UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


(Mark One)
   [X]  QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR 15(d) OF THE  SECURITIES
EXCHANGE ACT OF 1934

                  For the quarterly period ended March 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                                         04-2621506
            --------                                         ----------
(State or Other Jurisdiction of                           (I.R.S. Employer
Incorporation or Organization)                            Identification No.)


207 South Street, Boston, Massachusetts                         02111
---------------------------------------                         -----
(Address of Principal Executive Offices in the U.S.)          (Zip Code)

Registrant's Telephone Number, Including Area Code:      (617) 423-1072
                                                         --------------

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 [    ]


The number of shares outstanding of the registrant's Common Stock, Par Value, as
of May 10, 2002 was 7,860,866 shares.


<PAGE>


                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                                      INDEX




Part I. Financial Information                                              Page

  Item 1.      Consolidated Balance Sheets as of March 31, 2002
                      and December 31, 2001                                 3

               Consolidated Statements of Operations for the Three
                      Months Ending March 31, 2002 and 2001                 4

               Consolidated Statements of Cash Flows for the Three
                      Months Ending March 31, 2002 and 2001                 5

               Notes to Consolidated Financial Statements                 6 - 9

  Item 2.      Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                10 - 22

  Item 3.      Quantitative and Qualitative Disclosures About Market
                      Risk                                               22 - 23


Part II. Other Information

  Item 4.      Submission of Matters to a Vote of Security Holders          23

  Item 6.      Exhibits and Reports on Form 8-K                             24

               Signatures                                                   25



<PAGE>


PART I - FINANCIAL INFORMATION

                                 ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                                      Consolidated Balance Sheets
<TABLE>
                                                                March 31, 2002      December 31, 2001
                                                                  (Unaudited)            (Audited)
                                                                -------------------------------------
<S>                                                             <C>                 <C>

   Assets

Current assets:
    Cash                                                        $   7,139,232        $   5,252,058
    Accounts receivable, net of  reserves for doubtful
       accounts, returns, and allowances of  $2,086,282 at
       March 31, 2002 and $2,816,449 at December 31, 2001           5,040,767            5,652,035
    Inventories, net                                                8,008,806           11,083,143
    Prepaid expenses and other current assets                       1,066,197              999,662
                                                                   ----------           ----------
             Total current assets                                  22,986,898           21,255,002

    Property, plant and equipment, net                              3,908,375            4,128,916
    Net deferred tax assets                                                 -            2,012,844
    Other assets                                                       26,666               56,666
                                                                   ----------           ----------
             Total assets                                       $  25,190,043        $  29,185,324
                                                                   ==========           ==========

   Liabilities and Stockholders' Equity

Current liabilities:
    Accounts payable                                            $   2,985,575        $   2,750,174
    Accrued expenses                                                1,879,566            1,474,755
    Current portion of long-term debt                                 192,289              139,201
                                                                    ---------            ---------
             Total current liabilities                              4,768,941            4,652,619

 Long-term debt                                                     5,653,567            5,745,368
 Other non-current liabilities                                              -              255,287
                                                                   ----------           ----------
             Total liabilities                                     10,306,186           10,769,596
                                                                   ----------           ----------
Stockholders' equity:
  Common stock, par value.  Authorized 25,000,000 shares;
    issued and outstanding 7,860,866 shares at March 31, 2002
    and at December 31, 2001                                       28,245,215           28,245,215
  Retained earnings (accumulated deficit)                         (13,126,260)          (9,634,692)
  Accumulated other comprehensive gain (loss)                        (235,098)            (194,795)
                                                                   ----------           ----------
             Total stockholders' equity                            14,883,857           18,415,728

             Total liabilities and stockholders' equity         $  25,190,043        $  29,185,324
                                                                   ==========           ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>

                                 ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                                  Consolidated Statements of Operations
                                               (Unaudited)
<TABLE>
<S>                                                             <C>                  <C>
                                                                         Three Months Ending
                                                                               March 31,
                                                                     2002                  2001
                                                                -----------------------------------

     Net sales                                                  $   8,973,517         $  10,026,687
     Costs of goods sold                                            7,197,220             9,874,715
                                                                    ---------            ----------
        Gross profit                                                1,776,297               151,972

     Operating expenses:
        Selling                                                     1,663,345             2,223,192
        General and administrative                                    882,869             1,635,545
        Research and development                                      999,090             1,479,092
                                                                    ---------             ---------
        Total operating expenses                                    3,545,304             5,337,829
                                                                    ---------             ---------
        Operating income (loss)                                    (1,769,007)           (5,185,857)

     Other income (expense):
            Interest income                                            31,529                77,395
            Interest (expense)                                        (88,376)             (100,698)
            Equity in losses of affiliate                             (30,000)              (69,714)
            Other, net                                                121,843                64,239
                                                                     --------              --------
        Total other income (expense), net                              34,996               (28,778)
                                                                     --------              --------
        Income (loss) before income
          tax expense and extraordinary item                       (1,734,011)           (5,214,635)

     Income tax expense (benefit)                                   2,012,844                     -
                                                                    ---------             ---------
        Income (loss) before extraordinary item                    (3,746,855)           (5,214,635)

     Extraordinary gain on elimination of negative goodwill           255,287                     -

        Net income (loss)                                       $  (3,491,568)        $  (5,214,635)
                                                                   ===========           ===========
     Earnings (loss) per common share before
       extraordinary item (basic and diluted)                   $       (0.47)        $       (0.66)
                                                                   ===========           ===========
     Extraordinary gain on elimination of negative
       goodwill (basic and diluted)                                    $ 0.03         $           -
                                                                   ===========           ===========
     Earnings (loss) per common share
         (basic and diluted)                                    $       (0.44)        $       (0.66)
                                                                   ===========           ===========
     Weighted average common and common
          equivalent shares (basic and diluted)                     7,860,866             7,860,866
                                                                   ===========           ===========
</TABLE>

