UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K
             (Mark One)
[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934
                  For the fiscal year ended December 31, 2002
                                       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  28,  2002
(computed by reference to the closing  price of such stock on The Nasdaq  Market
on such date) was approximately $6,288,693.

The number of shares  outstanding of the  registrant's  common stock,  $0.01 par
value, as of March 20, 2003 was 7,858,266 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's  proxy statement for the  registrant's  2003 annual
meeting of shareholders to be filed with the SEC in April 2003 are  incorporated
by reference into Part III, Items 10-13 of this Form 10-K.
<PAGE>


                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

o    the timing of new product introductions;
o    the success of our V.92 dial-up modems;
o    ability to reach our goal of returning to profitability;
o    the  anticipated  development  and  expansion  of  our  markets  and  sales
     channels;
o    investment in resources for product design in foreign markets;
o    the development of new competitive technologies and products;
o    approvals, certifications and clearances for our products;
o    production schedules for our products;
o    market acceptance of new products;
o    business strategies;
o    dependence on significant suppliers;
o    dependence on significant manufacturers, distributors and customers;
o    the availability of debt and equity financing;
o    general economic conditions;
o    the realization of cash improvement from the sale of excess inventory;
o    the  realization  of cash  improvement  from the  utilization  of no-charge
     components;
o    the impact of our cost-savings initiatives; and
o    our financial condition or results of operations.

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

ITEM 1 - BUSINESS

Overview

We design,  produce and market dial-up and broadband  modems, speed dialers, and
other  communications  products.  Our  primary  objective  is to build  upon our
position as a leading  supplier of Internet access devices and to take advantage
of a number of emerging trends in  communications  including  enhanced  Internet
access, higher data rates, and new voice and multimedia applications.

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

In response to increased demand for faster connection speeds and increased modem
functionality,  we have invested resources to expand our product line to include
cable and ADSL  modems and  related  broadband  access  products.  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.

Our Asymmetric Digital Subscriber Line modems,  known as ADSL modems,  provide a
high-bandwidth connection to the Internet through a standard telephone line that
typically connects to compatible ADSL equipment in or near the central telephone
office.  We are now shipping  four ADSL  modems:  one internal PCI bus model and
three external models.

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 Demon Dialertm and Hotshottm. 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.  Zoom  plans to extend its
proprietary dialer technology into a wide range of telephony products.

Zoom also has a line of cameras  designed  to be used with  personal  computers.
Some "web camera"  models only  function  when they are connected to a computer,
and allow storage or transmission  of a still picture or moving video.  Some new
models also work when they are not connected to the  computer;  so that pictures
or videos  can be stored  into the  camera  away  from the  computer,  and later
downloaded into the computer.

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

Products

General

The vast majority of our products  facilitate  communication of data through the
Internet.  Our dial-up modems and integrated  services digital network, or ISDN,
modems link PCs and portable  information  devices through the telephone network
and  connected  networks,  including  the  Internet  and  local  area  networks.
Similarly,  our cable modems use the cable-TV  cable and our ADSL modems use the
local telephone line to provide a high-speed  link to the Internet.  Our dialers
can be used to  route  voice  calls to a  voice-over-IP  network  including  the
Internet.  Our PC cameras  provide  pictures that can be  communicated  over the
Internet.

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 IBM PC-compatibles, the Apple MacIntosh and other computers.
Our external  models include  desktop  models and  multi-line  modems with up to
sixteen  modems in an  enclosure.  Our PCMCIA  modems are  designed for use with
notebook  and  sub-notebook   computers  as  well  as  PDAs  (personal   digital
assistants)  equipped with standard  PCMCIA slots.  When sold as packaged retail
products,  our  modems are  shipped  complete  with  third-party  software  that
supports the hardware capabilities of the modem.

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

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

In 2000,  2001, and 2002, our dial-up modems and related  products  comprised of
approximately 92%, 83%, and 84% of our sales respectively.

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

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

International Modems.

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

Multi-line Modems.

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

ISDN Products.

We have a family of modems for  Integrated  Service  Digital  Network,  or ISDN,
communications.  ISDN is a telephone service that allows existing phone lines to
be used to  transmit  data  digitally.  ISDN  service  permits  much higher data
transmission  rates  than  conventional  analog  telephone  service.  Basic ISDN
service provides two 64,000 bps channels and one 16,000 bps channel.  The higher
rates of data transmission  achievable with ISDN can be particularly  attractive
for  data-intensive  applications such as the transmission of graphics and video
images, World Wide Web browsing, or video telephony.

In late 2000 we introduced the following ISDN products:

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

Cable Modems

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,  the  Ethernet/USB  model  includes
approvals by AT&T, Adelphia,  Charter,  Comcast, Cox, 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 2002 Zoom was successful at gaining new cable service provider approvals, and
in upgrading firmware where appropriate for some customers. In 2003 we expect to
continue to sell cable modems to cable service providers and original  equipment
manufacturers  both  inside and outside  the US. We are  already  selling  cable
modems through some high-volume retailers in the US, and we hope to expand sales
through  that  channel.  So far  sales  through  the  retail  channel  have been
handicapped  by a number of factors,  including the approval  process  described
above and the fact that some cable service  providers do not provide a financial
incentive to a customer who  purchases his own modem rather than leasing it from
the cable service provider.

ADSL Modems.

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

Wireless

In  general  we  are  de-emphasizing   wireless  network  interface  cards,  and
concentrating  our  wireless  network  product  plans on  broadband  modems with
built-in wireless networking capability.

Full-Color Video Cameras and Other Video Products.

In late 1997 we shipped the Zoom/Video Cam, a full-color PC video camera.  Since
then we have introduced new PC camera models.  We have limited  hardware product
development in the video area.  Typically we purchase  another  company's camera
hardware,  and  license  appropriate  packing  and  documentation  to  achieve a
finished product.  We are continuing to expand our line of PC cameras to utilize
our sales channels and to benefit from the growing market for low-cost cameras.

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. In the second half of 2003, we expect to commence
shipping a new generation of dialers incorporating  proprietary technology.  Our
proprietary  technology includes proprietary hardware,  firmware,  and software,
and is currently protected by one U.S. patent.  These dialers are well suited to
easily  route  appropriate  calls  through  money-saving  long-distance  service
providers.  We expect to sell some of our dialer models to long-distance service
providers,  and other models to high-volume retailers.  In 2002, dialer products
represented under 1% of Zoom's sales.

Sales Channels

General

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

During 2002,  our  customers  who accounted for more than 10% of our total sales
were Staples,  Best Buy, and DSG Retail.  Together,  these 3 customers accounted
for 43% of our total sales. The loss of any of these customers, or a significant
reduction in sales to these  customers,  could have a material adverse effect on
our business.

High-volume Retailers.

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

Distributors.

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

System Integrators and Original Equipment Manufacturers.

Our OEM  customers  sell our products  under their own name or  incorporate  our
products as a component of their systems.  We seek to be responsive to the needs
of  personal   computer   manufacturers   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.

International Channels.

In international  markets,  we sell our products  primarily through  independent
distributors and retailers. Our international  distributors include Beijing Tide
Hightech Co. Ltd,  Computer 2000,  Criterium,  Informatics,  Micro  Peripherals,
Pouladis,  UMD, and others.  Our major European  high-volume  retailers  include
Business Logic,  Centromail,  DSG Retail (Dixons,  PC World, and PC City),  Time
Computers,  and others.  Our  international  net sales as a percentage  of total
sales have grown from 8% in 1994 to 40% in 2002. Our revenues from international
sales were $17.2 million in 2000,  $15.7  million in 2001,  and $14.9 million in
2002.  See  note  17  to  our  accompanying   financial  statement  for  further
information  regarding our geographic sales.  Approximately  56%, 61% and 70% of
our international sales in 2000, 2001 and 2002, respectively,  were customers in
the United  Kingdom.  We believe sales growth  outside of the United States 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.

Sales, Marketing and Support

Our sales, support, and marketing are primarily managed from our headquarters in
Boston,  Massachusetts and our technical support office in Boca Raton,  Florida.
In North America we sell our Zoom,  Hayes,  Global  Village,  and  private-label
dial-up  modem  products  primarily  through   commissioned   independent  sales
representatives managed and supported by our own staff. Most major cable service
providers are serviced by our  employees.  North American  technical  support is
primarily handled from our Boston  headquarters  location and from our technical
support offices in Boca Raton,  Florida. We also maintain a sales,  support, and
logistics  office in the United Kingdom.  Warehousing,  customs  clearance,  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.  See  note  17 to our  accompanying  financial  statements  for
geographic information regarding our sales.

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

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

Research and Development

Our research and development  efforts are focused on developing new products for
PC  communications  markets,  further  enhancing  the  capabilities  of existing
products,  and reducing  production costs. We have developed close collaborative
relationships  with certain of our OEM customers and  component  suppliers,  who
work with us to identify and respond to emerging  technologies and market trends
by developing products that address these trends. In addition, we purchase modem
and other chipsets that incorporate sophisticated technology from third parties,
thereby eliminating the need for us to develop this technology  in-house.  As of
December  31,  2002  we had 22  employees  engaged  primarily  in  research  and
development.  Our research and development  team performs  electronics  hardware
design and  layout,  mechanical  design,  prototype  construction  and  testing,
component  specification,  firmware and software  development,  product testing,
foreign  and  domestic  regulatory  approval  efforts,   end-user  and  internal
documentation, and third-party software selection and testing.

During 2000,  2001 and 2002 we expended  $6.2 million,  $5.3  million,  and $3.5
million, respectively, on research and development activities.

Manufacturing and Suppliers

Our  products  are  currently  designed  for  high-volume   automated  assembly,
primarily in China, Korea,  Taiwan, and the United States to help assure reduced
costs, rapid market entry, short lead times, and reliability.  For some products
we  supply   large  kits  of  parts  to  one  of  several   automated   contract
manufacturers.  For other products, particularly those manufactured in Asia, our
contract  manufacturers  obtain some of the  material  required to assemble  the
products based upon a Zoom Telephonics  Approved Vendor List and Parts List. The
contract  manufacturers  insert parts onto the printed circuit board,  with most
parts  automatically  inserted  by  machine,   solder  the  circuit  board,  and
in-circuit  test the  completed  assemblies.  Functional  test and packaging are
sometimes performed by the contract manufacturer. For the United States and many
other markets,  functional test and packaging are more commonly performed at our
manufacturing  facilities in Boston, allowing us to tailor the packaging and its
contents for our customers  immediately before shipping. We also perform circuit
design,  circuit board layout,  and strategic  component  sourcing in our Boston
manufacturing  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, 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"). The loss
of SameTime's services or a material adverse change in SameTime's business or in
our relationship with SameTime could materially and adversely harm our business.
To lessen the risk  associated  with  using one  manufacturer  of a  substantial
portion of our products, we are also using Vtech, Mac Systems,  Taicom,  Abocom,
Behaviour Tech, SIS (Southern Info.  Systems) and Billion to manufacture various
of our 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 the two  highest-volume
dial-up modem chipset  manufacturers,  Conexant Systems,  Inc. and Agere Systems
Inc. Conexant and Agere have significant  resources for semiconductor design and
fabrication,  analog and digital signal processing,  and communications firmware
development.  Integrated  circuit product areas covered by one or both companies
include dial-up modems, ADSL modems,  cable modems,  wireless  networking,  home
phone line networking,  routers, and gateways. We also buy chipsets for our ADSL
modems from Conexant. Some  of our  chipset  suppliers  provide  us  certain
concessions  and  incentives,  such as reduced  prices or free  chipsets,  if we
purchase or agree to  purchase a certain  dollar  amount of products  from these
suppliers.  Our  commitments  to  purchase  products  from these  suppliers  are
described  in  further  detail in Item 7 of this  report and in note 7(b) to our
accompanying financial statements.

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

Competition

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

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

Our primary competitors by product group include the following:

o    Dial-up modem competitors: Actiontec, Askey, Best Data, Creative Labs, GVC,
     Intel, Sitecom, SONICblue, and US Robotics.
o    Cable  modem  competitors:   Com21,  D-Link,  Linksys,  Motorola,  Netgear,
     Scientific Atlanta, SMC, Terayon, Thomson, and Toshiba.
o    ADSL  modem  competitors:   3Com,  Alcatel,   Siemens  (formerly  Efficient
     Networks), Thomson, US Robotics, and Westell.

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

The principal competitive factors in our industry include the following:

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

We believe we are able to provide a competitive mix of the above factors for all
of our main  product  areas,  particularly  when our  products  are sold through
retailers or computer  product  distributors.  We are less successful in selling
directly to providers of broadband access services.

Cable and ADSL modems transmit data at significantly  faster speeds than dial-up
modems,  which still account for the vast  majority of our  revenues.  Cable and
ADSL modems,  however,  are generally  more  expensive  than dial-up  modems and
typically require a more expensive Internet access service. In addition, the use
of cable and ADSL  modems is  currently  impeded  by a number of  technical  and
infrastructure  limitations. We began shipping both cable and ADSL modems in the
year  2000.  In the year  2002,  most of our  competitors'  cable and ADSL modem
products  were sold  through  cable  service  operators,  phone  companies,  and
Internet Service  Providers.  Only about 11% of new US cable modem placements in
2002  were sold at  retail,  and an even  lower  percentage  were  sold  through
retailers in most other  countries.  ADSL had even less success at retail in the
US. Some European countries, however, significantly expanded their retailer sale
of ADSL  modems  in  2002,  particularly  in  those  countries  that  encouraged
competition  with the incumbent  telephone  company.  In the U.K., for instance,
this resulted in Zoom placing four ADSL modem models into DSG Retail.

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 a  substantial  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 ADSL 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.  It is likely that our success in selling  broadband  modems will
require success in the retail market. We continue to make efforts to improve our
share of the retail market and to expand the size of the retail market.

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  which have been issued  expire
between 2011 and 2015. There can be no assurance that any patent application
will be granted or that any patent  obtained  will provide  protection  or be of
commercial  benefit  to us,  or  that  the  validity  of a  patent  will  not be
challenged. Moreover, there can be no assurance that our means of protecting our
proprietary   rights  will  be  adequate  or  that  our  competitors   will  not
independently develop comparable or superior technologies.

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

Government Regulation

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

Seasonality

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

Backlog

Our backlog as of March 5, 2003 was $1.6 million,  and on March 6, 2002 was $1.5
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, 2002 we had 185  full-time  employees  (including  employees
hired on a  temporary  basis)  versus 215 in 2001.  Of the 2002  total,  22 were
engaged in research and development,  90 were involved in purchasing,  assembly,
packaging, shipping and quality control, 47 were engaged in sales, marketing and
technical support,  and the remaining 26 performed  accounting,  administrative,
management information systems, and executive functions. Our temporary employees
were comprised of 12 individuals at December 31, 2002.  Most of these  temporary
employees were employed in manufacturing.  None of our employees is represented
by a labor union.

