys,  Motorola,  Netgear,  Scientific
     Atlanta, SMC Networks, Terayon, and Thomson.
o    DSL modem competitors:  3Com, Actiontec,  D-Link, Linksys,  Netgear, Sagem,
     Siemens (formerly Efficient  Networks),  Thomson, US Robotics,  Westell and
     ZyXEL Communications.

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

     The principal competitive factors in our industry include the following:

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

     We believe we are able to provide a  competitive  mix of the above  factors
for  dial-up  modems,  particularly  when  they are sold  through  retailers  or
computer  product  distributors.  We are less successful in selling  directly to
providers of broadband access services and to PC Manufacturers.

     DSL and cable modems  transmit  data at  significantly  faster  speeds than
dial-up modems,  which still account for a significant  portion of our revenues.
DSL and cable,  however,  typically  require a more  expensive  Internet  access
service. In addition,  the use of DSL and cable modems is currently impeded by a
number of technical and infrastructure limitations. We began shipping both cable
and DSL modems in the year 2000.  We have had some success in selling to smaller
phone  companies  and to  Internet  service  providers,  but we  have  not  sold
significant  quantities to large phone companies or to cable service  providers.
Only about one out of eighteen new US cable modem  placements  in 2004 were sold
at retail,  and an even lower  percentage  were sold  through  retailers in most
other  countries.  DSL had even less success at retail in the US. Some  European
countries, however, sell significant volumes of DSL modems through retailers. In
the U.K., for instance,  this has resulted in Zoom placing five DSL modem models
into retailer Dixons Group.  Similarly Zoom,  through its distributor  Olusum in
Turkey,  has been successful in placing most of its DSL modem models into Turkey
for sale by a large number of retailers.

     Successfully  penetrating  the broadband  modem market presents a number of
challenges, including:

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

     Our initial sales of broadband products have been adversely affected by all
of these factors.  Nevertheless,  we experienced significant growth in DSL modem
sales in 2004, primarily in Turkey and other European countries.

     The use of the  Internet  to provide  voice  communications  services  is a
relatively recent market development. We have only recently introduced our Voice
over IP  Global  Village  products  and  services  and are  still  learning  the
marketplace.  A  substantial  number of  companies  have emerged to provide VoIP
services,   and  many  of  these   companies  have  more  extensive   financial,
engineering,  product  development,  and  marketing  resources  than we do.  The
principal  competitive factors in the market include:  price, brand recognition,
quality of  service,  features,  distribution,  customer  service,  reliability,
network  capacity  and the  availability  of enhanced  communications  services.
Competitors  for  our  VoIP  service  include  AT&T,  iConnectHere,   Net2Phone,
Voicepulse,  Vonage and 8x8, as well as incumbent telephone carriers,  and other
providers of traditional telephone service. Many of our competitors have greater
name recognition and resources than we have and may be better positioned to more
aggressively  develop,  promote and sell their  products,  including by offering
more attractive pricing policies and bundled service arrangements.  In addition,
if  telecommunications  rates  continue to  decrease,  any  competitive  pricing
advantage of our services may be diminished or eliminated. We cannot assure that
will be able to compete effectively.
<PAGE>
INTELLECTUAL PROPERTY RIGHTS

     We rely primarily on a combination of copyrights, trademarks, trade secrets
and patents to protect our proprietary rights. We have trademarks and copyrights
for  our  firmware  (software  on  a  chip),   printed  circuit  board  artwork,
instructions,  packaging,  and  literature.  We also have four  patents  and one
pending  patent  application  in the United  States.  The patents that have been
issued  expire  between  2011  and  2015.  We  cannot  assure  that  any  patent
application will be granted or that any patent obtained will provide  protection
or be of commercial  benefit to us, or that the validity of a patent will not be
challenged.  Moreover,  we  cannot  assure  that  our  means of  protecting  our
proprietary   rights  will  be  adequate  or  that  our  competitors   will  not
independently develop comparable or superior technologies.

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

GOVERNMENT REGULATION

Regulatory Approvals, Certifications and Other Industry Standards

     Our modems and related products sold in the U.S are required to meet United
States  government  regulations,  including  regulations  of the  United  States
Federal Communications Commission,  known as the FCC, which regulates equipment,
such as modems,  that  connects to the public  telephone  network.  The FCC also
regulates the  electromagnetic  radiation and  susceptibility  of communications
equipment.  In addition, in order for our broadband products to be qualified for
use with a  particular  broadband  Internet  service,  we are often  required to
obtain approvals and certifications from the actual cable, telephone or Internet
service  provider and from  CableLabs(R)  for cable modems.  In addition to U.S.
regulations,  many of our  products  sold abroad  require us to obtain  specific
regulatory  approvals  from  foreign  regulatory  agencies  for matters  such as
electrical safety,  country-specific  telecommunications equipment requirements,
and  electromagnetic  radiation  and  susceptibility  requirements.   We  submit
products to accredited  testing  laboratories  and, when  required,  to specific
foreign regulatory agencies,  to receive approvals for our products based on the
test standards  appropriate to the target markets for a given product. We expect
to continue to seek and receive  approvals for new products to allow us to reach
a large number of countries  throughout  the world,  including  countries in the
Americas, Europe, Asia, and Africa. The regulatory process can be time-consuming
and can require the expenditure of substantial resources.  We cannot assure that
the FCC or foreign  regulatory  agencies will grant the requisite  approvals for
any of our products on a timely basis, if at all.

     United States and foreign regulations regarding the manufacture and sale of
telecommunications  devices  are  subject to change.  Recent  changes  have been
announced  by the  European  Union and the U.S.  to reduce the use of  hazardous
materials,  such as lead, in electronic  equipment.  The implementation of these
new  requirements,  currently  scheduled for 2006,  would require Zoom and other
electronics  companies to change or discontinue  many products.  We believe that
our transition  process to comply with these new  requirements may be difficult,
and  may  negatively  impact  our  product  costs.  In  addition,  we may  incur
additional  costs  involved with the disposal of inventory or returned  products
that do not meet the new  requirements.  We cannot predict what impact,  if any,
any other regulatory changes may have upon our business.

     In addition to  reliability,  quality  and  content  standards,  the market
acceptance  of our  products  and  services is  dependent  upon the  adoption of
industry  standards so that  products from  multiple  manufacturers  are able to
communicate  with each other.  Our products and services,  particularly our VoIP
products and services,  rely heavily on a variety of communication,  network and
voice compression standards to interoperate with other vendors' equipment. There
is currently a lack of agreement  among  industry  leaders about which  standard
should be used for a particular  VoIP  application,  and about the definition of
the standards  themselves.  Moreover,  these standards  continue to evolve.  The
failure of our products and services to comply,  or delays in  compliance,  with
various  existing  and  evolving  standards  could  delay  or  interrupt  volume
production of our VoIP  telephony or other new products and services,  expose us
<PAGE>
to fines or other imposed  penalties,  or adversely  affect the  perception  and
adoption  rates  of our  products  and  service,  any of  which  could  harm our
business.

Internet Telephony Services

     The use of the Internet and private IP networks to provide VoIP services is
a relatively recent  development.  Although providing such services is currently
permitted and largely  unregulated within the U.S., several foreign  governments
have adopted laws and regulations  that could restrict or prohibit the providing
of VoIP services.  More aggressive  domestic or international  regulation of the
Internet in general, and Internet telephony providers and services specifically,
may  adversely  affect our ability to introduce and market our VoIP services and
products successfully.

     Our  ability  to  provide  VoIP  communications  services  on the  terms we
currently  provide  arise in large  part  from the fact  VoIP  services  are not
currently subject to the same regulation as traditional telephony. Because these
services  are  not  currently  regulated  to  the  same  extent  as  traditional
telephony,  VoIP providers can currently  avoid paying charges that  traditional
telephone  companies must pay. Local exchange  carriers are lobbying the FCC and
the states to regulate VoIP on the same basis as traditional telephone services.
The FCC and several  states are  examining  this issue.  If the FCC or any state
determines to regulate  VoIP,  they may impose  surcharges,  taxes or additional
regulations upon providers of Internet telephony. These surcharges could include
access  charges  payable  to local  exchange  carriers  to carry  and  terminate
traffic,  contributions  to the Universal  Service Fund (USF) or other  charges.
Regulations  requiring  compliance  with the  Communications  Assistance for Law
Enforcement  Act  (CALEA),  or  provision  of the same type of 911  services  as
required  for  traditional  telecommunications  providers  could  also  place  a
significant  financial burden on us depending on the technical  changes required
to accommodate the  requirements.  The imposition of any such  additional  fees,
charges,  taxes and regulations on IP  communications  services could materially
increase our costs, require us to modify our service, delay our products and may
limit or eliminate our competitive pricing.

     In many countries  outside the U.S. in which we operate or our services are
sold, the status of the laws that may relate to our VoIP services is unclear. We
cannot  be  certain  that we will be able to  comply  with  existing  or  future
requirements,  or that we will be able to continue to be in compliance  with any
such  requirements.   Our  failure  to  comply  with  these  requirements  could
materially adversely affect our ability to continue to offer our VoIP service in
these jurisdictions.

Regulation of the Internet

     In addition to regulations  addressing our modems and related  products and
our  Internet  telephony  services,  other  regulatory  issues  relating  to the
Internet in general could affect our ability to provide our  services.  Congress
has  adopted  legislation  that  regulates  certain  aspects  of  the  Internet,
including  online  content,  user privacy,  taxation,  liability for third-party
activities and  jurisdiction.  In addition,  a number of initiatives  pending in
Congress and state legislatures  would prohibit or restrict  advertising or sale
of certain  products and services on the Internet,  which may have the effect of
raising the cost of doing business on the Internet generally.

     Federal,   state,   local  and  foreign   governmental   organizations  are
considering other  legislative and regulatory  proposals that would regulate the
Internet.  We cannot predict  whether new taxes will be imposed on our services,
and depending on the type of taxes  imposed,  whether and how our services would
be affected  thereafter.  Increased  regulation of the Internet may decrease its
growth and hinder  technological  development,  which may negatively  impact the
cost of doing business via the Internet or otherwise harm our business.

BACKLOG

     Our backlog as of March 2, 2005 was $1.6 million,  and on March 3, 2004 was
$1.8 million.  Many orders included in backlog may be canceled or rescheduled by
customers without significant penalty.  Backlog as of any particular date should
not be relied upon as indicative of our net sales for any future period.

EMPLOYEES

     As of  December  31,  2004  we had 154  full-time  employees  (including  5
employees hired on a temporary  basis) versus 159 in 2003. Of the 2004 total, 24
were  engaged in research  and  development,  72 were  involved  in  purchasing,
assembly,  packaging,  shipping and quality  control,  36 were engaged in sales,
marketing and  technical  support,  and the  remaining 22 performed  accounting,
administrative, management information systems, and executive functions. None of
our employees is represented by a labor union.
<PAGE>
OUR EXECUTIVE OFFICERS

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

Name                     Age    Position with Zoom
--------------------------------------------------------------------------------
Frank B. Manning         56     Chief Executive Officer, President and
                                 Chairman of the Board
Peter R. Kramer          53     Executive Vice President and Director
Robert A. Crist          61     Vice President of Finance and Chief
                                 Financial Officer
Terry J. Manning         53     Vice President of Sales and Marketing
Dean N. Panagopoulos     47     Vice President of Network Products
Deena Randall            51     Vice President of Operations

     FRANK B. MANNING is a co-founder of our company.  Mr.  Manning has been our
president, chief executive officer, and a director since May 1977. He has served
as our chairman of the board since 1986. He earned his BS, MS and PhD degrees in
Electrical Engineering from the Massachusetts Institute of Technology,  where he
was a National Science Foundation Fellow.  Since 1998 Mr. Frank Manning has also
been a director  of the  Massachusetts  Technology  Development  Corporation,  a
public  purpose  venture  capital  firm  that  invests  in seed and  early-stage
technology  companies  in  Massachusetts.  Mr.  Manning is the  brother of Terry
Manning, our vice president of sales and marketing.

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

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

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

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

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

ITEM 2 - PROPERTIES

     Our corporate headquarters are located at 201 and 207 South Street, Boston,
Massachusetts.  Approximately  11,000  square  feet of this  62,000  square foot
facility is leased to third parties. We purchased these buildings in April 1993.
In January 2001, we received $6.0 million in financing by securing a mortgage on
this property. Our mortgage is a five-year balloon mortgage that is amortized on
a 20-year basis and is due in January 2006.

     In August 1996 we entered into a five-year  lease for a 77,428  square foot
manufacturing  and  warehousing  facility at 645 Summer Street,  Boston,  MA. On
February  28,  2001,  we  exercised  our  option  to  extend  this  lease for an
additional  five  years.  We  believe  that  this  space  provides  us with more
manufacturing space than we require for our current operations. The term of this
lease is due to expire in August  2006.  In the event this lease is not  further
extended,  we believe we will be able to find alternative space that is suitable
and adequate for our manufacturing and warehousing operations.

     In March 1999 we assumed an office lease from Hayes Microcomputer Products,
Inc. at 430 Frimley Business Park, Camberley,  Surrey, U.K. We have been offered
<PAGE>
an extension of this lease term for 5 years  commencing March 2005. We expect to
extend  this lease,  which has an option for either  party to  terminate  with 6
months notice in March 2007 or later.

     In  September  2002 we entered  into a five-year  lease,  as a tenant,  for
approximately  3,500  square  feet at 950 Broken  Sound  Parkway NW, Boca Raton,
Florida. We primarily use this facility as a technical support facility.

ITEM 3 - LEGAL PROCEEDINGS

     No material litigation.

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

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

PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY,  RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES

     Our common  stock  trades on the Nasdaq  Small Cap 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 Small Cap
Market.
<TABLE>
<S>                                                      <C>        <C>
Fiscal Year Ended December 31, 2003                        High        Low
                                                           ----        ---
      First Quarter......................                $ 0.870    $ 0.650
      Second Quarter.....................                  1.310      0.640
      Third Quarter......................                  3.750      1.040
      Fourth Quarter.....................                  4.450      1.790

Fiscal Year Ended December 31, 2004                        High        Low
                                                           ----        ---
      First Quarter......................                $ 6.400    $ 3.620
      Second Quarter.....................                  5.680      3.510
      Third Quarter......................                  5.010      2.020
      Fourth Quarter.....................                  4.450      3.190
</TABLE>
     As of March 17,  2005,  there were  8,995,441  shares of our  common  stock
outstanding and approximately 245 holders of record of our common stock.

RECENT SALES OF UNREGISTERED SECURITIES

     We did not sell any  unregistered  securities  during the fourth quarter of
2004.

DIVIDEND POLICY

     We have never  declared or paid cash  dividends on our capital stock and do
not plan to pay any cash dividends in the foreseeable future. Our current policy
is to retain  all of our  earnings  to finance  future  growth.  The  payment of
dividends is also restricted by the covenants in our Silicon Valley Bank line of
credit agreement.

REPURCHASES BY THE COMPANY

     During the fourth  quarter of 2004, we did not repurchase any shares of our
common stock on our own behalf or for any affiliated purchaser.

ITEM 6 - SELECTED  FINANCIAL  DATA

     The following table contains our selected  consolidated  financial data and
is  qualified  in its  entirety  by the  more  detailed  consolidated  financial
statements and notes thereto included elsewhere in this report. Our statement of
operations  data for the years ended  December 31,  2002,  2003 and 2004 and our
balance  sheet data as of December  31, 2003 and 2004 have been derived from our
consolidated  financial  statements,  which have been  audited  by KPMG LLP,  an
independent  registered  public  accounting firm, and are included  elsewhere in
this report.  Our statement of operations  data for the years ended December 31,
2000 and 2001 and our balance sheet data as of December 31, 2000, 2001, and 2002
have been derived from our consolidated  financial  statements,  which have been
audited by KPMG LLP and are not  included  in this  report.  This data should be
read in conjunction with the consolidated financial statements and related notes
thereto and  "Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations" appearing elsewhere herein.
<PAGE>
<TABLE>
<S>                                       <C>         <C>         <C>         <C>         <C>
                                                           Years Ended December 31,
                                             2000        2001        2002        2003        2004
                                             ----        ----        ----        ----        ----
                                                     (In thousands) except per share amounts
Statement of Operations Data:
Net sales.............................    $ 57,708    $ 41,570    $ 37,274    $ 33,335    $ 31,412
Cost of goods sold....................      39,404      35,193      27,937      23,120      23,346
                                            ------      ------      ------      ------      ------
   Gross profit.......................      18,304       6,377       9,337      10,215       8,066
                                            ------      ------      ------      ------      ------
Operating expenses:
   Selling............................      10,672       7,480       5,848       5,271       4,800
   General and administrative.........       6,228       7,938       3,405       3,118       3,620
   Research and development...........       6,249       5,328       3,527       2,767       2,927
                                            ------      ------      ------      ------      ------
   Total operating expenses...........      23,149      20,746      12,780      11,156      11,347
                                            ------      ------      ------      ------      ------
   Operating income (loss)............      (4,845)    (14,370)     (3,443)       (941)     (3,281)
Other income (expense), net...........         469        (159)         67         273         209
                                            ------      ------      ------      ------       -----
   Income (loss) before income taxes..      (4,376)    (14,529)     (3,376)       (668)     (3,072)
Income tax expense (benefit)..........      (1,299)      3,800       2,015           -           -
                                            ------      ------      ------      ------       -----
Income (loss) before extraordinary
   item...............................      (3,077)    (18,239)     (5,391)       (668)     (3,072)
Extraordinary gain on elimination
of negative goodwill..................           -           -         255           -           -
                                            ------      ------      ------      -------     ------
   Net income (loss)..................      (3,077)    (18,329)     (5,136)       (668)     (3,072)
                                            ======      ======      ======      ======      ======
Earnings (loss) per common and common equivalent share:
Income (loss) before extraordinary item:

   Basic and diluted..................   $    (.40)  $   (2.33)  $    (.68)  $    (.08)  $    (.36)
Extraordinary gain on elimination of
   negative goodwill..................   $       -   $       -   $     .03   $       -   $       -
                                         =========   =========   =========   =========   =========
Net income (loss):
   Basic and diluted..................   $    (.40)  $   (2.33)  $    (.65)  $    (.08)  $    (.36)
                                         =========   =========   =========   =========   =========
Weighted average common and common equivalent shares:
   Basic and diluted..................       7,757       7,861       7,861       7,883       8,590

                                                           Years Ended December 31,
                                              2000        2001         2002        2003       2004
                                              ----        ----         ----        ----       ----
                                                                  (In thousands)
Balance Sheet Data:
Working capital.......................   $  23,562   $  18,218   $   15,341   $  15,647  $  14,837
Total assets..........................      46,960      29,185       22,633      21,974     21,052
Long-term obligations.................         369       6,001        5,342       5,096      4,872
Total stockholders' equity............      36,747      18,416       13,485      13,470     12,668
</TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

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

OVERVIEW

     We derive our net sales primarily from sales of Internet  related  hardware
products,  principally  modems,  to retailers,  distributors,  Internet  Service
Providers and Original Equipment  Manufacturers.  We sell our products through a
small  direct  sales force and third  party  sales  agents.  Our  employees  are
primarily  located at our  headquarters in Boston,  Massachusetts, and we have a
sales office in the United Kingdom. We obtain our hardware components from third
party  suppliers and we outsource most of the product  assembly work to contract
manufacturers,  currently  in  Asia.  We  perform  most  of  the  packaging  and
distribution  effort  at  our  production  and  warehouse  facility  in  Boston,
Massachusetts. We also utilize a third party distribution facility in the United
Kingdom.