     See accompanying notes to consolidated financial statements.
<PAGE>
                                ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                                 Consolidated Statements of Cash Flows
                                              (Unaudited)
<TABLE>
<S>                                                             <C>                  <C>
                                                                        Three Months Ending
                                                                               March 31,
                                                                     2002                  2001
                                                                -----------------------------------
Cash flows from operating activities:
    Net income (loss)                                           $  (3,491,568)       $  (5,214,635)
    Adjustments to reconcile net income (loss) to net cash
      provided by (used) in operating activities:
      Extraordinary (gain) loss on elimination of negative
        goodwill                                                     (255,287)                   -
      Depreciation and amortization                                   233,527              409,210
      Amortization of restricted stock                                      -               24,960
      Write-off of net deferred tax assets                          2,012,844                    -
      Equity in losses of affiliate                                    30,000               69,714
      Changes in operating assets and liabilities:
        Accounts receivable, net                                      611,269            2,185,156
        Inventories, net                                            3,074,336            4,624,523
        Prepaid expenses and other assets                             (66,534)            (434,683)
        Accounts payable and accrued expenses                        (169,410)          (4,977,788)
                                                                    ----------          -----------
           Net cash provided by (used in) operating activities      1,979,177           (3,313,543)
                                                                    ----------          -----------
Cash flows from investing activities:
    Sale of investment securities                                           -                   53
    Investment in affiliate                                                 -              (74,999)
    Additions to property, plant and equipment                        (12,986)            (269,804)
                                                                    ----------           ----------
           Net cash provided by (used in) investing activities        (12,986)            (344,750)
                                                                    ----------           ----------
Cash flows from financing activities:
    Proceeds from the issuance of long-term debt                            -            6,000,000
    Principal payments on long-term debt                              (38,714)             (23,695)
                                                                    ----------           ----------
           Net cash provided by (used in) financing activities        (38,714)           5,976,305
                                                                    ----------           ----------

Effect of exchange rate changes on cash                               (40,303)            (148,780)

Net increase (decrease) in cash                                     1,887,174            2,169,232

Cash beginning of period                                            5,252,058            2,906,270
                                                                -------------        -------------
Cash end of period                                              $   7,139,232        $   5,075,502
                                                                =============        =============
Supplemental disclosures of cash flow information:

    Cash paid during the year for:
    Interest                                                    $      88,376        $      74,893
                                                                =============        =============
    Income taxes                                                $           -        $           -
                                                                =============        =============
</TABLE>
   See accompanying notes to consolidated financial statements.
<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

(1)     Basis of Presentation

     The  consolidated  financial  statements  of Zoom  Technologies,  Inc. (the
"Company")  presented  herein  have been  prepared  pursuant to the rules of the
Securities and Exchange Commission for quarterly reports on Form 10-Q and do not
include all of the information and footnote  disclosures  required by accounting
principles generally accepted in the United States of America.  These statements
should be read in conjunction with the audited consolidated financial statements
and  notes  thereto  for the year  ending  December  31,  2001  included  in the
Company's 2001 Annual Report on Form 10-K.

     The  consolidated  balance  sheet as of March 31,  2002,  the  consolidated
statements  of  operations  for the three months ending March 31, 2002 and 2001,
and the consolidated  statements of cash flows for the three months ending March
31, 2002 and 2001 are unaudited, but, in the opinion of management,  include all
adjustments  (consisting of normal,  recurring adjustments) necessary for a fair
presentation of results for these interim periods.

     The results of operations  for the periods  presented  are not  necessarily
indicative of the results to be expected for the entire year ending December 31,
2002.

(2)      Liquidity

     For the past three years, the Company has incurred negative cash flows from
operations.  In 2001,  the Company's net cash used in operating  activities  was
$2.6 million and net cash used in investing activities was $.8 million. In 2001,
the Company  obtained a mortgage on its corporate  headquarters,  which provided
financing of $6 million.  On December 31, 2001,  Zoom had cash of  approximately
$5.3 million.  On March 31, 2002, Zoom had cash of  approximately  $7.1 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 its  liquidity,  the  Company has  implemented
expense  reductions  throughout  2001 and in the  first  quarter  of  2002.  The
employee headcount was 313 at December 31, 2000, and since then has been reduced
to 198 at March 31, 2002. The Company will continue to assess its cost structure
as it relates to its  revenues and cash  position in 2002,  and may make further
reductions if these actions are deemed necessary.

     In addition  to expense  reductions,  the  Company's  liquidity  in 2002 is
expected to be enhanced by the  utilization of  approximately  $3 million of "no
charge"  components,  as a result of supply  agreements  entered in 2001.  Under
these arrangements,  the Company is committed to purchase at least $8 million of
components over the 30-month period  commencing  January 1, 2002,  provided that
those components are offered at competitive terms and prices. The utilization of
"no-charge"  components  is expected to supplement  the  Company's  cash flow in
2002,  as it will be able to avoid the  purchase  and  payment of an  equivalent
dollar  amount of  inventory.  Management  believes that in the first quarter of
2002, the Company had a favorable  impact to its cash flow from this arrangement
of approximately $1.0 million.  The favorable impact to the Company's  statement
of operations will be recognized on a delayed basis as a purchase  discount over
the total number of components acquired through the supply agreement.

     In  2000,  the  Company  made a  significant  investment  to  build  up its
broadband access products,  particularly cable modems.  However, the Company was
not able to  penetrate  the  broadband  modem and  wireless  local area  network
markets to the extent it had  expected.  This  resulted in the write down of the
inventory  values by  approximately  $4.6 million in 2001 and $.2 million in the
first  quarter of 2002.  On December  31, 2001 the Company had $4.1  million net
inventory  in excess  broadband  and  wireless  products  and  components.  This
inventory  was paid for in 2000 and 2001.  Sales of  products  in 2002 using any
portion of this  inventory  is expected to enhance the  Company's  liquidity  in
2002,  as the  Company  will be able to avoid the  purchase  and  payment  of an
equivalent  dollar  amount of new  materials.  The Company is currently  selling
cable modems and wireless  products that consume a portion of this inventory and
is aggressively  pursuing  additional orders in markets  worldwide.  Of the $4.1
million net broadband and wireless  inventory on hand on December 31, 2001,  the
Company's remaining balance on March 31, 2002 was $2.9 million.
<PAGE>
     Additionally,  during the past several years, the Company has experienced a
declining  demand for its dial-up modem products.  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 the
Company's sales channels. Because of this, the Company's dial-up modem sales are
unlikely to grow unless the  Company's  market share grows,  or the new V.92 and
V.44 modem standards grow sales through the Company's channels. If the Company's
dial-up  modem sales do not grow,  the Company's  future  success will depend in
large  part on its  ability  to  successfully  penetrate  the  broadband  modem,
networking, and dialer markets.

     The  Company's  cash  position at December 31, 2001 was $5.3 million and at
March 31, 2002 was $7.1 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 the
Company's intended business objectives could be adversely affected.

