**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 September 30, 2007**




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, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act.





Large
      accelerated filer o    Accelerated
      filer o   Non-accelerated
      filer x




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes o No x




The
      number of shares outstanding of the registrant’s Common Stock, $.01 par value,
      as of October 1, 2007, was 9,346,966 shares.










**ZOOM
      TECHNOLOGIES, INC. AND SUBSIDIARY**


**INDEX**








**Page****Part
                I.**
            **Financial
                Information**Item
                1.
            Condensed
                Consolidated Balance Sheets as of September 30, 2007 and December
                31, 2006
                (unaudited)
            3Condensed
                Consolidated Statements of Operations for the three and nine months
                ended
                September 30, 2007 and 2006 (unaudited)
            4Condensed
                Consolidated Statements of Cash Flows for the nine months ended September
                30, 2007 and 2006 (unaudited)
            5Notes
                to Condensed Consolidated Financial Statements (unaudited)
            6-8Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            8-15Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            15Item
                4.
            Controls
                and Procedures
            15**Part
                II.**
            **Other
                Information**Item 1A
            Risk
                Factors
            15-21Item
                6.
            Exhibits
            21Signatures
            22Exhibit
                Index
            23Exhibits
            24-27




2


**PART
      I - FINANCIAL INFORMATION**





**ZOOM
      TECHNOLOGIES, INC.**


**Condensed
      Consolidated Balance Sheets**


**(unaudited)**




**September 30, 2007**
            
            **December 31, 2006****ASSETS***Current
                assets*Cash
                and cash equivalents
            
            $
            3,656,283
            
            $
            7,833,046Accounts
                receivable, net of allowances of $1,237,309 at September 30, 2007
                and
                $915,969 at December 31, 2006
            
            
            3,664,072
            
            
            3,385,280Inventories
            
            
            4,294,186
            
            
            4,511,814Prepaid
                expenses and other current assets
            
            
            207,940
            
            
            269,301Total
                current assets
            
            
            11,822,481
            
            
            15,999,441Equipment,
                net
            
            
            178,854
            
            
            249,221Investment
                in Unity Business Networks, LLC
            
            
            1,178,709
            
            
            —Total
                assets
            
            $
            13,180,044
            
            $
            16,248,662**LIABILITIES
                AND STOCKHOLDERS' EQUITY***Current
                liabilities*Accounts
                payable
            
            $
            2,420,459
            
            $
            2,639,935Accrued
                expenses
            
            
            470,921
            
            
            562,349Deferred
                gain on sale of real estate
            
            
            367,245
            
            
            367,245Total
                current liabilities
            
            
            3,258,625
            
            
            3,569,529Deferred
                gain on sale of real estate
            
            
            69,594
            
            
            357,373Total
                liabilities
            
            
            3,328,219
            
            
            3,926,902*Stockholders'
                equity*Common
                stock, $0.01 par value:Authorized
                - 25,000,000 shares; issued –
                9,355,366
                shares, including shares held in treasury
            
            
            93,554
            
            
            93,554Additional
                paid-in capital
            
            
            31,468,147
            
            
            31,275,169Accumulated
                deficit
            
            
            (22,298,902
            )
            
            (19,597,296
            )Accumulated
                other comprehensive income -currency translation
                adjustment
            
            
            596,348
            
            
            557,655Treasury
                stock (8,400 shares), at cost
            
            
            (7,322
            )
            
            (7,322
            )Total
                stockholders' equity
            
            
            9,851,825
            
            
            12,321,760Total
                liabilities and stockholders' equity
            
            $
            13,180,044
            
            $
            16,248,662





See
      accompanying notes .