     Historically  we  derived  a  majority  of our net  sales  from the  retail
after-market  sale of dial-up  modems to  customers  seeking to add or upgrade a
modem in their  personal  computers.  In recent  years the size of this  market,
along  with  our  sales  to this  market  has  declined,  as  personal  computer
manufacturers have incorporated a modem as a built-in component in most consumer
personal  computers  and as  increasing  numbers of  consumers  world-wide  have
switched to broadband  Internet access.  The general consensus of communications
industry analysts is that after-market  sales of dial-up modems will continue to
decline.  There is also consensus  among  industry  analysts that the market for
broadband Internet connection devices, such as cable modems and DSL modems, will
grow rapidly during the decade.  In response to increased and forecasted  demand
for faster connection speeds and increased modem functionality, we have invested
and  continue  to invest  resources  to advance our  product  line of  broadband
modems,  especially DSL modems, and we have experienced increased sales of these
modems that has partially offset our declining sales of dial-up modems. The last
quarter of 2004 was the first quarter in which our broadband modem revenues were
higher than our dial-up modem revenues.

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

     In recent years we have  realized the benefit of reduced unit costs for our
dial-up  modems.  A portion  of the cost  reduction  realized  in our  financial
statements  has been derived from  purchase  discount  programs with our chipset
suppliers. From the first quarter of 2002 through the fourth quarter of 2004, we
realized  significant  benefits as a result of our volume  purchases under these
programs.  These initial  programs and their financial  benefits  expired during
2004, and in late 2004, we negotiated new reduced pricing for modem chipsets, if
we achieve certain targets.

     During 2003 and 2004 the  downward  pressure on retail  pricing for dial-up
modems  moderated,  likely  because fewer  suppliers  were active in the market.
However,  the  competition  for broadband  modem sales  continues to be intense,
characterized by continuing price  pressures.  As a result,  in the past several
years,  we generally are able to realize  higher  margins on our dial-up  modems
than with our broadband modems.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

     REVENUE (NET SALES) RECOGNITION. We primarily sell hardware products to our
customers.  The hardware  products  include  dial-up modems,  DSL modems,  cable
modems, embedded modems, ISDN modems,  telephone dialers, and wireless and wired
networking equipment.  We earn a small amount of royalty that is included in our
net sales,  primarily from internet service providers.  We generally do not sell
software.  We began selling  services in 2004. We introduced  our Global Village
VoIP  service  in late  2004,  but  sales of  those  services  in 2004  were not
material.

     We derive our net sales  primarily  from the sales of hardware  products to
three types of customers:

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

     We  recognize  hardware  net sales for all three types of  customers at the
point when the customers take legal ownership of the delivered  products.  Legal
ownership  passes from Zoom to the customer based on the  contractual  FOB point
specified  in  signed  contracts  and  purchase  orders,  which  are  both  used
extensively.  Many of our  customer  contracts  or purchase  orders  specify FOB
destination.  We verify the delivery  date on all  significant  FOB  destination
shipments made during the last 10 business days of each quarter.
<PAGE>

     Our net  sales  of  hardware  are  reduced  by  certain  events  which  are
characteristic  of the sales of hardware to retailers  of computer  peripherals.
These events are product returns, certain sales and marketing incentives,  price
protection refunds, and consumer and in-store mail-in rebates.  Each of these is
accounted  for  as a  reduction  of  net  sales  based  on  detailed  management
estimates,  which are reconciled to actual customer or end-consumer credits on a
monthly or quarterly basis.

     Our 2004 VoIP  service  revenues  were  recorded  as the  end-user-customer
consumed  billable  VoIP  services.  No  sales  of VoIP  services  were  made to
resellers in 2004. The  end-user-customer  became a service customer by electing
to sign  up for the  Global  Village  billable  service  on the  Internet.  Zoom
recorded  revenue  either as  billable  services  were  consumed or as a monthly
flat-fee service was billed.

     Product  Returns.  Products are returned by retail stores and  distributors
for inventory  balancing,  contractual stock rotation  privileges,  and warranty
repair or replacements.  We estimate the sales and cost value of expected future
product returns of previously  sold products.  Our estimates for product returns
are based on recent  historical  trends plus estimates for returns  prompted by,
among other things,  new product  introductions,  announced  stock rotations and
announced customer store closings,  etc.  Management reviews historical returns,
current  economic  trends,  and changes in customer demand and acceptance of our
products  when  estimating  sales  return  allowances.  The  estimate for future
returns is recorded as a reserve against accounts receivable, a reduction of net
sales,  and the  corresponding  change  to  inventory  and  cost of  sales.  The
relationship of quarterly  physical  product returns to quarterly  product sales
remained relatively stable for many years, but has been declining from a high of
10.6% to a low of 5.4% in the past two  years as retail  sales as a  percent  of
total sales have declined.

     Price Protection  Refunds. We have a policy of offering price protection to
certain  of our  retailer  and  distributor  customers  for  some  or all  their
inventory.  Under the price protection policies, when we reduce our prices for a
product,  the customer receives a credit for the difference between the original
purchase price and our reduced price for their unsold inventory of that product.
Our estimates for price protection refunds are based on a detailed understanding
and  tracking by  customer  and by sales  program.  Estimated  price  protection
refunds are recorded in the same period as the announcement of a pricing change.
Information   from   customer   inventory-on-hand   reports   or   from   direct
communications  with the  customers  is used to estimate  the  refund,  which is
recorded as a reduction of net sales and a reserve against accounts  receivable.
Reductions  in our net sales due to price  protection  were $.7 million in 2002,
$.2 million in 2003, and $.1 million in 2004.

     Sales and  Marketing  Incentives.  Many of our retailer  customers  require
sales and marketing support funding, usually set as a percentage of our sales in
their stores.  The  incentives  were reported as reductions in our net sales and
were $1.7 million in 2002,  $1.5 million in 2003,  and $1.3 million in 2004. The
decline in 2004 was primarily due to lower retailer sales.

     Consumer Mail-In and In-Store Rebates and Store Rebates.  Our estimates for
consumer mail-in rebates are based on a detailed  understanding  and tracking by
customer and sales program,  supported by actual rebate claims  processed by the
rebate redemption  centers plus an accrual for an estimated lag in processing at
the redemption centers.  Our estimates for store rebates are comprised of actual
credit requests from the eligible customers.  The estimate for mail-in and store
rebates is recorded as a reserve against accounts  receivable and a reduction of
net  sales  in the  same  period  that  the  rebate  obligation  was  triggered.
Reductions  in our net sales due to the  consumer  rebates  were $1.6 million in
2002,  $2.1 million in 2003,  and $1.4 million in 2004.  The decline in 2004 was
primarily due to lower retailer sales.

     To ensure that the sales, discounts,  and marketing incentives are recorded
in the proper period, we perform extensive tracking and documenting by customer,
by period, and by type of marketing event. This tracking includes reconciliation
to the accounts  receivable  records for  deductions  taken by our customers for
these discounts and incentives.
<PAGE>
     ACCOUNTS  RECEIVABLE  VALUATION.  We establish accounts receivable reserves
equal to the  above-discussed  net sales  adjustments  for  estimates of product
returns,  price  protection  refunds,  and  consumer  and store  rebates.  These
reserves are drawn down as actual credits are issued to the customer's accounts.

     Our bad-debt  write-offs  have not been  significant  during 2002, 2003 and
2004.

     INVENTORY  VALUATION  AND COST OF GOODS  SOLD.  Inventory  is  valued  on a
standard cost basis where the material  standards are  periodically  updated for
current  material  pricing.  Reserves for obsolete  inventory are established by
management  based on usability  reviews  performed  each  quarter.  Our reserves
against the inventory of a particular  product  range from 0% to 100%,  based on
management's  estimate of the probability that the material will not be consumed
or that it will be sold below cost. Our valuation process is to compare our cost
to the selling  prices each  quarter,  and if the selling  price of a product is
less than the "if completed" cost of our inventory,  we write-down the inventory
on a "lower of cost or market" basis. In 2002, 2003 and 2004 we recorded charges
against inventory of $.7 million, $.3 million and $0 million, respectively, as a
result of lower of cost or market valuation issues.

     During the last three years we  benefited  from  various  component  supply
arrangements that provided us with free products based on the amount of goods we
purchased from the supplier. The favorable impact to our statement of operations
was recognized as the products  employing the acquired  components  were sold. A
new supply  arrangement  for 2005, with free products to be earned on purchases,
will receive similar accounting treatment.

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

     Significant  management  judgment is required in determining  our provision
for income taxes and any valuation  allowance  recorded against our net deferred
tax assets. We have recorded a 100% valuation allowance against our deferred tax
assets.  It is management's  estimate that, after  considering all the available
objective  evidence,  historical and  prospective,  with greater weight given to
historical  evidence,  it is more likely than not that these  assets will not be
realized. If we establish a record of continuing profitability, at some point we
will be required to reverse the  valuation  allowance  and restore the  deferred
asset value to the balance  sheet,  recording an equal income tax benefit  which
will increase net income in that period(s).

     On  December  31,  2004,   the  Company  had  federal  net  operating  loss
carryforwards of approximately  $28,638,000.  These federal net operating losses
are available to offset future taxable income,  and are due to expire  beginning
2019.  The  Company  had  Massachusetts  net  operating  loss  carryforwards  of
approximately  $26,824,000.  These state net  operating  losses are available to
offset future taxable  income,  and are primarily due to expire in years ranging
from 2005 to 2009.

     VALUATION OF INVESTMENT  IN  AFFILIATES.  We have a minority  interest in a
privately  held software  company,  which we have been  accounting for under the
equity  method  of  accounting.  Under the  equity  method  of  accounting,  our
investment  is  increased  or  decreased,   not  below  zero,   based  upon  our
proportionate  share of the net earnings or losses of the investee  company.  We
made our original  investment in 1999,  at the time of the company's  formation,
and have  subsequently  made additional  investments  which have resulted in our
ownership  interest of 23% to 28%,  depending on the treatment of employee stock
options.  As a result of the losses  incurred by the investee  subsequent to our
investments,  our  investment  balance  was  reduced  to zero  during  2002.  We
discontinued  applying the equity method when the investment was reduced to zero
and did not provide for additional losses, as we have not guaranteed obligations
of the investee and are not committed to provide further financial support.  The
investee  has  recently   reported  to  us  that  it  is  beginning  to  achieve
profitability  and that its prospects have been  improving in recent months.  We
have requested that management of the investee provide us with audited financial
statements in the near term to allow us to verify this financial information. If
the investee  reports net income in future periods,  we will resume applying the
equity  method  only after our share of that net income exceeds the share of net
losses not recognized during the period the equity method was suspended.
<PAGE>

RESULTS OF OPERATIONS

     The  following  table sets forth  certain  financial  data for the  periods
indicated as a percentage of net sales:
                                             Years Ended December 31,
                                                2002    2003    2004
                                                ----    ----    ----
Net sales...............................       100.0%  100.0%  100.0%
Cost of goods sold......................        75.0    69.4    74.3
                                                ----    ----    ----
  Gross profit..........................        25.0    30.6    25.7
Operating expenses:
  Selling...............................        15.7    15.8    15.3
  General and administration............         9.1     9.3    11.5
  Research and development..............         9.5     8.3     9.3
                                                ----    ----    ----
  Total operating expenses..............        34.3    33.5    36.1
                                                ----    ----    ----
Operating income (loss).................        (9.3)   (2.8)  (10.4)
   Other income (expense), net..........          .2      .8      .6
                                                 ---    ----    ----
Loss before income taxes..  ............        (9.1)   (2.0)   (9.8)
   Income tax expense (benefit).........         5.4       -       -
Extraordinary Gain......................          .7       -       -
                                                -----   -----  ------
Net income (loss) ......................       (13.8)%  (2.0)%  (9.8)%
                                                =====   =====  ======

YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003

     The following is a discussion of the major  categories of our  consolidated
statement of  operations,  comparing  the  financial  results for the year ended
December 31, 2004 with the year ended  December 31, 2003.  The major  categories
discussed  are:  Net  Sales,  Cost of Goods  Sold and  Gross  Profit,  Operating
Expenses,  Other Income (Expense),  Income Tax Expense (Benefit), and Net Income
(Loss).

     NET SALES. Our total net sales declined year-over-year by 5.8%. In 2004, we
primarily  generated  our sales by  selling  dial-up  modems to the  electronics
after-market  via  distributors  and  retailers.  As noted in the overview,  the
dial-up  modem  market  continues  to decline  and Zoom sales of dial-up  modems
declined due to declines of both unit sales volume and average  selling  prices.
Our growing sales category,  broadband modems, did not grow sufficiently in 2004
to  offset  the  decline  in our  dial-up  modem  sales,  as our total net sales
decreased 5.8% to $31.4 million in 2004 from $33.3 million in 2003.

     As shown in the table below, our net sales for dial-up modems declined $7.7
million,  or 32.0%,  from $24.2 million in 2003 to $16.5  million in 2004.  This
decline was  primarily  attributable  to both lower unit sales and lower prices,
reflecting the declining retail market for these modems. Our broadband net sales
increased $6.1 million,  or 91.7%, from $6.6 million in 2003 to $12.7 million in
2004.  This increase was primarily  attributable  to increased unit sales of DSL
modems, particularly in international markets. Our DSL sales increased 161% from
$4.5 million in 2003 to $11.8  million in 2004.  Net sales in our other  product
sales  categories,  which  include ISDN  modems,  cameras,  wireless  networking
equipment,  and  telephone  dialers, declined  10.3%,  from $2.5 million to $2.3
million.

     $000              Total Year   Total Year       $            %
   Net Sales              2003         2004       Change       Change
--------------         ----------   ----------   ---------    --------
Dial-up                 $ 24,198    $ 16,456     $( 7,742)      ( 32.0)%
Broadband                  6,629      12,706        6,077         91.7 %
Other Products             2,508       2,250      (   258)      ( 10.3)%
                        =========   =========    =========    ========
Total Net Sales         $ 33,335    $ 31,412     $( 1,923)      (  5.8)%

     As shown in the table below,  our net sales in North  America  decreased by
23.0% to $14.0  million  in 2004,  compared  to our net sales in 2003.  Our 2004
international  net sales increased by 15% to $17.4 million,  compared to our net
sales in 2003.  These  changes  reflect our  declining  sales of dial-up  modems
worldwide,  our stronger broadband sales in the international  markets,  and the
positive currency translation impact, for converting British Pounds and Euros to
dollars (a $.9 million benefit),  of a significant  portion of our international
sales. Our international sales benefited from strong growth in Turkey, primarily
relating to DSL modem sales,  accounting for 28% of our total 2004 international
sales.
<PAGE>
     $000              Total Year   Total Year       $           %
   Net Sales              2003          2004      Change      Change
---------------        ----------   ----------   --------    --------
North America             18,212       14,027      (4,185)     (23.0)%
International             15,123       17,385       2,262       15.0 %
                       ==========   ==========   ========    ========
Total Net Sales        $  33,335     $ 31,412     $(1,923)     ( 5.8)%

     GROSS  PROFIT.  Our gross profit was $8.1 million in 2004 compared to $10.2
million in 2003.  Our gross  profit as a  percentage  of net sales  decreased to
25.7% in 2004 from 30.6% in 2003.  The  primary  reason for this  decline  was a
shift in the sales mix from dial-up modems, our highest margin product category,
to broadband modems, which have lower margins.

     OPERATING  EXPENSE.  Total  operating  expense  increased by $.2 million to
$11.3 million in 2004 from $11.2 million in 2003.  Total operating  expense as a
percentage of net sales increased to 36.1% in 2004 from 33.5% in 2003. The table
below shows total  operating  expenses and its three major  categories:  selling
expense,  general and  administrative  expense,  and  research  and  development
expense.
<TABLE>
<S>                          <C>           <C>      <C>           <C>      <C>         <C>
     $000                    Total Year    % Net    Total Year    % Net      $000        %
Operating Expenses               2003      Sales       2004       Sales     Change     Change
--------------------------   ----------    -----    ----------    -----    --------    -------
Selling Expense                $ 5,270     15.8%      $ 4,800     15.3%    $(  470)    ( 8.9)%
General and Administrative
 Expense                       $ 3,118      9.4%      $ 3,620     11.5%    $   502      16.1 %
Research and Development
 Expense                       $ 2,767      8.3%      $ 2,927      9.3%    $   160       5.8 %
                               =======    ======      =======     ====     =======     ======
Total Operating Expense        $11,155     33.5%      $11,347     36.1%    $   192       1.7 %
</TABLE>
     Selling  Expense.  Selling  expense  decreased to $4.8 million in 2004 from
$5.3 million in 2003.  Selling expense as a percentage of net sales was 15.3% in
2004 and  15.8%  in 2003.  The $.5  million  decrease  in  selling  expense  was
primarily due to reduced  outbound  freight ($.2 million),  marketing costs ($.1
million),  personnel costs ($.1 million), and sales commissions ($.1 million) as
a result of lower  overall  sales volume and lower sales in the retail  channel.
These decreases were partially offset by an adjustment to our estimated European
Value Added Tax expense ($.1 million).