(3)       Earnings Per Share

     The  reconciliation  of the  numerators and  denominators  of the basic and
diluted net loss per common share  computations  for the Company's  reported net
loss is as follows:
<TABLE>
                                                   Three Months Ending
                                                         March 31,
                                                   2002           2001
                                                -----------   -----------
<S>                                            <C>           <C>
      Basic:
         Net income (loss)                     $(3,491,568)  $(5,214,635)

      Weighted average shares outstanding        7,860,866     7,860,866
                                                 ---------     ---------
         Net income (loss) per share           $      (.44)  $      (.66)

      Diluted:
         Net income (loss)                     $(3,491,568)  $(5,214,635)

      Weighted average shares outstanding        7,860,866     7,860,866

      Net effect of dilutive stock options
         based on the treasury stock method
         using average market price                      -             -

      Weighted average shares outstanding        7,860,866     7,860,866
                                                 ---------     ---------
         Net income (loss) per share           $      (.44)  $      (.66)
</TABLE>
     Potential  common  shares  for which  inclusion  would  have the  effect of
increasing diluted earnings per share (i.e., antidilutive) are excluded from the
computation. Options to purchase 2,008 and 5,644 shares of common stock at March
31,  2002 and 2001,  respectively,  were  outstanding,  but not  included in the
computation of diluted earnings per share as their effect would be antidilutive.

(4)      Inventories
<TABLE>
<S>                                                <C>                  <C>
           Inventories consist of the following:   March 31, 2002       December 31, 2001
                                                   ---------------      -----------------
           Raw materials                            $   4,569,297         $  6,276,480
           Work in process                              1,496,810              462,389
           Finished goods                               1,942,699            4,344,274
                                                        ---------            ---------
                                                    $   8,008,806         $ 11,083,143
                                                        =========           ==========
</TABLE>
     During the quarter ending March 31, 2002 the Company recorded lower of cost
or market write-downs of $174,904 related to broadband and wireless inventory.

(5)      Comprehensive Income

     Statement of Financial  Accounting  Standards ("SFAS") No. 130,  "Reporting
Comprehensive  Income"  establishes  rules  for the  reporting  and  display  of
comprehensive  income  and its  components;  however,  it has no  impact  on the
Company's net income (loss) or shareholders'  equity.  SFAS No. 130 requires all
changes in equity from non-owner  sources to be included in the determination of
comprehensive income (loss).

       The components of comprehensive loss, net of tax, are as follows:
<PAGE>
<TABLE>
<S>                                                     <C>            <C>
                                                           Three Months Ending
                                                                 March 31,
                                                           2002            2001
                                                        -----------    ------------
            Net income (loss)                           $(3,491,568)   $(5,214,635)

            Foreign currency translation adjustment         (40,303)      (148,780)

            Net unrealized holding gain (loss) on
             investment securities                                -             53
                                                        ------------   ------------
           Comprehensive income (loss)                  $(3,531,871)   $(5,363,362)
                                                        ============   ============
</TABLE>
(6)       Mortgage

     On January 10, 2001 the Company  obtained a mortgage  for $6 million on its
real estate property located at 201 and 207 South Street, Boston, Massachusetts.
This is a 20-year direct reduction mortgage.  The interest rate is fixed for one
year, based on the one-year Federal Home Loan Bank rate plus 2.5% per annum. The
rate is adjusted on January 10th of each calendar year commencing on January 10,
2002.  The current  rate of interest as of March 31, 2002 was 4.97% and interest
expense for the first quarter ending March 31, 2002 was $88,376.

(7)       Income Taxes

     At December  31,  2001,  the  Company's  net  deferred  tax asset of $2.013
million was the result of the Company's  specific tax planning  strategy to sell
its headquarters building in Boston. In the first quarter ending March 31, 2002,
the  Company  recorded  an income  tax charge  and  valuation  reserve of $2.013
million,  which  reduced  its net  deferred  tax  asset  balance  to zero.  This
additional  reserve reflects the Company's  decision to discontinue its specific
tax planning  strategy to sell its  headquarters  building in Boston in light of
the less favorable market conditions for the sale of that building.

(8)       Segment and Geographic Information

     The Company's  operations are classified into one reportable  segment.  The
Company's domestic net sales and international sales for the three months ending
March 31, 2002 and 2001, respectively, were comprised as follows:

                                Three Months                Three Months
                                   Ending         % of         Ending      % of
                                March 31, 2002    Total    March 31, 2001  Total
                                --------------    -----    --------------  -----
       North America             $ 5,398,878       60%       $ 6,355,004    63%
       International               3,574,639       40%         3,671,683    37%
                                  ----------       ----        ---------    ----
       Total                     $ 8,973,517       100%      $10,026,687    100%
                                   ---------       ----       ----------    ----
(9)        Extraordinary Gain

     On January 1, 2002, the Company recorded an extraordinary gain of $255,287,
upon the adoption of SFAS No. 142 "Goodwill and Other  Intangible  Assets" (SFAS
142). The gain resulted from the elimination of the remaining  negative goodwill
on the Company's  consolidated balance sheet related to a previous  acquisition,
and was recorded in accordance with the provisions of SFAS 142.

(10)  New Accounting Pronouncements

     In June 2001,  the FASB issued SFAS No. 141 "Business  Combinations"  (SFAS
141) and SFAS No. 142 "Goodwill and Other  Intangible  Assets" (SFAS 142).  SFAS
141  requires  all  business  combinations  initiated  after June 30, 2001 to be
accounted for using the purchase method. Under SFAS 142, goodwill and intangible
assets with indefinite lives are no longer  amortized but are reviewed  annually
(or more frequently if impairment  indicators  arise) for impairment.  Separable
intangible  assets that are not deemed to have indefinite lives will continue to
be amortized over their useful lives.  The  amortization  provisions of SFAS 142
apply to goodwill and  intangible  assets  acquired  after June 30,  2001.  With
respect to goodwill and  intangible  assets  acquired prior to July 1, 2001, the
amortization  and  impairment  provisions  of SFAS  142 are  effective  upon the
adoption  of SFAS  142.  The  Company  was  required  to  adopt  SFAS 142 at the
beginning of 2002. The adoption of these  accounting  standards did not have any
material effect on the Company's consolidated  financial statements,  other than
the  extraordinary  gain recognized  during the first quarter of 2002 related to
the elimination of previously  recognized  negative  goodwill (see note 9 to the
consolidated financial statements).
<PAGE>
     In August 2001, the FASB issued SFAS No.144, "Accounting for the Impairment
on  Disposal  of  Long-Lived  Assets"  (SFAS 144),  effective  for fiscal  years
beginning  after  December 15, 2001.  This  statement  addresses  the  financial
accounting and reporting for the  impairment and disposal of long-lived  assets.
It supersedes SFAS No. 121,  "Accounting for the Impairment of Long-Lived Assets
and Long-Lived  Assets to be Disposed Of" (SFAS 121).  Under the new rules,  the
criteria   required  for  classifying  an  asset  as  held-for-sale   have  been
significantly  changed.  Assets  held-for-sale  are stated at the lower of their
fair values or carrying amounts,  and depreciation is no longer  recognized.  In
addition, the expected future operating losses from discontinued operations will
be displayed in  discontinued  operations  in the period in which the losses are
incurred rather than as of the measurement  date. More dispositions will qualify
for discontinued  operations  treatment in the statement of operations under the
new rules.  The  adoption  of this  statement  on January 1, 2002 did not have a
material impact on the Company's operations or financial position.

