**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 June 30, 2008**




or




**o**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**




**For
      the transition period from________ to ________**




**Commission
      File Number 0-18672**




**ZOOM
      TECHNOLOGIES, INC.**


**(Exact
      Name of Registrant as Specified in its Charter)**





**Delaware**
            
            **51-0448969**(State
                or Other Jurisdiction of Incorporation or Organization)
            
            (I.R.S.
                Employer Identification No.)**207
                South Street, Boston, Massachusetts**
            
            **02111**(Address
                of Principal Executive Offices)
            
            (Zip
                Code)




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




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 o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” “accelerated filer,” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.





Large accelerated filer
             ̈
            Accelerated filer
             ̈Non-accelerated filer
             ̈
            Smaller Reporting Company
            x(do not check if a smaller reporting company)




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes  ̈ No x




The
      number of shares outstanding of the registrant’s Common Stock, $.01 par value,
      as of August 12, 2008, was 1,869,393 shares.










**ZOOM
      TECHNOLOGIES, INC. AND SUBSIDIARY**


**INDEX**





**Page****Part
                I.**
            **Financial
                Information**Item
                1.
            Condensed
                Consolidated Balance Sheets as of June 30, 2008 and December 31,
                2007
                (unaudited)
            
            3Condensed
                Consolidated Statements of Operations for the three and six months
                ended
                June 30, 2008 and 2007 (unaudited)
            
            4Condensed
                Consolidated Statements of Cash Flows for the three and six months
                ended
                June 30, 2008 and 2007 (unaudited)
            
            5Notes
                to Condensed Consolidated Financial Statements
            
            6-8Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            9-15Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            16Item
                4.
            Controls
                and Procedures
            
            16**Part
                II.**
            **Other
                Information**Item
                1A
            Risk
                Factors
            
            17-22Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            
            23Item
                6.
            Exhibits
            
            23Signatures
            
            24Exhibit
                Index
            
            25Exhibits




2




**PART
      I - FINANCIAL INFORMATION**





**ZOOM
      TECHNOLOGIES, INC.**


**Condensed
      Consolidated Balance Sheets**


**(unaudited)**




**June 30, 2008**
            
            **December 31, 2007****ASSETS***Current
                assets*Cash
                and cash equivalents
            
            $
            2,988,041
            
            $
            3,647,654Accounts
                receivable, net of allowances of $1,014,194 at June 30, 2008 and
                $1,400,803 at December 31, 2007
            
            
            1,737,364
            
            
            2,128,888Inventories
            
            
            3,170,985
            
            
            4,452,503Prepaid
                expenses and other current assets
            
            
            286,555
            
            
            336,424Total
                current assets
            
            
            8,182,945
            
            
            10,565,469Equipment,
                net
            
            
            143,203
            
            
            172,070Investments
            
            
            1,504,205
            
            
            1,178,709Total
                assets
            
            $
            9,830,353
            
            $
            11,916,248**LIABILITIES
                AND STOCKHOLDERS' EQUITY***Current
                liabilities*Accounts
                payable
            
            $
            1,723,964
            
            $
            2,079,325Accrued
                expenses
            
            
            519,614
            
            
            415,468Deferred
                gain on sale of real estate
            
            
            149,061
            
            
            340,913Total
                current liabilities
            
            
            2,392,639
            
            
            2,835,706Total
                liabilities
            
            
            2,392,639
            
            
            2,835,706*Stockholders'
                equity*Common
                stock, $0.01 par value:Authorized
                - 25,000,000 shares; issued – 1,871,073 shares, including shares held in
                treasury
            
            
            93,554
            
            
            93,554Additional
                paid-in capital
            
            
            31,622,853
            
            
            31,507,393Accumulated
                deficit
            
            
            (24,855,793
            )
            
            (23,100,390
            )Accumulated
                other comprehensive income (loss)–currency translation
                adjustment
            
            
            584,422
            
            
            587,307Treasury
                stock (1,680 shares), at cost
            
            
            (7,322
            )
            
            (7,322
            )Total
                stockholders' equity
            
            
            7,437,714
            
            
            9,080,542Total
                liabilities and stockholders' equity
            
            $
            9,830,353
            
            $
            11,916,248





·
            The
                common stock share quantities on the Condensed Consolidated Balance
                Sheet
                have been restated to reflect Zoom’s 1:5 reverse stock split that was
                effective August 7, 2008.




See
      accompanying notes .





3




**ZOOM
      TECHNOLOGIES, INC.**


**Condensed
      Consolidated Statements of Operations**


**(Unaudited)**





**Three Months Ended June 30,**
            
            **Six Months Ended June 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Net
                sales
            
            $
            4,061,451
            
            $
            4,342,052
            
            $
            7,642,028
            
            $
            9,096,308Cost
                of goods sold
            
            
            3,143,067
            
            
            3,871,321
            
            
            5,999,640
            
            
            7,505,794Gross
                profit
            
            
            918,384
            
            
            470,731
            
            
            1,642,388
            
            
            1,590,514Operating
                expenses:Selling
            
            
            821,733
            
            
            878,154
            
            
            1,562,294
            
            
            1,771,726General
                and administrative
            
            
            589,515
            
            
            606,624
            
            
            1,136,990
            
            
            1,245,541Research
                and development
            
            
            436,285
            
            
            490,875
            
            
            903,195
            
            
            982,2141,847,533
            
            
            1,975,653
            
            
            3,602,479
            
            
            3,999,481Operating
                profit (loss) before gain on sale of real estate
            
            
            (929,149
            )
            
            (1,504,922
            )
            
            (1,960,091
            )
            
            (2,408,967
            )Gain
                on sale of real estate
            
            
            95,926
            
            
            95,626
            
            
            191,852
            
            
            191,552Operating
                profit (loss)
            
            
            (833,223
            )
            
            (1,409,296
            )
            
            (1,768,239
            )
            
            (2,217,415
            )Other:Interest
                income
            
            
            11,780
            
            
            71,194
            
            
            38,560
            
            
            149,240Other,
                net
            
            
            (11,833
            )
            
            (544
            )
            
            (25,724
            )
            
            (20,563
            )Total
                other income(expense), net
            
            
            (53
            )
            
            70,650
            
            
            12,836
            
            
            128,677Income
                (loss) before income taxes
            
            
            (833,276
            )
            
            (1,338,646
            )
            
            (1,755,403
            )
            
            (2,088,738
            )Income
                taxes (benefit)
            
            
            —
            
            
            —
            
            
            —
            
            
            —Net
                income (loss)
            
            $
            (833,276
            )
            $
            (1,338,646
            )
            $
            (1,755,403
            )
            $
            (2,088,738
            )Basic
                and diluted net income (loss) per share
            
            $
            (0.45
            )
            $
            (0.72
            )
            $
            (0.94
            )
            $
            (1.12
            )Weighted
                average common and common equivalent shares:Basic
                and diluted
            
            
            1,869,393
            
            
            1,869,393
            
            
            1,869,393
            
            
            1,869,393





·
            The
                common stock share quantities and net income (loss) per share on
                the
                Condensed Consolidated Statement of Operations have been restated
                to
                reflect Zoom’s 1:5 reverse stock split that was effective August 7,
                2008.




See
      accompanying notes.