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         54     Chief Executive Officer, President and
                                 Chairman of the Board
Peter R. Kramer          51     Executive Vice President and Director
Robert A. Crist          59     Vice President of Finance and Chief
                                 Financial Officer
Terry J. Manning         51     Vice President of Sales and Marketing
Dean N. Panagopoulos     45     Vice President of Network Products
Deena Randall            49     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.  Mr.  Manning  was a  director  of
MicroTouch  Systems,  a former  NASDAQ-listed  company  involved in  touchscreen
technology,  from 1993 until their  acquisition by 3M in early 2001.  Since 1998
Mr.  Frank  Manning  has also been a director  of the  Massachusetts  Technology
Development  Corporation,  a public purpose venture capital firm that invests in
seed and early-stage technology companies in Massachusetts.

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

Robert A. Crist  joined us in July 1997 as vice  president  of finance and chief
financial officer. From April 1992 until joining us, Mr. Crist served in various
capacities at Wang Laboratories,  Inc. (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  16,000  square  feet of this  56,000  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 5-year balloon mortgage that is amortized on a
20-year  basis.  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. During fiscal 2002, the rate of interest was changed
to 4.97%. As of January 10, 2003, the rate of interest was reduced to 3.81%

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

In March 1999,  we assumed an office  lease from Hayes  Microcomputer  Products,
Inc. at 430 Frimley Business Park, Camberley,  Surrey, U.K. We have an agreement
in principle to extend this lease term to 2006.

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 AND RELATED STOCKHOLDER MATTERS

In 2001 and 2002,  our common  stock was traded on the  Nasdaq  National  Market
under the symbol  "ZOOM."  The  following  table  sets  forth,  for the  periods
indicated,  the high and low sale prices per share of common stock,  as reported
by the Nasdaq National Market.  In January,  2003, our common stock was delisted
from the Nasdaq National Market and was listed, and is currently trading, on the
Nasdaq Small Cap Market under the symbol "ZOOM."
<TABLE>
<S>                                                      <C>        <C>
Fiscal Year Ending December 31, 2001                       High         Low
                                                           ----         ---
      First Quarter......................                $ 4.500    $  2.188
      Second Quarter.....................                  3.320       2.250
      Third Quarter......................                  3.100       1.050
      Fourth Quarter.....................                  1.800       1.100
</TABLE>
<TABLE>
<S>                                                      <C>        <C>
Fiscal Year Ending December 31, 2002                       High         Low
                                                           ----         ---
      First Quarter......................                $ 2.130    $  1.040
      Second Quarter.....................                  1.450       0.600
      Third Quarter......................                  1.330       0.560
      Fourth Quarter.....................                  1.140       0.450
</TABLE>
As of  March  20,  2003,  there  were  7,858,266  shares  of  our  common  stock
outstanding and approximately 264 holders of record of our common stock.

Recent Sales of Unregistered Securities

We did not sell any unregistered securities during the fourth quarter of 2002.

Dividend Policy

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

ITEM 6 - SELECTED  FINANCIAL  DATA The  following  table  contains  our selected
consolidated  financial  data  and is  qualified  in its  entirety  by the  more
detailed consolidated  financial statements and notes thereto included elsewhere
in this report.  Our statement of operations  data for the years ending December
31, 2000, 2001 and 2002 and our balance sheet data as of December 31, 2001 and
2002 have been derived from our consolidated  financial  statements,  which have
been audited by KPMG LLP,  independent  certified  public  accountants,  and are
included  elsewhere in this report.  Our  statement of  operations  data for the
years  ending  December  31,  1998  and 1999 and our  balance  sheet  data as of
December  31,  1998,  1999,  and 2000 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.
<TABLE>
<S>                                       <C>         <C>         <C>         <C>         <C>
                                                           Years Ending December 31,
                                              1998        1999        2000        2001        2002
                                             ----        ----        ----        ----        ----
                                                       (In thousands) except per share amounts
Statement of Operations Data:
Net sales.............................    $ 59,846    $ 62,228    $ 57,708    $ 41,570    $ 37,274
Cost of goods sold....................      45,181      40,550      39,404      35,193      27,937
                                            ------      ------      ------      ------      ------
   Gross profit.......................      14,665      21,678      18,304       6,377       9,337
                                            ------      ------      ------      ------      ------
Operating expenses:
   Selling............................       9,753      11,711      10,672       7,480       5,848
   General and administrative.........       4,976       6,276       6,228       7,938       3,405
   Research and development...........       4,449       6,425       6,249       5,328       3,526
                                             -----       -----       -----       -----       -----
   Total operating expenses                 19,178      24,412      23,149      20,746      12,779
                                            ------      ------      ------      ------      ------
   Operating income (loss)............      (4,513)     (2,734)     (4,845)    (14,370)     (3,442)
Other income (expense), net...........       1,074         737         469        (159)         66
                                             -----       -----         ---         ---       -----
   Income (loss) before income taxes..      (3,439)     (1,997)     (4,376)    (14,529)     (3,376)
Income tax expense (benefit)..........      (1,287)       (588)     (1,299)      3,800       2,015
                                             -----       -----       -----      ------       -----
Income (loss) before extraordinary
   item                                     (2,152)     (1,409)     (3,077)    (18,239)     (5,390)
Extraordinary gain on elimination
of negative goodwill..................           -           -           -           -         255
                                            -------     -------       -----     -------      -----
   Net income (loss)..................      (2,152)     (1,409)     (3,077)    (18,329)     (5,136)
                                            =======     =======     =======     =======     =======
Earnings (loss) per common and
common equivalent share:
Loss before extraordinary item:
   Basic and diluted..................    $   (.29)   $   (.19)   $   (.40)   $  (2.33)   $   (.68)
Extraordinary gain on elimination of
   negative goodwill..................    $      -    $      -    $      -    $      -    $    .03
                                          =========   =========   =========   =========   =========
Net loss:
   Basic and diluted..................    $   (.29)   $   (.19)   $   (.40)   $  (2.33)   $   (.65)
                                          =========   =========   =========   =========   =========
Weighted average common and
common equivalent shares:
   Basic and diluted..................       7,474       7,483       7,757       7,861       7,861

                                                           Years Ending December 31,
                                             1998        1999        2000        2001        2002
                                             ----        ----        ----        ----        ----
                                                                 (In thousands)
Balance Sheet Data:
Working capital                           $ 33,376    $ 29,573    $ 23,562    $  18,218   $ 15,341
Total assets                                43,560      43,072      46,960       29,185     22,633
Long-term obligations                            -         481         369        6,001      5,342
Total stockholders' equity                  38,425      37,514      36,747       18,416     13,485
</TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

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

Overview

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

We were  established in 1977, and initially  produced and marketed speed dialers
and other specialty telephone accessories. We shipped our first dial-up modem in
1983 and our first dial-up faxmodem in 1990. In 2002, dial-up modems and related
products  comprised  approximately  84% of our net  sales.  We sell our  dial-up
modems and  related  products  both  domestically  and  internationally  through
high-volume retailers and distributors,  and to PC manufacturers and other OEMs.
Starting in 2000, we made a significant  investment in broadband modems,  namely
cable  modems  and ADSL  modems.  Our  hope is to  increase  our  sales of these
products,  in  addition to other  products  including  PC cameras and  telephone
dialers.

We continually seek to improve our product designs and manufacturing approach in
order to reduce  our costs.  We pursue a strategy  of  outsourcing  rather  than
internally developing our dial-up 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 sales. We also
outsource aspects of our  manufacturing to contract  manufacturers as a means of
reducing our fixed labor costs and capital expenditures,  and to provide us with
greater flexibility in our production capacity.

In recent  years,  the  market  for  after-market  sales of  dial-up  modems has
declined, as personal computer (PC) manufacturers have incorporated a modem as a
built-in component in most consumer PCs. A new dial-up modem standard,  known as
V.92, may provide an improvement in after-market  dial-up modem sales,  but this
improvement  is dependent on the  installation  of  compatible  equipment by the
Internet Service  Providers.  The installation of V.92 equipment by the Internet
Service Providers has begun, but so far this has been deployed slowly.

In response to increased demand for faster connection speeds and increased modem
functionality,  we have invested resources to expand our product line to include
cable and ADSL modems and other broadband access products.  We are also planning
to begin volume shipment of a new generation of telephone  dialers in the second
half of 2003 and expect to continue to expand our line of PC cameras.

Critical Accounting Policies

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

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

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

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

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

In the quarter ending March 31, 2002, we adopted FASB Emerging Issues Task Force
Issue No. 00-14  "Accounting  for Certain Sales  Incentives" and Issue No. 00-25
"Accounting for Consideration from a Vendor to a Retailer in Connection with the
Purchase or Promotion of the Vendor's Products." The application of the guidance
in Issue No. 00-14 and No. 00-25  resulted in a change in the manner in which we
record  certain types of discounts and sales and marketing  incentives  that are
provided to our customers.  We had  historically  recorded  these  incentives as
marketing  expenses.  Under Issue No. 00-14 and No. 00-25,  we are now recording
these  incentives as  reductions  of revenue for the current and prior  periods,
which in turn,  reduced  gross  margins.  The offset was an equal  reduction  of
selling expenses.  EITF Issue No. 01-9, "Accounting for Consideration Given by a
Vendor  to  a  Customer  (Including  a  Reseller  of  the  Vendor's  Products),"
subsequently  codified the  guidance in Issue No. 00-14 and 00-25.  There was no
change in net income (loss) for either of the historical  periods  restated (see
note 4 to the consolidated financial statements).

To ensure that the discounts and sales 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.

Accounts  Receivable  Valuation.  We establish accounts  receivable reserves for
product  returns,  store rebates,  consumer  mail-in  rebates,  price protection
refunds,  and bad debt.  These  reserves  are drawn down as actual  credits  are
issued  to the  customer's  accounts.  Our  bad-debt  write-offs  have  not been
significant,  and  for  2001  and  2002  were  .2%  and  .1% of  total  revenue,
respectively.

Inventory  Valuation  and Cost of Goods Sold.  Inventory is valued on a standard
cost basis where the material  standards  are  periodically  updated for current
material pricing.  Reserves for obsolete inventory are established by management
based on usability  reviews  performed each quarter.  Our reserves  against this
inventory  range  from  0% to  100%,  based  on  management's  estimate  of  the
probability that the material will not be consumed.  In the second half of 2000,
when  industry  expectations  were very high for  expansion of the broadband and
wireless  markets,  we purchased parts to support our aggressive  forecast for a
ramp-up of sales of cable modems, ADSL modems, and wireless networking products.
The  subsequent  slow down in the  industry  resulted  in a  significant  excess
inventory position of materials.  During 2001, the market selling prices for the
broadband  and  wireless   products   declined   significantly   because  of  an
industry-wide  oversupply.  Starting in 2001 and to a lesser extent in 2002, the
sales prices for some of the products  dropped below our cost and,  accordingly,
we then valued our inventory on a "lower of cost or market" basis. Our valuation
process is to compare our cost to the selling  prices each  quarter,  and if the
selling  price  of a  product  is  less  than  the  "if  completed"  cost of our
inventory,  we write-down the inventory on a "lower of cost or market" basis. In
2001 and 2002, we recorded  charges  against  inventory of $4.6 million and $0.7
million, respectively, as a result of lower of cost or market valuation issues.

We have entered into supply  arrangements with suppliers of some components that
include price and other concessions, including no-charge components, for meeting
certain purchase requirements or commitments.  Under these arrangements,  we are
committed to purchase  approximately $8.0 million of components over a period of
approximately  30-months that commenced on January 1, 2002,  provided that those
components  were  offered at  competitive  terms and prices.  We believe that at
December 31, 2002, we are on track to meet the $8.0 million  commitment.  We are
also  required  to  purchase  either a minimum  percentage,  as measured by unit
purchases or dollar amount of components, from a supplier over a two-year period
commencing on January 1, 2002, and we are currently  exceeding that  percentage.
In connection  with these  arrangements,  we 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. We received $1.2 million of these no-charge  components
in the fourth  quarter of 2001.  We  received  the  remainder  of the  no-charge
components in the first quarter of 2002.  Through December 31, 2002, we consumed
$1.8 million of these chips in our  manufacturing  process and they were shipped
in finished  products to customers in 2002. In 2002,  our purchases and payments
were  approximately  $2 million  less than we would have  expected  without  the
no-charge components.  Of the original $3.0 million chip valuation,  $.3 million
has been  written  down as a result of a decline in the market value of the free
chips.  The favorable  impact to our statement of operations is being recognized
on a delayed  basis as a purchase  discount  over the total number of components
acquired   through  the  30  month  supply  agreement  (see  note  7(b)  to  the
consolidated  financial  statements).  Since the start of these  arrangements in
January 2002, the favorable impact to our statement operations was $.8 million.

Valuation and Impairment of Intangible  Assets.  We assess the impairment of our
goodwill assets whenever  events or changes in  circumstances  indicate that the
carrying  value  may  not  be   recoverable.   We  recorded   goodwill  for  two
acquisitions,  Tribe  Computer  Works,  Inc. in 1996 and certain assets of Hayes
Microcomputer  Products,  Inc. in 1998. The goodwill  values for Tribe and Hayes
were  being  amortized  over 13 years  and 5 years,  respectively.  In 2001,  we
determined that based on our history of negative cash flows from  operations,  a
forecast of future positive cash flows could not be sufficiently  relied upon to
justify  retaining the remaining  goodwill  assets on the  consolidated  balance
sheet.  Therefore,  we recorded an impairment charge of $2.3 million in 2001. As
of December 31, 2001 and December 31, 2002,  our net goodwill asset value on our
consolidated balance sheet was zero.

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

Significant  management  judgment is required in  determining  our provision for
income taxes and any valuation  allowance  recorded against our net deferred tax
assets.  In 2001,  we  recorded a $3.8  million  income tax charge to reflect an
additional increase in our deferred tax asset valuation allowance.  Management's
decision  to  record  the  valuation   allowance  was  based  on  the  uncertain
recoverability  of our  deferred  tax asset  balance.  At December  31,  2001, a
portion of our net deferred tax asset was supported by our specific tax planning
strategy to sell our appreciated  headquarters building in Boston. The amount of
the  projected  tax benefit  from this sale was used to support the $2.0 million
deferred tax asset that  remained on our balance  sheet as of December 31, 2001.
In our first  quarter  ending March 31,  2002,  we recorded an  additional  $2.0
income tax charge and  valuation  reserve,  which  reduced our net  deferred tax
asset  balance to zero.  This  additional  reserve  reflected  our  decision  to
discontinue our specific tax planning strategy to sell our headquarters building
in Boston in light of the less favorable market  conditions for the sale of such
building.

Results of Operations

The following table sets forth certain financial data for the periods indicated
as a percentage of net sales:
<TABLE>
<S>                                            <C>     <C>    <C>
                                                   Years  Ending
                                                    December 31,
                                                2000    2001    2002
                                                ----    ----    ----
Net sales...............................       100.0%  100.0%  100.0%
Cost of goods sold......................        68.3    84.7    75.0
                                                ----    ----    ----
  Gross profit..........................        31.7    15.3    25.0
Operating expenses:
  Selling...............................        18.5    18.0    15.7
  General and administration............        10.8    19.1     9.1
  Research and development..............        10.8    12.8     9.5
                                                ----    ----    ----
  Total operating expenses..............        40.1    49.9    34.3
                                                ----    ----    ----
Operating profit (loss).................        (8.4)  (34.6)   (9.3)
   Other income (expense), net..........          .8     (.4)     .2
                                                 ---    ----    ----
Loss before income taxes..  ............        (7.6)  (35.0)   (9.1)
   Income tax expense (benefit).........        (2.3)    9.1     5.4

Extraordinary Gain......................           -       -      .7
                                                -----   -----   ----
Net profit (loss) ......................        (5.3)% (44.1)% (13.8)%
                                                =====   =====  ======
</TABLE>
Year Ending December 31, 2002 Compared to Year Ending December 31, 2001

Net Sales.  Our net sales  decreased  10.3% to $37.3  million in 2002 from $41.6
million in 2001. Our sales decline  resulted  primarily from an 8%, $3.1 million
year-over-year  net  sales  decline  in  dial-up  modem  sales,  a $2.1  million
year-over-year  net sales decline from an OEM modem  contract,  and a decline in
camera sales,  partially  offset by increased  sales in the broadband  cable and
ADSL modem categories.