     FASB  Emerging  Issues Task Force Issue No. 00-14  "Accounting  for Certain
Sales Incentives" addresses the recognition,  measurement,  and income statement
classification  for certain types of sales  incentives.  The  application of the
guidance  in Issue No.  00-14  resulted  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,
beginning on January 1, 2002, the Company records these discounts and incentives
as reductions  of revenue.  In April 2001,  the FASB Emerging  Issues Task Force
reached a consensus  on Issue No. 00-25  "Accounting  for  Consideration  from a
Vendor to a  Retailer  in  Connection  with the  Purchase  or  Promotion  of the
Vendor's  Products".  Issue No. 00-25 addresses  whether  certain  consideration
offered  by a vendor to a  distributor,  including  slotting  fees,  cooperative
advertising  arrangements  and "buy-down"  programs,  should be characterized as
operating  expenses or  reductions  of revenue.  Issue No.  00-14 and 00-25 were
implemented in the first quarter of 2002 and prior period reported  amounts have
reclassified to conform to the new presentation. First quarter 2001 results have
been reclassified as follows:

                                   Three Months Ending
                                      March 31, 2001
     Revenues:
     As previously reported...         $10,264,833
     As reclassified......              10,026,687

     Sales and Marketing expenses:
     As previously reported...           2,461,338
     As reclassified.....                2,223,192

<PAGE>

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

     The following  discussion and analysis  should be read in conjunction  with
the safe harbor statement and the risk factors contained herein and set forth in
our Annual Report on Form 10-K. Readers should also be cautioned that results of
any reported period are often not indicative of results for any future period.

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
audited consolidated  financial statements included in our Annual Report on Form
10-K. 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 sell a very small  amount of our hardware  products to direct  consumers
and to customers via the Internet.  We recognize  revenue for all three types of
our  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 point specified in signed contracts and purchase orders, which are both used
extensively.  Many of our  customer  contracts or purchase  orders  specify that
ownership  passes  to the  customer  at  the  destination.  Since  it  would  be
impractical  to verify  ownership  change for each  individual  delivery  to the
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 events such as new product introductions, announced stock rotations,
and announced customer store closings.  We analyze 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.

     On January 1, 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 selling
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.  This
change reduced revenues,  which, in turn, reduced gross margins.  The offset was
an equal  reduction  of selling  expenses.  There was not a change in net income
(loss) for either the  historical  periods  restated or the quarter ending March
31, 2002 (see note 10 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 debts.  These  reserves  are drawn down as actual  credits are
issued to the customer's accounts.  We purchase accounts receivable insurance on
virtually  all of our  customer  invoices.  In  recent  years,  if any  customer
receivable  could not be insured and we determined  that collection of a fee was
not reasonably  assured,  we did not accept the customer's order. Our total year
bad-debt  write-offs  for  2000 and  2001  were  .3% and .2% of  total  revenue,
respectively.

     Inventory  Valuation  and Cost of Goods  Sold.  Inventory  is  valued  on a
standard cost basis where the material  standards are  periodically  updated for
current  material  pricing.  Reserves for obsolete  inventory are established by
management  based on usability  reviews  performed  each  quarter.  Our reserves
against this inventory range from 0% to 100%, based on management's  estimate of
the probability that the materials will not be consumed.  At March 31, 2002, 52%
of the cost value of the inventory  that was excess to our projected  five-month
usage was covered by our obsolescence reserve. We follow a different process for
our broadband and wireless inventory. We do not believe that at the present time
we can reliably  determine the usability of our broadband  inventory  because of
the inherent  unpredictability of securing orders with the large cable operators
and  telephone   companies  that   currently   represent  the  majority  of  our
opportunities  for broadband  product  sales.  In the second half of 2000,  when
industry expectations were very high for expansion of the broadband and wireless
markets,  we purchased parts to support our aggressive forecast for a ramp-up of
sales of cable  modems,  ADSL modems,  and wireless  networking  products.  This
resulted in a  significant  inventory  position of materials.  During 2001,  the
market  selling  prices  for  the  broadband  and  wireless   products  declined
significantly  because of an  industry-wide  oversupply.  During 2001,  and to a
lesser  extent in the  first  quarter  of 2002  (see note 4 to the  consolidated
financial  statements),  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 involves  comparing our cost to the selling
prices each quarter,  and if the selling price of a product is less than the "if
completed" cost of our inventory,  we permanently  write-down the inventory on a
"lower of cost or market" basis.

     We have entered into supply  arrangements with suppliers of some components
that include price and other concessions,  including no-charge  components,  for
meeting certain purchase requirements or commitments.  Under these arrangements,
we are  committed  to  purchase  at least $8.0  million of  components  over the
30-month period  commencing on January 1, 2002,  provided that those  components
are offered at  competitive  terms and prices.  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.
In connection with these arrangements,  we are entitled to receive at least $3.0
million of no-charge components,  based upon the supplier's market price for the
components,  and other pricing  concessions based upon our purchase volumes.  We
received $1.2 million of these  no-charge  components  in the fourth  quarter of
2001. At December 31, 2001, the gross inventory value of $1.2 million was offset
by a $1.2 million reserve in inventory,  yielding a net inventory value of zero.
We have received an additional $1.8 million of no-charge components in the first
quarter of 2002. At March 31, 2002, the gross inventory value of these no-charge
components  was $2.7  million,  offset by a $2.9 million  reserve in  inventory,
yielding a net inventory  value of ($.2) million for  inventory  acquired  under
these  arrangements.  We expect that the  remaining  $2.7  million  value of "no
charge" components will be consumed in our manufacturing  process and shipped in
finished products to customers during the remainder of 2002. If this occurs, our
cash flow in 2002 is expected to improve by $3.0 million,  as we expect to avoid
the purchase and payment of an equivalent dollar amount. In the first quarter of
2002, our purchases and payment of the components in question were approximately
$1.0 million less than our previous  run-rate.  Our statement of operations will
reflect the $3.0 million of  favorability  as we ship  products  containing  the
components acquired under these supply arrangements. In the quarter ending March
31, 2002 the favorable impact of this arrangement to our statement of operations
was less than $.1 million.