     General and  Administrative  Expense.  General and  administrative  expense
increased  to $3.6  million  in 2004  from $3.1  million  in 2003.  General  and
administrative  expense as a percentage of net sales were 11.5% in 2004 and 9.4%
in 2003.  The $.5 million  increase in general  and  administrative  expense was
primarily due to acquisition-related  expense for a non-consummated  transaction
($.3  million)  and salaries and  benefits  for  increased  personnel  costs for
Information Systems and Sarbanes-Oxley compliance ($.1 million).

     Research  and  Development   Expense.   Research  and  development  expense
increased  to $2.9  million  in 2004 from $2.8  million  in 2003.  Research  and
development expenses as a percentage of net sales increased to 9.3% in 2004 from
8.3% in 2003. The $.16 million increase in research and development expenses was
primarily due to increased personnel costs ($.1 million) and related expenses.

     OTHER INCOME (EXPENSE).  Other income, net declined to $.21 million in 2004
from $.27 million in 2003.  The decline was primarily the result of an increased
foreign  exchange  loss and the  sale in 2003 of a web  domain  name,  partially
offset by increased interest income on our cash investments.

     INCOME TAX  EXPENSE  (BENEFIT).  We did not  record any net tax  expense or
benefit in 2004 or 2003.  This  accounting  treatment  is  described  in further
detail under the caption "Critical  Accounting Policies and Estimates" above and
in note 12 to the consolidated financial statements.

YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002

     NET SALES. Our total net sales declined year-over-year.  Our year-over-year
sales  decline was  comprised  of declines of both unit sales volume and average
selling  prices.  Our growing sales  category,  broadband  modems,  did not grow
sufficiently  in 2003 to offset the decline in our dial-up  modem sales,  as our
total net sales  decreased  10.6% to $33.3 million in 2003 from $37.3 million in
2002.

     Our net sales for dial-up  modems  declined  $7.2 million,  or 23.0%,  from
$31.4 million in 2002 to $24.2  million in 2003.  This decline was primarily due
to both lower unit  sales and lower  prices,  reflecting  the  declining  retail
market for these modems. Our broadband net sales increased $3.3 million, or 99%,
from $3.3 million in 2002 to $6.6 million in 2003.  This  increase was primarily
due to increased unit sales of DSL modems.  Net sales in our other product sales
categories,  which include ISDN modems, cameras,  wireless networking equipment,
telephone dialers, etc., declined 1.0%, from $2.5 million to $2.5 million.

     Our net sales in North America decreased by 18.5% to $18.2 million in 2003,
compared to our net sales in 2002. Our 2003 international net sales increased by
1.3% to $15.1 million,  compared to our net sales in 2002. These changes reflect
our declining sales of dial-up modems worldwide, our stronger broadband sales in
the international  markets,  and the positive currency  translation  impact, for
converting British Pounds and Euros to dollars,  of a significant portion of our
international sales.

     GROSS  PROFIT.  Our gross profit was $10.2 million in 2003 compared to $9.3
million in 2002.  Our gross  profit as a  percentage  of net sales  increased to
30.6% in 2003 from 25.0% in 2002. The primary reason for this  improvement was a
marked  improvement in the gross profit  percentage of net sales of both dial-up
modems and  broadband  modems.  The improved  gross profit  percentage  for both
dial-up and broadband modems resulted from cost reductions which exceeded market
price reductions.

     Selling  Expense.  Selling  expense  decreased to $5.3 million in 2003 from
$5.8 million in 2002.  Selling expense as a percentage of net sales was 15.8% in
2003 and  15.7%  in 2002.  The $.6  million  decrease  in  selling  expense  was
primarily  due  to  reduced   personnel   costs,   marketing  costs,  and  sales
commissions, which were partially offset by higher freight delivery costs.

     General and  Administrative  Expense.  General and  administrative  expense
decreased  to $3.1  million  in 2003  from $3.4  million  in 2002.  General  and
administrative expense as a percentage of net sales was 9.4% in 2003 and 9.1% in
2002.  The $.3  million  decrease  in general  and  administrative  expense  was
primarily  due  to  reduced  personnel  costs,  depreciation  and  amortization,
insurance costs, and legal and audit costs.

     Research  and  Development   Expense.   Research  and  development  expense
decreased  to $2.8  million  in 2003 from $3.5  million in 2002.
Research and development  expense as a percentage of net sales decreased to 8.3%
in 2003 from 9.5% in 2002. The $.8 million  decrease in research and development
expense was primarily due to reduced personnel costs and related expenses.

     OTHER INCOME (EXPENSE).  Other income, net improved to $.27 million in 2003
from $.07 million in 2002.  The  improvement  was primarily the result of higher
rental income from leased excess space at our headquarters  facility and reduced
interest  payments  on our  variable-rate  mortgage  note  for our  headquarters
facility.

     INCOME TAX  EXPENSE  (BENEFIT).  We did not  record any net tax  expense or
benefit in 2003.  In 2002,  we  recorded a $2.0  million  income tax  expense to
increase our  valuation  allowance  against our then  remaining net deferred tax
asset,  which has remained at a net zero value since that time.  This accounting
treatment is described in further detail under the caption "Critical  Accounting
Policies  and  Estimates"  above  and in note 12 to the  consolidated  financial
statements.

     EXTRAORDINARY  GAIN.  In 2003 we did not record any  extraordinary  gain or
(loss).  In 2002 we  recorded an  extraordinary  gain of $.26  million  from the
elimination of the remaining negative goodwill on our balance sheet related to a
previous acquisition.

LIQUIDITY AND CAPITAL RESOURCES

     On December 31, 2004, we had working  capital of $14.8  million,  including
$9.4 million in cash and cash equivalents.

     In 2004  operating  activities  used $2.2 million in cash.  Our net loss in
2004 was $3.1 million,  which included  non-cash  depreciation  and amortization
expense of $.4 million.  Sources of cash from operations included a reduction of
accounts  receivable  of $.8 million  and an  increase  of accounts  payable and
accrued expenses of $.1 million.  Uses of operating cash included an increase of
inventory of $.3 million and an increase of prepaid expenses of $.1 million. Our
decrease in accounts  receivable  reflected  our lower  sales.  Our  increase in
inventory was primarily related to DSL modem in-process inventory.

     In 2004 our net cash used in investing  activities  was $.2 million,  which
was used to purchase property, plant and equipment.

     In  2004  cash  was  provided  by  financing  activities  of  $1.9  million
consisting  of proceeds  from the  exercise of  employee  stock  options of $2.1
million,  partially offset by $.2 million for monthly principal  payments on our
$6.0 million  mortgage on our  headquarters  facility.  Our mortgage is a 5-year
balloon  mortgage,  payable in full in January,  2006,  that is  amortized  on a
20-year  basis.  The interest rate is adjusted  annually in January of each year
based on the  Federal  Home Loan Bank  rate  plus 2.5 % per  annum.  In 2004 the
interest rate was 3.99%. As of January 10, 2005 the rate of interest  changed to
5.80%. Recently we renegotiated the rate to 5.0% effective February 10, 2005. As
of December 31, 2004, $5.1 million was  outstanding on this loan,  which will be
due and payable on January 10, 2006.  Based upon recent  indications of interest
from potential lenders, we believe we will be able to refinance the mortgage or,
in the  alternative,  sell our buildings for a purchase price  significantly  in
excess of the outstanding amounts under the loan.

     To conserve  cash and manage our  liquidity,  we have  implemented  expense
reductions  throughout 2002,  2003, and 2004. The employee  headcount was 329 at
December  31,  2000,  which was  reduced to 185 at  December  31,  2002,  159 at
December 31, 2003, and to 154 at December 31 2004. We plan to continue to assess
the cost  structure as it relates to our revenues and cash position in 2004, and
may make further reductions if these actions are deemed necessary.

     On March 16, 2005 Zoom  Telephonics,  Inc.,  our wholly  owned  subsidiary,
entered  into a Loan and  Security  Agreement  with  Silicon  Valley  Bank  that
provides for a revolving line of credit of up to $2 million.  The revolving line
of credit can be used to (i) borrow  revolving  loans for  working  capital  and
general  corporate  purposes,  (ii) issue  letters of credit,  (iii)  enter into
foreign  exchange  forward  contracts,  and (iv) support certain cash management
services.  Revolving  loans will bear  interest  at a floating  rate of interest
equal to Silicon  Valley  Bank's prime rate plus 1%. This  interest rate will be
reduced  to  Silicon  Valley  Bank's  prime  rate  plus  .5%  if we  record  two
consecutive quarters of combined profitability.

     On March 15, 2006 Silicon  Valley  Bank's  commitment  to extend  revolving
loans  under the Loan and  Security  Agreement  terminates  and all  outstanding
obligations under the agreement become due.

     The revolving loans under the Loan and Security  Agreement are secured by a
first priority lien on substantially all of our assets,  excluding  intellectual
property and real estate.  We guaranteed  the  obligations  of Zoom  Telephonics
under  the  revolving  line of  credit  and  pledged  all of the  stock  of Zoom
Telephonics  in  support  of our  guarantee.  The  Loan and  Security  Agreement
requires that Zoom  Telephonics  maintain a minimum  adjusted  quick ratio and a
minimum net worth. In addition,  Zoom  Telephonics is required to obtain Silicon
Valley  Bank's prior written  consent to among other things,  dispose of assets,
make  acquisitions,   be  acquired,   incur  indebtedness,   grant  liens,  make
investments,  pay  dividends,  or  repurchase  stock.  This  consent  may not be
unreasonably withheld.

     The Loan and  Security  Agreement  contains  events of default that include
among other things,  non-payment  of principal,  interest or fees,  violation of
covenants,  inaccuracy  of  representations  and  warranties,  cross  default to
certain other indebtedness,  bankruptcy and insolvency events, change of control
and material judgments.  Upon occurrence of an event of default,  Silicon Valley
Bank is entitled to, among other  things,  accelerate  all  obligations  of Zoom
Telephonics  and sell its  assets  to  satisfy  obligations  under  the Loan and
Security Agreement.

     We believe our current availability under the line is $2 million.

     We believe we have sufficient resources to fund our planned operations over
the next 12 months. However, if we are unable to generate net income, reduce our
expenses,  or raise  capital,  our  longer-term  ability to  continue as a going
concern  and  achieve  our  intended  business  objectives  could  be  adversely
affected.  Moreover,  as provided above,  our liquidity  could be  significantly
impaired  if we are not able  either  to  refinance  our  mortgage  or sell our
buildings on or before the maturity  date of the mortgage in January  2006.  See
"Risk Factors" for further  information with respect to events and uncertainties
that could harm our business, operating results, and financial condition.

COMMITMENTS

     The following table summarizes our contractual  obligations and commitments
as of December 31, 2004.
<TABLE>
<CAPTION>
                                   Contractual Obligations Payments Due by Period
                                                 (as of December 31, 2004)
<S>                          <C>           <C>           <C>          <C>           <C>
                                              LESS THAN                               AFTER 5
CONTRACTUAL OBLIGATIONS           TOTAL         1 YEAR     1-3 YEARS    3-5 YEARS      YEARS
                                  -----       ---------    ---------    ---------     -------
Long Term Debt (1)           $  5,382,430  $    484,741  $ 4,897,689            -           -
Operating Leases (2)            1,311,239       846,985      464,254            -           -
                             ------------  ------------  -----------  -----------   ---------
Total                        $  6,693,669  $  1,331,726  $ 5,361,943            -           -
                             ============  ============  ===========  ===========   =========
</TABLE>
(1)  Represents the mortgage on our corporate headquarters,  including estimated
     interest  payments  at 5%. In  January  2001 we  received  $6.0  million in
     financing  by  securing a mortgage  on this  property.  Our  mortgage  is a
     five-year balloon mortgage that is amortized on a 20-year basis.
(2)  Represents  minimum lease  payments,  excluding  executory costs to be made
     under  leases for our  manufacturing  facility  in  Boston,  MA, our office
     facility in Camberley,  U.K.,  and our technical  support  facility in Boca
     Raton, FL.

RECENTLY ISSUED ACCOUNTING STANDARDS

Recently Issued or Proposed Accounting Pronouncements

     In December 2004 the FASB issued SFAS No. 123 (revised 2004),  "Share-Based
Payment" ("SFAS 123R"), which replaces SFAS No. 123, "Accounting for Stock-Based
Compensation,"  ("SFAS 123") and supersedes APB Opinion No. 25,  "Accounting for
Stock  Issued to  Employees."  SFAS 123R  requires all  share-based  payments to
employees,  including grants of employee stock options,  to be recognized in the
financial statements based on their fair values beginning with the first interim
or annual period after June 15, 2005,  with early adoption  encouraged.  The pro
forma  disclosures  previously  permitted  under  SFAS 123 no longer  will be an
alternative to financial  statement  recognition.  We are required to adopt SFAS
123R in the third quarter of 2005,  beginning July 1, 2005.  Under SFAS 123R, we
must determine the  appropriate  fair value model and related  assumptions to be
used for valuing share-based payments,  the amortization method for compensation
cost and the  transition  method to be used at date of adoption.  The transition
methods  include  modified  prospective  and  modified   retrospective  adoption
options.  Under the modified retrospective option, prior periods may be restated
either as of the beginning of the year of adoption or for all periods presented.
The modified  prospective method requires that compensation  expense be recorded
for all unvested stock options at the beginning of the first quarter of adoption
of SFAS 123R, while the modified  retrospective method would record compensation
expense for all unvested stock options beginning with the first period restated.
We are evaluating the  requirements of SFAS 123R and expect that the adoption of
SFAS 123R will have a material impact on our consolidated  results of operations
and earnings per share. We have not yet determined the method of adoption or the
effect of adopting SFAS 123R,  and we have not  determined  whether the adoption
will result in amounts  that are  similar to the  current pro forma  disclosures
under SFAS 123.

     In  November  2004  the  FASB  issued  SFAS No.  151,  "Inventory  Costs-An
Amendment of ARB No. 43,  Chapter 4" ("SFAS 151").  SFAS 151 amends the guidance
in ARB No. 43,  Chapter 4,  "Inventory  Pricing," to clarify the  accounting for
abnormal amounts of idle facility expense,  freight,  handling costs, and wasted
material  (spoilage).  Among other provisions,  the new rule requires that items
such  as  idle  facility  expense,   excessive  spoilage,  double  freight,  and
rehandling costs be recognized as current-period  charges  regardless of whether
they meet the criterion of "so abnormal" as stated in ARB No. 43.  Additionally,
SFAS 151 requires that the allocation of fixed production overheads to the costs
of conversion be based on the normal capacity of the production facilities. SFAS
151 is effective for fiscal years  beginning after June 15, 2005 and is required
to be adopted by us in the first quarter of 2006,  beginning on January 1, 2006.
We are currently  evaluating  the effect,  if any, that the adoption of SFAS 151
will have on our consolidated results of operations.

RISK FACTORS

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

WE MAY  CONTINUE TO INCUR NET LOSSES IF WE ARE UNABLE TO  INCREASE  SALES OF OUR
BROADBAND MODEMS.

     Our net sales  have been declining  primarily  due to the  decline in the
dial-up modem market, decreases in average selling prices of dial-up modems, and
the trend toward faster connection speeds and broadband access products. Despite
numerous cost  reductions  over the last few years,  we have  continued to incur
significant net losses primarily due to our continuous decline in net sales from
dial-up modems.  We believe that the future of our business is largely dependent
on the success of our broadband  modems and other products.  Although we believe
that we have sufficient  resources to fund our planned  operations over the next
year,  if we fail to increase  our net sales of our  broadband  modems and other
products,  our  longer-term  ability  to stay in  business  and to  achieve  our
intended business objectives could be adversely effected.  Our continuing losses
could  also  adversely  affect our  ability  to fund the growth of our  business
should our strategies prove successful.

OUR  LIQUIDITY  MAY BE  SIGNIFICANTLY  IMPAIRED  IF WE ARE NOT  ABLE  EITHER  TO
REFINANCE  OUR  MORTGAGE  OR SELL OUR  BUILDINGS  PRIOR TO THE  MATURITY  OF OUR
MORTGAGE IN JANUARY 2006.

     Our  mortgage  loan  on the two  buildings  constituting  our  headquarters
facility,  of which $5.1 million was  outstanding on December 31, 2004,  will be
due and payable on January 10,  2006.  We cannot  assure that we will be able to
refinance the mortgage or, in the  alternative,  sell our buildings on favorable
terms,  if at all. If we were not able to obtain such financing or complete such
sale, our liquidity could be significantly impaired.

TO STAY IN BUSINESS WE MAY REQUIRE  FUTURE  ADDITIONAL  FUNDING  WHICH WE MAY BE
UNABLE TO OBTAIN ON FAVORABLE TERMS, IF AT ALL.

     In addition to obtaining funds to refinance or repay our mortgage, over the
next twelve  months,  we may require  additional  financing  for our  operations
either  to fund  losses  beyond  those we  anticipate  or to fund  growth in our
inventory and accounts receivable.  Additional financing may not be available to
us on a timely  basis if at all,  or on terms  acceptable  to us.  If we fail to
obtain  acceptable  additional  financing  when  needed,  we may be  required to
further reduce planned  expenditures  or forego  business  opportunities,  which
could  reduce  our net  sales,  increase  our  losses,  and harm  our  business.
Moreover,  additional  equity  financing could dilute the per share value of our
common stock held by current shareholders, while additional debt financing could
restrict  our  ability  to  make  capital   expenditures  or  incur   additional
indebtedness, all of which would impede our ability to succeed.