Although our unit sales of dial-up  modems were up slightly in 2002  compared to
2001,  reflecting  our increased unit and dollar market share at retail in North
America  and the U.K.,  our net  sales of  dial-up  modems  were down 8% in 2002
compared  to 2001,  primarily  due to the lower  average  selling  prices of our
dial-up  modems and a shift in our unit sales mix to  lower-priced  modems.  Our
dial-up  modem  sales  in 2002 and 2001  were  84% and 83% of our  total  sales,
respectively.  In  2002,  our  sales  in the  broadband  cable  and  ADSL  modem
categories  represented  9% our of total sales compared to 3% of our total sales
in 2001,  reflecting  an initial  acceptance  of these  products into our retail
sales channels.

Our net sales in the North America  decreased by 12.4% to $22.2 million in 2002,
compared to our net sales in 2001.  Our 2002  international  sales  decreased by
7.0% to $15.1 million,  compared to our net sales in 2001.  These decreases were
due  primarily to the sales decline of dial-up  modems and  primarily  resulting
from a shift in demand to lower priced modems.

Gross Profit. Our gross profit was $9.3 million in 2002 compared to $6.4 million
in 2001.  Our gross  profit as a percentage  of net sales  increased to 25.0% in
2002 from 15.3% in 2001. The primary reason for this improvement was a reduction
of inventory write-downs for lower of cost of market and inventory  obsolescence
expenses  totaling  $4.0  million  in 2001  compared  to $.9  million  in  2002.
Excluding the charges for inventory  write-downs  and  obsolescence  in 2002 and
2001, our gross profit as a percentage of net sales improved  approximately  2.8
percentage points from 2001 to 2002,  primarily due to supplier cost reductions,
and manufacturing expense reductions.

Selling Expenses.  Selling expenses decreased by $1.6 million to $5.8 million in
2002, from $7.5 million in 2001.  Selling  expenses as a percentage of net sales
decreased  to 15.7% in 2002 from 18.0% in 2001.  The $1.6  million  decrease was
primarily due to reduced  personnel  costs,  marketing  costs,  freight delivery
costs, and sales commissions.

General  and  Administrative  Expenses.   General  and  administrative  expenses
decreased by $4.5 million to $3.4 million in 2002 from $7.9 million in 2001. The
year-over-year  $4.5 million decrease  included a $2.3 million decrease from the
fourth quarter 2001 write-off of all of our positive  goodwill and a $.9 million
decrease from related amortization charges. Excluding the effect of the goodwill
write-offs  and  related  amortization,   general  and  administrative  expenses
decreased  $1.3  million,  or 28%,  primarily  from  reductions in personnel and
related expenses, bank fees, bad debt expense, and legal and audit expenses.

Research and Development  Expenses.  Research and development expenses decreased
by $1.8 million to $3.5 million in 2002 from $5.3 million in 2001.  Research and
development expenses as a percentage of net sales decreased to 9.5% in 2002 from
12.8% in 2001. The $1.8 million  decrease in research and  development  expenses
was primarily due to reduced personnel costs and related expenses,  industry and
government  approval  costs  associated  with  obtaining  licenses,  consulting,
recruiting, and outside services.

Other income (expense). Other income (expense), net improved from a loss of $.16
million in 2001 to income of $.07  million  in 2002.  Included  in other  income
(loss) are interest  income  (expense),  other income and  non-interest  income,
equity  losses of an  affiliate,  and rental  income from  leasing  space at our
headquarters.

o    Interest  Income.  Interest  income  decreased to $.10 million in 2002 from
     $.20  million in 2001.  The  decrease  was the  result of our lower  earned
     interest rate  partially  offset by the interest  earned on higher  average
     cash and cash equivalent balances during 2002 compared to 2001. The average
     interest rate earned in 2002 was  approximately two percentage points lower
     in 2002 than in 2001.
o    Interest  expense.  Interest expense decreased to $.29 million in 2002 from
     $.5 million in 2001.  The  interest  expense  decrease is the result of the
     interest  rate  decline from 7.76% in 2001 to 4.97% in 2002 on our variable
     rate $6.0 million  mortgage  taken out in January 2001 on our  headquarters
     building,  and lower  mortgage  debt  balances.  This  interest is adjusted
     annually in January of each year.
o    Equity  in losses of  affiliate.  Our  affiliate  equity  losses  were $.06
     million in 2002 compared to $.15 million in 2001. Our investment balance in
     the affiliate was reduced to zero at December 31, 2002.
o    Other Income, Net. Other income and non-interest income increased from $.24
     million in 2001 to $.31 million in 2002.

Income Tax  Expense  (Benefit).  We did not record any net tax benefit to offset
our $3.4 million  pre-tax loss in 2002. In addition,  in 2002 we recorded a $2.0
million  income tax charge to increase our valuation  allowance  against our net
deferred  tax asset.  This  accounting  treatment  is also  described in further
detail under the caption "Critical Accounting Policies" above and in footnote 12
to the  consolidated  financial  statements.  An additional $.002 million in tax
expense was recorded for income taxes incurred by our sales branch in the United
Kingdom.

Extraordinary  gain. 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.

Net Loss. Our net loss for 2002 was $5.1 million or $.65 per share, versus a net
loss of $18.3 million or $2.33 per share, for 2001.

Year Ending December 31, 2001 Compared to Year Ending December 31, 2000

Net Sales.  Our net sales  decreased  27.9% to $41.6  million in 2001 from $57.7
million  in  2000.   Our  sales  decline   resulted   primarily   from  our  22%
year-over-year  net sales  decline of dial-up  modem units  combined  with a 10%
average sales price  decline.  Our sales mix shifted  slightly away from dial-up
modems in 2001  compared to 2000. In 2000,  92% of our net sales were  generated
from  sales of  dial-up  modem  products.  In 2001,  83% of our net  sales  were
generated  from  sales of  dial-up  modem  products.  The  change  was due to an
increased mix of sales for cable modems, embedded modems, and ISDN modems.

Our net sales in North  America  decreased  by 37.4% to $25.3  million  in 2001,
compared to our net sales in 2000.  Our 2001  international  sales  decreased by
6.2% to $16.2 million,  compared to our net sales in 2000. The net sales decline
in 2001  compared to 2000 in North  America  resulted  from the overall  dial-up
modem U.S. market decline, the loss of Office Depot as a customer, and a decline
in the average selling price of dial-up modems.

Gross  Profit.  Our gross  profit  was $6.4  million in 2001  compared  to $18.3
million in 2000. Our gross profit as a percentage of net sales decreased to 15.3
% in 2001 from  31.7% in 2000.  The  primary  reason  for this  decline  of 16.4
percentage  points was $4.6 million of  obsolescence  and inventory  revaluation
expenses in 2001  compared to $.3 million in similar  types of expenses in 2000.
The major portion of the $4.6 million  expense was for "lower of cost or market"
write-downs of broadband  inventory.  The inventories in question were purchased
in 2000.  Excluding  the $4.6 million and $.3 million of inventory  obsolescence
and revaluation in 2001 and 2000, respectively, our gross profit as a percentage
of net sales in 2001 was 26.4%  compared to 32.2% in 2000.  This  year-over-year
4.6 percentage  points drop was primarily due to a production  volume  decrease,
which resulted in higher fixed manufacturing costs per unit shipped, and the 10%
average selling price decline for dial-up modems.

Selling  Expenses.  Selling expenses  decreased by 29.9% to $7.5 million in 2001
from $10.7  million  in 2000.  Selling  expenses  as a  percentage  of net sales
decreased to 18.0% in 2001 from 18.5% in 2000. The $3.2 million decrease was the
result of  significant  reductions in both variable and fixed selling  expenses,
including staff reductions,  cooperative advertising, and sales commissions. The
staff reductions took place throughout the year.

General  and  Administrative  Expenses.   General  and  administrative  expenses
increased by $1.7 million to $7.9 million in 2001 from $6.2 million in 2000. The
year-over-year  increase  resulted  from a $2.3 million  write-off of all of our
positive goodwill assets.  Excluding the goodwill asset write-offs,  general and
administrative  expenses decreased $.5 million,  or 10%, to $5.6 million in 2001
from $6.2 million in 2000,  or to 13.0% from 10.3% as a percentage of net sales,
respectively.  The $.5 million reduction of general and administrative  expenses
resulted primarily from reductions in personnel and related expenses,  partially
offset by increased legal expense and filing expenses associated with the recent
change of our  jurisdiction of  incorporation  from Canada to the United States.
Staff reductions occurred throughout the year.

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

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

o    Interest Income. Interest income decreased to $.20 million in 2001 from $.5
     million in 2000.  The decrease was the result of our lower earned  interest
     rate and lower average  invested cash balance during 2001 compared to 2000.
     The average interest rate earned in 2001 was approximately 250 basis points
     lower in 2001 than in 2000.
o    Interest expense. Interest expense increased to $.5 million in 2001 from $0
     in 2000. The interest expense increase is due to the interest  payments for
     the $6.0 million  mortgage  taken out in January  2001 on our  headquarters
     building.
o    Equity  in losses of  affiliate.  Our  affiliate  equity  losses  were $.15
     million in 2001 compared to $.22 million in 2000. Our investment balance in
     the affiliate has been reduced to $.06 million at December 31, 2001.
o    Other Income,  Net. Other income and non-interest  income remained constant
     at $.24 million in 2001 and 2000.  Activity in this account  includes other
     income of $.12  million for an  unexpected  recovery of funds in a dispute.
     There was slightly lower rental income in 2001 compared to 2000.

Income Tax  Expense  (Benefit).  We did not record any net tax benefit to offset
our $14.5 million pre-tax loss in 2001. In addition,  we recorded a $3.8 million
income tax charge to increase our valuation  allowance  against our net deferred
tax asset due to our operating results, both recent and projected, and the lower
market  value of our real  estate.  This  accounting  treatment  is described in
further detail under the caption  "Critical  Accounting  Policies"  above and in
footnote 12 to the audited consolidated financial statements.

Net Loss.  Our net loss for 2001 was $18.3  million or $2.33 per share  versus a
net loss of $3.1 million or $.40 per share for 2000.

Liquidity and Capital Resources

On December 31, 2002, we had working  capital of $15.3  million,  including $7.6
million in cash and cash equivalents.

In 2002  operating  activities  generated  $2.9 million in cash. Our net loss in
2002 was  $5.1  million,  which  included  significant  non-cash  charges  for a
write-off of net deferred tax assets of $2.0 million, a cost of sales charge for
obsolescence  and  lower  of cost or  market  write-downs  of $.9  million,  and
depreciation  and  amortization  of $.8  million.  These  non-cash  charges were
partially  offset  by an  extraordinary  non-cash  gain  on the  elimination  of
negative  goodwill of $.3 million.  Sources of cash from  operations  included a
reduction of inventory,  excluding the above-mentioned obsolescence and lower of
cost or  market  adjustments,  of  $3.4  million,  and a  decrease  in  accounts
receivable of $2.1 million. Uses of cash included a decrease of accounts payable
and accrued  expenses of $1.0  million  and a decrease of prepaid  expenses  and
other current assets of $.04 million.

Our  $3.4   million   year  over  year   inventory   reduction   excluding   the
above-mentioned  obsolescence  and  lower  of cost or  market  adjustments,  was
primarily the result of reduced inventory purchases attributable to the delivery
of no-charge  components from our key component  vendors,  reduced  inventory to
support lower sales  activity in 2002 compared to 2001,  and improved  inventory
turnover.

In 2002 our net cash used in investing  activities  was $.2  million,  which was
used to purchase plant and equipment. The investment in an affiliate was our 20%
investment in the Zoom Group, LLC, a limited liability company formed by certain
affiliates  of Zoom to purchase  the  building  which we refer to as the Drydock
Building.  In January  2003,  we exercised our right to sell our interest in the
Zoom Group, LLC to the remaining  members of the Zoom Group, LLC. In March 2003,
we  received  the  proceeds  from the sale of our  interest  from the  remaining
members of the Zoom Group,  LLC, in the amount of  approximately  $.48  million,
which  represents our investment  amount less the  non-refundable  deposit and a
negotiated  portion of losses in the Zoom Group, LLC plus interest earned on our
original  deposit.  This action terminates our participation in the ownership of
the  Drydock  building.  The  Drydock  transaction  and  other  commitments  are
discussed in further  detail under the caption  "Commitments"  below.  We do not
have  any  significant  capital  commitments,  and we  anticipate  that  we will
continue  with  modest  investments  in  equipment  and  in  improvement  to our
facilities during the year.

In 2002 we used cash for financing activities of $.35 million consisting of $.17
million for  monthly  principal  payments  plus a one-time  principal  reduction
payment  of $.18  million  on our  $6.0  million  mortgage  on our  headquarters
facility. The one time principal reduction payment was requested by the mortgage
holder in September 2002, following an appraisal of our headquarters building of
$9.3 million, in order to maintain the 60% maximum loan-to-value ratio specified
in the mortgage  agreement.  Our mortgage is a 5-year  balloon  mortgage 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
2002, the interest rate was 4.97%.  As of January 10, 2003, the rate of interest
was changed to 3.81%.

Currently we do not have a debt facility from which we can borrow, and we do not
expect to obtain one on acceptable  terms unless there is operating  performance
improvement.  However,  we believe we would be able to obtain funds, if and when
required,  by factoring accounts  receivable.  We do not plan to put a factoring
arrangement  in place until and unless it is  necessary  since there would be an
up-front cost to finalize the arrangement.

To conserve cash and manage our  liquidity,  we implemented  expense  reductions
throughout 2002 and in the first quarter of 2003. Our employee headcount was 215
at December  31, 2001,  which has been  reduced to 185 at December 31, 2002.  We
will  continue to assess our cost  structure  as it relates to our  revenues and
cash  position in 2003,  and we may make further  reductions  if the actions are
deemed necessary.

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

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

Commitments

During  2001,  we entered  into an  agreement to purchase the ground lease for a
manufacturing  facility  located at 27 Drydock  Avenue in Boston,  Massachusetts
(the  "Drydock  Building").  In  connection  with the  proposed  purchase of the
Drydock Building, we paid $513,500 which was held in escrow as a deposit pending
the closing of the transaction. Of this deposit, $25,000 was nonrefundable. When
Zoom  was  unable  to  obtain  acceptable  financing  the  Seller  (the  current
leaseholder)  retained the deposit  pending  resolution of some  disputed  facts
concerning  Zoom's  withdrawal  from  the  transaction  under  the  terms of the
Purchase and Sale Agreement. While we believed that we were entitled to a return
of the  $488,500  refundable  portion of the deposit plus  interest,  the seller
directed the escrow agent to hold the funds pending resolution of the dispute.