     Valuation and Impairment of Deferred Tax Assets.  As part of the process of
preparing our consolidated  financial statements we are required to estimate the
recoverability of our deferred tax assets.  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  accordance  with the  provisions  of the  Statement  of Financial
Accounting  Standards  No.  109,  "Accounting  for Income  Taxes."  In 2001,  we
recorded a $3.8 million  income tax charge to reflect an additional  increase in
our deferred  tax asset  valuation  allowance.  This is equal to 100% of the tax
benefits  derived from our 2001 pre-tax losses and certain of our pre-tax losses
incurred prior to 2001.  Management's decision to record the valuation allowance
was based on the uncertain  recoverability of the 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 $2.013 million  deferred tax asset remaining on our balance sheet as
of December 31, 2001. In our first quarter ending March 31, 2002, we recorded an
additional  income tax charge  and  valuation  reserve,  which  reduced  our net
deferred  tax asset  balance  to zero.  This  additional  reserve  reflects  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

     We recorded  net sales of $9.0 million for our first  quarter  ending March
31, 2002,  down 11% from $10.0 million in the first quarter of 2001. We reported
an operating loss of $1.8 million for the first quarter of 2002,  compared to an
operating  loss of $5.2 million in the first  quarter of 2001. We reported a net
loss of $3.5 million for our first  quarter  ending March 31, 2002 compared to a
net loss of $5.2 million for the first  quarter  ending March 31, 2001.  The net
loss of $3.5 million for the first  quarter of 2002  consisted of the  operating
loss of $1.8  million,  a non-cash tax expense of $2.0  million,  and a non-cash
extraordinary gain of $.3 million. Loss per share improved as we reported a loss
of $0.44 for the first quarter of 2002 compared to a loss of $0.66 for the first
quarter of 2001.

     In Q1 2002 unit  volume and  average  selling  price both  declined  in our
primary revenue product  category,  dial-up modems,  and revenues  declined both
inside and outside North America,  reflecting continuing weakness in the dial-up
modem market. Partially offsetting the decline in dial-up modems was an increase
in sales of cable modems and other product  categories in Q1 2002 compared to Q1
2001 and the  recording  of $.3 million in Q1 2002 of revenue for a  retroactive
royalty payment from an Internet Service Provider.

     Our gross  profit  increased to $1.8 million in Q1 2002 from $.2 million in
Q1 2001. This increase  reflected an improvement in our gross profit  percentage
to 20% of net sales in Q1 2002 from 2% in Q1 2001. In the first quarter of 2001,
our gross  margins  were  adversely  impacted  by a $2.6  million  write down of
inventory,  primarily  relating to our broadband modems and wireless  networking
products.  In the first quarter of 2002,  we had an inventory  write-down of $.2
million  related to wireless  networking  products.  Our gross margins in fiscal
2002  were  positively  impacted  by  reduced  costs  of  materials  due to more
favorable supply contracts (as noted above under Critical  Accounting Policies )
and the retroactive  royalty payment  received as noted above.  The improvements
were partially  offset by reduced sales pricing in Q1 2002, and generally higher
revenue dilution for price protection,  customer discounts, and sales rebates in
Q1 2002 compared to Q1 2001.

     Our operating expenses decreased by $1.8 million to $3.5 million in Q1 2002
from $5.3  million in Q1 2001.  The  decrease of $1.8  million was  comprised of
lower selling expenses of $.6 million, lower general and administrative expenses
of $.8 million,  and lower research and development  expenses of $.5 million. We
have  reduced our  worldwide  staff from 289  employees on March 31, 2001 to 198
employees  on March 31,  2002.  We also  continue to  maintain a temporary  wage
freeze and controls on discretionary spending.

     Selling expenses in Q1 2002 decreased to $1.7 million or 18.5% of net sales
from $2.2 million or 22.2% of net sales in Q1 2001.  Selling expenses were lower
primarily  because lower  co-operative  advertising  expenses,  lower  personnel
costs, and lower outbound freight costs.

     General and administrative  expenses were $0.9 million or 9.8% of net sales
in Q1 2002  compared to $1.6  million or 16.3% of net sales in Q1 2001.  General
and  administrative  expenses were lower,  primarily  because of lower personnel
costs, lower depreciation and amortization, and lower bank fees. Our general and
administrative  expenses  in Q1  2001  included  goodwill  amortization  of  $.2
million, compared to no amortization in Q1 2002, as a result of the write-off of
our goodwill assets in Q4 2001.

     Research and development expenses decreased to $1.0 million or 11.1% of net
sales in Q1 2002 from $1.5  million  or 14.8% of net sales in Q1 2001.  Research
and  development  costs  decreased  primarily  as a result of reduced  personnel
costs. Development and support continues on all of our product lines.

     Other income (expense), net changed from expense of $.03 million in Q1 2001
to income of $.03  million in Q1 2002.  Included in other income  (expense)  are
interest income (expense),  other income and non-interest  income, and equity in
losses of an affiliate.

o    Interest Income.  Interest income decreased to $.03 million in Q1 2002 from
     $.08  million in Q1 2001.  The  decrease was the result of our lower earned
     interest rate and a slightly higher average invested cash balance during Q1
     2002  compared  to Q1 2001.  The average  interest  rate earned in 2002 was
     approximately 350 basis points lower in Q1 2002 than in Q1 2001.
o    Interest  expense.  Interest  expense  decreased to $.09 million in Q1 2002
     from $.1  million in Q1 2001.  The  interest  expense  decrease is due to a
     lower interest rate for the $6.0 million mortgage taken out in January 2001
     on our headquarters building. This interest is adjusted annually in
     January of each year.
o    Equity  in losses of  affiliate.  Our  affiliate  equity  losses  were $.03
     million in Q1 2002  compared  to $.07  million in Q1 2001.  Our  investment
     balance in the  affiliate  has been  reduced to $.027  million at March 31,
     2002.
o    Other Income,  Net. Other income and non-interest  income increased to $.12
     million in Q1 2002 from $0.06  million in Q1 2001.  The main reason for the
     increase  was the  reversal  of a reserve  for $0.1  million  relating to a
     dispute involving a deposit that was resolved in March 2002. Other activity
     in this account includes foreign exchange losses which were $.05 million in
     Q1 2002 and a slightly lower rental income Q1 2002 compared to Q1 2001.

     Income tax expense was $2.0 million in Q1 2002 compared to zero in Q1 2001.
We recorded  income tax expense of $2.0  million and a  corresponding  valuation
reserve  against our net deferred tax asset  balance of $2.0 million at December
31, 2001.  The net deferred  tax asset  balance at March 31, 2002 is zero.  This
reserve is discussed in further  detail under the caption  "Critical  Accounting
Policies" set forth herein.

Liquidity and Capital Resources

     We ended the first  quarter of 2002 with cash of $7.1  million  and working
capital of $16.6 million.