3





**ZOOM
      TECHNOLOGIES, INC.**


**Condensed
      Consolidated Statements of Operations**


**(Unaudited)**


**Three Months Ended September 30,**
              
              **Nine Months Ended September 30,********2007**
              
              ******2006**
              
              ******2007**
              
              ******2006**Net
                  sales
              
              $
              5,580,131
              
              $
              3,579,317
              
              $
              14,676,439
              
              $
              13,378,260Cost
                  of goods sold
              
              
              4,287,082
              
              
              3,338,349
              
              
              11,792,877
              
              
              11,948,971Gross
                  profit
              
              
              1,293,049
              
              
              240,968
              
              
              2,883,562
              
              
              1,429,289Operating
                  expenses:Selling
              
              
              979,252
              
              
              781,955
              
              
              2,750,978
              
              
              2,563,921General
                  and administrative
              
              
              617,086
              
              
              689,599
              
              
              1,862,627
              
              
              2,236,287Research
                  and development
              
              
              433,823
              
              
              520,767
              
              
              1,416,036
              
              
              1,709,640Total
                  operating expenses
              
              
              2,030,161
              
              
              1,992,321
              
              
              6,029,641
              
              
              6,509,848Operating
                  profit (loss) before gain on sale of real estate
              
              
              (737,112
              )
              
              (1,751,353
              )
              
              (3,146,079
              )
              
              (5,080,559
              )Gain
                  on sale of real estate
              
              
              95,926
              
              
              —
              
              
              287,478
              
              
              —-Operating
                  profit (loss)
              
              
              (641,186
              )
              
              (1,751,353
              )
              
              (2,858,601
              )
              
              (5,080,559
              )Other
                  income( expense):Gain
                  on sale of investment in Intermute, Inc.
              
              
              -
              
              
              869,750
              
              
              -
              
              
              869,750Interest
                  income
              
              
              47,568
              
              
              51,138
              
              
              196,808
              
              
              189,327Interest
                  (expense)
              
              
              -
              
              
              (76,140
              )
              
              -
              
              
              (221,845
              )Other,
                  net
              
              
              (19,251
              )
              
              74,364
              
              
              (39,814
              )
              
              178,744Total
                  other income (expense), net
              
              
              28,317
              
              
              919,112
              
              
              156,994
              
              
              1,015,976Income
                  (loss) before income taxes
              
              
              (612,869
              )
              
              (832,241
              )
              
              (2,701,607
              )
              
              (4,064,583
              )Income
                  taxes
              
              
              —
              
              
              —
              
              
              —
              
              
              —Net
                  income (loss)
              
              $
              (612,869
              )
              $
              (832,241
              )
              $
              (2,701,607
              )
              $
              (4,064,583
              )Basic
                  and diluted net income (loss)per
                  share
              
              $
              (0.07
              )
              $
              (0.09
              )
              $
              (0.29
              )
              $
              (0.43
              )Weighted
                  average common and common equivalent sharesBasic
                  and diluted
              
              
              9,346,966
              
              
              9,346,966
              
              
              9,346,966
              
              
              9,346,966





See
      accompanying notes.





4




**ZOOM
      TECHNOLOGIES, INC.**


**Consolidated
      Statements of Cash Flows**


**(Unaudited)**


**Nine
                  Months Ended**
                **September
                  30,********2007**
              
              ******2006****Operating
                  activities**:Net
                  income (loss)
              
              $
              (2,701,607
              )
              $
              (4,064,583
              )Adjustments
                  to reconcile net income (loss) to net cash provided by (used in)
                  operating
                  activities:Gain
                  on sale of Investment in InterMute, Inc
              
              
              -
              
              
              (869,750
              )Amortization
                  of deferred gain on sale of real estate
              
              
              (287,478
              )
              
              -Depreciation
              
              
              65,847
              
              
              172,006Stock
                  based compensation
              
              
              192,978
              
              
              180,977Changes
                  in operating assets and liabilities:Accounts
                  receivable, net
              
              
              (246,042
              )
              
              921,914Inventories
              
              
              220,026
              
              
              784,753Prepaid
                  expenses and other assets
              
              
              62,489
              
              
              22,406Accounts
                  payable and accrued expenses
              
              
              (306,384
              )
              
              (1,573,819
              )Net
                  cash provided by (used in) operating activities
              
              
              (3,000,171
              )
              
              (4,426,096
              )**Investing
                  activities:**Investment
                  in Unity Business Networks, LLC
              
              
              (1,178,709
              )
              
              -Proceeds
                  from sale of Investment in InterMute, Inc.
              