OUR NET SALES AND OPERATING  RESULTS HAVE BEEN ADVERSELY  AFFECTED  BECAUSE OF A
DECLINE IN AVERAGE  SELLING  PRICES FOR OUR  DIAL-UP  MODEMS AND  BECAUSE OF THE
DECLINE IN THE RETAIL MARKET FOR DIAL-UP MODEMS.

     The dial-up  modem  industry has been  characterized  by declining  average
selling  prices and a declining  retail market.  The decline in average  selling
prices is due to a number of  factors,  including  technological  change,  lower
component costs,  and competition.  The decline in the size of the retail market
for dial-up  modems is primarily  due to the  inclusion  of dial-up  modems as a
standard feature contained in new PCs, and the advent of broadband products. Due
to these  factors  and  others,  one of our  significant  retail  customers  has
notified us that they want to purchase on a consignment  basis for their dial-up
modem  category.  That customer has also  indicated that they plan to reduce the
number of brands of dial-up  modems they sell,  and that they cannot assure that
they will  continue  to sell our  products.  Less  advantageous  terms of sales,
decreasing average selling prices and reduced demand for our dial-up modems have
resulted and may in the future result in decreased net sales for dial-up modems.
If we fail to replace  declining  revenue from the sales of dial-up  modems with
the sales of our other products,  including our broadband  modems,  our business
and results of operation will be harmed.

OUR  RELIANCE  ON A  LIMITED  NUMBER OF  CUSTOMERS  FOR A LARGE  PORTION  OF OUR
REVENUES COULD MATERIALLY HARM OUR BUSINESS AND PROSPECTS.

     Relatively few customers  have  accounted for a substantial  portion of our
net  sales.  In 2004,  our net sales to each of three  companies  - Olusum  (our
distributor  in Turkey),  the Dixons Group  (Dixons,  Currys,  PC World,  and PC
City),  and Staples - constituted  over 10% of our net sales; and together these
three  customers  accounted  for  35% of our  total  net  sales.  Our  customers
generally do not enter into long-term agreements obligating them to purchase our
products.  We may not continue to receive significant revenues from any of these
or from other large  customers.  A reduction  or delay in orders from any of our
significant  customers,  or a delay or default  in  payment  by any  significant
customer could materially harm our business and prospects.

OUR  INTERNATIONAL  OPERATIONS  ARE  SUBJECT  TO A NUMBER OF RISKS  INHERENT  IN
INTERNATIONAL ACTIVITIES.

     Our sales  outside of North America  continue to represent an  increasingly
significant  portion of our sales. Sales outside of North America have increased
from 38% of net  sales in 2001 to  approximately  55% of our net  sales in 2004,
including  27% in  the  UK and  16% in  Turkey.  Currently  our  operations  are
significantly dependent on our international  operations,  particularly sales of
our DSL modems,  and may be materially  and  adversely  affected by many factors
including:

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

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

CHANGES IN THE  ACCOUNTING  TREATMENT OF STOCK OPTIONS MAY ADVERSELY  AFFECT OUR
RESULTS OF OPERATIONS.

     In December  2004 the FASB  issued  SFAS 123R,  which is a revision of SFAS
123. SFAS 123R requires all share-based payments to employees,  including grants
of employee stock options, to be recognized in the financial statements based on
their fair values and does not permit pro forma  disclosure as an alternative to
financial  statement  recognition.  SFAS  123R  is  scheduled  to  be  effective
beginning in the third quarter of 2005. The adoption of the SFAS 123R fair value
method  may  have a  significant  adverse  impact  on our  reported  results  of
operations because the stock-based compensation expense will be charged directly
against our reported earnings. The impact of our adoption of SFAS 123R cannot be
predicted  at this time  because  that will depend on the future fair values and
number of share-based  payments granted in the future.  However,  had we adopted
SFAS 123 in prior  periods,  the magnitude of the impact of that standard  would
have  approximated  the  impact  of SFAS 123  assuming  the  application  of the
Black-Scholes model as described in the disclosure of pro forma net loss and pro
forma  loss  per  share in note  1(k) of our  notes  to  consolidated  financial
statements.

WE BELIEVE  THAT OUR FUTURE  SUCCESS WILL DEPEND IN LARGE PART ON OUR ABILITY TO
MORE  SUCCESSFULLY  PENETRATE  THE  BROADBAND  MODEM  MARKETS,  WHICH  HAVE BEEN
CHALLENGING MARKETS, WITH SIGNIFICANT BARRIERS TO ENTRY.

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

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

     Our sales of  broadband  products  have been  adversely  affected by all of
these  factors.  Sales of our  broadband  products  in European  countries  have
fluctuated  and may  continue to fluctuate  due to  approvals  and delays in the
deployment by service providers of cable and DSL service in these countries.  We
cannot assure that we will be able to successfully penetrate these markets.

OUR  FAILURE  TO MEET  CHANGING  CUSTOMER  REQUIREMENTS  AND  EMERGING  INDUSTRY
STANDARDS WOULD ADVERSELY IMPACT OUR ABILITY TO SELL OUR PRODUCTS AND SERVICES.

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

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

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

OUR OPERATING  RESULTS HAVE BEEN ADVERSELY  AFFECTED BECAUSE OF PRICE PROTECTION
PROGRAMS.

     Our operating results have been adversely affected by reductions in average
selling  prices  because we gave credits to some of our customers as a result of
contractual price protection guarantees.  Specifically, when we reduce the price
for a product,  the customer  receives a credit for the  difference  between the
customer's most recent purchase price and our reduced price for the product, for
all unsold  product at the time of the price  reduction.  For 2004 and 2003,  we
recorded a reduction of net sales of $.1 million and $.2 million,  respectively,
for customer price protection.

WE HAVE BEEN  SELLING  OUR VOIP  SERVICE  FOR A LIMITED  PERIOD  AND THERE IS NO
GUARANTEE THAT THIS SERVICE WILL GAIN BROAD MARKET ACCEPTANCE.

     We have only  recently  introduced  our VoIP  service.  Given  our  limited
history with  offering  this service,  there are many  difficulties  that we may
encounter,  including technical hurdles,  multiple and changing  regulations and
industry standards,  and other problems that we may not anticipate.  To date, we
have not  generated  significant  revenue from the sale of our VoIP products and
services,  and there is no guarantee  that we will be  successful  in generating
significant revenues.

WE  MAY  BE  SUBJECT  TO  PRODUCT  RETURNS  RESULTING  FROM  DEFECTS,   OR  FROM
OVERSTOCKING  OF OUR  PRODUCTS.  PRODUCT  RETURNS COULD RESULT IN THE FAILURE TO
ATTAIN MARKET ACCEPTANCE OF OUR PRODUCTS, WHICH WOULD HARM OUR BUSINESS.

     If our products contain undetected defects,  errors, or failures,  we could
face:

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

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

OUR FAILURE TO  EFFECTIVELY  MANAGE OUR INVENTORY  LEVELS COULD  MATERIALLY  AND
ADVERSELY AFFECT OUR LIQUIDITY AND HARM OUR BUSINESS.

     Due to rapid  technological  change and changing markets we are required to
manage  our  inventory  levels  carefully  to both  meet  customer  expectations
regarding delivery times and to limit our excess inventory exposure. Our failure
to  effectively  manage our  inventory  may  adversely  affect our liquidity and
increases the risk of inventory  obsolescence,  a decline in market value of the
inventory, or losses from theft, fire, or other casualty.

WE MAY BE UNABLE TO PRODUCE  SUFFICIENT  QUANTITIES  OF OUR PRODUCTS  BECAUSE WE
DEPEND ON THIRD PARTY MANUFACTURERS.  IF THESE THIRD PARTY MANUFACTURERS FAIL TO
PRODUCE QUALITY PRODUCTS IN A TIMELY MANNER, OUR ABILITY TO FULFILL OUR CUSTOMER
ORDERS WOULD BE ADVERSELY IMPACTED.

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

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

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

WE MAY BE UNABLE TO PRODUCE  SUFFICIENT  QUANTITIES  OF OUR PRODUCTS  BECAUSE WE
OBTAIN KEY COMPONENTS FROM, AND DEPEND ON, SOLE OR LIMITED SOURCE SUPPLIERS.

     We obtain certain key parts, components, and equipment from sole or limited
sources of supply.  For example,  we purchase  most of our dial-up and broadband
modem  chipsets  from Conexant  Systems and Agere  Systems.  Integrated  circuit
product areas  covered by one or both  companies  include  dial-up  modems,  DSL
modems, cable modems,  networking,  routers, and gateways.  In the past, we have
experienced delays in receiving shipments of modem chipsets from our sole source
suppliers.  We may experience  similar delays in the future.  In addition,  some
products may have other  components that are available from only one source.  We
believe the market for chipsets is currently  experiencing  shortages  and there
are  increased  lead  times  for some  chipsets.  If we are  unable  to obtain a
sufficient  supply of components from our current  sources,  we could experience
difficulties in obtaining  alternative sources or in altering product designs to
use alternative components.  Resulting delays or reductions in product shipments
could damage  relationships with our customers and our customers could decide to
purchase products from our competitors.  Inability to meet our customers' demand
or a decision  by one or more of our  customers  to purchase  products  from our
competitors could harm our operating results.

THE  MARKET  FOR  HIGH-SPEED  COMMUNICATIONS  PRODUCTS  AND  SERVICES  HAS  MANY
COMPETING  TECHNOLOGIES  AND,  AS A RESULT,  THE  DEMAND  FOR OUR  PRODUCTS  AND
SERVICES IS UNCERTAIN.

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

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

     Although we currently  sell products that include these  technologies,  the
market for  high-speed  communication  products and services is  fragmented  and
evolving. The introduction of new products by competitors,  market acceptance of
products  based on new or  alternative  technologies,  or the  emergence  of new
industry  standards could render and have in the past rendered our products less
competitive  or  obsolete.  If any of these  events  occur,  we may be unable to
sustain or grow our business.  Industry analysts believe that the market for our
dial-up modems will continue to decline. If we are unable to increase demand for
and sales of our  broadband  modems,  we may be unable  to  sustain  or grow our
business.

WE FACE SIGNIFICANT COMPETITION,  WHICH COULD RESULT IN DECREASED DEMAND FOR OUR
PRODUCTS OR SERVICES.

     We may be unable  to  compete  successfully.  A number  of  companies  have
developed,  or are  expected to develop,  products  that compete or will compete
with our products.  Furthermore,  many of our current and potential  competitors
have  signifcantly  greater  resources  than we do. Intense  competition,  rapid
technological  change  and  evolving  industry  standards  could  result in less
favorable  selling terms to our customers,  decrease  demand for our products or
make our products obsolete.

OUR BUSINESS IS DEPENDENT  ON THE INTERNET AND THE  DEVELOPMENT  OF THE INTERNET
INFRASTRUCTURE.

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

CHANGES IN EXISTING  REGULATIONS  OR ADOPTION OF NEW  REGULATIONS  AFFECTING THE
INTERNET COULD INCREASE THE COST OF OUR PRODUCTS OR OTHERWISE AFFECT OUR ABILITY
TO OFFER OUR PRODUCTS AND SERVICES OVER THE INTERNET.

     Congress has adopted  legislation  that  regulates  certain  aspects of the
Internet,  including  online  content,  user  privacy,  taxation,  liability for
third-party  activities and jurisdiction.  In addition,  a number of initiatives
pending  in  Congress  and  state   legislatures   would  prohibit  or  restrict
advertising or sale of certain products and services on the Internet,  which may
have the effect of raising the cost of doing business on the Internet generally.
Federal,  state,  local and foreign  governmental  organizations are considering
other legislative and regulatory proposals that would regulate the Internet.  We
cannot predict whether new taxes will be imposed on our services,  and depending
on the type of taxes  imposed,  whether and how our  services  would be affected
thereafter.  Increased  regulation  of the  Internet may decrease its growth and
hinder technological development,  which may negatively impact the cost of doing
business via the Internet or otherwise harm our business.

NEW REGULATIONS TO REDUCE THE USE OF HAZARDOUS  MATERIALS IN PRODUCTS  SCHEDULED
TO BE IMPLEMENTED IN 2006 COULD  INCREASE OUR  MANUFACTURING  COSTS AND HARM OUR
BUSINESS.

     The  European  Union and the US have  announced  plans to reduce the use of
hazardous materials,  such as lead, in electronic equipment.  The implementation
of these new requirements,  currently  scheduled to begin in 2006, would require
us and other  electronics  companies to change or discontinue many products.  We
believe that our transition process to comply with these new requirements may be
difficult,  and may  negatively  impact our product costs.  In addition,  we may
incur  additional  costs  involved  with the  disposal of  inventory or returned
products  that do not meet the new  requirements,  which could  further harm our
business.

CHANGES IN CURRENT  OR FUTURE  LAWS OR  GOVERNMENTAL  REGULATIONS  AND  INDUSTRY
STANDARDS THAT NEGATIVELY IMPACT OUR PRODUCTS,  SERVICES AND TECHNOLOGIES  COULD
HARM OUR BUSINESS.

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

     In addition to reliability and quality standards,  the market acceptance of
our VoIP  products  and  services  is  dependent  upon the  adoption of industry
standards so that products from multiple  manufacturers  are able to communicate
with each other.  Standards are  continuously  being  modified and replaced.  As
standards  evolve, we may be required to modify our existing products or develop
and support new versions of our products. The failure of our products to comply,
or delays in compliance,  with various existing and evolving industry  standards
could delay or interrupt volume production of our products, which could harm our
business.

FUTURE  LEGISLATION OR REGULATION OF INTERNET  TELEPHONY COULD RESTRICT OUR VOIP
BUSINESS,  PREVENT  US FROM  OFFERING  SERVICE  OR  INCREASE  OUR  COST OF DOING
BUSINESS.

     Our  ability  to  provide  VoIP  communications  services  on the  terms we
currently  provide  arise in large  part  from the fact  VoIP  services  are not
currently subject to the same regulation as traditional telephony. If the FCC or
any state  determines to regulate  VoIP,  they may impose  surcharges,  taxes or
additional  regulations upon providers of Internet  telephony.  These surcharges
could include  access charges  payable to local  exchange  carriers to carry and
terminate  traffic,  contributions to the Universal  Service Fund (USF) or other
charges. Regulations requiring compliance with the Communications Assistance for
Law  Enforcement  Act (CALEA),  or provision of the same type of 911 services as
required  for  traditional  telecommunications  providers  could  also  place  a
significant  financial burden on us depending on the technical  changes required
to accommodate the  requirements.  The imposition of any such  additional  fees,
charges,  taxes and regulations on IP  communications  services could materially
increase our costs and may limit or eliminate our competitive pricing.

     In many countries  outside the U.S. in which we operate or our services are
sold, the status of the laws that may relate to our VoIP services is unclear. We
cannot  be  certain  that we will be able to  comply  with  existing  or  future
requirements,  or that we will be able to continue to be in compliance  with any
such  requirements.   Our  failure  to  comply  with  these  requirements  could
materially adversely affect our ability to continue to offer our VoIP service in
these jurisdictions.

FLUCTUATIONS  IN THE  FOREIGN  CURRENCY  EXCHANGE  RATES IN RELATION TO THE U.S.
DOLLAR COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATING RESULTS.

     Changes in currency  exchange rates that increase the relative value of the
U.S.  dollar  may  make  it  more  difficult  for  us to  compete  with  foreign
manufacturers on price, may reduce our foreign currency  denominated  sales when
expressed in dollars,  or may otherwise  have a material  adverse  effect on our
sales and  operating  results.  A significant  increase in our foreign  currency
denominated  sales would  increase our risk  associated  with  foreign  currency
fluctuations. A weakness in the U.S. dollar relative to various Asian currencies
including the Chinese renminbi could increase our product costs.

OUR FUTURE  SUCCESS  WILL  DEPEND ON THE  CONTINUED  SERVICES  OF OUR  EXECUTIVE
OFFICERS AND KEY PRODUCT DEVELOPMENT PERSONNEL.

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

OUR BUSINESS MAY BE HARMED BY ACQUISITIONS WE MAY COMPLETE IN THE FUTURE.

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

WE MAY HAVE DIFFICULTY PROTECTING OUR INTELLECTUAL PROPERTY.

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

WE COULD INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.

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

ITEM 7A.

     We invest our cash in money market instruments and certificates of deposit.
These investments are generally denominated in U.S. dollars and U.K. pounds. Due
to the conservative nature of these instruments,  we do not believe that we have
a material exposure to interest rate or market risk. The investment portfolio is
used to  preserve  our  capital  until  it is  required  to fund  operations  or
acquisitions. None of these instruments are held for trading purposes. We do not
own derivative financial instruments.

     We are exposed to interest  rate risk in the  ordinary  course of business.
For our floating rate mortgage  arrangement,  interest rate changes generally do
not affect the fair market value,  but do affect future  earnings and cash flow.
Based on our  borrowings  of $5.1 million under our mortgage  arrangement  as of
December  31, 2004 a  one-percentage  point  increase  in  interest  rates would
decrease cash flow and earnings for a year by approximately $51,000.
<PAGE>

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ZOOM TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
                                                                            Page
Index to Consolidated Financial Statements                                   34
Report of Independent Registered Public Accounting Firm                      35
Consolidated Balance Sheets as of December 31, 2003 and 2004                 36
Consolidated Statements of Operations for the years ended December 31,       37
2002, 2003 and 2004
Consolidated Statements of  Stockholders' Equity and Comprehensive Loss
for the Years Ended December 31, 2002, 2003 and 2004                         38
Consolidated Statements of Cash Flows for the years ended December 31,       39
2002, 2003 and 2004
Notes to Consolidated Financial Statements                                 40-53
Schedule II:  Valuation and Qualifying Accounts for the years ended
December 31, 2002, 2003 and 2004                                             58

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

     There  were  no  changes  in  or  disagreements  with  our  accountants  on
accounting or financial disclosure during the period covered by this report.