     Operating  activities  generated  $2.0  million  in cash  during  the first
quarter of 2002. Cash provided from operating activities included a reduction of
inventory of $3.1 million,  a reduction of our deferred income tax asset of $2.0
million,  and a reduction of accounts  receivable  of $.6 million.  Cash used in
operating  activities  included  our net loss of $3.5  million and a decrease of
accounts payable and accrued expenses of $.2 million. The reduction of inventory
was primarily  attributable to reduced  inventory  purchases and sales of excess
broadband and wireless inventory. The $2.0 million reduction in our deferred tax
asset  offsets the $2.0 million  income tax expense  recorded as part of our net
loss for the quarter,  comprising a non-cash accounting adjustment. Our decrease
in accounts receivable reflects our lower sales volume.

     Investing  activities  used $.01  million in cash for capital  expenditures
during  the  first  quarter  of 2002.  We do not have  any  significant  capital
commitments and we anticipate  that we will continue with modest  investments in
equipment and in improvements to our facilities during the year.

     During the first quarter of 2002, we used cash for financing  activities of
$.04 million for three monthly  principal  payments on our $6.0 million mortgage
on our  headquarters  facility.  Principal on the loan is amortized on a 20-year
basis.  The interest rate is adjusted  annually in January of each year based on
the one-year Federal Home Loan Bank rate plus 2.5 % per annum. The interest rate
for the current year is 4.97%.

     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
additional funds, if and when required,  by factoring  accounts  receivable.  We
have engaged in preliminary  negotiations with a financial organization,  but we
do not plan to put  anything  in place  until and unless it is  necessary  since
there would be an up-front cost to finalize the arrangement.

     To conserve  cash and manage our  liquidity,  we have reduced our worldwide
staff from 289  employees on March 31, 2001 to 198  employees on March 31, 2002.
We  continue  to  maintain  our  temporary  wage  freeze  and  our  controls  on
discretionary  spending.  We will  continue to assess our cost  structure  as it
relates to our revenues and cash position in the remainder 2002, and we may make
further reductions if the actions are deemed necessary.

     In addition to expense reductions,  our liquidity in 2002 is expected to be
enhanced  by the  utilization  of  approximately  $3.0  million  of "no  charge"
components  as a result  of  supply  agreements  entered  in 2001.  Under  these
arrangements,  we are  committed to purchase at least $8.0 million of components
over the  30-month  period  commencing  January  1,  2002,  provided  that those
components  are offered at  competitive  terms and prices.  The  utilization  of
"no-charge"  components is expected to  supplement  our cash flow in 2002, as we
will be able to avoid the purchase and payment of an equivalent dollar amount of
inventory.  We believe  that we have had a favorable  impact to our cash flow in
the first quarter of 2002 resulting from this arrangement of approximately  $1.0
million.

     On December 31, 2001,  we had $4.1 million net  inventory in broadband  and
wireless products and components.  This inventory was paid for in 2000 and 2001.
Sales of products in 2002 using any portion of this  inventory  will enhance our
liquidity  in 2002,  as we will be able to avoid the  purchase and payment of an
equivalent dollar amount of new materials. We are currently selling cable modems
and  wireless  products  that  consume a portion  of this  inventory  and we are
aggressively  pursuing  additional  orders  in  markets  worldwide.  Of the $4.1
million net broadband and wireless  inventory on hand on December 31, 2001,  our
remaining balance on March 31, 2002 was $2.9 million.

     Our cash position at December 31, 2001 was $5.3 million,  which improved to
$7.1 million at March 31, 2002. We believe we have sufficient  resources to fund
our 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 owns 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  plus  interest.  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. As a result,  our remaining  interest in
the deposit is $97,700.  As part of the reinstatement of the purchase agreement,
the members of the Zoom Group agreed that an additional  $25,000 of the $488,500
deposit  would be  nonrefundable,  $5,000  of which has been  allocated  to each
investor.

     Under the  Reinstatement  Agreement,  the Zoom Group agreed to purchase the
Drydock Building,  subject to financing and other contingencies,  for a purchase
price of $6.1 million, subject to adjustment.  Under this arrangement,  the Zoom
Group is required to seek nonrecourse financing that meets specified criteria in
the amount of at least $3.8 or $4.0 million,  depending upon the purchase price.
If the closing takes place,  each member of the Zoom Group has initially  agreed
to contribute up to $540,000 to fund the cash portion of the purchase price plus
initial  working  capital.  These  initial  capital  contributions  include each
member's  share  of  the  deposit.  If the  purchase  does  not  close  and  the
nonrefundable  portion of the deposit is  returned,  each  member  will  receive
$92,700  plus  interest.  If the  purchase  does not  close  and the  seller  is
permitted to retain the deposit,  each member will lose the entire amount of its
$97,700  deposit and we will have no  obligation  to reimburse the other members
for any of the $390,800 paid to us to cover their share of the total deposit.

     Under the Zoom Group  Operating  Agreement,  following  the  closing of the
purchase  of the  Drydock  Building,  we will  have  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. Our right of
sale expires on January 5, 2003.  Should we exercise our sale right, we would be
entitled to recover the full amount of all refundable  investments  (the $92,700
refundable portion of the $97,700 deposit and any additional  investment made in
the Zoom  Group.) For  example,  if Zoom  contributed  $540,000,  including  its
deposit,  toward the  purchase  of the  Drydock  Building  and  initial  working
capital,  we would have the right to sell our interest to the other Zoom members
for $535,000 (the $540,000 that Zoom contributed  less the $5,000  nonrefundable
portion of the deposit).  If we exercise  this right,  the other members will be
jointly and severally  liable to pay this amount  within  ninety (90) days.  Our
right to purchase the  interests of the other  members of the Zoom Group expires
on  December  31,  2005.  Under our  right to  purchase,  we have the  option to
purchase all the interests of the other members of the Zoom Group for a purchase
price determined in accordance with a prearranged formula based upon the initial
purchase price of the Drydock Building plus 20% a year, prorated after the first
year. We have no obligation to exercise  either our purchase or sale right,  and
no member of the Zoom Group has any right to  require us to do so. Any  decision
to exercise  any of these  rights will be made by the  independent  directors of
Zoom.