As an  alternative  to pursing legal remedies to obtain a return of the deposit,
we pursued an  arrangement to acquire the Drydock  Building in partnership  with
the following individuals:  Frank B. Manning,  President and a director of Zoom;
Peter R.  Kramer,  Executive  Vice  President  and a director of Zoom;  Bruce M.
Kramer, Peter Kramer's brother; and a third party. Under this arrangement, these
individuals,  either  directly or through  entities  controlled by them,  joined
together  with  us  as of  March  29,  2002  to  form  the  Zoom  Group  LLC,  a
Massachusetts  limited  liability company ("Zoom Group") to purchase the Drydock
Building. Zoom and each of the investors owned a 20% interest in the Zoom Group.
The managers of the Zoom Group are Peter  Kramer and the third party.  There are
no special  allocations  among the members of the Zoom Group, and each member is
required to contribute his or its proportionate  amount of capital in return for
its 20% interest.

Effective  as of March 29,  2002,  we entered  into a  Reinstatement  Agreement,
Assignment Agreement and Second Amendment to Agreement of Purchase and Sale with
the  Zoom  Group  and  the  owner  of  the  Drydock  ground  lease.  Under  this
Reinstatement  Agreement,  the  original  purchase  agreement  for  the  Drydock
Building  was  amended and  reinstated,  and we  assigned  our rights  under the
purchase  agreement  to the Zoom Group,  together  with  rights to the  $488,500
refundable portion of the deposit. In connection with this transaction,  under a
separate letter agreement,  the other members of the Zoom Group paid us $390,800
($97,700 each),  representing their  proportionate share of the deposit assigned
to the Zoom Group.

Under the Reinstatement Agreement, the Zoom Group purchased the Drydock Building
for a purchase price of $6.1 million. The Zoom Group obtained a mortgage of $4.2
million,  less  closing  costs and legal  fees.  Each  member of the Zoom  Group
contributed  $482,577 for their share of the  investment  plus  initial  working
capital.  These initial capital contributions include each member's share of the
deposit.

Under  the Zoom  Group  Operating  Agreement,  we had both the right to sell our
interest in the Zoom Group to the other members of the Zoom Group, and the right
to purchase the other members' entire interests in the Zoom Group.

     In December 2002, the special committee of our board of directors appointed
to review the Drydock  transactions,  after  consideration of numerous  factors,
determined  that it was  advisable  and in the best interest of Zoom to exercise
its right to sell its  interest  in the Zoom  Group to the other  members of the
Zoom Group.  Accordingly,  effective  January 5, 2003, we exercised our right to
sell our interest to the remaining  members of the Zoom Group for  approximately
$.48 million,  which equals our investment less the  non-refundable  deposit and
our negotiated  portion of the losses in the Zoom Group plus interest earned on
our original  deposit.  In March 2003, we received the proceeds from the sale of
our interest  from the remaining  members of the Zoom Group,  LLC. By exercising
our  option to sell our  interest,  we believe we have  improved  our  liquidity
position and reduced our exposure to the current  unfavorable  conditions in the
Boston real estate market.
<PAGE>
The following table summarizes our contractual obligations and commitments as of
December 31, 2002.
<TABLE>
<S>                   <C>           <C>           <C>          <C>           <C>
                                           Contractual  Obligations
                                            Payments Due by Period

                                       LESS THAN                               AFTER 5
                           TOTAL         1 YEAR     1-3 YEARS    4-5 YEARS      YEARS
                           -----       ---------    ---------    ---------     -------
Long Term Debt (1)    $  5,533,607  $   191,550   $   412,440  $  4,929,617       -

Capital Lease
Obligations                  -             -             -             -          -

Operating Leases (2)     2,756,704      739,836     1,484,847       532,021       -

Unconditional
Purchase Orders              -             -             -             -          -

Purchase
Commitments (3)          5,442,467     3,600,000    1,842,467         -           -

Other Long Term
Obligations                  -             -             -             -          -
                       ------------  ------------  -----------  ------------  ---------
Total                  $ 13,732,778  $  4,531,386  $ 3,739,754  $  5,461,638      -
                       ============  ============  ===========  ============  =========
</TABLE>
(1) Represents the mortgage on our corporate headquarters.  In January 2001, we
     received $6.0 million in financing by securing a mortgage on this property.
     Our mortgage is a 5-year  balloon  mortgage  that is amortized on a 20-year
     basis.
(2) Represents anticipated 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.
(3) See  discussion  of purchase  commitments  for  chipsets  under the section
     entitled "Critical Accounting Policies" above.

Recently Issued Accounting Standards

FASB Emerging  Issues Task Force Issue No. 00-14  "Accounting  for Certain Sales
Incentives"  addresses  the  recognition,   measurement,  and  income  statement
classification  for certain types of sales  incentives.  The  application of the
guidance in Issue No. 00-14 results in a change in the manner in which we record
certain types of discounts and sales and marketing  incentives that are provided
to its  customers.  Zoom  has  historically  recorded  certain  types  of  these
incentives as marketing  expenses.  Under Issue No. 00-14,  we will record these
discounts  and  incentives as  reductions  of revenue.  In April 2001,  the FASB
Emerging  Issues Task Force  reached a consensus on Issue No. 00-25  "Accounting
for Consideration from a Vendor to a Retailer in Connection with the Purchase or
Promotion of the Vendor's  Products".  Issue No. 00-25 addresses whether certain
consideration  offered by a vendor to a  distributor,  including  slotting fees,
cooperative  advertising   arrangements  and  "buy-down"  programs,   should  be
characterized as operating  expenses or reductions of revenue.  The requirements
of Issue No. 00-14 and 00-25 were  implemented  in the first  fiscal  quarter of
2002, at which time prior period reported  amounts were  reclassified to conform
to the new  presentation.  There is no current year or historical  impact on our
consolidated balance sheets. EITF Issue No. 01-9,  "Accounting for Consideration
Given  by a  Vendor  to  a  Customer  (Including  a  Reseller  of  the  Vendor's
Products),"  subsequently  codified  the  guidance in Issue No. 00-14 and 00-25.
Prior year  reclassifications  have been made to conform to current presentation
and are as follows:
<TABLE>
<S>                                 <C>                  <C>
                                            Years ending December 31,
                                            2000                 2001
                                            ----                 ----
Revenues:
As previously reported              $    59,750,187       $   43,709,528
As reclassified                          57,708,456           41,570,276

Sales and Marketing expenses:
As previously reported                   12,713,756            9,619,549
As reclassified                          10,672,025            7,480,297
</TABLE>
     In June  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
Associated  with Exit or  Disposal  Activities"  (SFAS 146).  SFAS 146  requires
companies to recognize costs  associated  with exit or disposal  activities when
they are incurred rather than at the date of a commitment to an exit or disposal
plan. This statement is effective for restructuring  activities commencing after
December 31, 2002.  We do not believe that the impact of adopting  SFAS 146 will
have a material impact on the consolidated financial statements.

     In  November  2002,  the  FASB  issued  Interpretation  No.  45  (FIN  45),
"Guarantor's  Accounting and Disclosure  Requirements for Guarantees,  Including
Indirect Guarantees of Indebtedness of Others",  which clarifies  disclosure and
recognition/measurement   requirements   related  to  certain  guarantees.   The
disclosure  requirements  are effective for  financial  statements  issued after
December 15, 2002 and the recognition/measurement  requirements are effective on
a prospective  basis for guarantees  issued or modified after December 31, 2002.
The application of the  requirements of FIN 45 did not have a material impact on
our financial position or results of operations.

     In December 2002, the FASB issued SFAS No. 148  "Accounting for Stock-Based
Compensation -- Transition and Disclosure"  (SFAS 148). SFAS 148 amends SFAS No.
123 "Accounting for Stock Based Compensation", to provide alternative methods of
transition  for a voluntary  change to the fair value based method of accounting
for  stock-based  employee  compensation.  In  addition,  SFAS  148  amends  the
disclosure  requirements  of SFAS 123 to require  prominent  disclosures in both
annual and  interim  financial  statements  about the method of  accounting  for
stock-based employee  compensation and the effect of the method used on reported
results.  The transition  guidance and annual disclosure  provisions of SFAS 148
are  effective  for fiscal  years ending  after  December 15, 2002.  The interim
disclosure  provisions are effective for financial reports containing  financial
statements for interim periods  beginning after December 15, 2002. As we did not
make a  voluntary  change  to the fair  value  based  method of  accounting  for
stock-based employee compensation in 2002, the adoption of SFAS 148 did not have
a material impact on our financial position and results of operations.

     In January 2003, the FASB issued  Interpretation No. 46,  "Consolidation of
Variable  Interest  Entities"  ("VIEs").   This  Interpretation   addresses  the
consolidation of variable  interest  entities in which the equity investors lack
one or more of the essential characteristics of a controlling financial interest
or where the  equity  investment  at risk is not  sufficient  for the  entity to
finance  its  activities  without  subordinated  financial  support  from  other
parties.  The Interpretation  applies to VIEs created after January 31, 2003 and
to VIEs in which an  interest  is acquired  after that date.  Effective  July 1,
2003, it also applies to VIEs in which an interest is acquired  before  February
1, 2003. We may apply the Interpretation prospectively, with a cumulative effect
adjustment  as of July 1, 2003,  or by  restating  previously  issued  financial
statements with a cumulative  effect adjustment as of the beginning of the first
year  restated.  We are in the  process of  evaluating  the  effects of applying
Interpretation  No. 46 in 2003.  Based on our  preliminary  analysis,  we do not
anticipate that adoption of Interpretation No. 46 will have a material effect on
our consolidated financial statements.

RISK FACTORS

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

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

     We  incurred  a net  loss  of  $5.1  million  in 2002  and  net  losses  of
approximately  $18.3 million in 2001,  and $3.1 million in 2000. Our revenue has
declined  from  $57.7  million  in 2000,  to $41.6  million in 2001 and to $37.3
million in 2002.  The cash used in operations  during 1999 through 2001 was $2.6
million in 2001,  $8.0 million in 2000,  and $2.7 million in 1999. In 2002,  our
cash provided from operations was positive,  at $2.9 million. As of December 31,
2002 we had net working capital of $15.3 million including cash of $7.6 million.

We attribute  the decline of our  business  primarily to a decline in the retail
dial-up modem market and delays in the roll-out of the V.92 modem  standard.  We
anticipate  that  we  will  continue  to  incur  significant  expenses  for  the
foreseeable future as we:

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

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

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

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

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

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

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

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

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

     With the shrinking of the dial-up modem market,  we believe that our future
success will depend in large part on our ability to more successfully  penetrate
the  broadband,   cable  and  ADSL,  modem  markets.  These  markets  have  been
challenging  markets,  with significant  barriers to entry,  that have adversely
affected  our sales to these  markets.  Although  some cable and ADSL modems are
sold at retail, the high volume purchasers of these modems are concentrated in a
relatively few large cable,  telecommunications,  and Internet service providers
which offer  broadband  modem  services  to their  customers.  These  customers,
particularly cable services  providers,  also have extensive and varied approval
processes for modems to be approved for use on their  network.  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 incumbents
     cable equipment providers like Motorola and Scientific Atlanta.

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

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

     Relatively few customers  have  accounted for a significant  portion of our
net sales. In fiscal 2001,  approximately 53% of our net sales were attributable
to four customers, each of whom accounted for more than 10% of our net sales. In
2002, 43% of our net sales were  attributable to three  customers,  each of whom
accounted  for 10% or  more  of our net  sales.  Because  our  customer  base is
concentrated,  a  loss  of one or  more  of  these  significant  customers  or a
reduction  or  delay in  orders  or a  default  in  payment  from any of our top
customers could  significantly  reduce our sales which would materially harm our
business, results of operations, and financial condition.

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

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

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

     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 revenues 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  fiscal  2002,  we
recorded a reduction of revenue of $.7 million for customer price protection.

We  may  be  subject  to  product  returns  resulting  from  defects,   or  from
overstocking  of our  products.  Product  returns could result in the failure to
attain market acceptance of our products, which would harm our business.

     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.

     During fiscal 2000, in anticipation of future sales of our broadband access
products,  particularly  cable modems, we significantly  increased our inventory
for these products.  We also built up this inventory in response to shortages of
components for these products  earlier in that year. We have also had difficulty
in  generating  significant  orders  for  some  of  our  products,  particularly
broadband  products,  and as a result, we experienced a significant  increase in
our  inventory,  to $21.7  million on December  31,  2000 from $14.3  million on
December 31, 1999.  During  fiscal  2001,  we were able to reduce our  inventory
levels to $11.1 million as a result of sales, raw material returns to suppliers,
and the write-down of value of some of our inventory.  At December 31, 2002, our
inventory  level is $6.8 million,  a reduction of $4.3 million from December 31,
2001 primarily  attributable to reduced inventory purchases  attributable to the
delivery of no-charge components from our key component vendors, lower inventory
levels to  support  the  reduced  sales  activity  in 2002,  improved  inventory
turnover,  inventory  write-downs  for lower of cost or market  adjustments  and
obsolescence,  and sales of excess broadband and wireless inventory. 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 six  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;
o    reduced control over quality assurance;
o    reduced control over manufacturing yields;
o    lack of adequate capacity during periods of excess demand;
o    limited warranties on products supplied to us;
o    potential increases in prices;
o    interruption  of supplies from  assemblers  as a result of a fire,  natural
     calamity, strike or other significant event; and
o    misappropriation of our intellectual property.

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

     We obtain certain key parts, components, and equipment from sole or limited
sources of supply. For example, we purchase dial-up and broadband modem chipsets
from  Conexant  Systems and Agere  Systems.  Integrated  circuit  product  areas
covered by one or both companies  include  dial-up  modems,  ADSL 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.  If we are unable
to obtain a sufficient  supply of components from our current sources,  we could
experience  difficulties in obtaining alternative sources or in altering product
designs to use alternative components. Resulting delays or reductions in product
shipments could damage  relationships with our customers and our customers could
decide  to  purchase  products  from  our  competitors.  Inability  to meet  our
customers'  demand or a decision  by one or more of our  customers  to  purchase
products from our competitors could harm our operating results.

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

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

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

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

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

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

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

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

o    Dial-up modem competitors: Actiontec, Askey, Best Data, Creative Labs, GVC,
     Intel, Sitecom, SONICblue, and US Robotics.
o    Cable  modem  competitors:   Com21,  D-Link,  Linksys,  Motorola,  Netgear,
     Scientific Atlanta, SMC, Terayon, Thomson, and Toshiba.
o    ADSL  modem  competitors:   3Com,  Alcatel,   Siemens  (formerly  Efficient
     Networks), Thomson, US Robotics, and Westell.

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.

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

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

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

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

     Our international  sales accounted for approximately 30% in fiscal 2000 and
38%  in  fiscal  2001.  In  2002  our  international   sales  accounted  for
approximately  40% of our revenues.  Currently our operations are  significantly
dependent on our international  operations,  and may be materially and adversely
affected by many factors including:

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

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

Fluctuations  in the  foreign  currency  exchange  rates in relation to the U.S.
dollar could have a material adverse effect on our operating results.