              
              -
              
              
              869,750Additions
                  to property, plant and equipment
              
              
              4,892
              
              
              (84,572
              )Net
                  cash provided by (used in) investing activities
              
              
              (1,178,817
              )
              
              785,178**Financing
                  activities:**Principal
                  payments on long-term debt
              
              
              -
              
              
              (1,275,258
              )Net
                  cash provided by (used in) financing activities
              
              
              -
              
              
              (1,275,258
              )Effect
                  of exchange rate changes on cash
              
              
              (2,775
              )
              
              (6,251
              )Net
                  change in cash
              
              
              (4,176,763
              )
              
              (4,922,427
              )Cash
                  and cash equivalents at beginning of period
              
              
              7,833,046
              
              
              9,081,122Cash
                  and cash equivalents at end of period
              
              $
              3,656,283
              
              $
              4,158,695**Supplemental
                  disclosures of cash flow information:**Cash
                  paid during the period for:Interest
              
              $
              —
              
              $
              221,845Income
                  taxes
              
              $
              —
              
              $
              —




See
      accompanying notes.




5




**ZOOM
      TECHNOLOGIES, INC.**


**Notes
      to Condensed Consolidated Financial Statements**


**(Unaudited)**





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




*(a)* *Basis
          of Presentation and Principles of Consolidation*




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 statements should
      be
      read in conjunction with the audited consolidated financial statements and
      notes
      thereto for the year ended December 31, 2006 included in the Company's 2006
      Annual Report on Form 10-K.




The
      accompanying financial statements are unaudited. However, the condensed balance
      sheet as of December 31, 2006 was derived from audited financial statements.
      In
      the opinion of management, the accompanying financial statements include all
      adjustments (consisting of normal, recurring adjustments) necessary for a fair
      presentation of results for these interim periods.




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.




(b)  *Recently
      Issued or Proposed Accounting Pronouncements*





In
      July
      2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an
      interpretation of FASB Statement No. 109” (FIN 48). FIN 48 clarifies the
      accounting for uncertainty in income taxes by prescribing a recognition
      threshold and measurement attribute for the financial statement recognition
      and
      measurement of a tax position taken or expected to be taken in a tax return.
      FIN
      48 also provides guidance on derecognition, classification, interest and
      penalties, accounting in interim periods, and disclosure.





Effective
      January 1, 2007, the Company adopted FIN 48. As of that date and as of September
      30, 2007 the Company had no material unrecognized income tax benefits. Further,
      no significant changes in the unrecognized income tax benefits are expected
      to
      occur over the next twelve months.





Historically
      the Company has not accrued or paid significant interest and penalties for
      underpayments of income taxes. Interest and penalties related to such
      underpayments would be classified as a component of income tax expense. No
      material amounts of interest or penalties for underpayments of income taxes
      were
      required to be accrued as of September 30, 2007.




The
      Company files income tax returns in the United States and the United Kingdom.
      Currently, open tax years in the US for federal and state income tax purposes
      are 2003 through 2006. Open tax years in the UK are 2005 through
      2006.





The
      Company accounts for point-of-sale taxes on a net basis under Emerging Issues
      Tax Force No. 06-3, “How Sales Taxes Collected from Customers and Remitted to
      Governmental Authorities Should Be Presented in the Income Statement (That
      Is,
      Gross Versus Net Presentation).”