4


**ZOOM
      TECHNOLOGIES, INC.**


**Condensed
      Consolidated Statements of Cash Flows**


**(Unaudited)**





**Six Months Ended**
              **June 30,****2008**
            
            **2007****Operating
                activities**:Net
                income (loss)
            
            $
            (1,755,403
            )
            $
            (2,088,738
            )Adjustments
                to reconcile net income (loss) to net cash provided by (used in)
                operating
                activities:Gain
                on sale of real estate
            
            
            (191,852
            )
            
            (191,552
            )Stock
                based compensation
            
            
            115,460
            
            
            148,812Depreciation
                and amortization
            
            
            32,606
            
            
            41,909Changes
                in operating assets and liabilities:Accounts
                receivable, net
            
            
            390,008
            
            
            903,623Inventories
            
            
            1,281,150
            
            
            295,346Prepaid
                expenses and other assets
            
            
            49,712
            
            
            7,576Accounts
                payable and accrued expenses
            
            
            (251,569
            )
            
            (1,149,005
            )Net
                cash provided by (used in) operating activities
            
            
            (329,888
            )
            
            (2,032,029
            )**Investing
                activities:**Investment
            
            
            (325,496
            )
            
            —Additions
                to property, plant and equipment
            
            
            (3,757
            )
            
            5,887Net
                cash provided by (used in) investing activities
            
            
            (329,253
            )
            
            5,887Effect
                of exchange rate changes on cash
            
            
            (472
            )
            
            1,103Net
                change in cash
            
            
            (659,613
            )
            
            (2,025,039
            )Cash
                and cash equivalents at beginning of period
            
            
            3,647,654
            
            
            7,833,046Cash
                and cash equivalents at end of period
            
            $
            2,988,041
            
            $
            5,808,007**Supplemental
                disclosures of cash flow information:**Cash
                paid during the period for:Interest
            
            $
            —
            
            $
            —Income
                taxes
            
            $
            —
            
            $
            —





See
      accompanying notes. ****





5





**ZOOM
      TECHNOLOGIES, INC.**


**Notes
      to Condensed Consolidated Financial Statements**


**(Unaudited)**





**(1)**  **Summary
      of Significant Accounting Policies**




The
      condensed 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 disclosures required by accounting principles
      generally accepted in the United States of America. These financial statements
      should be read in conjunction with the audited consolidated financial statements
      and notes thereto for the year ended December 31, 2007 included in the Company's
      2007 Annual Report on Form 10-K.




The
      accompanying financial statements are unaudited. However, the condensed balance
      sheet as of December 31, 2007 was derived from audited financial statements.
      In
      the opinion of management, the accompanying financial statements include all
      adjustments, normal recurring adjustments, necessary for a fair
      presentation.




The
      accompanying financial statements include the accounts of the Company and its
      wholly-owned subsidiary, Zoom Telephonics, Inc. All intercompany accounts and
      transactions have been eliminated in consolidation.




The
      results of operations for the periods presented are not necessarily indicative
      of the results to be expected for the entire year.




(a)
            *Recently
                Issued or Proposed Accounting
                Pronouncements*




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No. 157, “Fair Value Measurements”, (“SFAS 157”). SFAS 157 defines fair
      value, establishes a framework for measuring the fair value of assets and
      liabilities, and expands disclosure requirements regarding the fair value
      measurement. SFAS 157 does not expand the use of fair value measurements. This
      statement, as issued, is effective for financial statements issued for fiscal
      years beginning after November 15, 2007, and interim periods within those
      fiscal years. FASB Staff Position (FSP) FAS No. 157-2 was issued in February
      2008 and deferred the effective date of SFAS 157 for nonfinancial assets and
      liabilities to fiscal years beginning after November 2008. As such, the Company
      adopted SFAS 157 as of January 1, 2008 for financial assets and liabilities
      only. There was no significant effect on the Company’s financial statements. The
      Company does not believe that the adoption of SFAS 157 to non-financial assets
      and liabilities will significantly effect its financial statements.




In
      February 2007, the FASB issued SFAS 159, “The Fair Value Option for
      Financial Assets and Liabilities—Including an amendment of FASB Statement
      No. 115” (“SFAS 159”). SFAS 159 expands the use of fair value
      accounting but does not affect existing standards which requires assets or
      liabilities to be carried at fair value. The objective of SFAS 159 is to
      improve financial reporting by providing companies with the opportunity to
      mitigate volatility in reported earnings caused by measuring related assets
      and
      liabilities differently without having to apply complex hedge accounting
      provisions. Under SFAS 159, a company may elect to use fair value to
      measure eligible items at specified election dates and report unrealized gains
      and losses on items for which the fair value option has been elected in earnings
      at each subsequent reporting date. Eligible items include, but are limited
      to,
      accounts receivable, investments in debt and equity securities, accounts
      payable, and issued debt. If elected, SFAS 159 is effective for fiscal
      years beginning after November 15, 2007. The Company has not elected to
      measure any additional assets or liabilities at fair value that are not already
      measured at fair value under existing standards.




In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
      Combinations” (“SFAS 141(R)”). SFAS 141(R) establishes principles and
      requirements for how an acquirer recognizes and measures in its financial
      statements the identifiable assets acquired, the liabilities assumed, any
      non-controlling interest in the acquiree and the goodwill acquired.
      SFAS 141(R) also establishes disclosure requirements to enable the
      evaluation of the nature and financial effects of the business combination.
      SFAS 141(R) is effective for fiscal years beginning after December 15,
      2008. The Company will apply the provisions of SFAS 141 (R) to any acquisition
      after January 1, 2009.




In
      December 2007, the FASB issued SFAS No. 160, “Accounting for Non-controlling
      Interests” (“SFAS 160”). SFAS 160 clarifies the classification of
      non-controlling interests in consolidated balance sheets and reporting
      transactions between the reporting entity and holders of non-controlling
      interests. Under this statement, non-controlling interests are considered equity
      and reported as an element of consolidated equity. Further, net income
      encompasses all consolidated subsidiaries with disclosure of the attribution
      of
      net income between controlling and non-controlling interests. SFAS No. 160
      is
      effective prospectively for fiscal years beginning after December 15, 2008.
      Currently, there are no non-controlling interests in any of the Company’s
      subsidiaries.




6




In
      March 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS
      No. 161, “Disclosures about Derivative Instruments and Hedging Activities —
an amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 amends and
      expands the disclosure requirements of SFAS No. 133, “Accounting for
      Derivative Instruments and Hedging Activities” (“SFAS 133”). It requires
      enhanced disclosures about (i) how and why an entity uses derivative
      instruments; (ii) how derivative instruments and related hedged items are
      accounted for under SFAS 133 and its related interpretations; and (iii) how
      derivative instruments and related hedged items affect an entity’s financial
      position, financial performance, and cash flows. SFAS 161 is effective for
      the
      Company beginning January 1, 2009.




** **(2)
      Liquidity**




On
      June
      30, 2008 the Company had working capital of $5.8 million, including $3.0 million
      in cash and cash equivalents.




To
      conserve cash and manage liquidity, the Company has implemented cost cutting
      initiatives including the reduction of employee headcount and overhead costs.
      The employee headcount was 68 at June 30, 2007 and 63 at June 30, 2008. The
      Company plans to continue to assess its cost structure as it relates to revenues
      and cash position, and the Company may make further reductions if the actions
      are deemed necessary.




The
      Company's total current assets at June 30, 2008 were $8.2 million and current
      liabilities were $2.4 million. The Company did not have any long-term debt
      at
      June 30, 2008. Management believes it has sufficient resources to fund its
      planned operations through at least June 30, 2009. However, if the Company
      is
      unable to increase its revenues, reduce its expense, or raise capital the
      Company's longer-term ability to continue as a going concern and achieve its
      intended business objectives could be adversely affected.




**** **(3)
      Inventories**




**June 30, 2008**
            
            **December 31, 2007**Inventories
                consist of :Raw
                materials
            
            $
            1,938,048
            
            $
            2,913,556Work
                in process
            
            
            128,781
            
            
            189,295Finished
                goods
            
            
            1,104,156
            
            
            1,349,652Total
                Inventories
            
            $
            3,170,985
            
            $
            4,452,503




**(4)
      Comprehensive Income (Loss)**




Comprehensive
      income (loss) follows:





**Three Months Ended June 30,**
            
            **Six Months Ended June 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Net
                income (loss)
            
            $
            (833,276
            )
            $
            (1,338,646
            )
            $
            (1,755,403
            )
            $
            (2,088,738
            )Foreign
                currency translation adjustment
            
            
            870
            
            
            20,692
            
            
            (2,885
            )
            
            24,557Comprehensive
                income (loss)
            
            $
            (832,406
            )
            $
            (1,317,954
            )
            $
            (1,758,288
            )
            $
            (2,064,181
            )




****  **(5)
      Contingencies**




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


7




**(6)
      Segment and Geographic Information**




The
      Company’s operations are classified as one reportable segment. The Company’s net
      sales follow: ****




**Three Months**
            
            
            
            **Three Months**
            
            
            
            **Six Months**
            
            
            