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

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

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

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

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

We may have difficulty protecting our intellectual property.

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

We could infringe the intellectual property rights of others.

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

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 $5.3 million under our mortgage  arrangement  as of
December 31,  2002,  a  one-percentage  point  increase in interest  rates would
decrease cash flow and earnings by approximately $55,000.


ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ZOOM TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULE
                                                                            Page
Index to Consolidated Financial Statements                                   32
Independent Auditors' Report                                                 33
Consolidated Balance Sheets as of December 31, 2001 and 2002                 34
Consolidated Statements of Operations for the years ending December 31,      35
2000, 2001 and 2002
Consolidated Statements of  Stockholders' Equity and Comprehensive Loss
for the years ending December 31, 2000, 2001 and 2002                        36
Consolidated Statements of Cash Flows for the years ending December 31,      37
2000, 2001 and 2002
Notes to Consolidated Financial Statements                                 38-53
Schedule II:  Valuation and Qualifying Accounts for the years ending
December 31, 2000, 2001 and 2002                                             56

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.

PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information  required  by this item  appears  under the caption  "Our  Executive
Officers " in Part 1, Item 1 -- Business,  and under the  captions  "Election of
Directors" and "Compliance With Section 16(a) of the Securities Exchange Act" in
our definitive proxy statement for our 2003 annual meeting of shareholders 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," "Directors' Compensation",  in our definitive proxy statement for
our 2003 annual meeting of shareholders  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

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, 2002
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
<PAGE>

<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            1,320,000                   $3.4671                        472,646
approved by security holders(1)

Equity compensation plans              780,500                    3.1648                        372,800
not approved by security holders(2)

           Total                     2,100,500                   $3.3547                        845,446
</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 Stock Option  Committee of the
     Board of Directors.  In 1999,  the Board of Directors  authorized our Chief
     Executive  Officer to grant stock options to purchase up to 100,000  shares
     in any fiscal  quarter,  not to exceed  stock  options to purchase  350,000
     shares in any  fiscal  year to  eligible  employees  under  the 1998  Plan.
     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  "Share  Ownership  of  Directors,  Officers  and Certain
Beneficial Owners" in our Definitive Proxy Statement for our 2003 annual meeting
of  shareholders to be filed with the SEC within 120 days after the close of the
fiscal year.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information  required  by this  item  may  appear  under  the  caption  "Certain
Transactions"  in our Definitive  Proxy Statement for our 2003 annual meeting of
Shareholders  to be filed  with the SEC  within  120 days after the close of the
fiscal year and is incorporated herein by reference.

ITEM 14 - CONTROLS AND PROCEDURES

Within the 90-day period prior to the date of this report,  our Chief  Executive
Officer and Chief  Financial  Officer  performed an evaluation of our disclosure
controls and  procedures,  which have been designed to permit us to  effectively
identify and timely  disclose  important  information.  They  concluded that the
disclosure  controls  and  procedures  were  effective.  Since  the  date of the
evaluation,  we have made no significant  changes in our internal controls or in
other factors that could significantly affect our internal controls.
<PAGE>
PART IV

ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)           Financial Statements, Schedules and Exhibits:

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

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

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

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

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

     **10.2   1991 Director Stock Option Plan, as amended, of Zoom Telephonics,
              Inc., filed as Exhibit 10.2 to the Quarterly Report on Form 10-Q
              for the fiscal quarter ended June 30, 1996 (the "June 1996 Form
              10-Q") and as further amended on June 14, 2001, filed as Exhibit
              10.2 to the Annual Report on Form 10-K for the fiscal year ending
              December 31, 2001. *

       10.3   1998 Employee Equity Incentive Plan, as amended, files as exhibit
              99.1 to Registration Statement on Form S-8 (Reg. No.333-47188).*

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

     **10.7   Employment Agreement, filed  as Exhibit  10.9 to the Form 10-K for
              the fiscal year ended December 31, 2002. *

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

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

       10.10  Operating  Agreement,  Zoom Group LLC  dated as of March 29, 2002,
              filed  as Exhibit  10.1 to the  Quarterly  Report on Form 10-Q for
              the fiscal quarter ended March 2002. *

       10.11  Agreement between Zoom  Telephonics,  Inc and  Members if the Zoom
              Group dated  as of March 22, 2002, filed as  Exhibit 10.2  to  the
              March 2002 Form 10-Q. *

       10.12  Reinstatement   Agreement,   Assignment    Agreement   and  Second
              amendment of  Purchase and Sale  dated as of March 29, 2002, filed
              as Exhibit 10.3 to the March 2002 Form 10-Q. *
<PAGE>

ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(Continued)

       21.    Subsidiaries. *

       23.    Consent of KPMG LLP.

       99.1   Certification, Pursuant to Section 906 of the Sarbanes-Oxley Act
              of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of
              Title 18, United States Code).

       99.2   Certification, Pursuant to Section 906 of the Sarbanes-Oxley Act
              of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of
              Title 18, United States Code).

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

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

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

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

   **         Compensation Plan or Arrangement.

<PAGE>

                                   SIGNATURES

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


                                         ZOOM TECHNOLOGIES, INC.
                                         (Registrant)


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

Date:  March 25, 2003


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 25, 2003
--------------------       and Chairman of the Board
    Frank B. Manning

/s/ Robert A. Crist        Principal Financial and            March 25, 2003
--------------------       Accounting Officer
    Robert A. Crist

/s/ Peter R. Kramer        Director                           March 25, 2003
--------------------
    Peter R. Kramer

/s/ Bernard Furman         Director                           March 25, 2003
--------------------
    Bernard Furman

/s/ L. Lamont Gordon       Director                           March 27, 2003
--------------------
    L. Lamont Gordon

/s/ J. Ronald Woods        Director                           March 27, 2003
--------------------
    J. Ronald Woods

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

                                                                            Page

Independent Auditors' Report                                                33
Consolidated Balance Sheets as of December 31, 2001 and 2002                34
Consolidated Statements of Operations for the years ending December 31,     35
2000, 2001 and 2002
Consolidated Statements of Stockholders' Equity and Comprehensive Loss
for the years ending December 31, 2000, 2001 and 2002                       36
Consolidated Statements of Cash Flows for the years ending December 31,     37
2000, 2001 and 2002
Notes to Consolidated Financial Statements                                 38-53
Schedule II:  Valuation and Qualifying Accounts for the years ending
December 31, 2000, 2001 and 2002                                            56

<PAGE>

                          Independent Auditors' Report


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


We  have  audited  the   accompanying   consolidated   balance  sheets  of  Zoom
Technologies,  Inc. and  subsidiary  as of December  31, 2001 and 2002,  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,  2002.  These  consolidated  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Zoom Technologies,
Inc. and  subsidiary as of December 31, 2001 and 2002,  and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 2002 in  conformity  with  accounting  principles  generally
accepted in the United States of America.




                                                /s/ KPMG LLP



Boston, Massachusetts
February 11, 2003, except as to notes 3
and 7(c) which are as of March 28, 2003.



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

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

                                                                     December 31,
                                                         ----------------------------------
    Assets                                                     2001                 2002
    ------                                                     ----                 ----
Current assets:
   Cash and cash equivalents                             $   5,252,058        $   7,612,274
   Accounts receivable, net of reserves for doubtful
      accounts, returns, and allowances $2,816,449 in
      2001 and $2,646,408 in 2002 (note 13)                  5,652,035            3,714,202
   Inventories, net (note 5)                                11,083,143            6,782,550
   Prepaid expenses and other current assets                   999,662            1,037,733
                                                            ----------           ----------
             Total current assets                           22,986,898           19,146,759

Property, plant and equipment, net (note 6)                  4,128,916            3,485,911
Net deferred tax assets (note 12)                            2,012,844                    -
Other assets                                                    56,666                    -
                                                            ----------           ----------
              Total assets                               $  29,185,324        $  22,632,670
                                                            ==========           ==========

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

Current liabilities:
    Accounts payable                                     $   2,750,174        $   2,406,843
    Accrued expenses                                         1,879,566            1,207,724
    Current portion of long term debt (note 10)                139,201              191,550
                                                            ----------           ----------
             Total current liabilities                       4,768,941            3,806,117

Long-term debt, less current portion (note 10)               5,745,368            5,342,057
Other non-current liabilities (note 8)                         255,287                    -
                                                            ----------           ----------
              Total liabilities                             10,769,596            9,148,174
                                                            ----------           ----------

Stockholders' equity (note 11):
  Common stock, no par value at December 31, 2001
    and $0.01 par value at December 31, 2002.
    Authorized 25,000,000 shares; issued
    7,860,866 shares and outstanding 7,860,866 and
    7,858,266 shares at December 31, 2001 and
    December 31, 2002, respectively.                        28,245,215              282,452
  Additional paid-in capital                                         -           27,962,763
  Retained earnings (accumulated deficit)                   (9,634,692)         (14,770,278)
  Accumulated other comprehensive income (loss)               (194,795)              11,755
  Treasury stock, at cost                                            -               (2,196)
                                                            ----------           ----------
             Total stockholders' equity                     18,415,728           13,484,496
                                                            ----------           ----------

             Total liabilities and stockholders'
               equity                                   $   29,185,324        $  22,632,670
                                                            ==========           ==========
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

                               ZOOM  TECHNOLOGIES, INC. AND SUBSIDIARY
                                CONSOLIDATED STATEMENTS OF OPERATIONS
                            Years Ending December 31, 2000, 2001 and 2002
<TABLE>
<S>                                                     <C>               <C>             <C>

                                                            2000            2001            2002
                                                        ------------    ------------    ------------

Net sales (notes 4, 13 and 17) ..............           $ 57,708,456    $ 41,570,276    $ 37,274,287
Cost of goods sold (note 5) .................             39,404,320      35,193,449      27,937,544
                                                         -----------     -----------     -----------
                     Gross profit ...........             18,304,136       6,376,827       9,336,743
                                                         -----------     -----------     -----------

Operating expenses:
        Selling .............................             10,672,025       7,480,297       5,848,137
        General and administrative (note 8)..              6,228,317       7,938,175       3,405,043
        Research and development ............              6,249,092       5,327,968       3,526,350
                                                         -----------     -----------     -----------
                     Total operating expenses             23,149,434      20,746,440      12,779,530
                                                         -----------     -----------     -----------

                     Operating loss .........             (4,845,298)    (14,369,613)     (3,442,787)
                                                         -----------     -----------     -----------
Other income (expense):
        Interest income .....................                447,148         198,805         102,604
        Interest expense.....................                      -        (454,708)       (293,104)
        Equity in losses of affiliate (note 14)             (215,834)       (145,165)        (56,666)
        Other, net ..........................                237,820         241,759         313,619
                                                         -----------     -----------     -----------
                     Total other income (expense), net       469,134        (159,309)         66,453
                                                         -----------     -----------     -----------
                     Income (loss) before income taxes
                       and extraordinary item             (4,376,164)    (14,528,922)     (3,376,334)

Income tax expense (benefit)(note 12) .......             (1,298,916)      3,800,000       2,014,539
                                                         -----------     -----------     -----------
                     Income (loss) before extraordinary
                       item                               (3,077,248)    (18,328,922)     (5,390,873)
                     Extraordinary gain on elimination
                        of negative goodwill                       -               -         255,287
                                                         -----------     -----------     -----------
                     Net Income (loss) ......           $ (3,077,248)   $(18,328,922)   $ (5,135,586)
                                                         ===========     ===========     ===========
Basic and diluted earnings (loss) per share (note 2):

Loss before extraordinary item:
                     Basic and diluted.......           $       (.40)   $      (2.33)   $       (.68)
                                                         ===========     ===========     ===========

Extraordinary gain on elimination of negative goodwill  $          -    $          -    $        .03
                                                         ===========     ===========     ===========
Net loss:
                     Basic and diluted.......           $       (.40)   $      (2.33)   $       (.65)
                                                         ===========     ===========     ===========

Weighted average common and common equivalent
shares:
                     Basic and diluted.......              7,756,815       7,860,866       7,860,650
                                                         ===========     ===========     ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<S>                               <C>        <C>           <C>         <C>            <C>            <C>       <C>     <C>

                                                       ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                                              CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
                                                                COMPREHENSIVE LOSS

                                                                         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, 1999 ....  7,560,296   25,780,231           -    11,771,478        (37,626)       -         -    37,514,083

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

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

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 ..................            -  (27,962,763) 27,962,763             -               -        -         -            -
Purchase of treasury stock ....            -            -           -             -               -    2,600    (2,196)      (2,196)
                                  ----------  -----------  ----------  ------------      ----------   -------   ------- ------------
Balance at December 31, 2002 ..    7,860,866  $   282,452  27,962,763  $(14,770,278)     $   11,755    2,600    (2,196) $ 13,484,496
                                  ==========  ===========  ==========  ============      ==========   ======    ======= ============

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

<PAGE>
                                ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                             Years Ending December 31, 2000, 2001 and 2002
<TABLE>
<S>                                                       <C>               <C>             <C>
                                                               2000             2001             2002
                                                               ----             ----             ----
Cash flows from operating activities:
       Net income (loss)                                  $ (3,077,248)    $(18,328,922)    $ (5,135,586)

       Adjustments to reconcile net income (loss) to net
         cash provided by (used in) operating activities:
             Extraordinary gain on negative goodwill                 -                -         (255,287)
             Depreciation and amortization                   1,613,276        1,769,608          837,968
             Impairment of goodwill                                  -        2,294,881                -
             Amortization of unearned compensation
               expense                                          52,577           99,840                -
             Equity in losses of affiliate                     215,834          145,165           56,666
             Net deferred income taxes                      (1,843,874)       3,800,000        2,012,844
             Tax benefit from exercise of
             nonqualified stock options                        489,845                -                -
             Changes in operating assets and liabilities,
                 net of acquisitions
               Accounts receivable                          (2,514,401)       2,271,932        2,139,336
               Inventories                                  (7,593,276)      10,813,740        4,300,593
               Prepaid expenses and other
                 current assets                               (106,651)        (296,655)         (38,071)
               Accounts payable and accrued
                 expenses                                    4,766,116       (5,214,009)      (1,015,173)
                                                            ----------       ----------       ----------
                     Net cash provided by (used in)
                       operating activities                 (7,997,802)      (2,644,420)       2,903,290
                                                            ----------       ----------       ----------
Cash flows from investing activities:
       Sales of investment securities, net                   3,215,329               53                -
       Investment in affiliates                                      -         (141,665)               -
       Purchases of property, plant and equipment           (1,324,268)        (650,060)        (194,963)
                                                            ----------       ----------       ----------
                     Net cash provided by (used in)
                       investing activities                  1,891,061         (791,672)        (194,963)
                                                            ----------       ----------       ----------
Cash flows from financing activities:
       Proceeds from the issuance of long-term debt                  -        6,000,000                -
       Repayment of long-term debt                                   -         (115,431)        (350,962)
       Exercise of nonqualified stock options                1,875,299                -                -
       Payments to acquire treasury stock                            -                -           (2,196)
                                                            ----------       ----------       ----------
                           Net cash provided by (used in)
                             financing activities            1,875,299        5,884,569         (353,158)
                                                            ----------       ----------       ----------
Effect of exchange rate changes on cash                        (80,788)        (102,689)           5,047
                                                            ----------       ----------       ----------
Net increase (decrease) in cash and cash equivalents        (4,312,230)       2,345,788        2,360,216
                                                            ----------       ----------       ----------
Cash and cash equivalents at beginning of year               7,218,500        2,906,270        5,252,058
                                                            ----------       ----------       ----------
Cash and cash equivalents at end of year                   $ 2,906,270      $ 5,252,058      $ 7,612,274
                                                            ==========       ==========       ==========
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                  Years Ending December 31, 2000, 2001 and 2002