6




In
      February 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities – Including
      an
      Amendment of FASB Statement No. 115.* Under
      SFAS 159, a company may elect to use fair value to measure certain financial
      assets and financial liabilities. The fair value election is irrevocable and
      generally made on an instrument-by-instrument basis even if a company has
      similar instruments that it elects not to measure at fair value. At the adoption
      date, unrealized gains and losses on existing items for which the fair value
      option had been elected are reported as a cumulative effect adjustment to
      retained earnings. Subsequent to the adoption of SFAS 159, changes in fair
      value
      are recognized in operations. SFAS is effective for fiscal years beginning
      after
      November 15, 2007 and is required to be adopted by the Company on January 1,
      2008. The Company is
      currently determining if fair value accounting is appropriate for any eligible
      items and cannot currently estimate the effect, if any, that SFAS 159 will
      have
      on its financial statements.




**** **(2)
      Liquidity**





On
      September 30, 2007 the Company had working capital of $8.6 million, including
      $3.7 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 79 at September 30, 2006 and 65 at September 30,
      2007. The Company plans to continue to assess its cost structure as it relates
      to revenues and cash position. The Company may make further reductions if the
      actions are deemed necessary.





The
      Company's total current assets at September 30, 2007 were $11.8 million and
      current liabilities were $3.3 million. The Company did not have any long-term
      debt at September 30, 2007. Management believes it has sufficient resources
      to
      fund its planned operations through at least September 30, 2008. 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)
      Earnings Per Share**




Options
      to purchase 1,388,750 shares of common stock at September 30, 2007 and 1,228,200
      shares at September 30, 2006 were outstanding but not included in the
      computation of diluted earnings per share for the three and nine months ended
      September 30, 2007 and 2006 because their effect would be
      antidilutive.




**(4)
      Inventories**


Inventories
                  consist of :
              
              **September 30, 2007**
              
              **December 31, 2006**Raw
                  materials
              
              $
              2,566,677
              
              $
              2,969,375Work
                  in process
              
              
              485,021
              
              
              522,307Finished
                  goods
              
              
              1,242,488
              
              
              1,020,132Total
                  Inventories
              
              $
              4,294,186
              
              $
              4,511,814




**(5)
      Comprehensive Income (Loss)**




Comprehensive
      income (loss) follows: ****


**Three Months Ended September 30,**
              
              **Nine Months Ended September 30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Net
                  income (loss)
              
              $
              (612,869
              )
              $
              (832,241
              )
              $
              (2,701,607
              )
              $
              (4,064,583
              )Foreign
                  currency translation adjustment
              
              
              14,136
              
              
              44,696
              
              
              38,693
              
              
              110,220Comprehensive
                  income (loss)
              
              $
              (598,733
              )
              $
              (876,937
              )
              $
              (2,662,914
              )
              $
              (3,954,363
              )