            **Six Months****Ended**
            
            **% of**
            
            **Ended**
            
            **% of**
            
            **Ended**
            
            **% of**
            
            **Ended**
            
            **% of****June 30, 2008**
            
            **Total**
            
            **June 30, 2007**
            
            **Total**
            
            **June 30, 2008**
            
            **Total**
            
            **June 30, 2007**
            
            **Total**North
                America
            
            $
            2,716,488
            
            
            67
            %
            $
            2,629,708
            
            
            61
            %
            $
            5,125,886
            
            
            67
            %
            $
            6,115,371
            
            
            67
            %UK
            
            
            1,002,285
            
            
            25
            %
            
            1,067,779
            
            
            25
            %
            
            1,681,277
            
            
            22
            %
            
            1,730,734
            
            
            19
            %All
                Other
            
            
            342.678
            
            
            8
            %
            
            644,565
            
            
            14
            %
            
            834,865
            
            
            11
            %
            
            1,250,203
            
            
            14
            %Total
            
            $
            4,061,451
            
            
            100
            %
            $
            4,342,052
            
            
            100
            %
            $
            7,642,028
            
            
            100
            %
            $
            9,096,308
            
            
            100
            %




**(7)
      Customer Concentrations**




Relatively
      few customers account for a substantial portion of the Company's net sales.
      In
      the second quarter of 2008 the Company's net sales to its top three customers
      accounted for 39% of its total net sales. In the second quarter of 2007 the
      Company's net sales to its top three customers accounted for 45% of its total
      net sales. The Company's customers generally do not enter into long-term
      agreements obligating them to purchase the Company’s products. The Company may
      not continue to receive significant revenues from any of these or from other
      large customers. A reduction or delay in orders from any of the Company's
      significant customers, or a delay or default in payment by any significant
      customer could materially harm the Company's business and prospects. Because
      of
      the Company's significant customer concentration, its net sales and operating
      income could fluctuate significantly due to changes in political or economic
      conditions, or the loss, reduction of business, or less favorable terms with
      any
      of its significant customers.




**(8)
      Investments**




As
      of
      June 30, 2008 and December 31, 2007 the Company owned all the Series A Preferred
      Shares of Unity Business Networks, LLC.





On
      January 22, 2008, the Company and RedMoon, Inc., a provider of wireless networks
      headquartered in Plano, Texas (“RedMoon”), entered into a Convertible Note
      Purchase Agreement pursuant to which the Company made an initial investment
      of
      $300,000 in 6% convertible notes (the “Notes”) and agreed to purchase an
      additional $50,000 per month of 6% convertible notes beginning on May 1, 2008
      and continuing until the earlier of (i) the Company’s election to exercise the
      option to purchase all outstanding stock of RedMoon contained in the Option
      Agreement described below or (ii) the Company’s election to terminate such
      Option Agreement, up to a maximum total investment of $500,000. On April 30,
      2008 the Company notified RedMoon of the Company’s decision not to invest
      $50,000 on May 1, 2008 due to the lack of required information. The Company
      expects that the option will not be exercised and will terminate in accordance
      with its terms on August 31, 2008.





As
      of
      June 30, 2008 the Company’s investment in RedMoon’s Notes is stated at cost of
      $325,496, which includes legal and other investment related costs.




As
      of
      January 22, 2008, the Company and RedMoon entered into a Security Agreement
      granting the Company a security interest in certain equipment of RedMoon, and
      the Company, RedMoon, and certain of RedMoon’s stockholders entered into a
      Voting Agreement whereby the Company and certain stockholders of RedMoon agreed
      to elect Frank Manning, Chief Executive Officer of the Company, and Bryan
      Thompson, Chief Executive Officer of RedMoon, to the Board of Directors of
      RedMoon.




**(9)
      Other Events**





On
      June
      26, 2008, the stockholders of the Company approved a reverse stock split within
      the range of one-for-two and one-for-nine. On July 29, 2008, the Board of
      Directors approved a one-for-five reverse stock split which became effective
      on
      August 7, 2008. All common stock information presented herein has been
      retroactively restated to reflect the reverse stock split





8




**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 in Item IA of Part II of this
      Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K for the year
      ended December 31, 2007, and in our other filings with the SEC. Readers should
      also be cautioned that results of any reported period are often not indicative
      of results for any future period.*




**Overview**





We
      derive
      our net sales primarily from sales of Internet-related communication products,
      principally broadband and dial-up modems and other communication products,
      to
      retailers, distributors, Internet Service Providers and Original Equipment
      Manufacturers. We sell our products through a direct sales force and through
      independent sales agents. Our employees are primarily located at our
      headquarters in Boston, Massachusetts and our sales office in the United
      Kingdom. We are experienced in electronics hardware, firmware, and software
      design and test, regulatory approvals, product documentation, and packaging;
      and
      we use that experience in developing each product in-house or in partnership
      with suppliers who are typically based in Asia. Electronic assembly and testing
      of the Company’s products in accordance with our specifications is typically
      done in China.





For
      many
      years we performed most of the final assembly, test, packaging, warehousing
      and
      distribution at a production and warehouse facility on Summer Street in Boston,
      Massachusetts, which has also engaged in firmware programming for some products.
      On June 30, 2006 we announced our plans to move most of our Summer Street
      operations to a dedicated facility in Tijuana, Mexico commencing approximately
      September 1, 2006, and we have since implemented
      that plan. Our lease for our Summer Street facility expired in August 2006,
      and
      we completely vacated the facility on September 30, 2006. Our Mexican manufacturing
      operation is managed by a maquiladora management company.





Since
      1983 our headquarters has been near South Station in downtown Boston. Zoom historically owned
      two adjacent buildings which connect on most floors, and which house our entire
      Boston staff. In December 2006 we sold our headquarters buildings to a third
      party, with a two-year lease-back of approximately 25,000 square feet of the
      62,000 square foot facility. Our net sale proceeds were approximately $7.7
      million of which approximately $3.6 million was repaid to our mortgage holder,
      eliminating the mortgage debt from our balance sheet. Our lease expires in
      December 2008. A renewal of our current lease may require an increase in our
      monthly rent. We may reduce the space leased in our current location or move
      our
      headquarters to a new location based on our needs and rental costs. In the
      event
      the lease for our current space is not further extended, we believe we will
      be
      able to find alternative space that is suitable and adequate for our
      headquarters operation.





For
      many
      years we derived a majority of our net sales from the retail after-market sale
      of dial-up modems to customers seeking to add or upgrade a modem for their
      personal computers. In recent years the size of this market and our sales to
      this market have declined, as personal computer manufacturers have incorporated
      a modem as a built-in component in most consumer personal computers and as
      increasing numbers of consumers world-wide have switched to broadband Internet
      access. The consensus of communications industry analysts is that after-market
      sales of dial-up modems will probably continue to decline. There is also
      consensus among industry analysts that the installed base for broadband Internet
      connection devices, such as cable modems and DSL modems, will grow rapidly
      during the decade. In response to increased and forecasted worldwide demand
      for
      faster connection speeds and increased modem functionality, we have invested
      and
      continue to invest resources to advance our product line of broadband modems,
      both DSL modems and cable modems.





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





Over
      the
      past several years our net sales have declined. In response to declining sales
      volume, we have cut costs by reducing staffing and some overhead costs. Our
      total headcount of full-time employees, including temporary workers, went from
      68 on June 30, 2007 to 63 on June 30, 2008. Our dedicated manufacturing
      personnel in Mexico are employees of our Mexican manufacturing service provider
      and not included in our 2008 or 2007 headcount. Of Zoom’s 63 employees on June
      30, 2008, 13 were engaged in research and development, 17 were involved in
      manufacturing management, purchasing, assembly, packaging, shipping and quality
      control, 22 were engaged in sales, marketing and technical support, and the
      remaining 11 performed accounting, administrative, management information
      systems, and executive functions.





9




Generally
      our gross margin for a given product depends on a number of factors including
      the type of customer to whom we are selling. The gross margin for retailers
      tends to be higher than for some of our other customers; but the sales, support,
      returns, and overhead costs associated with retailers also tend to be higher.
      Zoom’s sales to certain countries are currently handled by a single master
      distributor for each country who handles the support and marketing costs within
      the country. Gross margin for sales to these master distributors tends to be
      low, since lower pricing to these distributors helps them to cover the support
      and marketing costs for their country.