Recently Issued Accounting Standards

     In June 2001,  the FASB issued SFAS No. 141 "Business  Combinations"  (SFAS
141) and SFAS No. 142 "Goodwill and Other  Intangible  Assets" (SFAS 142).  SFAS
141  requires  all  business  combinations  initiated  after June 30, 2001 to be
accounted for using the purchase method. Under SFAS 142, goodwill and intangible
assets with indefinite lives are no longer  amortized but are reviewed  annually
(or more frequently if impairment  indicators  arise) for impairment.  Separable
intangible  assets that are not deemed to have indefinite lives will continue to
be  amortized  over  their  useful  lives  (but  with  no  maximum  life).   The
amortization  provisions  of SFAS 142 apply to goodwill  and  intangible  assets
acquired  after June 30, 2001.  With respect to goodwill and  intangible  assets
acquired prior to July 1, 2001, the  amortization  and impairment  provisions of
SFAS 142 are  effective  upon the adoption of SFAS 142. The Company was required
to adopt SFAS 142 at the  beginning of 2002.  The  adoption of these  accounting
standards  did not  have  any  material  effect  on the  Company's  consolidated
financial  statements,  other than the extraordinary  gain recognized during the
first  quarter  of 2002  related to the  elimination  of  previously  recognized
negative goodwill (see note 9 to the consolidated financial statements).

     In August 2001, the FASB issued SFAS No.144, "Accounting for the Impairment
on  Disposal  of  Long-Lived  Assets"  (SFAS 144),  effective  for fiscal  years
beginning  after  December 15, 2001.  This  statement  addresses  the  financial
accounting and reporting for the  impairment and disposal of long-lived  assets.
It supersedes SFAS No. 121,  "Accounting for the Impairment of Long-Lived Assets
and Long-Lived  Assets to be Disposed Of" (SFAS 121).  Under the new rules,  the
criteria   required  for  classifying  an  asset  as  held-for-sale   have  been
significantly  changed.  Assets  held-for-sale  are stated at the lower of their
fair values or carrying amounts,  and depreciation is no longer  recognized.  In
addition, the expected future operating losses from discontinued operations will
be displayed in  discontinued  operations  in the period in which the losses are
incurred rather than as of the measurement  date. More dispositions will qualify
for discontinued  operations  treatment in the statement of operations under the
new rules.  The  adoption  of this  statement  on January 1, 2002 did not have a
material impact on our operations or financial position.

     FASB  Emerging  Issues Task Force Issue No. 00-14  "Accounting  for Certain
Sales Incentives" addresses the recognition,  measurement,  and income statement
classification  for certain types of sales  incentives.  The  application of the
guidance  in Issue No.  00-14  resulted  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 these
incentives as selling expenses.  Under Issue No. 00-14,  beginning on January 1,
2002,  the Company  records  these  discounts  and  incentives  as reductions of
revenue.  In April 2001, the FASB Emerging Issues Task Force reached a consensus
on Issue No. 00-25 "Accounting for Consideration  from a Vendor to a Retailer in
Connection with the Purchase or Promotion of the Vendor's  Products".  Issue No.
00-25  addresses  whether  certain  consideration  offered  by  a  vendor  to  a
distributor,  including slotting fees, cooperative advertising  arrangements and
"buy-down" programs, should be characterized as operating expenses or reductions
of  revenue.  Issue No.  00-14 and 00-25 were  implemented  in the first  fiscal
quarter of 2002 and prior period reported  amounts have  reclassified to conform
to the new presentation (see note 10 to the 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 $3.5 million in the first quarter of 2002 and net
losses of  approximately  $18.3  million in fiscal 2001,  $3.1 million in fiscal
2000,  and $1.4 million in fiscal 1999.  During 1999 through  2001,  our revenue
declined  from $64.1  million in 1999 to $59.8 million in 2000 and $43.7 million
in 2001.  In the first  quarter of 2002,  our revenue was $9.0  million,  an 11%
decline from the prior year's first quarter.  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 the  first  quarter  of  2002,  our  cash  generated  from
operations  increased by $2.0  million.  As of March 31, 2002 we had net working
capital of $16.6 million including cash of $7.1 million.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

     Relatively few customers  have  accounted for a significant  portion of our
net sales. In fiscal 2001,  approximately 53% of our net sales were attributable
to four customers, each of whom accounted for more than 10% of our net sales. In
Q1 2002, approximately 52% of our net sales were attributable to four 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;
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.  In the rapidly changing technology environment in which
we operate,  product cycles tend to be short. Therefore, the resources we devote
to product  development,  sales and marketing may not generate material revenues
for us. In addition,  short product cycles has resulted in and may in the future
result in excess  and  obsolete  inventory,  which has had and may in the future
have an adverse  affect on our  results of  operations.  In an effort to develop
innovative products and technology, we have incurred and may in the future incur
substantial development, sales, marketing, and inventory costs. If we are unable
to recover these costs, our financial  condition and operating  results could be
adversely  affected.  In addition,  if we sell our products at reduced prices in
anticipation  of cost  reductions  and we still have  higher  cost  products  in
inventory,  our  business  would be harmed  and our  results of  operations  and
financial condition would be adversely affected.

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

     Our operating results have been adversely affected by reductions in average
selling  prices  because we gave credits to some of our customers as a result of
contractual price protection guarantees.  Specifically, when we reduce the price
for a product,  the customer  receives a credit for the  difference  between the
customer's most recent purchase price and our reduced price for the product, for
all unsold  product at the time of the price  reduction.  For  fiscal  2001,  we
recorded a reduction of revenue of $.9 million for customer price protection. In
Q1 2002, we recorded a reduction of revenue of $.1 million for 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  recently
introduced   broadband   access   products,   particularly   cable  modems,   we
significantly  increased our inventory for these products. We also built up this
inventory in response to shortages of components for these  products  earlier in
that  year.  Since  that  time,  most of these  component  shortages  have  been
alleviated.  We have also had  difficulty in generating  significant  orders for
some of our  products,  particularly  broadband  products,  and as a result,  we
experienced  a  significant  increase  in our  inventory,  to $21.9  million  on
December 31, 2000 from $14.3  million on December 31, 1999.  During fiscal 2001,
we were able to reduce  our  inventory  levels to $11.1  million  as a result of
sales, raw material returns to suppliers, and the write-down of value of some of
our  inventory.  At March 31,  2002,  our  inventory  level is $8.0  million,  a
reduction of $3.1  million from  December  31, 2001  primarily  attributable  to
reduced  inventory   purchases  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 four contract manufacturers for the bulk of our
purchases, in some cases a given product is only provided by one of these
companies. The loss of the services of our any of our significant third party
manufacturers or a material adverse change in the business of or our
relationships with any of these manufacturers could harm our business. Since
third parties manufacture our products and we expect this to continue in the
future, our success will depend, in part, on the ability of third parties to
manufacture our products cost effectively and in sufficient quantities to meet
our customer demand.