**(6)
      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




**(7)
      Segment and Geographic Information**




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


**Three Months**
              
              ****
              
              
              **Three Months**
              
              ****
              
              
              **Nine Months**
              
              ****
              
              
              **Nine Months**
              
              ********
              
              **Ended**
              
              **%**
                **of**
              
              
              **Ended**
              
              **%**
                **of**
              
              
              **Ended**
              
              **%**
                **of**
              
              
              **Ended**
              
              **%**
                **of******
              
              **September 30,**
                **2007**
              
              **Total**
              
              
              **September 30,**
                **2006**
              
              **Total**
              
              
              **September 30,**
                **2007**
              
              **Total**
              
              
              **September 30,**
                **2006**
              
              **Total**North
                  America
              
              $
              3,259,696
              
              
              58
              %
              
              $
              2,280,425
              
              
              64
              %
              
              $
              9,374,066
              
              
              64
              %
              
              $
              7,711,063
              
              
              58
              %Turkey
              
              
              44,575
              
              
              1
              %
              
              
              49,630
              
              
              1
              %
              
              
              62,511
              
              
              0
              %
              
              
              1,101,894
              
              
              8
              %UK
              
              
              1,452,551
              
              
              26
              %
              
              
              679,357
              
              
              19
              %
              
              
              3,183,286
              
              
              22
              %
              
              
              2,474,063
              
              
              18
              %All
                  Other
              
              
              823,309
              
              
              15
              %
              
              
              569,905
              
              
              16
              %
              
              
              2,055,576
              
              
              14
              %
              
              
              2,091,240
              
              
              16
              %Total
              
              $
              5,580,131
              
              
              100
              %
              
              $
              3,579,217
              
              
              100
              %
              
              $
              14,676,439
              
              
              100
              %
              
              $
              13,378,260
              
              
              100
              %




**(8)
      Customer Concentrations**




Relatively
      few customers account for a substantial portion of the Company's net sales.
      In
      the third quarter of 2007 the Company's net sales to its top three customers
      accounted for 50% of its total net sales. In the third quarter of 2006 the
      Company's net sales to its top three customers accounted for 37% of its total
      net sales. In the nine months ended September 30, 2007 the Company's net sales
      to its top three customers accounted for 44% of its total net sales. In the
      nine
      months ended September 30, 2006 the Company's net sales to its top three
      customers accounted for 28% 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 for any of our significant customers.




**(9)
      Investment in Unity Business Networks, LLC**




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





**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 set forth in our Annual Report on Form 10-K for
      the year ended December 31, 2006 and 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.*




8




**Overview**




We
      derive
      our net sales primarily from sales of Internet-related communication products
      to
      retailers, distributors, Internet Service Providers and Original Equipment
      Manufacturers. Our products include broadband and dial-up modems and other
      communication products. We sell our products through a direct sales force and
      through independent sales agents. As of September 30, 2007 our employees were
      primarily located at our headquarters in Boston, Massachusetts and our sales
      office in the United Kingdom. During July and August 2007 we closed our support
      office in Boca Raton, Florida and transferred its support activities to our
      headquarters in Boston. We typically design our hardware products; but we do
      sometimes use another company’s design if it meets our requirements. Electronic
      assembling and testing of our products in accordance with our specifications
      is
      typically done in China or Taiwan.




For
      many
      years we performed most of the final assembling, testing, packaging, warehousing
      and distribution at a production and warehouse facility at Summer Street in
      Boston, Massachusetts. That location also engaged in firmware programming for
      some products. We moved these operations to a dedicated facility in Tijuana,
      Mexico in August and September of 2006.





Since
      1983 our headquarters has been in two adjacent buildings near South Station
      in
      downtown Boston. These buildings connect on most floors and house our entire
      Boston staff. In December 2006 we sold these 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.




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 worldwide have switched to broadband Internet
      access. The consensus of communications industry analysts is that 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. 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
      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. Our total
      headcount of full-time employees, including temporary workers, went from 79
      on
      September 30, 2006 to 65 on September 30, 2007. Of the 65 employees on September
      30, 2007, 14 were engaged in research and development, 18 were involved in
      purchasing, assembly, packaging, shipping and quality control, 21 were engaged
      in sales, marketing and technical support, and the remaining 12 performed
      accounting, administrative, management information systems, and executive
      functions.




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,
      marketing, support, and overhead costs associated with retailers also tend
      to be
      higher. Our sales to certain countries, including Turkey, Vietnam, and Saudi
      Arabia, are currently handled in each country by a single in-country master
      distributor who handles the support, sales, and most marketing cost within
      that
      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,
      sales
      and marketing costs for their country. Our gross margin for broadband modems
      tends to be lower than for dial-up modems for a number of reasons, including
      that retailers are currently a more significant channel for our dial-up modems
      than for our broadband modems, that a higher percentage of our DSL sales come
      from low-margin countries, and that there is stronger competition in the
      broadband market than in the dial-up market.