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

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

     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  and
          goodwill,  the recoverability of long-lived assets, the collectibility
          of accounts  receivable,  the  valuation  allowance  for  deferred tax
          assets,  the valuation of sales returns and  allowances,  the reserves
          for  obsolete  and  slow  moving  inventory,  and the  write-downs  of
          inventory valuation for the lower 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,  2002  and  2001  was  a  deposit  for
          approximately $241,000 and $218,000, 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.
                                           2000            2001            2002
                                           ----            ----            ----
Basic weighted
   average shares outstanding         7,756,815       7,860,866       7,860,650
Net effect of dilutive potential
   common shares outstanding, based
   on the treasury stock method               -               -               -
                                      ---------       ---------       ---------
Diluted weighted
   average shares outstanding         7,756,815       7,860,866       7,860,650
                                      =========       =========       =========

     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 419,039,  13,870 and 3,814 shares of common stock at December
          31, 2000,  2001, and 2002,  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 sells  hardware  products to its  customers.  The products are
          dial-up modems,  embedded modems,  cable modems, PC cameras,  ISDN and
          ADSL modems,  telephone  dialers,  and  wireless and wired  networking
          equipment.  The Company  generally does not sell software or services.
          The  Company  earns a small  amount of royalty  revenue.  The  Company
          derives its revenue  primarily from the sales of hardware  products to
          three types of  customers  (1)  computer  peripherals  retailers,  (2)
          computer   product   distributors,    and   (3)   original   equipment
          manufacturers  (OEMs).  The Company  sells a very small  amount of its
          hardware  products to direct  consumers  or to any  customers  via the
          Internet. As described below,  management judgments and estimates must
          be made and used in  connection  with the  revenue  recognized  in any
          accounting period.  Material  differences may result in the amount and
          timing of the Company's revenue for any period if its management makes
          different judgments or utilizes different estimates.

     Revenue is  recognized  by the Company for all three types of  customers at
          the point when the  customers  take legal  ownership of the  delivered
          products.  Legal  ownership  passes from the  Company to the  customer
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

          based on the contractual  FOB point specified in signed  contracts and
          purchase  orders,  which  are  both  used  extensively.  Many  of  the
          Company's   customer   contracts  or  purchase   orders   specify  FOB
          destination.  Since it would be impractical to verify ownership change
          for each individual delivery to the FOB destination point, the Company
          estimates  the day of delivery  receipt by the  customer  based on its
          ship date and the carrier's  published  delivery  schedule specific to
          the freight class and location.

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

     (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.
<TABLE>
<S>                                                  <C>              <C>              <C>
                                                                YEAR ENDED DECEMBER 31,
                                                         2000              2001            2002
                                                      ----------       ------------     -----------
Net income (loss), as reported....................   $(3,077,248)     $(18,328,922)    $(5,135,586)

Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects........      (837,541)         (683,521)       (225,230)
                                                       ---------        ----------       ---------
Proforma net income (loss)........................   $(3,914,789)     $(19,012,443)    $(5,360,816)
                                                       =========        ==========       =========
Earnings (loss) per share:
Basic -- as reported..............................   $     (0.40)      $     (2.33)    $     (0.65)
Basic -- proforma.................................   $     (0.50)      $     (2.42)    $     (0.68)
                                                        =========         =========       =========
Diluted -- as reported............................   $     (0.40)      $     (2.33)    $     (0.65)
Diluted -- proforma...............................   $     (0.50)      $     (2.42)    $     (0.68)
                                                        =========         =========       =========
</TABLE>
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

     (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.  During
          the years ending  December 31, 2000,  2001, and 2002 foreign  currency
          transaction activity, gains, and losses were not material. At December
          31, 2002, the Company's foreign  currency-denominated  net assets were
          not material. The Company has no involvement with derivative financial
          instruments.

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

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

(3)   Liquidity
     In   2002, the Company's net cash provided by operating activities was $2.9
          million and net cash used in investing  activities was $.2 million. In
          2001, the Company  obtained a mortgage on its corporate  headquarters,
          which provided financing of $6 million.  On December 31, 2002 Zoom had
          cash and cash equivalents of approximately $7.6 million. Currently the
          Company does not have a debt facility from which it can borrow, and it
          does not  expect to obtain one on  acceptable  terms  unless  there is
          operating performance improvement.

     To   conserve  cash and manage the  Company's  liquidity,  the  Company has
          implemented expense reductions  throughout 2001 and 2002. The employee
          headcount was 313 at December 31, 2000,  which has been reduced to 185
          at December  31, 2002.  The Company  will  continue to assess its cost
          structure as it relates to its revenues and cash position in 2003, and
          may make further reductions if these actions are deemed necessary.

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

     The  Company's  cash  position  at  December  31,  2002 was  $7.6  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
     FASB Emerging  Issues Task Force Issue No.  00-14  "Accounting  for Certain
          Sales Incentives" addresses the recognition,  measurement,  and income
          statement  classification  for certain types of sales incentives.  The
          application  of the guidance in Issue No. 00-14 results in a change in
          the manner in which the Company records certain types of discounts and
          sales and marketing incentives that are provided to its customers. The
          Company has historically recorded certain types of these incentives as
          marketing  expenses.  Under Issue No.  00-14,  the Company will record
          these  discounts and  incentives  as  reductions of revenue.  In April
          2001, the FASB Emerging Issues Task Force reached a consensus on Issue
          No. 00-25 "Accounting for Consideration from a Vendor to a Retailer in
          Connection  with the Purchase or Promotion of the Vendor's  Products".
          Issue No. 00-25 addresses whether certain  consideration  offered by a
          vendor  to  a  distributor,   including  slotting  fees,   cooperative
          advertising   arrangements   and   "buy-down"   programs,   should  be
          characterized  as operating  expenses or  reductions  of revenue.  The
          requirements  of Issue No.  00-14 and 00-25  were  implemented  in the
          first  fiscal  quarter of 2002,  at which time prior  period  reported
          amounts were reclassified to conform to the new presentation. There is
          no  current  year or  historical  impact on our  consolidated  balance
          sheets. EITF Issue No. 01-9,  "Accounting for Consideration Given by a
          Vendor to a Customer (Including a Reseller of the Vendor's Products),"
          subsequently codified the guidance in Issue No. 00-14 and 00-25. Prior
          year   reclassifications   have  been  made  to   conform  to  current
          presentation and are as follows:
<TABLE>
<S>                       <C>                 <C>                 <C>
                                           Years  ending  December 31,
                                            2000                2001
                                           --------------------------
Revenues:
As previously reported              $    59,750,187      $   43,709,528
As reclassified                          57,708,456          41,570,276

Sales and Marketing expenses:
As previously reported                   12,713,756           9,619,549
As reclassified                          10,672,025           7,480,297
</TABLE>
     In   June  2002,  the FASB  issued  SFAS No.  146,  "Accounting  for  Costs
          Associated  with Exit or Disposal  Activities"  (SFAS  146).  SFAS 146
          requires companies to recognize costs associated with exit or disposal
          activities  when  they  are  incurred  rather  than  at the  date of a
          commitment to an exit or disposal  plan.  This  statement is effective
          for restructuring  activities  commencing after December 31, 2002. The
          Company  does not believe  that the impact of  adopting  SFAS 146 will
          have a material impact on its consolidated financial statements.

     In   November  2002,  the  FASB  issued  Interpretation  No.  45 (FIN  45),
          "Guarantor's  Accounting and Disclosure  Requirements  for Guarantees,
          Including  Indirect  Guarantees  of  Indebtedness  of  Others",  which
          clarifies disclosure and recognition/measurement  requirements related
          to certain guarantees.  The disclosure  requirements are effective for
          financial   statements   issued  after   December  15,  2002  and  the
          recognition/measurement  requirements  are  effective on a prospective
          basis for  guarantees  issued or modified after December 31, 2002. The
          application  of the  requirements  of FIN 45 did not  have a  material
          impact on the Company's financial position or results of operations.

     In   December  2002,  the  FASB  issued  SFAS  No.  148   "Accounting   for
          Stock-Based  Compensation  -- Transition and  Disclosure"  (SFAS 148).
          SFAS  148  amends   SFAS  No.   123   "Accounting   for  Stock   Based
          Compensation",  to provide  alternative  methods of  transition  for a
          voluntary  change to the fair value  based  method of  accounting  for
          stock-based employee  compensation.  In addition,  SFAS 148 amends the
          disclosure  requirements of SFAS 123 to require prominent  disclosures
          in both annual and interim  financial  statements  about the method of
          accounting for stock-based employee compensation and the effect of the
          method used on reported  results.  The transition  guidance and annual
          disclosure  provisions  of SFAS 148 are  effective  for  fiscal  years
          ending after December 15, 2002. The interim disclosure  provisions are
          effective for financial reports  containing  financial  statements for
          interim periods  beginning after December 15, 2002. As the Company did
          not  make a  voluntary  change  to the  fair  value  based  method  of
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

          accounting for stock-based employee compensation in 2002, the adoption
          of SFAS 148 did not have a material impact on the Company's  financial
          position and results of operations.

     In   January 2003, the FASB issued Interpretation No. 46, "Consolidation of
          Variable Interest Entities" ("VIEs").  This  Interpretation  addresses
          the  consolidation of variable  interest  entities in which the equity
          investors  lack  one or more  of the  essential  characteristics  of a
          controlling  financial interest or where the equity investment at risk
          is not  sufficient  for the entity to finance its  activities  without
          subordinated  financial support from other parties. The Interpretation
          applies to VIEs created after January 31, 2003 and to VIEs in which an
          interest is acquired after that date.  Effective July 1, 2003, it also
          applies to VIEs in which an interest is  acquired  before  February 1,
          2003. The Company may apply the Interpretation  prospectively,  with a
          cumulative  effect  adjustment  as of July 1,  2003,  or by  restating
          previously  issued  financial  statements  with  a  cumulative  effect
          adjustment as of the beginning of the first year restated. The Company
          is in the process of evaluating the effects of applying Interpretation
          No. 46 in 2003.  Based on our preliminary  analysis,  the Company does
          not  anticipate  that  adoption of  Interpretation  No. 46 will have a
          material effect on the Company's consolidated financial statements.

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

                                                     2001            2002
                                                     ----            ----
        Raw materials                           $  6,276,480   $  2,808,421
        Work in process                              462,389        673,275
        Finished goods                             4,344,274      3,300,854
                                                  ----------    -----------
                      Net Inventory             $ 11,083,143   $  6,782,550
                                                  ==========     ==========

     During 2001  and  2002  the  Company  recorded  lower  of  cost  or  market
          write-downs of $4.6 million and $0.7 million, respectively, related to
          broadband and wireless inventory.

(6)     Property, Plant and Equipment
      Property, plant and equipment consists of the following at December 31:

                                                                     Estimated
                                            2001           2002     useful lives
                                            ----           ----     ------------
        Land                            $  309,637    $   309,637        -
        Buildings and improvements       2,695,346      2,761,616    31.5 years
        Leasehold improvements             473,723        483,039     5 years
        Computer hardware and software   3,509,445      3,550,749     3 years
        Machinery and equipment          1,699,564      1,735,057     5 years
        Molds, tools and dies            1,489,484      1,532,064     5 years
        Office furniture and fixtures      275,516        275,516     5 years
                                        ----------    -----------
                                        10,452,715     10,647,678
        Less accumulated depreciation
          and amortization              (6,323,799)    (7,161,767)
                                         ---------      ---------
                                       $ 4,128,916    $ 3,485,911
                                         =========      =========

(7)   Commitments and Contingencies
     (a) Lease Obligations
     The  Company leases a  manufacturing  and  warehousing  facility in Boston,
          Massachusetts,  an office facility in Camberley, United Kingdom, and a
          technical  support  facility  in  Boca  Raton,  Florida.  The  Boston,
          Massachusetts  lease  expires in August 2006.  In September  2002,  we
          entered  into a 5 year lease,  as a tenant,  for  approximately  3,500
          square feet at 950 Broken Sound  Parkway NW, Boca Raton,  Florida.  In
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

          March  1999,   the  Company   assumed  an  office   lease  from  Hayes
          Microcomputer  Products,  Inc. at 430 Frimley Business Park, Camberley
          Surrey,  U.K. We have an  agreement  in principle to extend this lease
          term to 2006.  Total  rent  expense,  under  non-cancelable  operating
          leases,  was  $463,693,  $546,034  and  $782,000  for the years ending
          December 31, 2000, 2001 and 2002, 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
                                  2003           $ 739,836
                                  2004             741,561
                                  2005             743,286
                                  2006             490,632
                                  2007              41,389

     (b) Purchase Commitments
     The  Company has entered into supply  arrangements  with  suppliers of some
          components  that  include  price  and  other  concessions,   including
          no-charge  components,  for meeting certain  purchase  requirements or
          commitments.  Under these  arrangements  the Company is  committed  to
          purchase  approximately  $8.0 million of  components  over a period of
          approximately  30-months that  commenced on January 1, 2002,  provided
          that those  components  were offered at competitive  terms and prices.
          The Company believes that at December 31, 2002, it is on track to meet
          the $8.0 million commitment.  The Company is also required to purchase
          either a minimum  percentage,  as measured by unit purchases or dollar
          amount  of  components,   from  a  supplier  over  a  two-year  period
          commencing on January 1, 2002, and the Company is currently  exceeding
          that percentage. In connection with these arrangement, the Company was
          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.
          Through  December 31, 2002, the Company consumed $1.8 million of these
          chips in its  manufacturing  process and they were shipped in finished
          products to customers in 2002. In 2002, the Company purchased and paid
          approximately  $2 million  less than would have  expected  without the
          no-charge components. Of the original $3.0 million chip valuation, $.3
          million has been  written  down as a result of a decline in the market
          value of the free chips.  The  favorable  impact to the  statement  of
          operations  is being  recognized  on a  delayed  basis  as a  purchase
          discount over the total number of components  acquired  through the 30
          month supply  agreement. The Company expects that the  remaining  $0.8
          million total market value of "no charge"  components will be consumed
          in its  manufacturing  process  and  shipped in  finished  products to
          customers in 2003.