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

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

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

     We obtain certain key parts, components, and equipment from sole or limited
sources of supply. For example, we purchase dial-up and broadband modem chipsets
from Conexant  Systems  (formerly  Rockwell) and Agere Systems  (formerly Lucent
Technologies). Integrated circuit product areas covered by one or both companies
include dial-up modems,  ADSL modems,  cable modems,  networking,  routers,  and
gateways. We also purchase ADSL chipsets from Globespan and we purchase chipsets
for our wireless network interface cards from Intersil Corporation. In the past,
we have  experienced  delays in receiving  shipments of modem  chipsets from our
sole source  suppliers.  We may  experience  similar  delays in the  future.  In
addition,  some products may have other  components that are available from only
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, SONICblue, and US Robotics.
o    Cable modem competitors:  Motorola,  Samsung,  Scientific Atlanta, Thomson,
     and Toshiba.
o    ADSL modem competitors Siemens (formerly Efficient Networks) and Westell.
o    Wireless Local Area Network competitors: 3Com, Agere, Buffalo Technologies,
     Cisco Systems, D-link, Intel, Linksys, Proxim, and SMC.

     The principal competitive factors in our industry include the following:

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

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

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

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

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

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

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

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

     Our international  sales accounted for approximately 29% of our revenues in
fiscal  1999,  29% in  fiscal  2000  and 38% in  fiscal  2001.  In Q1  2002  our
international  sales  accounted  for  approximately  40%  of our  revenues.  The
revenues we received from international sales were significantly impacted by our
Hayes European operation,  which we began operating in March 1999. Currently our
operations are significantly dependent on our international operations,  and may
be materially and adversely affected by many factors including:

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

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

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

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

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

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

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

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

We may have difficulty protecting our intellectual property.

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

We could infringe the intellectual property rights of others.

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

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

     Based upon information provided to us, our executive officers and directors
beneficially own, in the aggregate as of March 31, 2002, approximately 22.3% of
our outstanding common stock. As a result, these shareholders could
significantly influence certain matters to be voted on by the shareholders.
These matters include the election of directors, amendments to our certificate
of incorporation and approval of significant corporate transactions. These
executive officers and directors may vote as shareholders in a manner that is
not in your best interests.

The  volatility of our stock price could  adversely  affect an investment in our
common stock.

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

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

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

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

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

     Investment Rate Risk - The Company's investment portfolio consists entirely
of money market funds, which are subject to interest rate risk. Due to the short
duration  and  conservative  nature of these  instruments,  the Company does not
believe  that it has a material  exposure  to  interest  rate risk.  The 20 year
mortgage of our headquarters  building is a variable rate loan with the interest
rate  adjusted  annually.  A 1% change in the  interest  rate would  result in a
decrease or increase of approximately $60,000 of interest expense per year.


"Safe Harbor"  Statement under the Private  Securities  Litigation Reform Act of
1995

     This report contains forward-looking  information relating to Zoom's plans,
expectations  and intentions,  including  statements  relating to Zoom's dial-up
modem,  cable  modem,  DSL modem,  wireless  networking,  and  dialer  sales and
development  activities,  the anticipated growth of sales resulting from the V92
service  rollout,  the  anticipated  development  of  Zoom's  markets  and sales
channels,  the anticipated level of demand for Zoom's products,  the anticipated
impact of Zoom's  cost-cutting  initiatives,  and Zoom's financial  condition or
results of  operations.  Actual  results may be materially  different than those
expectations  as  a  result  of  known  and  unknown  risks,  including:  Zoom's
continuing  losses;  Zoom's ability to obtain  additional  financing for working
capital and other purposes;  Zoom's ability to effectively manage its inventory;
uncertainty  of new  product  development  and  introduction,  including  budget
overruns, project delays and the risk that newly introduced products may contain
undetected errors or defects or otherwise not perform as anticipated,  and other
delays in shipments of products; the early stage of development of the cable and
DSL data  communications  markets,  the  uncertainty  of market  growth of those
markets, and Zoom's ability to more successfully  penetrate those markets, which
have been  challenging  markets  with  significant  barriers  to  entry;  Zoom's
dependence on one or a limited  number of suppliers for certain key  components;
rapid technological change; competition; and other risks set forth in herein and
in Zoom's  other  filings with the  Securities  and  Exchange  Commission.  Zoom
cautions  readers  not to place  undue  reliance  upon any such  forward-looking
statements,  which speak only as of the date made. Zoom expressly  disclaims any
obligation or  undertaking  to release  publicly any updates or revisions to any
such  statements to reflect any change in the Zoom's  expectations or any change
in events, conditions or circumstance on which any such statement is based.

PART II - OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Security Holders

     At a special  meeting of the  shareholders  of the Company held on February
15, 2002, the shareholders  approved a special resolution  pursuant to which the
Company  was  authorized  to  take  actions  to  change  its   jurisdiction   of
incorporation  from Canada to the State of Delaware  through a process  called a
continuance  in Canada and a  domestication  in Delaware.  The  transaction  and
special  resolution  voted upon are described in detail in the  Company's  Proxy
Statement/Prospectus   dated  December  28,  2001  contained  in  the  Company's
Registration  Statement on Form S-4  (Registration No.  333-74266).  The special
resolution was approved by shareholders of the Company as follows:

    Votes For               Votes Against        Abstentions or Broker Non-Votes

    3,497,233               16,136               26,524

     On February 28, 2002, the Company  completed the change in its jurisdiction
of incorporation  from Canada to the State of Delaware and changed its name from
Zoom Telephonics, Inc. to Zoom Technologies, Inc.



<PAGE>




ITEM 6 - Exhibits and reports on Form 8-K


(a) Exhibits                   Description                                  Page


     10.1         Operating Agreement, Zoom Group LLC dated
                  as of March 29, 2002.                                    26-57

     10.2         Agreement between Zoom Telephonics, Inc. and
                  Members of the Zoom Group dated as of March 22,
                  2002.                                                    58-60

     10.3         Reinstatement Agreement, Assignment Agreement
                  and Second amendment of Purchase and Sale dated
                  as of March 29, 2002.                                    61-68

(b) No reports on Form 8-K were filed by the Company  during the quarter  ending
March 31, 2002.




<PAGE>



                   ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY



                                     SIGNATURES

Pursuant to the  requirements  of the  Securities  and Exchange Act of 1934, the
Company  has  duly  caused  this  report  to be  signed  on  its  behalf  by the
undersigned thereunto duly authorized.


                                    ZOOM TECHNOLOGIES, INC.


Date: May 14, 2002                By:    /s/ Frank B. Manning
                                  -------------------------------------------
                                      Frank B. Manning, President


Date: May 14, 2002                By:    /s/ Robert Crist
                                  -------------------------------------------
                                      Robert Crist, Vice President of Finance
                                        and Chief Financial Officer (Principal
                                        Financial and Accounting Officer)