ITEM 9A - CONTROLS AND PROCEDURES

     We maintain  disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our Securities Exchange Act reports
is  recorded,  processed,  summarized  and  reported  within  the  time  periods
specified in the SEC's rules and forms, and that such information is accumulated
and  communicated to our management,  including our Chief Executive  Officer and
Chief Financial  Officer,  as appropriate,  to allow timely decisions  regarding
required  disclosure.  In designing and evaluating  the disclosure  controls and
procedures,  management  recognizes that any controls and procedures,  no matter
how well  designed  and  operated,  can provide  only  reasonable  assurance  of
achieving  the  desired  control  objectives,  as ours are  designed  to do, and
management  necessarily  was  required to apply its judgment in  evaluating  the
cost-benefit relationship of possible controls and procedures.

     As of December 31, 2004 we carried out an evaluation, under the supervision
and with the  participation  of our  management,  including our Chief  Executive
Officer and Chief  Financial  Officer,  of the  effectiveness  of the design and
operation  of our  disclosure  controls  and  procedures,  as  defined  in Rules
13a-15(e) and 15d-15(e)  under the Securities  Exchange Act of 1934.  Based upon
that  evaluation,  our  Chief  Executive  Officer  and Chief  Financial  Officer
concluded that our disclosure  controls and procedures are effective in enabling
us to record, process,  summarize and report information required to be included
in our periodic SEC filings within the required time period.

     There have been no changes in our internal control over financial reporting
that  occurred  during the period  covered by this report  that have  materially
affected,  or are reasonably likely to materially  affect,  our internal control
over financial reporting.

ITEM 9B  - OTHER INFORMATION

None.

PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information  required by this item appears under the caption "Our Executive
Officers"  in Part 1, Item 1 -- Business,  and under the  captions  "Election of
Directors",  "Board of Directors"  Meetings and  Committees;  Audit  Committee",
"Code of Ethics" and " Section 16(a)  Beneficial  Ownership  Compliance " in our
definitive  proxy  statement for our 2005 annual meeting of  stockholders  which
will be filed with the SEC  within 120 days after the close of our fiscal  year,
and is incorporated herein by reference.

ITEM 11 - EXECUTIVE COMPENSATION

     Information  required by this item appears  under the  captions  "Executive
Compensation," and "Directors' Compensation",  in our definitive proxy statement
for our 2005  annual  meeting of  stockholders  which will be filed with the SEC
within 120 days after the close of our fiscal year, and is  incorporated  herein
by reference.

ITEM 12 - SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

     We maintain a number of equity compensation plans for employees,  officers,
directors  and others whose efforts  contribute to our success.  The table below
sets forth  certain  information  as of our fiscal year ended  December 31, 2004
regarding  the shares of our common stock  available  for grant or granted under
stock option plans that (i) were approved by our stockholders, and (ii) were not
approved by our stockholders.

Equity Compensation Plan Information
<TABLE>
<S>                                  <C>                    <C>                         <C>
                                                                                             Number Of Securities
                                     Number Of Securities                                   Remaining Available For
                                       To Be Issued Upon    Weighted-Average Exercise    Future Issuance Under Equity
                                          Exercise Of         Price Of Outstanding      Compensation Plans (excluding
                                     Outstanding Options,           Options,               securities reflected in
Plan Category                         Warrants And Rights      Warrants And Rights                  column (a))
-------------                         -------------------   -------------------------   -----------------------------
                                              (a)                      (b)                            (c)
                                              ---                      ---                            ---
Equity compensation plans                    664,000                 $1.7500                        646,646
approved by security holders(1)
Equity compensation plans                    390,575                 $1.9132                        422,075
not approved by security holders(2)
-----------------------------------   -------------------   -------------------------   -----------------------------
Total                                      1,054,575                 $1.8105                      1,068,721
</TABLE>
(1)  Includes the  following  plans:  1990  Employee  Stock Option Plan and 1991
     Directors  Stock  Option Plan,  each as amended.  Please see note 11 to our
     consolidated financial statements for a description of these plans.
(2)  Includes the 1998 Employee Equity Incentive Plan, as amended.  The purposes
     of the 1998 Employee  Equity  Incentive Plan (the "1998 Plan"),  adopted by
     the Board of Directors  in 1998,  are to attract and retain  employees  and
     provide an  incentive  for them to assist us in  achieving  our  long-range
     performance  goals,  and to enable such  employees  to  participate  in our
     long-term  growth.  In general,  under the 1998 Plan, all employees who are
     not officers or directors are eligible to participate in the 1998 Plan. The
     1998 Plan is currently  administered by the  Compensation  Committee of the
     Board of Directors.  Participants  in the 1998 Plan are eligible to receive
     non-qualified  stock  options at an option  price  determined  by the Stock
     Option  Committee.  All stock options granted under the 1998 Plan have been
     granted for at least the fair market value on the date of grant. A total of
     1,200,000  shares of our common  stock have been  authorized  for  issuance
     under the 1998 Plan.

     The  additional  information  required  by  this  item is  incorporated  by
reference to the section  entitled  "Security  Ownership  of Certain  Beneficial
Owners and  Management " in our definitive  proxy  statement for our 2005 annual
meeting of stockholders to be filed with the SEC within 120 days after the close
of our fiscal year.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Any information required by this item may appear under the caption "Certain
Relationships  and Related  Transactions"  in our Definitive Proxy Statement for
our 2005 annual meeting of Stockholders to be filed with the SEC within 120 days
after the close of our fiscal year and is incorporated herein by reference.

ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES

     Information  required by this item  appears  under the  caption  "Principal
Accountant  Fees and Services" in our  Definitive  Proxy  Statement for our 2005
annual  meeting of  stockholders  to be filed with the SEC within 120 days after
the close of our fiscal year and is  incorporated  herein by  reference.
<PAGE>
PART IV

ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)           Financial Statements, Schedules and Exhibits:

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

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

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

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

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

     **10.2   1991 Director Stock Option Plan, as amended, filed as Exhibit 99.1
              to the Company's Registration Statement on Form S-8 (Reg. No. 333-
              107923), filed with the Commission on August 13, 2003. *

       10.3   1998 Employee  Equity Incentive Plan, as amended, filed as Exhibit
              99.1 to the Company's Registration Statement on Form S-8 (Reg. No.
              333-97573), filed with the Commission on August 2, 2002. *

       10.4   Lease  between  Zoom Telephonics, Inc. and "E" Street  Associates,
              filed  as Exhibit 10.5 to the  Company's Quarterly  Report on Form
              10-Q for the  fiscal  quarter ended  June 30, 1996 (the "June 1996
              Form 10-Q"). *

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

     **10.6   Employment  Agreement, filed  as  Exhibit 10.9  to  the  Company's
              Annual Report on Form 10-K for  the fiscal year ended December 31,
              1997. *

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

       10.8   Commercial   Real   Estate  Promissory   Note,  between  Zoom  and
              Wainwright Bank &  Trust  Company, filed  as  Exhibit 10.2 to  the
              March 2001 Form 10-Q. *

       10.9   Form  of   Non-Qualified  Stock  Option  Agreement  for  Executive
              Officers.

       10.10  Summary of Directors' Compensation.

       10.11  Loan and  Security  Agreement with Silicon  Valley Bank,  filed as
              Exhibit 10.1 to  the Company's Current Report on Form 8-K filed on
              March 22, 2005. *

       21.    Subsidiaries, filed  as Exhibit 21 to  the Company's Annual Report
              on Form 10-K for the fiscal year ended December 31, 2000. *

       23.    Consent  of KPMG LLP,  independent  registered  public  accounting
              firm.

       31.1   CEO  Certification, Pursuant  to Section 302 of the Sarbanes-Oxley
              Act of 2002.

       31.2   CFO  Certification, Pursuant  to Section 302 of the Sarbanes-Oxley
              Act of 2002.

       32.1   CEO  Certification, Pursuant  to Section 906 of the Sarbanes-Oxley
              Act of 2002.

       32.2   CFO  Certification, Pursuant  to Section 906 of the Sarbanes-Oxley
              Act of 2002.
<PAGE>
ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(Continued)

          *   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.

        (b)   Exhibits  - See  Item 15 (a)  (3)  above  for a list  of  Exhibits
              incorporated herein by reference or filed with this Report.

        (c)   Schedules  -  Schedule  II:  Valuation  and  Qualifying  Accounts.
              Schedules  other than  those listed above have been omitted  since
              they are either inapplicable or not required.
<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 TECHNOLOGIES, INC.
                                         (Registrant)


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

Date:  March 30, 2005


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                              Date

/s/ Frank B. Manning       Principal Executive Officer        March 30, 2005
--------------------       and Chairman of the Board
    Frank B. Manning

/s/ Robert A. Crist        Principal Financial and            March 30, 2005
--------------------       Accounting Officer
    Robert A. Crist

/s/ Peter R. Kramer        Director                           March 30, 2005
--------------------
    Peter R. Kramer

/s/ Bernard Furman         Director                           March 30, 2005
--------------------
    Bernard Furman

/s/ L. Lamont Gordon       Director                           March 30, 2005
--------------------
    L. Lamont Gordon

/s/ J. Ronald Woods        Director                           March 30, 2005
--------------------
    J. Ronald Woods
<PAGE>

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

                                                                           Page

Report of Independent Registered Public Accounting Firm                     35
Consolidated Balance Sheets as of December 31, 2003 and 2004                36
Consolidated Statements of Operations for the years ended December 31,      37
2002, 2003 and 2004
Consolidated Statements of Stockholders' Equity and Comprehensive Loss
for the years ended December 31, 2002, 2003 and 2004                        38
Consolidated Statements of Cash Flows for the years ended December 31,      39
2002, 2003 and 2004
Notes to Consolidated Financial Statements                                 40-53
Schedule II:  Valuation and Qualifying Accounts for the years ended
December 31, 2002, 2003 and 2004                                            58

<PAGE>
           REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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


We  have  audited  the   accompanying   consolidated   balance  sheets  of  Zoom
Technologies,  Inc. and  subsidiary  as of December  31, 2003 and 2004,  and the
related  consolidated   statements  of  operations,   stockholders'  equity  and
comprehensive  loss,  and cash  flows  for each of the  years in the  three-year
period ended December 31, 2004. These consolidated  financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Zoom Technologies,
Inc. and  subsidiary as of December 31, 2003 and 2004,  and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended December 31, 2004, in conformity with U.S. generally  accepted  accounting
principles.


                                        /s/ KPMG LLP




Boston, Massachusetts
February 10, 2005, except as to Note 3, which is as of March 30, 2005.
<PAGE>
                       ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<S>                                                          <C>                 <C>
                                                                         DECEMBER 31,
                                                             ----------------------------------
    ASSETS                                                         2003                 2004
    ------                                                         ----                 ----
Current assets:
   Cash and cash equivalents..........................       $   9,904,384        $   9,438,596

   Accounts receivable, net of reserves for doubtful
      accounts, returns, and allowances $1,790,205 in
      2003 and $1,359,455 in 2004 (note 13)...........           3,944,699            3,349,781
   Inventories, net (note 5)..........................           4,771,216            5,030,478
   Prepaid expenses and other current assets..........             434,694              529,989
                                                                ----------           ----------
             Total current assets.....................          19,054,993           18,348,844

Property, plant and equipment, net (note 6)...........           2,918,985            2,703,208
                                                                ----------           ----------
              Total assets............................       $  21,973,978        $  21,052,052
                                                                ==========           ==========
    LIABILITIES AND STOCKHOLDERS' EQUITY
    ------------------------------------

Current liabilities:
    Accounts payable..................................       $   2,172,028        $   2,006,819
    Accrued expenses..................................           1,011,910            1,275,088
    Current portion of long term debt (note 10).......             223,833              229,555
                                                                ----------           ----------
             Total current liabilities................           3,407,771            3,511,462

Long-term debt, less current portion (note 10)........           5,095,986            4,872,298
                                                                ----------           ----------
              Total liabilities.......................           8,503,757            8,383,760
                                                                ----------           ----------
Stockholders' equity (note 11): Common stock, $0.01 par value.
    Authorized 25,000,000 shares; issued 8,084,616 shares;
    outstanding 8,076,216 and issued 8,935,516;
    outstanding 8,927,116 shares at December
    31, 2003 and December 31, 2004, respectively......              80,846               89,355
  Additional paid-in capital..........................          28,500,421           30,572,727
  Retained earnings (accumulated deficit).............         (15,438,333)         (18,510,181)
  Accumulated other comprehensive income (loss).......             334,609              523,713
  Treasury stock, at cost.............................              (7,322)              (7,322)
                                                                ----------           ----------
             Total stockholders' equity...............          13,470,221           12,668,292
                                                                ----------           ----------
             Total liabilities and stockholders'
               equity.................................       $  21,973,978        $  21,052,052
                                                                ==========           ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>

                               ZOOM  TECHNOLOGIES, INC. AND SUBSIDIARY
                                CONSOLIDATED STATEMENTS OF OPERATIONS
                            Years Ended December 31, 2002, 2003 and 2004
<TABLE>
<S>                                                       <C>             <C>             <C>
                                                              2002            2003            2004
                                                          ------------    ------------    ------------

Net sales (notes 13 and 17)...........................    $ 37,274,287    $ 33,335,209    $ 31,411,781
Cost of goods sold (note 5)...........................      27,937,544      23,120,573      23,345,918
                                                           -----------     -----------     -----------
                     Gross profit ....................       9,336,743      10,214,636       8,065,863
                                                           -----------     -----------     -----------
Operating expenses:
        Selling ......................................       5,848,137       5,270,585       4,800,165
        General and administrative (note 8)...........       3,405,043       3,117,764       3,619,480
        Research and development......................       3,526,350       2,766,967       2,927,225
                                                           -----------     -----------     -----------
                     Total operating expenses.........      12,779,530      11,155,316      11,346,870
                                                           -----------     -----------     -----------

                     Operating loss...................      (3,442,787)       (940,680)     (3,281,007)
                                                           -----------     -----------     -----------
Other income (expense):
        Interest income ..............................         102,604          87,427         149,381
        Interest expense..............................        (293,104)       (211,165)       (211,213)
        Equity in losses of affiliate (note 14).......         (56,666)              -               -
        Other, net....................................         313,619         396,363         270,991
                                                           -----------     -----------     -----------
                     Total other income (expense), net          66,453         272,625         209,159
                                                           -----------     -----------     -----------
                     Income (loss) before income taxes
                       and extraordinary item.........      (3,376,334)       (668,055)     (3,071,848)

Income tax expense (benefit)(note 12).................       2,014,539               -               -
                                                           -----------     -----------     -----------
                     Income (loss) before extraordinary
                       item...........................      (5,390,873)       (668,055)     (3,071,848)
                     Extraordinary gain on elimination
                       of negative goodwill...........         255,287               -               -
                                                           -----------     -----------     -----------
                     Net Income (loss)................    $ (5,135,586)   $   (668,055)   $ (3,071,848)
                                                           ===========     ===========     ===========
Basic and diluted earnings (loss) per share (note 2):

Loss before extraordinary item:
                     Basic and diluted................    $       (.68)   $       (.08)   $       (.36)
                                                           ===========     ===========     ===========

Extraordinary gain on elimination of negative goodwill    $        .03    $          -    $          -
                                                           ===========     ===========     ===========
Net loss:
                     Basic and diluted................    $       (.65)   $       (.08)   $       (.36)
                                                           ===========     ===========     ===========

Weighted average common and common equivalent shares:
                     Basic and diluted................       7,860,650       7,883,400       8,590,092
                                                           ===========     ===========     ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
                                                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                                              CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
                                                                COMPREHENSIVE LOSS
<CAPTION>
<S>                               <C>        <C>           <C>         <C>            <C>            <C>       <C>     <C>
                                                                        Retained     Accumulated
                                                          Additional    Earnings        Other                        Total
                                     Common Stock          Paid In    (accumulated  Comprehensive   Treasury Stock  Stockholders'
                                   Shares      Amount      Capital       deficit)    Income(Loss)  Shares   Amount     Equity
                                 ---------  -----------  -----------  ------------   ------------  ------  -------  -------------
Balance at December 31, 2001 ..  7,860,866  $28,245,215            -   $(9,634,692)   $ (194,795)      -         -   $18,415,728

Net profit (loss) .............          -            -            -    (5,135,586)            -       -         -    (5,135,586)
Foreign currency translation
adjustment ....................          -            -            -             -       206,550       -         -       206,550
 Comprehensive loss ...........          -            -            -             -             -       -         -    (4,929,036)
Incorporation to Delaware
 corporation ..................          -  (28,166,607)  28,166,607             -             -       -         -             -
Purchase of treasury stock ....          -            -            -             -             -   2,600    (2,196)       (2,196)
                                ----------  -----------  -----------  -------------  ------------  -----   --------  ------------
Balance at December 31, 2002 ..  7,860,866  $    78,608  $28,166,607  $(14,770,278)   $   11,755   2,600   $(2,196)  $13,484,496

Net profit (loss) .............          -            -            -      (668,055)            -       -         -      (668,055)
Foreign currency translation
adjustment ....................          -            -            -             -       322,854       -         -       322,854
 Comprehensive loss ...........          -            -            -             -             -       -         -      (345,201)
Exercise of stock options (note
11) ...........................    223,750        2,238      333,814             -             -       -         -       336,052
Purchase of treasury stock ....          -            -            -             -             -   5,800    (5,126)       (5,126)
                                ----------  -----------  -----------  -------------  ------------  ------  --------  ------------
Balance at December 31, 2003 ..  8,084,616  $    80,846  $28,500,421  $(15,438,333)   $  334,609   8,400   $(7,322)  $13,470,221