In
      the
      second quarter of 2008 our net sales were down 6.5% compared to the second
      quarter of 2007. The sales decrease resulted from declines in DSL and dial-up
      modem sales, partially offset by increased sales of our wireless and cable
      modem
      products. The majority of the decline in DSL modem sales in the second quarter
      of 2008 compared to the second quarter of 2007 was due to lower sales at our
      largest UK retailer. The decline in dial-up modem sales was primarily the result
      of the continued decline of the dial-up modem after-market. Recently we opened
      new accounts and made initial shipments to Wal-Mart, Tesco, Costco UK, and
      Brightstar. Because of our significant customer concentration our net sales
      and
      operating results have fluctuated and in the future could continue to fluctuate
      significantly due to changes in political or economic conditions or the loss,
      reduction of business, or less favorable terms for any of our significant
      customers.





During
      the quarter ended September 30, 2007 we purchased all the Series A Preferred
      Shares (the Series A Shares) of Unity Business Networks, LLC (Unity) for cash
      of
      $1.2 million, including transaction costs. The Series A Shares are convertible
      at any time at our option into 15% of Unity’s common stock on a fully-diluted
      basis. The Series A Shares convert automatically if Unity consummates a public
      offering with gross proceeds in excess of $25 million or 30 days after Unity
      delivers its 2009 audited financial statements to the Company. In addition,
      we
      have an option to purchase all the outstanding common stock of Unity based
      on a
      specified multiple of Unity’s revenues, as defined, for 2008.





On
      January 22, 2008, Zoom and RedMoon, Inc., a provider of wireless networks
      headquartered in Plano, Texas (“RedMoon”), entered into a Convertible Note
      Purchase Agreement pursuant to which we made an initial investment of $300,000
      in 6% convertible notes (the “Notes”) and agreed to purchase an additional
      $50,000 per month of 6% convertible notes beginning on May 1, 2008 and
      continuing until the earlier of (i) the Company’s election to exercise the
      option to purchase all outstanding stock of RedMoon contained in the Option
      Agreement described in Note 8 to the accompanying financial statements or (ii)
      the Company’s election to terminate such Option Agreement, up to a maximum total
      investment of $500,000 On April 30, 2008 the Company notified RedMoon of the
      Company’s decision not to invest $50,000 on May 1, 2008 due to the lack of
      required information. The Company expects that the option will not be exercised
      and will terminate in accordance with its terms on August 31, 2008.





Our
      cash
      and cash equivalents balance at June 30, 2008 was $3.0 million, down from $3.6
      million at December 31, 2007. The cash decline over the first six months of
      2008
      was due primarily to our $1.8 million loss, our $0.3 million reduction in
      accounts payable and accrued expense, and our $0.3 million investment in
      RedMoon, partially offset by our $1.3 million reduction of inventory and our
      $0.4 reduction in accounts receivable.





On
      June
      26, 2008, the stockholders of the Company approved a reverse stock split within
      the range of one-for-two and one-for-nine. On July 29, 2008, the Board of
      Directors approved a one-for-five reverse stock split which became effective
      on
      August 7, 2008. All common stock information presented herein has been
      retroactively restated to reflect the reverse stock split.




**Critical
      Accounting Policies and Estimates**





Following
      is a discussion of what we view as our more significant accounting policies
      and
      estimates. As described below, management judgments and estimates must be made
      and used in connection with the preparation of our consolidated financial
      statements. We have identified areas where material differences could result
      in
      the amount and timing of our net sales, costs, and expenses for any period
      if we
      had made different judgments or used different estimates.





**Revenue
      (Net Sales) Recognition.** We
      primarily sell hardware products to our customers. The hardware products include
      dial-up modems, DSL modems, cable modems, voice over IP products, and wireless
      and wired networking equipment. We earn a small amount of royalty revenue that
      is included in our net sales, primarily from internet service providers. We
      generally do not sell software. We began selling services in 2004. We introduced
      our Global Village VoIP service in late 2004, but sales of those services to
      date have not been material.




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





·
            computer
                peripherals retailers,




10


·
            computer
                product distributors,




·
            Internet
                service providers, and




·
            original
                equipment manufacturers (OEMs)





We
      recognize hardware net sales for 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 contractual FOB point specified in signed contracts
      and purchase orders, which are both used extensively. Many of our customer
      contracts or purchase orders specify FOB destination. We verify the delivery
      date on all significant FOB destination shipments made during the last 10
      business days of each quarter.





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





Our
      second quarter 2008 VoIP service revenues were recorded as the end-user-customer
      consumed billable VoIP services. The end-user-customer became a service customer
      by electing to sign up for the Global Village billable service on the Internet.
      Zoom recorded revenue either when billable services were consumed or when a
      monthly flat-fee service was billed.




**Product
      Returns.** Products
      are returned by retail stores and distributors for inventory balancing,
      contractual stock rotation privileges, and warranty repair or replacements.
      We
      estimate the sales and cost value of expected future product returns of
      previously sold products. Our estimates for product returns are based on recent
      historical trends plus estimates for returns prompted by, among other things,
      announced stock rotations and announced customer store closings. Management
      reviews historical returns, current economic trends, and changes in customer
      demand and acceptance of our products when estimating sales return allowances.
      The estimate for future returns is recorded as a reserve against accounts
      receivable, a reduction in our net sales, and the corresponding change to
      inventory reserves and cost of sales. The relationship of quarterly physical
      product returns to quarterly product sales remained relatively stable for many
      years. Product returns as a percentage of net sales were 10.9% in the second
      quarter of 2008.




**Price
      Protection Refunds.** We have
      a policy of offering price protection to certain of our retailer and distributor
      customers for some or all their inventory. Under the price protection policies,
      when we reduce our prices for a product, the customer receives a credit for
      the
      difference between the original purchase price and our reduced price for their
      unsold inventory of that product. Our estimates for price protection refunds
      are
      based on a detailed understanding and tracking by customer and by sales program.
      Estimated price protection refunds are recorded in the same period as the
      announcement of a pricing change. Information from customer inventory-on-hand
      reports or from direct communications with the customers is used to estimate
      the
      refund, which is recorded as a reduction of net sales and a reserve against
      accounts receivable. Reductions in our net sales due to price protection were
      $0.1 million in 2006 and $0.1 million in 2007. In the second quarter of 2008
      the
      reduction in net sales due to price protection was $0.005 million compared
      to
      $0.03 million in the second quarter of 2007.




**Sales
      and Marketing Incentives** . **** Many
      of
      our retailer customers require sales and marketing support funding, usually
      set
      as a percentage of our sales in their stores. The incentives are reported as
      reductions in our net sales and were $0.8 million in 2006 and $1.2 million
      in
      2007. In the second quarter of 2008, the reduction in our net sales due to
      sales
      and marketing incentives was $0.2 million compared to $0.3 million in the second
      quarter of 2007.




**Consumer
      Mail-In and In-Store Rebates** .
      Our
      estimates for consumer mail-in and in-store rebates are based on a detailed
      understanding and tracking by customer and sales program, supported by actual
      rebate claims processed by the rebate redemption centers plus an accrual for
      an
      estimated lag in processing at the redemption centers. The estimate for mail-in
      and in-store rebates is recorded as a reserve against accounts receivable and
      a
      reduction of net sales in the same period that the rebate obligation was
      triggered. Reductions in our net sales due to the consumer rebates were $0.7
      million in 2006 and $0.3 million in 2007. In the second quarter of 2008, the
      reduction in our net sales due to consumer mail-in rebates and in-store rebates
      was $0.004 million compared to $0.05 million in the second quarter of
      2007.




To
      ensure
      that the sales, discounts, and marketing incentives are recorded in the proper
      period, we perform extensive tracking and documenting by customer, by period,
      and by type of marketing event. This tracking includes reconciliation to the
      accounts receivable records for deductions taken by our customers for these
      discounts and incentives.




**Accounts
      Receivable Valuation** .
      We
      establish accounts receivable valuation allowances equal to the above-discussed
      net sales adjustments for estimates of product returns, price protection
      refunds, consumer rebates, and general bad debt reserves. These allowances
      are
      reduced as actual credits are issued to the customer's accounts. Our bad-debt
      write-offs were approximately $0.1 million for 2007 and approximately $0.0
      million for 2006. Our bad-debt write-offs were not significant in the second
      quarter of 2008 or 2007.




11




**Inventory
      Valuation and Cost of Goods Sold.** Inventory is valued at the lower of cost, determined by the first-in, first-out
      method, or market. We review inventories for obsolete slow moving products
      each
      quarter and make provisions based on our estimate of the probability that the
      material will not be consumed or that it will be sold below cost. We did not
      have significant charges to costs and expenses for obsolete or slow-moving
      products in the second quarter of 2008 or 2007.