In
      the
      third quarter of 2007 our net sales were up 56% compared to the third quarter
      of
      2006. The main reason for the sales increase was increased shelf space for
      our
      products in major retailers including Best Buy in the U.S. and DSG in the U.K.
      We are also seeing growth in some areas, including DSL sales to U.S. Internet
      Service Providers and to U.S. and U.K. retailers. We are continuing our efforts
      to expand our DSL customer base and product line. Because of our significant
      customer concentration, however, 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.




9




On
      July
      26, 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. The Company accounts
      for its investment in Unity at cost. The investment will be reviewed
      periodically for potential impairment.




Our
      cash
      and cash equivalents balance at September 30, 2007 was $3.7 million, down from
      $7.8 million at December 31, 2006. This reduction was due primarily to our
      $2.7
      million loss and our $1.2 million investment, including $0.1 million of
      transaction costs, in Unity Business Systems.




**Critical
      Accounting Policies and Estimates**




Following
      is a discussion of 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.
      Material differences could result in the amount and timing of our net sales,
      costs, and expenses for any period if we made different judgments or used
      different estimates.




**Revenue
      (Net Sales) Recognition.** We
      primarily sell hardware products to our customers. The hardware products include
      dial-up modems, DSL modems, cable modems, voice over IP products, embedded
      modems, ISDN modems, telephone dialers, 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,




·
            computer
                product distributors,




·
            Internet
                service providers, and




·
            original
                equipment manufacturers (OEMs)




We
      recognize hardware net sales to our customers at the point when the customers
      take legal ownership of the delivered products. Legal ownership passes from
      us
      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
      2007
      VoIP service revenues are recorded as the end-user-customer consumes billable
      VoIP services. The end-user-customer becomes a service customer by electing
      to
      sign up for the Global Village billable service on the Internet. We record
      revenue as billable services are consumed or monthly when flat-fee services
      are
      billed.




10




**Product
      Returns** .
      Products are returned by retail stores and distributors for inventory balancing,
      contractual stock rotation privileges, and warranty repair or replacements.
      We
      estimate the sales and cost value of expected future product returns of
      previously sold products. Our estimates for product returns are based on recent
      historical trends plus estimates for returns prompted by, among other things,
      new product introductions, announced stock rotations and announced customer
      store closings, etc. Our management reviews historical returns, current economic
      trends, and changes in customer demand and acceptance of our products when
      estimating sales return allowances. The estimate for future returns is recorded
      as a reserve against accounts receivable, a reduction of net sales, and the
      corresponding change to inventory and cost of sales. The relationship of
      quarterly physical product returns to quarterly product sales remained
      relatively stable for many years, ranging from a high of 10.6% to a low of
      5.4%
      in the past two years. Product returns as a percentage of total product sales
      were 10.1% in the first nine months of 2007.




**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 an allowance against
      accounts receivable. Reductions in our net sales due to price protection were
      $0.2 million in 2005 and $0.1 million in 2006. In the first nine months of
      2007
      the reduction in our net sales due to price protection was $0.08
      million.




**Sales
      and Marketing Incentives** .
      Many of
      our retailer customers require sales and marketing support funding, usually
      set
      as a percentage of our sales in their stores. The incentives were reported
      as
      reductions in our net sales and were $1.1 million in 2005 and $1.1 million
      in
      2006. In the first nine months of 2007, the reduction in our net sales due
      to
      sales and marketing incentives was $1.0 million compared to $0.7 million in
      the
      first nine months of 2006.




**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. In the first nine months of 2007 the reduction in our net sales
      due
      to consumer rebates was $0.2 million compared to $0.6 million in the first
      nine
      months of 2006.




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, and consumer rebates. These allowances are reduced as actual credits
      are issued to the customers. Our bad-debt write-offs and expense were not
      significant in either the first nine months of 2006 or 2007.