     (c) Contingencies
     During 2001,  the Company  entered into an agreement to purchase the ground
          lease for a  manufacturing  facility  located at 27 Drydock  Avenue in
          Boston, Massachusetts (the "Drydock Building"). In connection with the
          proposed purchase of the Drydock  Building,  the Company paid $513,500
          which  was held in  escrow as a deposit  pending  the  closing  of the
          transaction. Of this deposit, $25,000 was nonrefundable. When Zoom was
          unable  to  obtain  acceptable   financing  the  Seller  (the  current
          leaseholder)  retained the deposit pending resolution of some disputed
          facts  concerning  Zoom's  withdrawal from the  transaction  under the
          terms of the Purchase and Sale Agreement.  While Zoom believed that it
          was  entitled to a return of the  $488,500  refundable  portion of the
          deposit plus  interest,  the seller  directed the escrow agent to hold
          the funds pending resolution of the dispute.
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

     As   an  alternative  to pursing  legal  remedies to obtain a return of the
          deposit,  Zoom pursued an arrangement to acquire the Drydock  Building
          in  partnership  with the  following  individuals:  Frank B.  Manning,
          President  and a director of Zoom;  Peter R.  Kramer,  Executive  Vice
          President  and a director of Zoom;  Bruce M.  Kramer,  Peter  Kramer's
          brother; and a third party. Under this arrangement, these individuals,
          either  directly  or  through  entities  controlled  by  them,  joined
          together  with us as of March 29,  2002 to form the Zoom  Group LLC, a
          Massachusetts limited liability company ("Zoom Group") to purchase the
          Drydock Building.  Zoom and each of the investors owned a 20% interest
          in the Zoom Group. The managers of the Zoom Group are Peter Kramer and
          the third party. There are no special allocations among the members of
          the Zoom Group,  and each member is required to contribute  his or its
          proportionate amount of capital in return for its 20% interest.

     Effective as of March 29, 2002,  the Company  entered into a  Reinstatement
          Agreement,  Assignment  Agreement and Second Amendment to Agreement of
          Purchase  and Sale with the Zoom  Group  and the owner of the  Drydock
          ground  lease.  Under  this  Reinstatement   Agreement,  the  original
          purchase   agreement   for  the  Drydock   Building  was  amended  and
          reinstated,  and the company  assigned  its rights  under the purchase
          agreement  to the Zoom Group,  together  with  rights to the  $488,500
          refundable   portion  of  the  deposit.   In   connection   with  this
          transaction,  under a separate letter agreement,  the other members of
          the Zoom Group paid us $390,800  ($97,700  each),  representing  their
          proportionate share of the deposit assigned to the Zoom Group.

     Under the Reinstatement  Agreement,  the Zoom Group  purchased  the Drydock
          Building for a purchase price of $6.1 million. The Zoom Group obtained
          a mortgage of $4.2 million,  less closing  costs and legal fees.  Each
          member of the Zoom Group  contributed  $482,577 for their share of the
          investment  plus  initial  working  capital.   These  initial  capital
          contributions include each member's share of the deposit.

     Under the Zoom Group Operating Agreement, the Company had both the right to
          sell its  interest in the Zoom Group to the other  members of the Zoom
          Group by January 5, 2003 for the Company's  original  purchase  price,
          and the right to purchase the other members'  entire  interests in the
          Zoom  Group   through   December  31,  2005  in   accordance   with  a
          predetermined  formula.  Effective  January 5, 2003,  we exercised our
          right to sell our  interest in the Zoom Group to the other  members of
          the Zoom Group.  In March 2003, we received the proceeds from the sale
          of our interest from the remaining  members of the Zoom Group,  LLC to
          the value of $.48 million,  which represents the Company's  investment
          amount less the  non-refundable  deposit and the  negotiated  share of
          losses  in the Zoom  Group,  plus  interest  earned  on the  Company's
          original  deposit.  This  action  was taken to improve  our  liquidity
          position and to reduce our exposure to the Boston real estate market.

     Additionally,  the Company is party to various lawsuits and  administrative
          proceedings  arising in the ordinary  course of business.  The Company
          evaluates such lawsuits and proceedings on a case-by-case  basis,  and
          its policy is to vigorously  contest any such claims which it believes
          are without merit. The Company's management believes that the ultimate
          resolution of such pending  matters will not  materially and adversely
          affect  the  Company's  business,   financial  position,   results  of
          operations  or cash  flows.  The  Company  had no  Letters  of  Credit
          outstanding at December 31, 2002.

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

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

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

(8)   Impairment
     In   March  1999,  the  Company   entered  into  a  series  of  independent
          agreements to acquire most of the modem assets of Hayes  Microcomputer
          Products,  Inc.  for $5.0 million in cash.  The purchase  included the
          Hayes, Practical Peripherals,  Accura, Optima, Century 2, and Cardinal
          brands  and  product  rights  for the  USA,  Canada,  South &  Central
          America,  Europe,  and the  Middle  East.  In July  1999  the  Company
          finalized the purchase of Hayes Asia Pacific for $1.1 million in cash.
          The acquisitions  were accounted for as purchases.  The excess of cost
          over  fair  value of net  assets  acquired  was being  amortized  on a
          straight-line method over five years.

     The  Company  also  recorded  negative  goodwill  that  resulted  from  the
          purchase  of the  Hayes  U.K.,  business,  where  the value of the net
          assets acquired exceeded the cost. This transaction was independent of
          other Hayes purchases.

     The  Company recorded goodwill for two acquisitions,  Tribe Computer Works,
          Inc. in 1996 and certain assets of Hayes Microcomputer  Products, Inc.
          in 1998. The goodwill  values for Tribe and Hayes were being amortized
          over  13  years  and 5  years,  respectively.  In  2001,  the  Company
          determined  that  based on its  history  of  negative  cash flows from
          operations,  a forecast  of future  positive  cash flows  could not be
          sufficiently  relied upon to support retaining the remaining  goodwill
          assets on the  consolidated  balance  sheet.  Therefore,  the  Company
          recorded an  impairment  charge of $2.3 million in 2001 and 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. As of December 31, 2002, the Company's net
          goodwill and negative  goodwill  balances on its consolidated  balance
          sheet are zero.

          Net loss  before  goodwill  amortization,  net of tax and  related per
          share amounts for the years ended December 31, 2000,  2001, 2002 is as
          follows (in thousands, except per share amounts):
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

                                                   Year ended December 31,
                                           2000             2001           2002
                                           ----             ----           ----
Net loss as reported                  $  (3,077)        $ (18,329)    $  (5,136)
Add back: Goodwill amortization
 expense net of tax effect                  569               781             -
                                          -----            ------         -----
Adjusted net loss                     $  (2,508)        $ (17,548)    $  (5,136)

Basic and diluted loss per share,
 as reported                          $   (0.39)        $   (2.33)    $   (0.65)
Add back: Goodwill amortization
 expense net of tax effect                 0.07              0.10             -
                                          -----            ------         -----
Proforma basic and diluted loss
 per share                            $   (0.32)        $   (2.23)    $   (0.65)

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

                                        2000             2001             2002
                                        ----             ----             ----
Net income (loss)                 $(3,077,248)    $(18,328,922)     $(5,135,586)
Foreign currency translation
 adjustment                           (80,788)        (102,689)         206,550
Net unrealized holding gain
 on investment securities              26,255               53                -
                                    ---------       ----------        ---------
Comprehensive income (loss)       $(3,131,781)    $(18,431,558)     $(4,929,036)
                                    =========       ==========        =========

(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 3.81% on
          January 10, 2003. 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,
          2002.
                          Year                Total
                          2003           $   191,550
                          2004               200,664
                          2005               211,776
                          2006             4,929,617
                                           ---------
                          Total          $ 5,533,607
                                           =========
(11)      Stock Option Plans
     At   December 31, 2002, the Company had three stock option plans, which are
          described below:

     Employee Stock Option Plan

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

                                                               Weighted average
                                          Number of shares       exercise price
        Balance at December 31, 1999          1,031,467             $   7.21
          Granted                               377,000                 7.43
          Exercised                            (196,181)                7.09
          Expired                              (254,675)               10.67
                                                -------                -----
        Balance at December 31, 2000            957,611             $   6.40
          Granted                               631,000                 2.77
          Exercised                                   -                    -
          Expired                              (550,611)                5.85
                                               --------                 ----
        Balance at December 31, 2001          1,038,000              $  4.48
          Granted                               325,000                 1.00
          Exercised                                   -                    -
          Expired                              (115,000)                4.84
                                               --------                 ----
        Balance at December 31, 2002          1,248,000              $  3.54
                                              =========                 ====

The following table summarizes  information about fixed stock options under
the Employee Stock Option Plan outstanding on December 31, 2002:
<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 to $ 1.75         325,000            2.40               $ 1.00                  -           $ 0.00
  1.75 to   3.50         350,000            1.60                 2.20            175,000             2.20
  3.50 to   5.25         251,000            1.00                 3.63            125,500             3.63
  5.25 to   7.00         100,000             .50                 6.36            100,000             6.36
  7.00 to   8.75         222,000             .10                 8.00            222,000             8.00
----------------         -------            ----                 ----            -------             ----
$ 1.00 to $ 8.75       1,248,000            1.30 years         $ 3.54            622,500           $ 5.22
================       =========            ==========         ======            =======           ======
</TABLE>
     The  Company recognized a tax benefit of $489,845 in 2000 upon the exercise
          of  nonqualified  stock options under the Employee  Stock Option Plan.
          This  benefit has been  recorded as an increase to the value of common
          stock.

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

                                                                Weighted average
                                          Number of shares       exercise price
        Balance at December 31, 1999           72,000              $  5.93
          Granted                              36,000                 7.69
          Exercised                           (42,000)                5.99
          Expired                              (6,000)                7.75
                                              --------                ----
        Balance at December 31, 2000           60,000              $  6.76
          Granted                              36,000                 3.26
          Exercised                                 -                    -
          Expired                             (24,000)                5.37
                                              --------                ----
        Balance at December 31, 2001           72,000              $  5.48
          Granted                              36,000                 1.17
          Exercised                                 -                    -
          Expired                             (36,000)                7.69
                                              --------                ----
        Balance at December 31, 2002           72,000              $  2.21
                                               ======                 ====
<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, 2002:
<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
$ 0.65 to $ 1.75       36,000               1.300              $ 1.17            18,000           $ 1.68
  1.75 to $ 3.50       18,000               0.500                2.40            18,000             2.40
  3.50 to   5.25       18,000               0.000                4.13            18,000             4.13
----------------      -------               ---------          ------            ------           ------
$ 0.65 to $ 5.25       72,000                .8 years          $ 2.21            54,000           $ 2.74
================      =======               =========          ======            ======           ======
</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 Stock  Option
          Committee of the Board of Directors at an option price  determined  by
          the  Stock  Option  Committee.  In  addition,  in 1999,  the  Board of
          Directors  authorized  the Chief  Executive  Officer of the Company to
          grant up to an aggregate of 100,000 stock options to employees who are
          not  executive  officers or directors of the Company and in 2000,  the
          Board of Directors  authorized the Chief Executive Officer to grant to
          such  persons  stock  options to purchase up to 100,000  shares in any
          fiscal quarter, not to exceed an aggregate of 350,000 stock options in
          any fiscal year. All options under this grant have been at fair market
          value  on the  date of the  grant.  The  options  are  exercisable  in
          accordance with terms  specified by the Stock Option  Committee or, in
          certain cases, the Chief Executive Officer.  Options outstanding under
          this plan are as follows:

                                                                Weighted average
                                          Number of shares       exercise price
        Balance at December 31, 1999          328,050               $  4.25
          Granted                             514,650                  6.36
          Exercised                           (42,050)                 4.27
          Expired                            (150,275)                 5.01
                                              -------                  ----
        Balance at December 31, 2000          650,375               $  5.74
          Granted                             248,825                  2.45
          Exercised                                 -                     -
          Expired                            (199,300)                 5.82
                                              -------                  ----
        Balance at December 31, 2001          699,900               $  4.55
          Granted                             363,600                  1.00
          Exercised                                 -                     -
          Expired                            (283,000)                 3.55
                                              -------                  ----
        Balance at December 31, 2002          780,500               $  3.16
                                              =======                  ====

     The following table summarizes  information about fixed stock options under
the 1998 Plan outstanding on December 31, 2002:
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)
<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 to $ 1.75      336,900               2.40               $ 1.01             4,000           $ 1.22
  1.75 to   3.50      196,350               1.30                 2.68           122,512             2.81
  3.50 to   5.25       12,000               1.00                 3.63             6,000             3.63
  5.25 to   7.00      168,250               0.50                 5.86           168,250             5.86
  7.00 to   8.75       47,000               0.20                 7.98            47,000             7.98
  8.75 to  10.50       20,000               0.30                10.00            20,000            10.00
----------------      -------               ---------           -----            ------            -----
$ 1.00 to $10.50      780,500               1.5 years          $ 3.16           367,762           $ 5.25
================      =======               =========          ======           =======           ======
</TABLE>
     On   December 31, 2002 there were 845,446  additional  shares available for
          issuance   under  all  three  stock  option   plans.   The  per  share
          weighted-average  fair value of stock  options  granted  during  2000,
          2001, and 2002 was $6.84, $2.70 and $0.93,  respectively,  on the date
          of  grant  using  the  Black  Scholes  option-pricing  model  with the
          following weighted-average assumptions: 2000 - expected dividend yield
          0.0%,  risk-free  interest  rate  of  5.90%,  volatility  110%  and an
          expected  life of 3.0 years;  2001 -  expected  dividend  yield  0.0%,
          risk-free interest rate of 4.63%, volatility 101% and an expected life
          of 1.7 years; 2002 - expected dividend yield 0.00%, risk-free interest
          rate of 3.53%, volatility 140% and an expected life of 1.4 years;

(12)  Income Taxes
Income tax expense (benefit) consists of the following:
<TABLE>
<S>                                           <C>              <C>               <C>
                                                Current           Deferred             Total
        Year ending December 31, 2000:
          US federal                          $    48,160      $  (1,539,591)    $  (1,491,431)
          State and local                               -            192,515           192,515
          Foreign                                       -                  -                 -
                                                  -------         -----------      -----------
                                              $    48,160      $  (1,347,076)    $  (1,298,916)
                                                   ======         ===========      ===========
        Year ending December 31, 2001:
          US federal                          $         -      $   3,337,900     $   3,337,900
          State and local                               -            462,100           462,100
          Foreign                                       -                  -                 -
                                                   ------        -----------       -----------
                                              $         -      $   3,800,000     $   3,800,000
                                                   ======        ===========       ===========
        Year ending 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
                                                   =======       ===========       ===========
</TABLE>
     Income tax expense  (benefit) was  ($1,298,916),  $3,800,000 and $2,014,539
for the  years  ending  December  31,  2000,  2001 and 2002,  respectively,  and
differed  from the amounts as computed by applying the US statutory  tax rate of
34% to pretax loss as a result of the following:
<TABLE>
<S>                                                              <C>              <C>             <C>
                                                                      2000             2001           2002
                                                                      ----             ----           ----
        Computed "expected" US tax benefit                       $ (1,487,896)    $ (4,939,834)   $(1,147,954)        -
        Increase (reduction) in income taxes resulting from:
          State and local income taxes, net of federal
            income tax benefit                                        127,061          304,986        264,139
          Increase (reduction) in federal valuation allowance               -        8,427,351      2,885,398
          Other, net                                                   61,919            7,497         12,956
                                                                   -----------     -----------      ---------
        Income tax expense (benefit)                             $ (1,298,916)    $  3,800,000    $ 2,014,539
                                                                   ===========     ===========      =========
</TABLE>
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