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





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





As
      of
      December 31, 2007 we had federal net operating loss carry forwards of
      approximately $36,777,000. These federal net operating losses are available
      to
      offset future taxable income, and are due to expire in years ranging from
      2018 to 2027. We also had state net operating loss carry forwards of
      approximately $11,447,000. These state net operating losses are available to
      offset future taxable income, and are primarily due to expire in years ranging
      from 2008 to 2012.





**Valuation
      of Investment in Affiliates.** **** During
      the quarter ended September 30, 2007 the Company purchased all the Series A
      Preferred Shares (the Series A Shares) of Unity Business Networks, LLC (Unity)
      for cash of $1.2 million, including transaction costs. The Series A Shares
      are
      convertible at any time at the Company’s option into 15% of Unity’s common stock
      on a fully-diluted basis. The Series A Shares convert automatically if Unity
      consummates a public offering with gross proceeds in excess of $25 million
      or 30
      days after Unity delivers its 2009 audited financial statements to the Company.
      In addition, the Company has an option to purchase all the outstanding common
      stock of Unity based on a specified multiple of Unity’s revenues, as defined,
      for 2008. The option is exercisable for 30 days following the receipt of Unity’s
      2008 audited financial statements. The Company’s CEO is a member of Unity’s five
      member board of directors. Further, the Company is entitled to vote Series
      A
      Shares on an as-converted basis with Unity’s common stock. The Company is unable
      to exercise significant influence over Unity’s policies or operations.





On
      January 22, 2008, the Company and RedMoon, Inc., a provider of wireless networks
      headquartered in Plano, Texas (“RedMoon”), entered into a Convertible Note
      Purchase Agreement pursuant to which the Company made an initial investment
      of
      $300,000 in 6% convertible notes (the “Notes”) and agreed to purchase an
      additional $50,000 per month of 6% convertible notes beginning on May 1, 2008
      and continuing until the earlier of (i) the Company’s election to exercise the
      option to purchase all outstanding stock of RedMoon contained in the Option
      Agreement described below or (ii) the Company’s election to terminate such
      Option Agreement, up to a maximum total investment of $500,000  On
      April
      30, 2008 the Company notified RedMoon of the Company’s decision not to invest
      $50,000 on May 1, 2008 due to the lack of required information. The Company
      expects that the option will not be exercised and will terminate in accordance
      with its terms on August 31, 2008.





As
      of
      January 22, 2008, the Company and RedMoon entered into a Security Agreement
      granting the Company a security interest in certain equipment of RedMoon, and
      the Company, RedMoon, and certain of RedMoon’s stockholders entered into a
      Voting Agreement whereby the Company and certain stockholders of RedMoon agreed
      to elect Frank Manning, Chief Executive Officer.





The
      Company accounts for its investments in Unity and RedMoon at cost. The
      investments will be reviewed periodically for potential impairment.





**Results
      of Operations**




**Summary** .
      Net
      sales were $4.1 million for our second quarter ended June 30, 2008, down 6.5%
      from $4.3 million in the second quarter of 2007. We had a net loss of $0.83
      million for the second quarter of 2008, compared to a net loss of $1.34 million
      in the second quarter of 2007. Loss per diluted share was $0.45 in the second
      quarter of 2008 compared to $0.72 for the second quarter of 2007. Net sales
      were
      $7.6 million for the first six month ended June 30, 2008, down 16.0% from $9.1
      million in the first six months ended June 30, 2007. We had a net loss of $1.8
      million for the first six months ended June 30, 2008 compared to a net loss
      of
      $2.1 million for the first six months ended June 30, 2007. Loss per diluted
      share was $0.94 in the first six months ended June 30, 2008 compared to $1.12
      for first six months ended June 30, 2007.




12





**Net
      Sales.**  Our
      total
      net sales for the second quarter of 2008 decreased $0.3 million or 6.5% from
      the
      second quarter of 2007, primarily due to decreases in DSL and dial-up modem
      sales, partially offset by an increase in wireless product sales. The decline
      in
      dial-up modem sales was primarily the result of the continued decline of the
      dial-up modem after-market. The majority of the decline in DSL modem sales
      in
      the second quarter of 2008 compared to the second quarter of 2007 was due to
      lower sales at our largest UK retailer. Dial-up modem net sales declined from
      $1.8 million in the second quarter of 2007 to $1.4 million in the second quarter
      of 2008. Cable modem sales were unchanged at $0.4 million in the second quarter
      of 2007 and the second quarter of 2008. Wireless product sales, not counting
      sales of DSL gateways with integrated wireless, increased from $0.1 million
      in
      the second quarter of 2007 to $0.8 million in the second quarter of 2008.




Our
      net
      sales for the first six months of 2008 decreased 16.0% from the first six months
      of 2007, primarily due to sales declines for DSL and dial-up modem sales. The
      decline in modem sales was primarily for the reasons cited above and due to
      production delays in the fourth quarter of 2006 which further resulted in a
      significant opening order backlog and resulting higher shipments in the first
      quarter of 2007. The production delays were the result of late 2006 transition
      difficulties from closing our Boston manufacturing facility and opening our
      Mexican maquiladora manufacturing operation.




Our
      net
      sales in North America increased from $2.6 million in the second quarter of
      2007
      to $2.7 million in the second quarter of 2008. Our net sales outside North
      America declined from $1.7 million in the second quarter of 2007 to $1.3 million
      in the second quarter of 2008. The decline in sales outside North America was
      primarily in Spain, the U.K., and Turkey.




Our
      net
      sales in North America were $5.1 million in the first six months of 2008, a
      decrease from $6.1 million in the first six months of 2007. Our net sales in
      the
      U.K. were $1.7 million in both the first six months of 2008 and 2007. Our net
      sales in countries outside North America and the U.K. were $0.8 million for
      the
      first six months of 2008 and $1.3 million for the first six months of 2007.
      The
      decline in sales outside North America was primarily in Vietnam, Israel, and
      Spain.




In
      the
      quarter ended June 30, 2008 three customers accounted for 39% of total net
      sales. Because of our significant customer concentration, our net sales and
      operating income has fluctuated and could in the future fluctuate significantly
      due to changes in political or economic conditions or the loss, reduction of
      business, or less favorable terms for any of our significant customers. For
      the
      first six months of 2007 and 2008, our net sales to our top three customer
      accounted for 38% of our net sales. Because of our significant customer
      concentration, our net sales and operating income has fluctuated and could
      in
      the future fluctuate significantly due to changes in political or economic
      conditions or the loss, reduction of business, or less favorable terms for
      any
      of our significant customers.




**Gross
      Profit.** Our
      total
      gross profit was $0.9 million in the second quarter of 2008, an increase from
      $0.5 million in the second quarter of 2007. Gross margin as a percent of net
      sales was 22.6% in the second quarter of 2008 compared to 10.8% in the second
      quarter of 2007. The gross margin percentage was higher in the second quarter
      of
      2008 compared to the second quarter of 2007 primarily due to reduced retail
      rebates and discounts, reduced manufacturing expense, and reserve adjustments
      for future product returns.




Our
      total
      gross profit was $1.6 million in both the first six months of 2008 and the
      first
      six months of 2007. Gross margin as a percent of net sales increased to 21.5%
      in
      the first six months of 2008 from 17.5% in the first six months of 2007. The
      gross margin percentage was higher in the first six months of 2008 primarily
      because of reduced retail rebates and discounts, reduced manufacturing expense,
      and reserve adjustments for future product returns.




**Selling
      Expense.** Selling
      expense was $0.8 million or 20.2% of net sales in the second quarter of 2008
      compared to $0.9 million or 20.2% of net sales in the second quarter of 2007.
      Product delivery cost, marketing and advertising expense, rent, and telephone
      expense were lower in the second quarter of 2008 compared to the second quarter
      of 2007. Selling expense was $1.6 million for the first six months of 2008
      and
      $1.8 million for the first six months of 2007. Selling expense as a percentage
      of net sales was 20.4% in the first six months of 2008 and 19.5% of net sales
      in
      the first six months of 2007. Product delivery cost, marketing and advertising
      expense, rent, telephone expense, and commissions were lower in the first six
      months of 2008 compared to the first six months of 2007.