Net profit (loss) .............          -            -            -    (3,071,848)            -       -         -    (3,071,848)
Foreign currency translation
adjustment ....................          -            -            -             -       189,104       -         -       189,104
 Comprehensive loss ...........          -            -            -             -             -       -         -    (2,882,744)
Exercise of stock options (note
11) ...........................    850,900        8,509    2,072,306             -             -       -         -     2,080,815
                                ----------  -----------  -----------  -------------  ------------  ------  --------  ------------
Balance at December 31, 2004 ..  8,935,516  $    89,355  $30,572,727  $(18,510,181)   $  523,713   8,400   $(7,322)  $12,668,292
                                ==========  ===========  ===========  =============  ============  ======  ========  ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
                                ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                             Years Ended December 31, 2002, 2003 and 2004
<TABLE>
<S>                                                       <C>               <C>             <C>
                                                               2002             2003             2004
                                                               ----             ----             ----
Cash flows from operating activities:
       Net income (loss)................................. $ (5,135,586)    $   (668,055)    $ (3,071,848)

       Adjustments to reconcile net income (loss) to net
        cash provided by (used in) operating activities:
             Non-operating gain on refund of deposit.....            -          (40,237)               -
             Extraordinary gain on negative goodwill.....     (255,287)               -                -
             Depreciation and amortization...............      837,968          617,781          405,158
             Equity in losses of affiliate...............       56,666                -                -
             Net deferred income taxes...................    2,012,844                -                -
             Changes in operating assets and liabilities:
               Accounts receivable.......................    2,139,336          106,881          771,767
               Inventories...............................    4,300,593        2,011,334         (259,262)
               Prepaid expenses and other current assets.      (38,071)         643,276          (95,295)
               Accounts payable and accrued expenses        (1,015,173)        (430,629)          97,969
                                                            ----------       ----------       ----------
                     Net cash provided by (used in)
                       operating activities..............    2,903,290        2,240,351       (2,151,511)
                                                            ----------       ----------       ----------
Cash flows from investing activities:
       Purchases of property, plant and equipment........     (194,963)         (50,855)        (189,381)
                                                            ----------       ----------       ----------
                     Net cash provided by (used in)
                       investing activities..............     (194,963)         (50,855)        (189,381)
                                                            ----------       ----------       ----------
Cash flows from financing activities:
       Repayment of long-term debt.......................     (350,962)        (213,788)        (217,966)
       Exercise of nonqualified stock options............            -          336,052        2,080,815
       Payments to acquire treasury stock................       (2,196)          (5,126)               -
                                                            ----------       ----------       ----------
                      Net cash provided by (used in)
                        financing activities.............     (353,158)         117,138        1,862,849
                                                            ----------       ----------       ----------
Effect of exchange rate changes on cash..................        5,047          (14,524)          12,255
                                                            ----------       ----------       ----------
Net increase (decrease) in cash and cash equivalents.....    2,360,216        2,292,110         (465,788)
                                                            ----------       ----------       ----------
Cash and cash equivalents at beginning of year...........    5,252,058        7,612,274        9,904,384
                                                            ----------       ----------       ----------
Cash and cash equivalents at end of year.................  $ 7,612,274      $ 9,904,384      $ 9,438,596
                                                            ==========       ==========       ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
                      ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 2002, 2003 and 2004

(1)  INCORPORATION AND NATURE OF OPERATIONS
     Zoom Telephonics,  Inc. (the "Company") was incorporated  under the federal
          laws of Canada  (Canada  Business  Corporations  Act).  Its  principal
          business activity, the design,  production, and marketing of broadband
          and  dial-up  modems  and  other  communication-related  products,  is
          conducted through its wholly-owned subsidiary, Zoom Telephonics,  Inc.
          ("Zoom US"), a Delaware corporation based in Boston, Massachusetts.

     In   February 2002 the Company  completed a transaction in which it changed
          its jurisdiction of incorporation from Canada to the State of Delaware
          effective   March  1,  2002.   In   connection   with  the  change  in
          jurisdiction, the Company changed its name to Zoom Technologies,  Inc.
          These changes were accomplished through a process called a continuance
          under the laws of  Canada  and a  domestication  under the laws of the
          State of Delaware,  and were approved by the Company's shareholders at
          a stockholders' meeting on February 15, 2002.

     As   part of the  continuation,  each share of Zoom  Telephonics,  Inc. was
          automatically converted into one share of Zoom Technologies, Inc.

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     (a)  Basis of Presentation and Use of Estimates
     The  consolidated  financial  statements  are prepared in  accordance  with
          accounting  principles  generally  accepted  in the  United  States of
          America and are stated in US dollars.

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

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

     (c)  Cash and Cash Equivalents
     The  Company  considers all  investments  with original  maturities of less
          than 90  days  to be cash  equivalents.  Included  in  cash  and  cash
          equivalents   at  December  31,  2004  and  2003  was  a  deposit  for
          approximately $19,000 and $267,000, respectively, in a duty deferment
          account  approved by H.M. Customs and Excise in the United Kingdom for
          the deferment of value added taxes for imports.

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

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

     (f)  Accounting for Impairment of Long-Lived Assets
     The  Company uses the  provisions  of  Statement  of  Financial  Accounting
          Standards  (SFAS) No. 144,  "Accounting for the Impairment or Disposal
          of Long-Lived  Assets." This statement requires that long-lived assets
          and  certain  identifiable  intangibles  be  reviewed  for  impairment
          whenever events or changes in circumstances indicate that the carrying
          amount of an asset may not be recoverable.
<PAGE>
                    ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

          Recoverability  of  assets  to be  held  and  used  is  measured  by a
          comparison of the carrying amount of an asset to  undiscounted  future
          net cash flows  expected to be generated by the asset.  If such assets
          are  considered  to be impaired,  the  impairment  to be recognized is
          measured  by the  amount by which the  carrying  amount of the  assets
          exceeds  the fair value of the  assets.  Assets to be  disposed of are
          reported at the lower of the  carrying  amount or fair value less cost
          to sell.

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

     (h)  Earnings (Loss) Per Common Share
     Basic earnings (loss) per share is computed by dividing  net income  (loss)
          by the weighted average number of common shares outstanding during the
          period.  Diluted  loss per share is computed by dividing net income by
          the weighted  average  number of common shares and dilutive  potential
          common shares outstanding during the period.  Under the treasury stock
          method,  the  unexercised  options are assumed to be  exercised at the
          beginning of the period or at issuance, if later. The assumed proceeds
          are then used to purchase  common  shares at the average  market price
          during the period.
                                         2002            2003            2004
                                         ----            ----            ----
Basic weighted
   average shares outstanding .......  7,860,650       7,883,400       8,590,092

Net effect of dilutive potential
   common shares outstanding, based
   on the treasury stock method......          -               -               -
                                       ---------       ---------       ---------
Diluted weighted
   average shares outstanding........  7,860,650       7,883,400       8,590,092
                                       =========       =========       =========

     Potential  common  shares  for which  inclusion  would  have the  effect of
          increasing  diluted  earnings  per  share  (i.e.,   antidilutive)  are
          excluded  from the  computation.  The  dilutive  effect of  options to
          purchase 3,814, 206,414 and 769,790 shares of common stock at December
          31, 2002,  2003, and 2004,  respectively,  were  outstanding,  but not
          included in the  computation  of diluted  earnings  per share as their
          effect would be antidilutive.

     (i)  Revenue Recognition

     The  Company  primarily  sells  hardware  products  to its  customers.  The
          hardware  products include dial-up modems,  DSL modems,  cable modems,
          embedded  modems,  ISDN modems,  telephone  dialers,  and wireless and
          wired  networking  equipment.  The  Company  earns a small  amount  of
          royalty  that is included in its net sales,  primarily  from  internet
          service providers.  The Company generally does not sell software.  The
          Company began selling  services in 2004.  The Company  introduced  its
          Global  Village VoIP service in late 2004, but sales of those services
          in 2004 were not material.

     The  Company  derives  its net sales  primarily  from the sales of hardware
          products  to  computer   peripherals   retailers,   computer   product
          distributors, and original equipment manufacturers (OEMs). The Company
          sells a very small amount of its hardware products to direct consumers
          or to any customers via the internet.
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

     The  Company recognizes hardware net sales for all three types of customers
          at the point when the customers take legal  ownership of the delivered
          products.  Legal  ownership  passes from Zoom to the customer based on
          the contractual  FOB point specified in signed  contracts and purchase
          orders,  which  are  both  used  extensively.  Many  of  its  customer
          contracts  or purchase  orders  specify FOB  destination.  The Company
          verifies  the  delivery  date  on  all   significant  FOB  destination
          shipments made during the last 10 business days of each quarter.

     The  Company's  net sales of hardware  are reduced by certain  events which
          are  characteristic  of the sales of hardware to retailers of computer
          peripherals.  These  events are  product  returns,  certain  sales and
          marketing  incentives,  price  protection  refunds,  and  consumer and
          in-store  mail-in  rebates.  Each  of  these  is  accounted  for  as a
          reduction of net sales based on careful  management  estimates,  which
          are reconciled to actual customer or end-consumer credits on a monthly
          or quarterly basis.

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

     The  Company's   2004  VoIP   service   revenues   were   recorded  as  the
          end-user-customer  consumed  billable VoIP services.  No sales of VoIP
          services were made to resellers in 2004. The end-user-customer  became
          a services  customer  by  electing  to sign up for the Global  Village
          billable service on the internet.  The Company recorded revenue either
          as billable  services were consumed or as a monthly  flat-fee  service
          was billed.

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

     (k)  Stock-Based Compensation
     The  Company  accounts  for  stock-based  compensation  under SFAS 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 (APB) No. 25 (APB 25), "Accounting
          for Stock Issued to Employees,"  and FASB  interpretation  No. 44 (FIN
          44). Accordingly,  no accounting recognition is given to stock options
          granted at fair market value until they are exercised.  Upon exercise,
          net proceeds, including tax benefits realized, if any, are credited to
          equity.

     The  following  table  illustrates  the  effect on net  income  (loss)  and
          earnings  (loss) per share if the  Company  had applied the fair value
          recognition provisions of FASB 123 to stock-based compensation.
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)
<TABLE>
<S>                                                          <C>              <C>             <C>
                                                                       YEAR ENDED DECEMBER 31,
                                                                 2002             2003             2004
                                                             ------------     ------------    -------------
Net income (loss), as reported.........................      $(5,135,586)     $  (668,055)    $ (3,071,848)

Deduct: Total stock-based employee compensation expense
determined under fair value based method fpr all awards
net of related tax effects.............................       (1,109,003)        (372,009)        (591,459)
                                                             ------------     ------------    -------------
Proforma net income (loss).............................      $(6,244,589)     $(1,040,064)    $ (3,663,307)
                                                             ============     ============    =============
Earnings (loss) per share:
Basic -- as reported...................................      $     (0.65)     $     (.08)     $       (.36)
Basic -- proforma......................................      $     (0.79)     $     (.13)     $       (.43)
                                                             ============     ============    =============
Diluted -- as reported.................................      $     (0.65)     $     (.08)     $       (.36)
Diluted -- proforma....................................      $     (0.79)     $     (.13)     $       (.43)
</TABLE>
     Weighted-average assumptions: 2002-expected dividend yield 0.00%, risk-free
          interest  rate of 2.65%,  volatility  106% and an expected life of 2.5
          years;  2003-expected dividend yield 0.00%, risk-free interest rate of
          1.82%,   volatility   124%  and  an   expected   life  of  2.0  years;
          2004-expected  dividend yield 0.0%,  risk-free interest rate of 2.32%,
          volatility 110% and an expected life of 2.0 years.

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

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

     (n)  Foreign Currencies
     The  Company  generates a portion of its revenues in international  markets
          and denominated in foreign  currencies,  which subjects its operations
          to exposure to foreign currency  fluctuations.  The impact of currency
          fluctuations  can be positive or  negative  in any given  period.  The
          Company has no involvement with derivative financial instruments.

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

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

(3)  LIQUIDITY
     In   2004 the  Company's  net cash used in  operating  activities  was $2.2
          million,  net cash used in investing  activities was $.2 million,  and
          net  cash  provided  by  financing  activities  was $1.9  million.  On
          December  31,  2003 and 2004  Zoom  had cash and cash  equivalents  of
          approximately $9.9 million and $9.4 million, respectively.

     On   March 16, 2005 Zoom  Telephonics,  a wholly  owned  subsidiary  of the
          Company,  entered  into a Loan and  Security  Agreement  with  Silicon
          Valley Bank that  provides for a revolving  line of credit of up to $2
          million.  The  revolving  line of  credit  can be  used to (i)  borrow
          revolving  loans for working capital and general  corporate  purposes,
          (ii) issue letters of credit, (iii) enter into foreign
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

          exchange forward  contracts,  and (iv) support certain cash management
          services.  Revolving  loans will bear  interest at a floating  rate of
          interest  equal to Silicon  Valley  Bank's  prime  rate plus 1%.  This
          interest rate will be reduced to Silicon Valley Bank's prime rate plus
          .5% if the  Company  records  two  consecutive  quarters  of  combined
          profitability.

     On   March 15, 2006 Silicon  Valley Bank's  commitment to extend  revolving
          loans  under  the  Loan  and  Security  Agreement  terminates  and all
          outstanding obligations under the agreement become due.

     The  revolving loans under the Loan and Security Agreement are secured by a
          first priority lien on substantially all of the assets of the Company,
          excluding   intellectual   property  and  real  estate.   The  Company
          guaranteed  the  obligations of Zoom  Telephonics  under the revolving
          line of credit and  pledged  all of the stock of Zoom  Telephonics  in
          support of the Company's  guarantee.  The Loan and Security  Agreement
          requires that Zoom Telephonics maintain a minimum adjusted quick ratio
          and a minimum net worth. In addition,  Zoom Telephonics is required to
          obtain  Silicon  Valley  Bank's prior  written  consent to among other
          things,  dispose of assets,  make  acquisitions,  be  acquired,  incur
          indebtedness,   grant  liens,  make  investments,  pay  dividends,  or
          repurchase stock. This consent may not be unreasonably withheld.

     The  Loan and Security  Agreement  contains  events of default that include
          among  other  things,  non-payment  of  principal,  interest  or fees,
          violation of covenants,  inaccuracy of representations and warranties,
          cross default to certain other indebtedness, bankruptcy and insolvency
          events,  change of control and material judgments.  Upon occurrence of
          an event of default,  Silicon  Valley Bank is entitled to, among other
          things,  accelerate all  obligations of Zoom  Telephonics and sell its
          assets  to  satisfy  the  obligations  under  the  Loan  and  Security
          Agreement.

     The  Company  believes  its  current  availability  under  the  line  is $2
          million.

     To conserve  cash and  manage  the  Company's  liquidity,  the  Company has
          implemented  expense  reductions  throughout 2002, 2003, and 2004. The
          employee  headcount was 329 at December 31, 2000, which was reduced to
          185 at December  31, 2002,  159 at December  31,  2003,  and to 154 at
          December 31, 2004.  The  Company  will  continue  to  assess  its cost
          structure as it relates to its revenues and cash position in 2005, and
          may make further reductions if these actions are deemed necessary.

     In   recent years,  the Company's  sales have declined as its major product
          market,  the dial-up modem retail  after-market,  has  declined.  This
          trend  continues,  as personal  computer  manufacturers  incorporate a
          dial-up  modem  as a  built-in  component  in most  consumer  personal
          computers and increasing numbers of consumers world-wide are switching
          to broadband  Internet access. The Company's sales of products for the
          broadband  Internet market have been growing,  and in 2004 represented
          40% of total net sales.  The Company's  future  success will depend in
          large part on the  ability to improve its  penetration  of the growing
          broadband modem markets.

     The  Company's  mortgage  loan  on  the  two  buildings   constituting  our
          headquarters  facility,  of which  $5.1  million  was  outstanding  on
          December 31, 2004 will be due and payable on January 10,  2006.  Based
          upon  recent  indications  of interest  from  potential  lenders,  the
          Company  believes it will be able to refinance the mortgage or, in the
          alternative,  sell our buildings for a purchase price significantly in
          excess of the outstanding amounts under the loan.

     The  Company's total current assets at December 31, 2004 were $18.3 million
          and current  liabilities were $3.5 million and long-term debt was $4.9
          million.  Management believes it has sufficient  resources to fund its
          planned operations over the next 12 months. However, if the Company is
          unable  to  increase  its  revenues,  reduce  its  expenses,  or raise
          capital,  the  Company's  longer-term  ability to  continue as a going
          concern  and  achieve  its  intended  business   objectives  could  be
          adversely affected.
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

(4)  NEW ACCOUNTING PRONOUNCEMENTS
     Recently Issued or Proposed Accounting Pronouncements
     In   December   2004  the  FASB  issued  SFAS  No.  123   (revised   2004),
          "Share-Based  Payment"  ("SFAS  123R"),  which  replaces SFAS No. 123,
          "Accounting for Stock-Based  Compensation," ("SFAS123") and supercedes
          APB Opinion No. 25,  "Accounting for Stock Issued to Employees."  SFAS
          123R requires all share-based payments to employees,  including grants
          of  employee  stock  options,   to  be  recognized  in  the  financial
          statements based on their fair values beginning with the first interim
          or annual period after June 15, 2005  with early adoption  encouraged.
          The pro  forma  disclosures  previously  permitted  under  SFAS 123 no
          longer will be an alternative to financial statement recognition.  The
          Company is required to adopt SFAS 123R in the third  quarter of fiscal
          2005,  beginning  July 1,  2005.  Under SFAS 123R,  the  Company  must
          determine the appropriate fair value model and related  assumptions to
          be used for valuing share-based payments,  the amortization method for
          compensation  cost  and the  transition  method  to be used at date of
          adoption.  The transition methods include  prospective and retroactive
          adoption options.  Under the retroactive option,  prior periods may be
          restated either as of the beginning of the year of adoption or for all
          periods  presented.  The prospective method requires that compensation
          expense be recorded for all unvested stock options at the beginning of
          the first  quarter of  adoption  of SFAS 123R,  while the  retroactive
          method  would  record  compensation  expense  for all  unvested  stock
          options  beginning  with the first  period  restated.  The  Company is
          evaluating the requirements of SFAS 123R and expects that the adoption
          of SFAS 123R will have a material impact on our  consolidated  results
          of  operations  and  earnings  per  share.  The  Company  has  not yet
          determined the method of adoption or the effect of adopting SFAS 123R,
          and has not  determined  whether the  adoption  will result in amounts
          that are similar to the current pro forma disclosures under SFAS 123.