     Total income tax expense (benefit) was allocated as follows:
<TABLE>
<S>                                                              <C>              <C>            <C>
                                                                       2000           2001           2002
                                                                       ----           ----           ----
        Loss from operations                                     $ (1,298,916)    $ 3,800,000    $ 2,014,539
        Stockholders' equity, for compensation expense
          for tax purposes in excess of amounts
          recognized for financial statement purposes                (489,845)              -              -
                                                                   -----------      ---------     -----------
                                                                 $ (1,788,761)    $ 3,800,000    $ 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,
2000, 2001, and 2002 are presented below:
<TABLE>
<S>                                                              <C>             <C>             <C>
                                                                      2000           2001            2002
                                                                      ----           ----            ----
        Deferred tax assets:
        Inventories, primarily non-deductible reserves           $ 1,830,940     $ 2,862,364     $ 2,688,239
        Accounts receivable,
          primarily returns and allowances                           534,204         497,510         340,213
        Accrued expenses, principally provisions
          not currently deductible                                   392,011         345,249         228,992
        Net operating loss carryforwards and
          credits                                                  3,697,196       8,307,793       9,768,697
        Other                                                        525,493       1,224,952       1,544,889
                                                                     -------       ---------       ---------
        Total gross deferred tax assets                            6,979,844      13,237,868      14,571,030
        Less valuation allowance                                  (1,167,000)    (11,225,024)    (14,571,030)
                                                                   ---------      ----------      ----------
        Net deferred tax assets                                  $ 5,812,844     $ 2,012,844     $         -
                                                                   =========      ==========      ==========
</TABLE>
     On   December  31,  2002,  the Company had federal and state net  operating
          loss  carryforwards  of  approximately  $20,841,000  and  $20,597,000,
          respectively.  These  federal  and  state  net  operating  losses  are
          available  to  offset  future  taxable  income,  and are due to expire
          beginning 2018 and 2003, respectively. The Company recorded a deferred
          tax asset  valuation  allowance  against a portion of the deferred tax
          assets that  management  believes  may expire  unused.  The  valuation
          allowance  reduces deferred tax assets to reflect the estimated amount
          of  deferred  tax  assets,  which will more  likely  not be  realized.
          Realization of deferred tax assets is dependent upon the generation of
          future  taxable  income or gains from the sale or certain real estate.
          The Company has  recorded a valuation  allowance  against its deferred
          tax assets because management believes that, after considering all the
          available objective evidence, historical and prospective, with greater
          weight given to historical  evidence,  it is more likely than not that
          these assets will not be realized.

 (13)  Significant Customers
     Two  customers accounted for approximately 15% and 11% of net sales for the
          year ending  December 31, 2000. Four customers each comprised over 10%
          of net sales for the year ending  December 31, 2001.  Three  customers
          each comprised over 10% of net sales for the year ending  December 31,
          2002. On December 31, 2001, two customers comprised  approximately 40%
          of net accounts  receivable.  On December 31,  2002,  three  customers
          comprised approximately 79% of net accounts receivable.

(14)  Investment in Affiliates
     In   September 1999, the Company made an investment in a limited  liability
          company ("LLC").  The Company granted the LLC the rights to a software
          license in exchange for 300,000 Class A shares of the LLC,  which were
          valued by the  Company  at  $300,000.  The value at which the  outside
          investors  paid cash for shares  received  as part of the same  equity
          infusion  was used by the Company to value their shares  received.  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.
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

(15)  Supplemental Disclosure of Cash Flow Information

                                                   2000       2001         2002
                                                   ----       ----         ----
         Cash paid during year for interest       $    -   $ 426,803   $ 306,237
                                                  ======   =========   =========
         Cash paid during year for income taxes   $    -   $       -   $  66,624
                                                  ======   =========   =========

The tax benefit of the exercise of stock options resulted in increases to common
stock of $489,845 in 2000. No options were exercised in 2001 or 2002.

(16)  Dependence on Key Suppliers and Contract Manufacturers
     The  Company  produces  its  products  using  components  or  subassemblies
          purchased  from  third-party  suppliers.  An  important  factor in the
          Company's liquidity is the receipt and use of "no-charge  components".
          The Company has entered  into supply  arrangements  with  suppliers of
          some  components that include price and other  concessions,  including
          no-charge  components,  for meeting certain  purchase  requirements or
          commitments.  Under these  arrangements,  the Company is  committed to
          purchase  approximately  $8.0 million of  components  over a period of
          approximately  30-months that  commenced on January 1, 2002,  provided
          that  those  components  are were  offered  at  competitive  terms and
          prices.  The Company  believes that at December 31, 2002, that it's on
          track  to meet  the  $8.0  million  commitment.  The  Company  is also
          required to purchase either a minimum percentage,  as measured by unit
          purchases  or dollar  amount of  components,  from a  supplier  over a
          two-year  period  commencing  on January 1, 2002,  and the  Company is
          currently   exceeding  that  percentage.   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.  Through  December 31, 2002,
          the Company consumed $1.8 million of these chips in our  manufacturing
          process and they were  shipped in finished  products to  customers  in
          2002. In 2002, the Company's purchases and payments were approximately
          $2 million less than expected without the no-charge components. Of the
          original  $3.0  million chip  valuation,  $.3 million has been written
          down as a result of a decline in the market  value of the free  chips.
          The favorable impact to the Company's statement of operations is being
          recognized  on a delayed  basis as a purchase  discount over the total
          number of components  acquired through the 30 month supply  agreement.
          Since the start of these  arrangements  in January 2002, the favorable
          impact to the Company's statement operations was $.8 million.

     A    substantial  percentage  of the  Company's  manufacturing  in 2002 was
          performed  by a  contract  manufacturer,  SameTime  Electronics,  Inc.
          ("SameTime");  the loss of SameTime's  services or a material  adverse
          change in SameTime's  business or in the Company's  relationship  with
          SameTime could materially and adversely harm the Company's business.

(17)  Segment and Geographic Information
     The  Company's  operations  are  classified  into one  reportable  segment.
          Substantially  all of the Company's  operations and long-lived  assets
          reside  primarily in the United  States.  The  Company's  net sales to
          North America and net sales to international locations for 2000, 2001,
          and 2002 were comprised as follows:
<TABLE>
<S>              <C>              <C>          <C>            <C>         <C>             <C>
                        2000     % of Total          2001     % of Total       2002       % of Total
                        ----      ----------         ----     ----------       ----       ----------
North America     $  40,524,456       70%      $  25,828,176      62%     $  22,375,552       60%
International        17,184,000       30%         15,742,100      38%        14,898,735       40%
                     ----------       ---         ----------      ---        ----------       ---
Total             $  57,708,456      100%      $  41,570,276     100%     $  37,274,287      100%
                     ==========      ====         ==========     ====        ==========      ====
</TABLE>
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements (Continued)

(18)  Retirement Plan
     The  Company  established a 401(k) retirement savings plan for employees in
          January 1996.  Under the provisions of the plan,  the Company  matches
          25%  of an  employee's  contribution,  up to a  maximum  of  $350  per
          employee per year. Total Company  contributions in 2000, 2001 and 2002
          were $55,314, $46,749 and $34,531, respectively.

(19)  Selected Quarterly  Financial  Information (in thousands, except per share
      data, unaudited)
     The  following table sets forth selected quarterly  financial for the years
          ended December 31, 2001 and 2002. 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>
                                            2001 Quarter Ending                       2002 Quarter Ending
                                     Mar. 31  June 30 Sept. 30  Dec. 31       Mar. 31  June 30  Sept.30  Dec. 31
                                     -------  ------- --------  -------       -------  -------  -------  -------
Net sales                             10,027  $10,246  $11,719  $ 9,578       $ 8,973  $ 9,207  $10,879  $ 8,215
Costs of goods sold                    9,875    8,091    8,889    8,338         7,183    7,225    7,708    5,822
                                      ------   ------   ------   ------        ------   ------   ------   ------
  Gross profit (loss)                    152    2,155    2,830    1,240         1,790    1,982    3,171    2,393
                                      ------   ------   ------   ------        ------   ------   ------   ------
Operating expenses:
  Selling                              2,224    1,813    1,802    1,642         1,572    1,492    1,423    1,361
  General and administrative           1,635    1,503    1,433    3,367           911      852      825      817
  Research and development             1,479    1,341    1,334    1,174         1,076      856      879      716
                                      ------    -----    -----    -----         -----    -----    -----    -----
   Total operating expenses            5,338    4,657    4,569    6,183         3,559    3,200    3,127    2,894
                                      ------    -----    -----    -----         -----    -----    -----    -----
    Operating profit (loss)           (5,186)  (2,502)  (1,739)  (4,943)       (1,769)  (1,218)      44     (501)

Other income (expense), net              (29)    (128)      22      (24)           35       11       48      (25)
                                         ---      ---       --       --            --       --       --       --
    Income (loss) before income
      taxes and extraordinary item    (5,215)  (2,630)  (1,717)  (4,967)       (1,734)  (1,207)      92     (526)
Income tax expense (benefit)               -    3,800        -        -         2,013        -        -        2
                                       ------   -----   ------    -----        ------    -----    -----    -----
    Income (loss) before
       extraordinary item                  -        -        -        -        (3,747)  (1,207)      92     (528)
    Extraordinary gain on
      elimination of goodwill              -        -        -        -           255        -        -        -
                                        ------   -----   ------    -----        ------    -----    -----    -----
      Net income (loss)              $(5,215) $(2,630) $(5,517) $(4,967)      $(3,492) $(1,207) $    92  $  (528)
                                       =====    =====    =====    =====         =====    =====    =====    =====
Net loss per common share:
        Basic and diluted            $ (0.66) $ (0.33) $ (0.70) $ (0.63)      $ (0.44) $ (0.15) $  0.01  $ (0.07)

Weighted average common
   and common equivalent
   Shares:
        Basic and diluted              7,861    7,861    7,861    7,861         7,861    7,861    7,861    7,861
</TABLE>

<PAGE>
                                  EXHIBIT INDEX

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

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

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

     **10.2   1991 Director Stock Option Plan, as amended, of Zoom Telephonics,
              Inc., filed as Exhibit 10.2 to the Quarterly Report on Form 10-Q
              for the fiscal quarter ended June 30, 1996 (the "June 1996 Form
              10-Q") and as further amended on June 14, 2001, filed as Exhibit
              10.2 to the Annual Report on Form 10-K for the fiscal year ending
              December 31, 2001. *

       10.3   1998 Employee Equity  Incentive Plan, as  amended filed as Exhibit
              99.1 to Registration Statement on Form S-8 (Reg. No. 333-47188).*

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

     **10.7   Employment  Agreement, filed as  Exhibit 10.9 to the Form 10-K for
              the fiscal year ended December 31, 2002. *

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

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

       10.10  Operating  Agreement,  Zoom Group LLC  dated as of March 29, 2002,
              filed  as Exhibit  10.1 to the  Quarterly  Report on Form 10-Q for
              the fiscal quarter ended March 2002. *

       10.11  Agreement between Zoom  Telephonics,  Inc and  Members if the Zoom
              Group dated  as of March 22, 2002, filed as  Exhibit 10.2  to  the
              March 2002 Form 10-Q. *

       10.12  Reinstatement   Agreement,   Assignment    Agreement   and  Second
              amendment of  Purchase and Sale  dated as of March 29, 2002, filed
              as Exhibit 10.3 to the March 2002 Form 10-Q. *

       21.    Subsidiaries. *

       23.    Consent of KPMG LLP.

       99.1   Certification, Pursuant to Section 906 of the Sarbanes-Oxley Act
              of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of
               Title 18, United States Code).

       99.2   Certification, Pursuant to Section 906 of the Sarbanes-Oxley Act
              of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of
              Title 18, United States Code).

       *      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>

                   REPORT ON FINANCIAL STATEMENT SCHEDULE AND
                         CONSENT OF INDEPENDENT AUDITORS



The Board of Directors;
Zoom Technologies, Inc.


The audits referred to in our report dated February 11, 2003, except as to notes
3 and 7(c),  which are as of March 28,  2003,  included  the  related  financial
statement schedule for each of the years in the three-year period ended December
31, 2002  included in the annual report on Form 10-K.  The  financial  statement
schedule is the responsibility of the Company's  management.  Our responsibility
is to  express  an  opinion on the  financial  statement  schedule  based on our
audits. In our opinion,  such financial statement  schedule,  when considered in
relation  to the  basic  consolidated  financial  statements  taken  as a whole,
presents fairly in all material respects the information set forth therein.

We consent to  incorporation  by reference in the  registration  statements (No.
33-42834, No.33-90930, No.333-60565, No.333-75575, No.33-90191, No.333-47188 and
No.333-97573)  on Form  S-8 of Zoom  Technologies,  Inc.,  of our  report  dated
February  11,  2003,  except as to notes 3 and  7(c),  which are as of March 28,
2003, relating to the consolidated balance sheets of Zoom Technologies, Inc. and
subsidiary  as of  December  31,  2001 and 2002,  and the  related  consolidated
statements of operations,  stockholders'  equity and comprehensive loss and cash
flows and related schedule for each of the years in the three-year  period ended
December 31, 2002,  which report  appears in the December 31, 2002 annual report
on Form 10-K of Zoom Technologies, Inc.



                                        /s/ KPMG LLP




Boston, Massachusetts
March 28, 2002

<PAGE>
                                                                     Schedule II

                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                        VALUATION AND QUALIFYING ACCOUNTS
                  Years ending December 31, 2000, 2001 and 2002

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



                                Balance at       Charged                      Balance
                                 Beginning   (Credited) to      Amount        at end
        Description               of year        Expense     written off      of year
                                  --------       -------     -----------      -------
Reserve for doubtful accounts  $   958,663    $   (43,608)   $   560,849   $   354,206
Reserve for price protection       649,686        235,651        686,588       198,749
Reserve for sales returns        2,934,019      7,532,526      9,401,130     1,065,415
COOP advertising and other
allowances                       2,228,223      6,566,840      7,285,978     1,509,085
                                 ---------      ---------     ----------     ---------
Year ending December 31, 2000  $ 6,770,591    $14,291,409    $17,934,545   $ 3,127,455
                                 =========     ==========     ==========     =========
Reserve for doubtful accounts  $   354,206    $   162,416    $   284,351   $   232,271
Reserve for price protection       198,749        943,820        403,456       739,113
Reserve for sales returns        1,065,415      5,628,163      6,013,536       680,042
COOP advertising and other
allowances                       1,509,085      4,332,751      4,676,813     1,165,023
                                 ---------      ---------     ----------     ---------
Year ending December 31, 2001  $ 3,127,455    $11,067,150    $11,378,156   $ 2,816,449
                                 =========     ==========     ==========     =========
Reserve for doubtful accounts  $   232,271    $    36,944    $   209,809   $    59,406
Reserve for price protection       739,113        699,482        774,263       664,332
Reserve for sales returns          680,042        756,012        522,040       914,014
COOP advertising and other
allowances                       1,165,023      3,960,531      4,116,898     1,008,656
                                 ---------      ---------     ----------     ---------
Year ending December 31, 2002  $ 2,816,449    $ 5,452,969    $ 5,623,010   $ 2,646,408
                                 =========     ==========     ==========     =========

</TABLE>