**General
      and Administrative Expense.** General
      and administrative expense was $0.6 million or 14.5% of net sales in the second
      quarter of 2008 and $0.6 million or 14.0% of net sales in the second quarter
      of
      2007. General and administrative expense was $1.1 million or 14.9% of net sales
      in the first six months of 2008 compared to $1.2 million or 13.7% of net sales
      in the first six months of 2007. The reduction was primarily the result of
      reduced personnel, legal, and audit expense.




13




**Research
      and Development Expense.** Research
      and development expense was $0.4 million or 10.7% of net sales in the second
      quarter of 2008 and $0.5 million or 11.3% of net sales in the second quarter
      of
      2007. Development and support continues on all of our major product lines.
      Research and development expense was $0.9 million or 11.8% of net sales in
      the
      first six months of 2008 compared to $1.0 million or 10.8% of net sales in
      the
      first six months of 2007. Research and development costs decreased primarily
      as
      a result of lower personnel costs due to headcount reductions.




**Gain
      on Sale of Real Estate.** A
      gain on
      sale of real estate of $0.096 million was recorded in the second quarters of
      2008 and 2007. In December 2006 Zoom sold its headquarters building in Boston
      and agreed to lease-back some of the office space. The lease-back arrangement
      resulted in an accounting deferral of $0.725 million of the gain. This deferred
      gain is being recorded over the subsequent eight quarters at $0.096 million
      per
      quarter for seven quarters and $0.053 million in the eighth quarter, which
      will
      be the fourth quarter of 2008.




**Other
      Income.** Other
      income was approximately $0.0 million in the second quarter of 2008 and $0.07
      million in the second quarter of 2007. Total other income (expense), net was
      income, net of $0.01 million in the first six months of 2008 compared to $0.1
      million in the first six months of 2007. The income reduction was primarily
      from
      reduced interest income due to a decrease in cash on hand and changes in
      interest rates in both the second quarter and the first six months of 2008
      as
      compared to 2007.




**Income
      Tax Expense (Benefit).** We
      did
      not record any tax expense in the second quarter of 2008 or the second quarter
      of 2007. The net deferred tax asset balance at June 30, 2008 was zero.




**Liquidity
      and Capital Resources**




On
      June
      30, 2008, we had working capital of $5.8 million, including $3.0 million in
      cash
      and cash equivalents. We had a $0.7 million reduction in cash and cash
      equivalents in the first six months of 2008. Operating activities used $0.3
      million in cash, as follows: a net loss of $1.8 million, a decrease of accounts
      payable and accrued expense of $0.3 million, and an adjustment for a gain on
      sales of real estate for $0.2 million, partially offset by a decrease of
      inventory of $1.3 million and a decrease in accounts receivable of $0.4 million.
      Investing activities used $0.3 million in cash for the RedMoon investment
      described above.




To
      conserve cash and manage our liquidity, we continue to implement cost cutting
      initiatives including the reduction of employee headcount and overhead costs.
      Our employee headcount was 68 at June 30, 2007 and was reduced to 63 at June
      30,
      2008. We have 29 dedicated manufacturing personnel in Mexico employed by a
      manufacturing service provider and they are not counted as Zoom employees.
      At
      June 30, 2007 we had 36 dedicated manufacturing personnel in Mexico. We plan
      to
      continue to assess our cost structure as it relates to our revenues and cash
      position in 2008, and we may make further reductions if the actions are deemed
      necessary.




During
      the quarter ended September 30, 2007 we purchased all the Series A Preferred
      Shares (the Series A Shares) of Unity Business Networks, LLC (Unity) for cash
      of
      $1.2 million, including transaction costs. The Series A Shares are convertible
      at any time at our option into 15% of Unity’s common stock on a fully-diluted
      basis. The Series A Shares convert automatically if Unity consummates a public
      offering with gross proceeds in excess of $25 million or 30 days after Unity
      delivers its 2009 audited financial statements to the Company. In addition,
      we
      have an option to purchase all the outstanding common stock of Unity based
      on a
      specified multiple of Unity’s revenues, as defined, for 2008.





On
      January 22, 2008, Zoom and RedMoon, Inc., a provider of wireless networks
      headquartered in Plano, Texas (“RedMoon”), entered into a Convertible Note
      Purchase Agreement pursuant to which we made an initial investment of $300,000
      in 6% convertible notes (the “Notes”) and agreed to purchase an additional
      $50,000 per month of 6% convertible notes beginning on May 1, 2008 and
      continuing until the earlier of (i) the Company’s election to exercise the
      option to purchase all outstanding stock of RedMoon contained in the Option
      Agreement or (ii) the Company’s election to terminate such Option Agreement, up
      to a maximum total investment of $500,000. On the same date, Zoom and RedMoon
      and the holders of RedMoon’s outstanding capital stock entered into an Option
      Agreement pursuant to which Zoom has the right to buy the balance of  RedMoon
      any time prior to the close of business on August 31, 2008, unless the we elect
      to terminate the Option Agreement prior to that date. On
      April
      30, 2008 the Company notified RedMoon of the Company’s decision not to invest
      $50,000 on May 1, 2008 due to the lack of required information. The Company
      expects that the option will not be exercised and will terminate in accordance
      with its terms on August 31, 2008.





Management
      believes it has sufficient resources to fund its planned operations through
      at
      least June 30, 2009. However, if we are unable to increase our revenues, reduce
      or otherwise adequately control 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 the safe harbor statement contained
      herein and the "Risk Factors" under Item IA of Part II of this Quarterly Report
      on Form 10-Q below, in Zoom’s Annual Report on Form 10-K for the year ended
      December 31, 2007 and in Zoom’s other filings with the Securities and Exchange
      Commission, for further information with respect to events and uncertainties
      that could harm our business, operating results, and financial
      condition.





14




**Commitments**





During
      the three and six months ended June 30, 2008 there were no material changes
      to
      our capital commitments and contractual obligations from those disclosed in
      our
      Form 10-K for the year ended December 31, 2007.





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




*Some
      of the statements contained in this report are forward-looking statements within
      the meaning of Section 27A of the Securities Act of 1933 and Section 21E of
      the
      Securities Exchange Act of 1934. These statements involve known and unknown
      risks, uncertainties and other factors which may cause our or our industry's
      actual results, performance or achievements to be materially different from
      any
      future results, performance or achievements expressed or implied by the
      forward-looking statements. Forward-looking statements include, but are not
      limited to statements regarding: Zoom's plans, expectations and intentions,
      including statements relating to Zoom's prospects and plans relating to sales
      of
      and markets for its products; Zoom’s expected benefits and cost savings
      resulting from the move of its manufacturing facilities to Mexico; and Zoom's
      financial condition or results of operations.*




*In
      some cases, you can identify forward-looking statements by terms such as "may,"
      "will, " "should," "could," "would," "expects," "plans," "anticipates,"
      "believes," "estimates," "projects," "predicts," "potential" and similar
      expressions intended to identify forward-looking statements. These statements
      are only predictions and involve known and unknown risks, uncertainties, and
      other factors that may cause our actual results, levels of activity,
      performance, or achievements to be materially different from any future results,
      levels of activity, performance, or achievements expressed or implied by such
      forward-looking statements. Given these uncertainties you should not place
      undue
      reliance on these forward-looking statements. Also, these forward-looking
      statements represent our estimates and assumptions only as of the date of this
      report. We expressly disclaim any obligation or undertaking to release publicly
      any updates or revisions to any forward-looking statement contained in this
      report to reflect any change in our expectations or any change in events,
      conditions or circumstances on which any of our forward-looking statements
      are
      based. Factors that could cause or contribute to differences in our future
      financial results include those discussed in the risk factors set forth in
      Item
      1A of Part II below as well as those discussed elsewhere in this report and
      in
      our filings with the Securities and Exchange Commission. We qualify all of
      our
      forward-looking statements by these cautionary statements.*


15




**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**





Not
      Required.





**ITEM
      4. CONTROLS AND PROCEDURES**





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





As
      of
      June 30, 2008 we carried out an evaluation, under the supervision and with
      the
      participation of our management, including our Chief Executive Officer and
      Chief
      Financial Officer, of the effectiveness of the design and operation of our
      disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
      under the Securities Exchange Act of 1934. Based upon that evaluation, our
      Chief
      Executive Officer and Chief Financial Officer concluded that our disclosure
      controls and procedures are effective in enabling us to record, process,
      summarize and report information required to be included in our periodic filings
      with the Securities and Exchange Commission within the required time
      period.