     In   November  2004,  the FASB  issued SFAS No.  151,  "Inventory  Costs-An
          Amendment of ARB No. 43, Chapter 4" ("SFAS 151").  SFAS 151 amends the
          guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the
          accounting  for abnormal  amounts of idle facility  expense,  freight,
          handling   costs,   and  wasted  material   (spoilage).   Among  other
          provisions,  the new rule  requires  that items such as idle  facility
          expense,  excessive spoilage,  double freight, and rehandling costs be
          recognized as current-period  charges  regardless of whether they meet
          the criterion of "so abnormal" as stated in ARB No. 43.  Additionally,
          SFAS 151 requires that the allocation of fixed production overheads to
          the  costs  of  conversion  be  based on the  normal  capacity  of the
          production  facilities.   SFAS  151  is  effective  for  fiscal  years
          beginning  after June 15,  2005 and is  required  to be adopted by the
          Company in the first  quarter of fiscal 2006,  beginning on January 1,
          2006. The Company is currently evaluating the effect, if any, that the
          adoption  of  SFAS  151  will  have  on its  consolidated  results  of
          operations.

(5)  INVENTORIES
     Inventories consist of the following at December 31:

                                            2003          2004
                                            ----          ----
        Raw materials.............      $ 1,754,850   $ 2,595,730
        Work in process...........          639,425       920,075
        Finished goods............        2,376,941     1,514,673
                                        -----------   -----------
                     Net Inventory      $ 4,771,216   $ 5,030,478
                                        ===========   ===========

     During 2003 the Company  recorded  lower of cost or market  write-downs  of
          $0.3 million related to broadband and wireless inventory.
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

(6)  PROPERTY, PLANT AND EQUIPMENT
     Property, plant and equipment consists of the following at December 31:

                                                                      Estimated
                                             2003          2004     useful lives
                                             ----          ----     ------------
        Land........................... $   309,637    $   309,637        -
        Buildings and improvements.....   2,774,281      2,767,517    31.5 years
        Leasehold improvements.........     483,039        483,039     5 years
        Computer hardware and software.   3,565,595      3,624,027     3 years
        Machinery and equipment........   1,753,001      1,837,064     5 years
        Molds, tools and dies..........   1,537,464      1,591,114     5 years
        Office furniture and fixtures..     275,516        275,516     5 years
                                        -----------    -----------
                                        $10,698,533    $10,887,914
        Less accumulated depreciation
          and amortization               (7,779,548)    (8,184,706)
                                        -----------    -----------
                                        $ 2,918,985    $ 2,703,208
                                        ===========    ===========

(7)  COMMITMENTS AND CONTINGENCIES
     (a) Lease Obligations
     The  Company leases a  manufacturing  and  warehousing  facility in Boston,
          Massachusetts,  an office facility in Camberley, United Kingdom, and a
          technical  support  facility  in  Boca  Raton,  Florida.  The  Boston,
          Massachusetts  lease  expires  in March  2006.  In  September  2002 we
          entered into a five year lease, as a tenant,  for approximately  3,500
          square feet at 951 Broken Sound Parkway,  Boca Raton,  Florida,  which
          expires in August  2007.  In March 1999 the Company  assumed an office
          lease from Hayes Microcomputer  Products, Inc. at 430 Frimley Business
          Park,  Camberley  Surrey,  U.K.  The Company has agreed to extend this
          lease term to March 2006.  Total rent  expense,  under  non-cancelable
          operating  leases,  was $782,000,  $757,821 and $795,102 for the years
          ended December 31, 2002, 2003 and 2004, respectively.

     The  Company's   estimated  future  minimum  rental   payments,   excluding
          executory  costs,  under these  operating  leases are set forth in the
          table below.
                                  Year              Total
                                  ----             -------
                                  2005             846,985
                                  2006             386,916
                                  2007              77,338
     (b)  Contingencies
     The  Company is party to various  lawsuits and  administrative  proceedings
          arising in the ordinary course of business. The Company evaluates such
          lawsuits and proceedings on a case-by-case basis, and its policy is to
          vigorously  contest  any such  claims  which it  believes  are without
          merit. The Company's  management believes that the ultimate resolution
          of such pending  matters will not materially and adversely  affect the
          Company's business,  financial position, results of operations or cash
          flows.  The Company had no Letters of Credit  outstanding  at December
          31, 2004.

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

     The  Company  depends  on many  third-party  suppliers  for key  components
          contained in its product offerings. For some of these components,  the
          Company may only use a single source supplier, in part due to the lack
          of  alternative  sources  of supply.  If the supply of a key  material
          component is delayed or curtailed,  the Company's  ability to ship the
          related  product or  solution  in desired  quantities  and in a timely
          manner could be adversely  affected,  possibly resulting in reductions
          in net  sales.  In cases  where  alternative  sources  of  supply  are
          available,  qualification of the sources and establishment of reliable
          supplies could result in delays and possible reduction in net sales.
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

     In   the event that the financial  condition of the  Company's  third-party
          suppliers for key components was to erode, the delay or curtailment of
          deliveries of key material components could occur.  Additionally,  the
          Company's reliance on third-party suppliers of key material components
          exposes the Company to  potential  product  quality  issues that could
          affect the  reliability and performance of its products and solutions.
          Any lesser ability to ship its products in desired quantities and in a
          timely manner due to a delay or  curtailment of the supply of material
          components,  or product quality issues arising from faulty  components
          manufactured  by third-party  suppliers,  could  adversely  affect the
          market  for the  Company's  products  and lead to a  reduction  in the
          Company's net sales.

(8)  EXTRAORDINARY GAIN
     In March 2002 the Company recorded negative goodwill that resulted from the
          purchase of the Hayes Microcomputer Products U.K., business, where the
          value of the net assets acquired exceeded the cost.

     On   January 1, 2002 the  Company  recorded an  extraordinary  gain of $0.3
          million upon the adoption of SFAS No. 142. The gain  resulted from the
          elimination  of the  remaining  negative  goodwill  on  the  Company's
          consolidated balance sheet.

(9)  Comprehensive Income (loss)
     The  components of comprehensive income (loss), net of tax, are as follows:

                                          2002           2003           2004
                                          ----           ----           ----
Net income (loss)................     $(5,135,586)   $  (668,055)   $(3,071,848)
Foreign currency translation
 adjustment......................         206,550        322,854        189,104
                                      ------------    -----------    -----------
Comprehensive income (loss)......     $(4,929,036)   $  (345,201)   $(2,882,744)
                                      ============    ===========    ===========

     Foreign currency  translation  adjustment  represented  the entire  balance
          within accumulated other  comprehensive  income (loss) at December 31,
          2002, 2003 and 2004.

(10) LONG-TERM DEBT
     On   January 10, 2001 the Company obtained a mortgage for $6 million on the
          real  estate  property  located at 201 and 207 South  Street,  Boston,
          Massachusetts.  This is a 20-year  direct  reduction  mortgage  with a
          five-year balloon due January 10, 2006. The interest rate is fixed for
          one year, based on the one year Federal Home Loan Bank rate plus 2.5 %
          per annum.  The rate is adjusted on January 10th of each calendar year
          commencing  on January  10,  2002.  The rate was  adjusted  to 5.8% on
          January 10, 2005. On September 24, 2002 the Company paid an additional
          principal payment of $178,761 in compliance with a mortgage  covenant.
          Future minimum  principal  payments are due as follows at December 31,
          2004.
                          Year                Total
                          ----                -----
                          2005               229,555
                          2006             4,872,298
                                           ---------
                          Total          $ 5,101,853

(11) STOCK OPTION PLANS
     At   December 31, 2004 the Company had three stock option plans,  which are
          described below:

     Employee Stock Option Plan
     The  Employee Stock Option Plan (the  "Employee  Stock Option Plan") is for
          officers and certain full-time and part-time employees of the Company.
          Non-employee  directors of the Company are not entitled to participate
          under this plan.  The  Employee  Stock  Option Plan  provides  for the
          availability of 2,800,000 shares of common stock for issuance upon the
          exercise of stock  options  granted  under the plan.  Shares of common
          stock were  registered for issuance under this plan in accordance with
          the Securities Act of 1933. Under this plan, stock options are granted
          at the  discretion  of the  Compensation  Committee  of the  Board  of
          Directors  at an option  price not less than the fair market  value of
          the  stock  on the date of  grant.  The  options  are  exercisable  in
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

          accordance with terms specified by the  Compensation  Committee not to
          exceed ten years  from the date of grant.  Options  outstanding  under
          this plan are as follows:
                                                                Weighted average
                                          Number of shares       exercise price
        Balance at December 31, 2001         1,038,000               $ 4.48
          Granted...................           325,000                 1.00
          Exercised.................                 -                    -
          Expired...................          (115,000)                4.84
                                              ---------                ----
        Balance at December 31, 2002         1,248,000               $ 3.54
          Granted...................           310,000                 1.95
          Exercised.................           (37,000)                1.65
          Expired...................          (322,000)                7.49
                                              ---------                ----
        Balance at December 31, 2003         1,199,000               $ 2.13
          Granted...................                 -                    -
          Exercised.................          (631,000)                 2.67
          Expired...................                 -                    -
                                             ----------                ----
        Balance at December 31, 2004           568,000               $ 1.52
                                             ==========                ====

     The  following table summarizes information about fixed stock options under
          the Employee Stock Option Plan outstanding on December 31, 2004:
<TABLE>
<S>                  <C>              <C>                 <C>                  <C>            <C>
                                     Options Outstanding                             Options Exercisable
                     -----------------------------------------------------     ------------------------------
                                      Weighted Average
                        Number           Remaining        Weighted Average       Number       Weighted Average
Exercise Prices      Outstanding      Contractual Life     Exercise Price      Exercisable     Exercise Price
     $ 1.00              258,000            0.40               $ 1.00            258,000           $ 1.00
       1.95              310,000            1.80                 1.95            155,000             1.95
----------------         -------            ----                 ----            -------             ----
$ 1.00 to $1.95          568,000            1.20 years         $ 1.52            413,000           $ 1.36
================         =======            ==========         ======            =======           ======
</TABLE>
     In   1991 the  Company  established  the  Director  Stock  Option Plan (the
          "Directors Plan"). Shares of common stock were registered for issuance
          under this plan in accordance  with the  Securities  Act of 1933.  The
          Directors Plan was established for all directors of the Company except
          for any director who is a full-time  employee or full-time  officer of
          the Company.  In 2003, the Directors Plan was amended to provide that,
          each eligible director is automatically  granted an option to purchase
          12,000  shares of common stock on July 10 and January 10 of each year,
          beginning July 10, 2003. Prior to the amendment to the Directors Plan,
          eligible  directors were  automatically  granted an option to purchase
          6,000  shares of common  stock on July 10 and January 10 of each year,
          beginning on July 10, 1991.  The option price is the fair market value
          of the  common  stock on the date the  option  is  granted.  There are
          450,000 shares  authorized for issuance under the Directors Plan. Each
          option  expires  two years from the grant  date.  Options  outstanding
          under this plan are as follows:
                                                                Weighted average
                                          Number of shares       exercise price
        Balance at December 31, 2001          72,000                 $ 5.48
          Granted...................          36,000                   1.17
          Exercised.................               -                      -
          Expired...................         (36,000)                  7.69
                                             --------                  ----
        Balance at December 31, 2002          72,000                 $ 2.21
          Granted...................          54,000                   0.95
          Exercised.................         (36,000)                  1.18
          Expired...................         (36,000)                  3.26
                                             --------                  ----
        Balance at December 31, 2003          54,000                 $ 0.94
          Granted...................          72,000                   3.81
          Exercised.................         (30,000)                  0.85
          Expired...................               -                      -
                                             --------                  ----
        Balance at December 31, 2004          96,000                 $ 3.12
                                             ========                  ====
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

     The  following table summarizes information about fixed stock options under
          the Directors Plan on December 31, 2004:
<TABLE>
<S>                  <C>              <C>                 <C>                  <C>            <C>
                                     Options Outstanding                             Options Exercisable
                     -----------------------------------------------------     -------------------------------
                                      Weighted Average
                       Number           Remaining        Weighted Average       Number       Weighted Average
Exercise Prices      Outstanding      Contractual Life     Exercise Price      Exercisable     Exercise Price
     $ 1.05            24,000               0.5                $ 1.05            24,000           $ 1.05
     $ 3.07            36,000               1.5                $ 3.07                 -           $    -
     $ 4.55            36,000               1.0                $ 4.55            36,000           $ 4.55
----------------      -------               ---------          ------            ------           ------
$ 1.05 - $ 4.55        96,000               1.1 years          $ 3.12            60,000           $ 3.15
================      =======               =========          ======            ======           ======
</TABLE>
     1998 Employee Equity Incentive Stock Option Plan
     The  1998 Employee Equity Incentive Stock Option Plan (the "1998 Plan") was
          adopted by the Board of Directors to attract and retain  employees and
          provide  an  incentive  for them to  assist  the  Company  to  achieve
          long-range performance goals, and to enable them to participate in the
          long-term growth of the Company. Non-employee directors of the Company
          and certain  officers of the Company are not  entitled to  participate
          under  this  plan.  The  authorized  number  of shares  available  for
          issuance  under the 1998  Plan is  1,200,000  shares of common  stock.
          Shares of common stock were  registered  for  issuance  under the 1998
          Plan in accordance  with the Securities Act of 1933.  Under this plan,
          stock  options may be granted at the  discretion  of the  Compensation
          Committee of the Board of Directors at an option price  determined  by
          the Compensation  Committee.  All options under this plan have been at
          fair  market  value  on  the  date  of  the  grant.  The  options  are
          exercisable  in accordance  with terms  specified by the  Compensation
          Committee. Options outstanding under this plan are as follows:

                                                                Weighted average
                                          Number of shares       exercise price
        Balance at December 31, 2001          699,900                $ 4.55
          Granted...................          363,600                  1.00
          Exercised.................                -                     -
          Expired...................         (283,000)                 3.55
                                              -------                  ----
        Balance at December 31, 2002          780,500                $ 3.16
          Granted...................          240,000                  1.85
          Exercised.................         (150,750)                 1.54
          Expired...................         (287,700)                 5.77
                                              -------                  ----
        Balance at December 31, 2003          582,050                $ 1.76
          Granted...................           68,500                  3.64
          Exercised.................         (189,900)                 1.95
          Expired...................         ( 70,075)                 2.19
                                              -------                  ----
        Balance at December 31, 2004          390,575                $ 1.91
                                              =======                  ====

     The  following table summarizes information about fixed stock options under
          the 1998 Plan outstanding on December 31, 2004:
<TABLE>
<S>                  <C>              <C>                 <C>                  <C>            <C>
                                     Options Outstanding                             Options Exercisable
                     -----------------------------------------------------     ------------------------------
                                      Weighted Average
  Range of              Number           Remaining        Weighted Average       Number       Weighted Average
Exercise Prices      Outstanding      Contractual Life     Exercise Price      Exercisable     Exercise Price
   $  1.00             110,350               0.5               $  1.00           110,350          $ 1.00
      1.85             213,225               1.8                  1.85           104,725            1.85
      2.77               5,000               2.7                  2.77                 -               -
  3.56 to 3.59          57,000               2.9                  3.59                 -               -
      4.83               5,000               2.1                  4.83                 -               -
----------------       -------               ---------           -----            ------           -------
$ 1.00 to $ 4.83       390,575               1.6 years         $  1.91           215,075          $ 1.41
================       =======               =========           =====           =======           =======
</TABLE>
     On   December 31, 2004 there were 1,068,721 additional shares available for
          issuance   under  all  three  stock  option   plans.   The  per  share
          weighted-average  fair value of stock  options  granted  during  2002,
          2003, and 2004 was $0.54, $1.14 and $2.18,  respectively,  on the date
          of grant using the Black Scholes option-pricing model (see note 2).
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

(12) INCOME TAXES
     Income tax expense (benefit) consists of the following:
<TABLE>
<S>                                        <C>          <C>               <C>
                                             Current        Deferred           Total
                                             -------        --------           -----
        Year ended December 31, 2002:
          US federal..................     $       -    $  1,612,634    $  1,612,634
          State and local.............             -         400,210         400,210
          Foreign.....................         1,695               -           1,695
                                              ------     -----------     -----------
                                           $   1,695    $  2,012,844    $  2,014,539
                                              ======     ===========     ===========
        Year ended December 31, 2003:
          US federal..................     $       -    $          -    $          -
          State and local.............             -               -               -
          Foreign.....................             -               -               -
                                             -------     -----------     -----------
                                           $       -    $          -    $          -
                                             =======     ===========     ===========
        Year ended December 31, 2004:
          US federal..................     $       -    $          -    $          -
          State and local.............             -               -               -
          Foreign.....................             -               -               -
                                             -------     -----------     -----------
                                           $       -    $          -    $          -
                                             =======     ===========     ===========
</TABLE>
     Income tax  expense  (benefit)  was  $2,014,539  dollars for the year ended
          December  31, 2002 and zero  dollars for the years ended  December 31,
          2003 and 2004,  and differed  from the amounts as computed by applying
          the US  statutory  tax rate of 34% to  pretax  loss as a result of the
          following:
<TABLE>
<S>                                                              <C>            <C>            <C>
                                                                      2002          2003           2004
                                                                      ----          ----           ----
        Computed "expected" US tax expense (benefit)..........   $(1,147,954)   $  (227,139)   $(1,044,428)
        Increase (reduction) in income taxes resulting from:
          State and local income taxes, net of federal
            income tax benefit................................       264,139              -             -
          Increase (reduction) in federal valuation allowance.     2,885,398        219,215      1,023,535
          Other, net..........................................        12,956          7,924         20,893
                                                                  -----------    -----------    -----------
        Income tax expense (benefit)                             $ 2,014,539    $         -    $         -
                                                                  ===========    ===========    ===========

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

                                                                      2002          2003           2004
                                                                      ----          ----           ----
        Loss from operations..................................   $ 2,014,539    $         -    $        -
        Stockholders' equity, for compensation expense
          for tax purposes in excess of amounts
          recognized for financial statement purposes.........             -              -             -
                                                                  -----------     ----------    ----------
                                                                 $ 2,014,539    $         -    $        -
                                                                  ===========     ==========    ==========
</TABLE>
     The  tax effects of  temporary  differences  that give rise to  significant
          portions of the deferred tax assets and  deferred tax  liabilities  at
          December 31, 2002, 2003, and 2004 are presented below:
<TABLE>
<S>                                                              <C>             <C>           <C>
                                                                      2002           2003          2004
                                                                      ----           ----          ----
        Deferred tax assets:
        Inventories, primarily non-deductible reserves........   $ 2,688,239     $ 2,409,923   $ 1,861,978
        Accounts receivable,
          primarily returns and allowances....................       340,213         483,057       270,041
        Accrued expenses, principally provisions
          not currently deductible............................       228,992         141,157       166,487
        Net operating loss carryforwards and credits..........     9,768,697       9,132,219    11,325,988
        Depreciation and amortization.........................     1,455,958       1,340,233     1,616,459
        Other.................................................        88,933         102,594       118,526
                                                                  ----------       ---------     ---------
        Total gross deferred tax assets                           14,571,030      13,609,183    15,359,479
        Less valuation allowance                                 (14,571,030)    (13,609,183)  (15,359,479)
                                                                  ----------      ----------    ----------
        Net deferred tax assets                                  $         -     $         -   $         -
                                                                  ==========      ==========    ==========
</TABLE>
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

     On   December  31,  2004  the  Company  had  federal  net  operating   loss
          carryforwards   of  approximately   $28,638,000.   These  federal  net
          operating  losses are available to offset future taxable  income,  and
          are due to expire  beginning 2019. The Company had state net operating
          loss  carryforwards  in various states of  approximately  $26,824,000.
          These federal and state net  operating  losses are available to offset
          future  taxable  income,  and are  primarily  due to  expire  in years
          ranging from 2005 through  2009.  The Company  recorded a deferred tax
          asset  valuation  allowance  against the portion of the  deferred  tax
          assets that  management  believes  may expire  unused.  The  valuation
          allowance  reduces deferred tax assets to reflect the estimated amount
          of deferred tax assets,  which will more likely not be  realized.  The
          Company has  recorded a valuation  allowance  against its deferred tax
          assets because  management  believes that,  after  considering all the
          available objective evidence, historical and prospective, with greater
          weight given to historical  evidence,  it is more likely than not that
          these assets will not be realized.

     Subsequently recognized  tax benefits relating to valuation  allowances for
          deferred tax assets, if any, will be allocated as follows: $14,756,000
          to continuing  operations and $600,000 to additional  paid-in  capital
          which is attributable to the exercise of employee stock options.

(13) SIGNIFICANT CUSTOMERS
     Three customers each  comprised of  approximately  10% or more of net sales
          for the years ended December 31, 2002,  2003 and 2004. On December 31,
          2004  three  customers  comprised  approximately  38% of net  accounts
          receivable.   On  December  31,  2003,   three   customers   comprised
          approximately 49% of net accounts receivable.

     One  of the Company's  significant  customers has notified the Company that
          they want to purchase on a  consignment  basis for their dial-up modem
          category.  That customer has also  indicated  that they plan to reduce
          the number of brands of dial-up  modems that they sell,  and that they
          cannot assure that they will continue to sell the Company's products.

(14) INVESTMENT IN AFFILIATES
     In   September  1999 the Company made an investment in a limited  liability
          company ("LLC").  The Company granted the LLC the rights to a software
          license in exchange for 300,000 Class A shares of the LLC,  which were
          valued by the  Company  at  $300,000.  The value at which the  outside
          investors  paid cash for shares  received  as part of the same  equity
          infusion  was used by the Company to value their shares  received.  In
          May 2000,  the LLC converted to a "C"  corporation.  In March 2001 and
          December 2001 the Company made additional investments in the affiliate
          for a total of $141,665, maintaining the same percent of ownership. As
          a result of the recognition of the Company's share of equity in losses
          of the affiliate,  the investment  balance as of December 31, 2002 has
          been reduced to zero.

(15) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

                                                   2002       2003         2004
                                                   ----       ----         ----
       Cash paid during year for interest      $ 306,237   $ 215,571   $ 210,941
                                                  ======   =========   =========
       Cash paid during year for income taxes  $  66,624   $       -   $       -
                                                  ======   =========   =========

     The  tax benefit of the exercise of stock options  resulted in no increases
          to  additional  paid-in  capital  in 2004 or 2003,  since the  Company
          believes  that it is more  likely  than not that  these  deferred  tax
          assets will not be realized. No options were exercised in 2002.
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

(16) DEPENDENCE ON KEY SUPPLIERS AND CONTRACT MANUFACTURERS
     The  Company  produces  its  products  using  components  or  subassemblies
          purchased from third-party suppliers.

     Beginning in  2002  the  Company  entered  into  supply  arrangements  with
          suppliers  of  some   components   that   included   price  and  other
          concessions,  including  no-charge  components,  for  meeting  certain
          purchase  requirements or commitments.  Under these arrangements,  the
          Company was committed to certain purchase  requirements  over a period
          of approximately 30-months that commenced on January 1, 2002, provided
          that those components were offered at competitive terms and prices. At
          December 31, 2004, those  commitments had been met. In connection with
          these  arrangements,  the Company became  entitled to receive at least
          $3.0 million of no-charge components, based upon the supplier's market
          price  for the  components  in late  2001 and  early  2002,  and other
          pricing  concessions  based  on  our  purchase  volumes.  The  Company
          received  $1.2  million of these  no-charge  components  in the fourth
          quarter of 2001.  The Company  received the remainder of the no-charge
          components in the first quarter of 2002.  The favorable  impact to the
          Company's  statement  of  operations  was  calculated  as  a  purchase
          discount  over the  estimated  total  number  of  components  acquired
          through the 30 month  supply  agreement  and  recognized  on a delayed
          basis as the products  employing the acquired  components  involved in
          the  supply  arrangement  were sold.  This  method of  accounting  was
          consistent each year, covering 2002 through 2004.

     Currently a  substantial  percentage of our  manufacturing  is performed by
          SameTime  Electronics  ("SameTime")  and  Vtech.  The  loss  of  these
          services  or a material  adverse  change in their  business  or in our
          relationship  could  materially  and adversely  harm our business.  To
          lessen the risk  associated  with these  companies  being the  primary
          manufacturers  of a  substantial  portion  of our  products  and for a
          number of other reasons including cost and  availability,  we are also
          using  Billion,  Billionton,  Lite-On,  Taicom and Well to manufacture
          various products.

(17) SEGMENT AND GEOGRAPHIC INFORMATION
     The  Company's  operations  are  classified  into one  reportable  segment.
          Substantially  all of the Company's  operations and long-lived  assets
          reside  primarily in the United  States.  The  Company's  net sales to
          North America and net sales to international locations for 2002, 2003,
          and 2004 were comprised as follows:
<TABLE>
<S>               <C>            <C>          <C>             <C>         <C>             <C>
                        2002     % of Total         2003      % of Total        2004      % of Total
                        ----     ----------         ----      ----------        ----      ----------
North America     $  22,342,890       60%     $  18,212,110       55%     $  14,026,601       45%
International        14,931,397       40%        15,123,099       45%        17,385,180       55%
                     ----------     ----         ----------      ----        ----------      ----
Total             $  37,274,287      100%     $  33,335,209      100%     $  31,411,781      100%
                     ==========     ====         ==========      ====        ==========      ====
</TABLE>
(18) RETIREMENT PLAN
     The  Company  established a 401(k) retirement savings plan for employees in
          January 1996.  Under the provisions of the plan,  the Company  matches
          25%  of an  employee's  contribution,  up to a  maximum  of  $350  per
          employee per year.  Total Company  contributions  and expense in 2002,
          2003 and 2004 were $34,531, $29,587 and $23,654 respectively.
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

(19) SELECTED QUARTERLY  FINANCIAL  INFORMATION (IN THOUSANDS,  EXCEPT PER SHARE
     DATA, UNAUDITED)
     The  following table sets forth selected quarterly  financial for the years
          ended December 31, 2003 and 2004. The operating  results for any given
          quarter  are not  necessarily  indicative  of  results  for any future
          period.
<TABLE>
<S>                                  <C>      <C>      <C>       <C>        <C>      <C>      <C>      <C>
                                            2003 Quarter Ended                     2004 Quarter Ended
                                     Mar. 31  June 30 Sept. 30  Dec. 31     Mar. 31  June 30  Sept.30  Dec. 31
                                     -------  ------- --------  -------     -------  -------  -------  -------
Net sales.........................   $ 7,538  $ 7,537  $ 9,104  $ 9,156     $ 7,792  $ 8,091  $ 7,143  $ 8,386
Costs of goods sold...............     5,393    5,777    6,146    5,804       5,480    5,841    5,646    6,379
                                      ------   ------   ------   ------      ------   ------   ------   ------
  Gross profit (loss).............     2,145    1,760    2,958    3,352       2,312    2,250    1,497    2,007
                                      ------   ------   ------   ------      ------   ------   ------   ------
Operating expenses:
  Selling.........................     1,362    1,227    1,376    1,306       1,226    1,171    1,115    1,288
  General and administrative......       958      843      612      705         954    1,064      780      822
  Research and development........       752      743      660      612         678      665      722      862
                                      ------    -----    -----    -----       -----    -----    -----    -----
   Total operating expenses.......     3,072    2,813    2,648    2,623       2,858    2,900    2,617    2,972
                                      ------    -----    -----    -----       -----    -----    -----    -----
   Operating profit (loss)........      (927)  (1,053)     310      729        (546)    (650)  (1,120)    (965)
Other income (expense), net.......        87       62       96       27         (12)      70       92       59
                                         ---      ---       --       --          --       --       --       --
   Income (loss) before income
    taxes and extraordinary item..      (840)    (991)     406      756        (558)    (580)  (1,028)    (906)
Income tax expense (benefit)......         -        -        -        -           -        -        -        -
                                      ------   ------   ------    -----       -----    -----    -----    -----
   Income (loss) before
    extraordinary item............      (840)    (991)     406      756        (558)    (580)  (1,028)    (906)
                                      ------   ------   ------    -----       -----    -----    -----    -----
   Net income (loss)..............    $ (840) $  (991) $   406  $   756      $ (558) $  (580) $(1,028) $  (906)
                                       =====    =====    =====    =====       =====    =====    =====    =====
Net loss per common share:
   Basic..........................   $ (0.11) $ (0.13) $  0.05  $  0.09      $(0.07) $ (0.07) $ (0.12) $ (0.10)
   Diluted........................   $ (0.11) $ (0.13) $  0.05  $  0.09      $(0.07) $ (0.07) $ (0.12) $ (0.10)

Weighted average common and common equivalent Shares:
   Basic..........................     7,853    7,852    7,857    7,970       8,136    8,466    8,791    8,900
   Diluted........................     7,853    7,852    8,081    8,593       8,136    8,466    8,791    8,900
</TABLE>
<PAGE>
                                  EXHIBIT INDEX

(a)           Financial Statements, Schedules and Exhibits:

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

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

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

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

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

     **10.2   1991 Director Stock Option Plan, as amended, filed as Exhibit 99.1
              to the Company's Registration Statement on Form S-8 (Reg. No. 333-
              107923), filed with the Commission on August 13, 2003. *

       10.3   1998 Employee  Equity Incentive Plan, as amended, filed as Exhibit
              99.1 to the Company's Registration Statement on Form S-8 (Reg. No.
              333-97573), filed with the Commission on August 2, 2002. *

       10.4   Lease  between  Zoom Telephonics, Inc. and "E" Street  Associates,
              filed  as Exhibit 10.5 to the  Company's Quarterly  Report on Form
              10-Q for the  fiscal  quarter ended  June 30, 1996 (the "June 1996
              Form 10-Q"). *

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

     **10.6   Employment  Agreement, filed  as  Exhibit 10.9  to  the  Company's
              Annual Report on Form 10-K for  the fiscal year ended December 31,
              1997. *

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

       10.8   Commercial   Real   Estate  Promissory   Note,  between  Zoom  and
              Wainwright Bank &  Trust  Company, filed  as  Exhibit 10.2 to  the
              March 2001 Form 10-Q. *

       10.9   Form  of   Non-Qualified  Stock  Option  Agreement  for  Executive
              Officers.

       10.10  Summary of Directors' Compensation.

       10.11  Loan and  Security  Agreement with Silicon  Valley Bank,  filed as
              Exhibit 10.1 to  the Company's Current Report on Form 8-K filed on
              March 22, 2005. *

       21.    Subsidiaries, filed  as Exhibit 21 to  the Company's Annual Report
              on Form 10-K for the fiscal year ended December 31, 2000. *

       23.    Consent of  KPMG LLP,  independent  registered  public  accounting
              firm.

       31.1   CEO  Certification, Pursuant  to Section 302 of the Sarbanes-Oxley
              Act of 2002.

       31.2   CFO  Certification, Pursuant  to Section 302 of the Sarbanes-Oxley
              Act of 2002.

       32.1   CEO  Certification, Pursuant  to Section 906 of the Sarbanes-Oxley
              Act of 2002.

       32.2   CFO  Certification, Pursuant  to Section 906 of the Sarbanes-Oxley
              Act of 2002.


<PAGE>

                                EXHIBIT INDEX (CONTINUED)


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

     **   Compensation Plan or Arrangement.
<PAGE>


                                   EXHIBIT 23.

            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors
Zoom Technologies, Inc.:



We consent to the incorporation by reference in the registration statements (No.
33-42834,  No.  33-90930,  No.  333-60565,  No.  333-75575,  No.  33-90191,  No.
333-47188,  No. 333-97573 and No.  333-107923) on Form S-8 of Zoom Technologies,
Inc. of our reports dated February 10, 2005, except as to Note 3, which is as of
March  30,  2005,  with  respect  to the  consolidated  balance  sheets  of Zoom
Technologies,  Inc. and  subsidiary  as of December  31, 2003 and 2004,  and the
related  consolidated   statements  of  operations,   stockholders'  equity  and
comprehensive  loss,  and cash  flows  for each of the  years in the  three-year
period ended December 31, 2004, and the related consolidated financial statement
schedule,  which  reports  appear in the December 31, 2004 annual report on Form
10-K of Zoom Technologies, Inc.



                                        /s/ KPMG LLP

Boston, Massachusetts
March 30, 2005

<PAGE>
             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                         ON FINANCIAL STATEMENT SCHEDULE



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



Under date of  February  10,  2005 except as to Note 3, which is as of March 30,
2005, we reported on the consolidated balance sheets of Zoom Technologies,  Inc.
and  subsidiary as of December 31, 2003 and 2004,  and the related  consolidated
statements of operations,  stockholders' equity and comprehensive loss, and cash
flows for each of the years in the  three-year  period ended  December 31, 2004,
which are  included  in the Form  10-K.  In  connection  with our  audits of the
aforementioned  consolidated  financial statements,  we also audited the related
consolidated  financial  statement  schedule  in the Form 10-K.  This  financial
statement  schedule  is the  responsibility  of the  Company's  management.  Our
responsibility  is to express an opinion on this  financial  statement  schedule
based on our audits.

In our opinion,  such financial statement schedule,  when considered in relation
to the  basic  consolidated  financial  statements  taken as a  whole,  presents
fairly, in all material respects, the information set forth therein.


                                        /s/ KPMG LLP


Boston, Massachusetts
February 10, 2005 except as to Note 3, which is as of March 30, 2005.

<PAGE>
SCHEDULE II

                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                        VALUATION AND QUALIFYING ACCOUNTS
                  Years Ended December 31, 2002, 2003 and 2004

<TABLE>
<S>                              <C>            <C>            <C>           <C>
                                  Balance at       Charged        Amount        Balance
                                   Beginning   (Credited) to   written off      at end
        Description                 of year        Expense     (Recoveries)     of year
                                    --------       -------     ------------     --------
Reserve for doubtful accounts..  $   232,271    $   146,712    $   319,577   $    59,406
Reserve for price protection...      739,113        380,048        454,829       664,332
Reserve for sales returns......      680,042      4,196,684      3,962,712       914,014
COOP advertising and other
allowances.....................    1,165,023      2,947,460      3,103,826     1,008,657
                                   ---------      ---------     ----------     ---------
Year ended December 31, 2002     $ 2,816,449    $ 7,670,904    $ 7,840,944   $ 2,646,409
                                   =========     ==========     ==========     =========
Reserve for doubtful accounts..  $    59,406    $   (42,713)   $ ( 105,221)  $   121,914
Reserve for price protection...      664,332        168,095        722,866       109,561
Reserve for sales returns......      914,014      3,260,578      3,404,030       770,562
COOP advertising and other
allowances.....................    1,008,656      2,648,885      2,869,373       788,168
                                   ---------      ---------     ----------     ---------
Year ended December 31, 2003     $ 2,646,408    $ 6,034,845    $ 6,891,048   $ 1,790,205
                                   =========     ==========     ==========     =========
Reserve for doubtful accounts..  $   121,914    $   (37,184)   $   (33,462)  $   118,192
Reserve for price protection...      109,561        145,697        236,529        18,729
Reserve for sales returns......      770,562      2,658,411      2,822,674       606,299
COOP advertising and other
allowances.....................      788,168      1,156,371      1,328,304       616,235
                                   ---------      ---------     ----------     ---------
Year ended December 31, 2004     $ 1,790,205    $ 3,923,295    $ 4,354,045   $ 1,359,455
                                   =========     ==========     ==========     =========

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