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


16




**PART
      II**  **OTHER
      INFORMATION**




**ITEM
      1A.**  **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 are 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.*





**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. Our revolving credit facility expired on March 15, 2006
      and
      we currently have no line of credit from which we can borrow. 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 not have sufficient resources to fund our normal operations
      and
      we may be required to further reduce planned expenditures or forego business
      opportunities. These factors could reduce our net sales, increase our losses,
      and harm our business. Moreover, additional equity financing could dilute the
      per share value of our common stock held by current shareholders, while
      additional debt financing could restrict our ability to make capital
      expenditures or incur additional indebtedness, all of which would impede our
      ability to succeed.





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




Industry
      analysts believe that the market for our dial-up modems will continue to
      decline. If we are unable to increase demand for and sales of our broadband
      modems, we may be unable to sustain or grow our business. The market for
      high-speed communications products and services has a number of competing
      technologies. For instance, Internet access can be achieved by using a standard
      telephone line and appropriate service for dial-up modems; DSL modems;
 using a cable modem with a cable TV line and cable modem service;
 using a router and some type of modem to service the computers connected
      to a local area network; or other approaches, including wireless links to the
      Internet.




Although
      we currently sell products that include these technologies, our most successful
      products have historically been our dial-up modems. The introduction of new
      products by competitors, market acceptance of competing products based on new
      or
      alternative technologies, or the emergence of new industry standards have in
      the
      past rendered and could continue to render our products less competitive or
      even
      obsolete. For example, these factors have caused the market for our dial-up
      modems to shrink dramatically. If we are unable to increase demand for our
      broadband modems, we may be unable to sustain or grow our
      business.





**We
      may not be able to maintain our listing on the Nasdaq Capital Market if we
      are
      unable to satisfy the minimum bid price requirements.**




On
      November 16, 2007 the Nasdaq Stock Market notified us that we were no longer
      in
      compliance with Marketplace Rule 4310(c)(4) because our common stock traded
      below $1.00 per share for 30 days. We were provided until May 14, 2008 to regain
      compliance by trading at $1.00 or more for 10 straight trading days. We did
      not
      demonstrate compliance with Rule 4310(c)(4) by May 14, 2008, and we received
      a
      written delisting notice on May 15, 2008. We appealed the determination to
      delist our securities to the Listing Qualifications Panel. Our basis for appeal
      was our plan to effect a reverse split of our common stock, and the Listing
      Qualifications Panel agreed with this plan. On August 7, 2008 we effected a
      one-for-five reverse stock split. We expect that the reverse stock split will
      result in an increase of the trading price of our common stock above the minimum
      bid price of $1.00 per share, but there can be no assurance that a trading
      price above
      $1.00 per share will be
      sustained. If the trading price of our common stock exceeds Nasdaq’s minimum bid
      price for ten consecutive trading days, we believe that it is likely, but not
      certain, that Nasdaq will rescind their delisting notice. A delisting of our
      shares, if it occurs, could have a negative effect on the market price for
      our
      shares.




17





**Our
      reliance on a limited number of customers for a large portion of our revenues
      could materially harm our business and prospects.**




Relatively
      few customers have accounted for a substantial portion of our net sales. In
      2007, our net sales to three companies constituted 44% of our total net sales.
      In the second quarter of 2008 our net sales to three customers comprised 39%
      of
      our net sales. Our customers generally do not enter into long-term agreements
      obligating them to purchase our products. We may not continue to receive
      significant revenues from any of these or from other large customers. Because
      of
      our significant customer concentration, our net sales and operating income
      could
      fluctuate significantly due to changes in political or economic conditions
      or
      the loss of, reduction of business with, or less favorable terms for any of
      our
      significant customers. A reduction or delay in orders from any of our
      significant customers, or a delay or default in payment by any significant
      customer could materially harm our business, results of operation and liquidity.





**Our
      reliance on a single manufacturer for a substantial percentage of our products
      could have an adverse effect on our business.**




We
      currently rely on a single manufacturer to manufacture a substantial portion
      of
      our products. The loss of the services of this manufacturer or an adverse change
      in the manufacturer’s business or our relationship could have a material adverse
      effect on our ability to manufacture our products and on our
      business.





**Capacity
      constraints in our Mexican operations could reduce our sales and revenues and
      hurt customer relationships.**




We
      now
      rely on our Mexican operations to finish and ship most of the products we sell.
      Since moving our manufacturing operations to our Mexican facility we have
      experienced and may continue to experience constraints on our manufacturing
      capacity as we address challenges related to operating our new facility, such
      as
      hiring and training workers, creating the facility’s infrastructure, developing
      new supplier relationships, complying with customs and border regulations,
      and
      resolving shipping and logistical issues. Our sales and revenues may be reduced
      and our customer relationships may be impaired if we continue to experience
      constraints on our manufacturing capacity. We are working to minimize capacity
      constraints in a cost-effective manner, but there can be no assurance that
      we
      will be able to adequately minimize capacity constraints.





**Our
      reliance on a business processing outsourcing partner to conduct our operations
      in Mexico could materially harm our business and
      prospects.**




In
      connection with the move of most of our North American manufacturing operations
      to Mexico, we rely on a business processing outsourcing partner to hire, subject
      to our oversight, the production team for our manufacturing operation, provide
      the selected facility described above, and coordinate many of the ongoing
      manufacturing logistics relating to our operations in Mexico. Our outsourcing
      partner’s related functions include acquiring the necessary Mexican permits,
      providing the appropriate Mexican operating entity, assisting in customs
      clearances, and providing other general assistance and administrative services
      in connection with the ongoing operation of the Mexican facility. Our
      outsourcing partner’s performance of these obligations efficiently and
      effectively is critical to the success of our operations in Mexico. Failure
      of
      our outsourcing partner to perform its obligations efficiently and effectively
      could result in delays, unanticipated costs or interruptions in production,
      delays in deliveries to our customers or other harm to our business, results
      of
      operation, and liquidity. Moreover, if our outsourcing arrangement is not
      successful, we cannot assure our ability to find an alternative production
      facility or outsourcing partner to assist in our operations in Mexico or our
      ability to operate successfully in Mexico without outsourcing or similar
      assistance.





**Our
      net sales, operating results and liquidity have been and may in the future
      be
      adversely affected 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. Decreasing average
      selling prices and reduced demand for our dial-up modems have resulted and
      are
      likely to continue to result in decreased net sales for dial-up modems. If
      we
      fail to replace declining revenue from the sales of dial-up modems with the
      sales of our other products, including our broadband modems, our business,
      results of operation and liquidity will be harmed.




18




**Less
      advantageous terms of sale of our products could harm our
      business.**




We
      entered into a consignment arrangement with a significant retailer customer
      in
      October 2006. In connection with this arrangement ownership of all unsold
      products previously purchased from Zoom reverted to us in November 2006. Under
      the consignment arrangement we do not recognize revenue from the sale of a
      product until the retailer actually sells such product to its customer. The
      consignment arrangement also results in a delay in the dating of invoices,
      the
      recognition of accounts receivable, and the due dates for payment by the
      retailer for goods sold. If additional significant customers adopt similar
      arrangements or otherwise change the terms of sale, our business, results of
      operation and liquidity will be harmed.





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




With
      the
      shrinking of the dial-up modem market, we believe that our future success will
      depend in large part on our ability to more successfully penetrate the broadband
      modem markets, DSL and cable, and the VoIP market. These markets have
      significant barriers to entry that have adversely affected our sales to these
      markets. Although some cable and DSL modems are sold at retail, the high volume
      purchasers of these modems are concentrated in a relatively few large cable,
      telecommunications, and Internet service providers which offer broadband modem
      services to their customers. These customers, particularly cable services
      providers, also have extensive and varied approval processes for modems to
      be
      approved for use on their network. These approvals are expensive, time
      consuming, and continue to evolve. Successfully penetrating the broadband modem
      market therefore presents a number of challenges including: the current limited
      retail market for broadband modems;  the relatively small number of cable,
      telecommunications and Internet service provider customers that make up the
      bulk
      of the market for broadband modems in certain countries, including the United
      States; the significant bargaining power of these large volume purchasers;
      the
      time consuming, expensive, uncertain and varied approval process of the various
      cable service providers; and the strong relationships with cable service
      providers enjoyed by incumbent cable equipment providers like Motorola and
      Cisco.




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





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




The
      market for PC communications products and high-speed broadband access products
      and services is characterized by aggressive pricing practices, continually
      changing customer demand patterns, rapid technological advances, emerging
      industry standards and short product life cycles. Some of our product and
      service developments and enhancements have taken longer than planned and have
      delayed the availability of our products and services, which adversely affected
      our sales and profitability in the past. Any significant delays in the future
      may adversely impact our ability to sell our products and services, and our
      results of operations and financial condition may be adversely affected. Our
      future success will depend in large part upon our ability to: identify and
      respond to emerging technological trends and industry standards in the market;
      develop and maintain competitive products that meet changing customer demands;
      enhance our products by adding innovative features that differentiate our
      products from those of our competitors; bring products to market on a timely
      basis; introduce products that have competitive prices; manage our product
      transitions, inventory levels and manufacturing processes efficiently; respond
      effectively to new technological changes or new product announcements by others;
      and meet changing industry standards.




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





19




**Our
      international operations are subject to a number of risks that could harm our
      business.**




Currently
      our business is significantly dependent on our operations outside the United
      States, particularly sales of our products and the production of most of our
      products. All of our manufacturing operations except our rework operations
      are
      now located outside of the United States. In the second quarter of 2007, sales
      outside North America were 39% of our net sales. In the second quarter of 2008,
      sales outside North America were 33% of our net sales. The inherent risks of
      international operations could harm our business, results of operation, and
      liquidity. Specifically, our manufacturing operations in Mexico are subject
      to
      the challenges and risks associated with international operations, including
      those related to integration of operations across different cultures and
      languages, currency risk, and economic, legal, political and regulatory risks.
      The types of risks faced in connection with international operations and sales
      include, among others: regulatory and communications requirements and policy
      changes;  favoritism toward local suppliers; delays in the rollout of
      broadband services by cable and DSL service providers outside of the United
      States; local language and technical support requirements; difficulties in
      inventory management, accounts receivable collection and the management of
      distributors or representatives; cultural differences; reduced control over
      staff and other difficulties in staffing and managing foreign operations;
 reduced protection for intellectual property rights in some countries;
      political and economic changes and disruptions; governmental currency controls;
      shipping costs; and currency exchange rate fluctuations, including, as a result
      of the move of our manufacturing operations to Mexico, changes in value of
      the
      Mexican Peso relative to the US dollar; and import, export, and tariff
      regulations.





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




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




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




Due
      to
      rapid technological change and changing markets we are required to manage our
      inventory levels carefully to both meet customer expectations regarding delivery
      times and to limit our excess inventory exposure. In the event we fail to
      effectively manage our inventory our liquidity may be adversely affected and
      we
      may face increased 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 and original design manufacturers for electronics
      manufacturing of most of 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
      electronics manufacturers for the bulk of our purchases, in some cases a given
      product is only provided by one of these companies. The loss of the services
      of
      any of our significant third party manufacturers or a material adverse change
      in
      the business of or our relationships with any of these manufacturers could
      harm
      our business. Since third parties manufacture our products and we expect this
      to
      continue in the future, our success will depend, in part, on the ability of
      third parties to manufacture our products cost effectively and in sufficient
      quantities to meet our customer demand.




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





20




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




We
      obtain
      certain key parts, components, and equipment from sole or limited sources of
      supply. For example, we purchase most of our dial-up and broadband modem
      chipsets from Conexant Systems, Agere Systems, and Ikanos Communications.
      Integrated circuit product areas covered by at least one of these companies
      include dial-up modems, DSL modems, cable modems, networking, routers, and
      gateways. In the past we have experienced delays in receiving shipments of
      modem
      chipsets from our sole source suppliers. We may experience similar delays in
      the
      future. In addition, some products may have other components that are available
      from only one source. If we are unable to obtain a sufficient supply of
      components from our current sources, we would 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.




**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 result in less favorable selling terms
      to
      our customers, decrease demand for our products or make our products
      obsolete.





**New
      environmental regulations may increase our manufacturing costs and harm our
      business.**




The State
      of
      California and other states have implemented regulations requiring the use of highly efficient power cubes.
      These
      new requirements will affect many of
      our products and will
      typically result
      in an increase of
      $0.20
      to $0.70 in our cost to produce those products that use U.S. power cubes. This
      is expected to reduce our gross margin for those products .




**Changes
      in current or future laws or governmental regulations and industry standards
      that negatively impact our products, services and technologies could harm our
      business.**




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




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





**Regulation
      of VoIP services is developing and is therefore uncertain. Future regulation
      of
      VoIP services could increase our costs and restrict the growth of our VoIP
      business.**




VoIP
      services currently have different regulations from traditional telephony in
      most
      countries including the US. The US, various states and other countries may
      impose surcharges, taxes or new regulations upon providers of VoIP services.
      The
      imposition of any such surcharges, taxes and regulations on VoIP services could
      materially increase our costs, may limit or eliminate our competitive pricing
      and may require us to restructure the VoIP services we currently offer. For
      example, regulations requiring compliance with the Communications Assistance
      for
      Law Enforcement Act (CALEA) or provision of the same type of 911 services as
      required for traditional telecommunications providers could place a significant
      financial burden on us depending on the technical changes required to
      accommodate the requirements.




In
      many
      countries outside the US in which we operate or our services are sold, we cannot
      be certain that we will be able to comply with existing or future requirements,
      or that we will be able to continue to be in compliance with any such
      requirements. Our failure to comply with these requirements could materially
      adversely affect our ability to continue to offer our VoIP services in these
      jurisdictions.




21




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




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




**Our
      future success will depend on the continued services of our executive officers
      and key product development personnel.**




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




**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 ensure 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 party.


22




**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





We
      held
      our Annual Meeting of Stockholders on June 26, 2008. At the Annual Meeting,
      the
      stockholders voted (All share numbers have been adjusted to reflect the 1-for-5
      reverse split of our common stock, which was effective on August 7,
      2008):





1.
      To
      elect five (5) directors to serve for the ensuing year and until their
      successors are duly elected. The votes cast were as follows:





**Nominees**
            
            **For**
            
            **Withheld/Abstain**Frank
                B. Manning
            
            
            1,619,194
            
            
            54,295Peter
                R. Kramer
            
            
            1,615,755
            
            
            57,734Bernard
                Furman
            
            
            1,619,052
            
            
            54,437J.
                Ronald Woods
            
            
            1,613,912
            
            
            59,579Joseph
                Donovan
            
            
            1,614,262
            
            
            59,227





2.
      To
      consider and act upon a proposed plan to authorize, but not require, Zoom
      Technologies to effect a reverse stock split of Zoom Technologies’ Common Stock
      at a ratio within the range of one-for-two and one-for-nine, to be determined
      by
      the Board of Directors in their discretion and calculated in their judgment
      to
      achieve the minimum bid price requirements of the Nasdaq Capital Market for
      Zoom
      Technologies’ Common Stock while allowing Zoom Technologies to continue to meet
      the other listing requirements for the Nasdaq Capital Market. The votes cast
      were as follows:





**For**
            
            **Against**
            
            **Abstain**
            
            **Broker
                Non-Votes**1,511,299
            
            
            15,699
            
            
            5,198
            
            
            0




**ITEM
      6. EXHIBITS**


Exhibit
                  No.
              
              Exhibit
                  Description31.1
              
              CEO
                  Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
                  of
                  200231.2
              
              CFO
                  Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
                  of
                  2002.32.1
              
              CEO
                  Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
                  of
                  2002.32.2
              
              CFO
                  Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
                  of
                  2002.




23




**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.**
              **(Registrant)**Date:
                August 13, 2008
            By:
                /s/ Frank B. ManningFrank
                B. Manning
              President
              (Principal
                Executive Officer)Date:
                August 13, 2008
            By:
                /s/ Robert A. CristRobert
                A. Crist
              Vice
                President of Finance and Chief Financial Officer
              (Principal
                Financial and Accounting
                Officer)


24




**EXHIBIT
      INDEX**




Exhibit
                No.
            
            Exhibit
                Description31.1
            
            CEO
                Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.31.2
            
            CFO
                Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.32.1
            
            CEO
                Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.32.2
            
            CFO
                Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.




25