**Inventory
      Valuation and Cost of Goods Sold.** Inventory is valued on a standard cost basis where the material standards are
      periodically updated for current material pricing. Allowances for obsolete
      inventory are established by our management based on usability reviews performed
      each quarter. Our allowances against the inventory of a particular product
      range
      from 0% to 100%, based on management's estimate of the probability that the
      material will not be consumed or that it will be sold below cost. Our valuation
      process is to compare our cost to the selling prices each quarter, and if the
      selling price of a product is less than the "if completed" cost of our
      inventory, we write-down the inventory on a "lower of cost or market" basis.




**Valuation
      and Impairment of Deferred Tax Assets.** As part
      of the process of preparing our consolidated financial statements we estimate
      our income tax provision. This process involves the estimation of our actual
      current tax together with deferred income taxes on temporary differences between
      the book and tax bases of assets and liabilities and on net operating loss
      and
      tax credit carryovers. We assess the likelihood that our net deferred income
      tax
      assets will be recovered. 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 allowance recorded against our net deferred tax assets. We
      have recorded a 100% valuation allowance against our deferred tax assets. It
      is
      management's estimate that, after considering the entire available objective
      evidence, historical and prospective, with greater weight given to historical
      evidence, it is more likely than not that these assets will not be realized.
      If
      we establish a record of continuing profitability, at some point we will be
      required to reverse the valuation allowance and restore the deferred asset
      value
      to the balance sheet, recording an equal income tax benefit which will increase
      net income in that period(s).




11




On
      December 31, 2006 we had federal net operating loss carry forwards of
      approximately $31,854,000. These federal net operating losses are available
      to
      offset future taxable income, and are due to expire in years ranging from
      2018 to 2025. On December 31, 2006 we had state net operating loss carry
      forwards of approximately $22,253,000. These state net operating losses are
      available to offset future taxable income, and are primarily due to expire
      in
      years ranging from 2007 to 2010.





**Results
      of Operations**




**Summary** .
      Net
      sales were $5.6 million for our third quarter ended September 30, 2007, up
      56%
      from $3.6 million in the third quarter of 2006. From operations, we had a net
      loss of $0.6 million for the third quarter of 2007, compared to a net loss
      of
      $1.8 million in the third quarter of 2006. We had a total net loss of $0.6
      million for the third quarter of 2007, compared to a total net loss of $0.8
      million in the third quarter of 2006. Loss per diluted share improved from
      $0.09
      for the third quarter of 2006 to $0.07 for the third quarter of 2007.




Net
      sales
      were $14.7 million for the nine months ended September 30, 2007, up 9.7% from
      $13.4 million in the first nine months of 2006. From operations, we had a net
      loss of $2.9 million for the third quarter of 2007, compared to a net loss
      of
      $5.1 million in the third quarter of 2006. We had a total net loss of $2.7
      million for the first nine months of 2007, compared to a total net loss of
      $4.1
      million in the first nine months of 2006. Loss per diluted share was $0.29
      for
      the first nine months of 2007 compared to a loss per diluted share of $0.44
      for
      the first nine months of 2006 .




**Net
      Sales** .
      Our net
      sales for the third quarter of 2007 increased 56% from the third quarter of
      2006, primarily due to a 130% increase in DSL modem sales, a 632% increase
      in
      cable modem sales, and a 3% decrease in dial-up modem sales. DSL modem net
      sales
      increased from $1.3 million in the third quarter of 2006 to $3.0 million in
      the
      third quarter of 2007. Cable modem sales increased from $0.1 million net sales
      in the third quarter of 2006 to $1.2 million net sales in the third quarter
      of
      2007. Dial-up modem net sales declined from $2.0 million net sales in the third
      quarter of 2006 to $1.9 million in the third quarter of 2007. Our dial-up modem
      net sales decline was less than the overall market decline. A major reason
      was
      that in the third quarter of 2006 one of our large dial-up modem retailers
      converted to a consignment sales arrangement which resulted in a net sales
      reversal of $0.5 million. The increase in DSL and cable modem net sales was
      primarily a result of increased product placements and sales to our large
      retailer customers.




Our
      net
      sales for the first nine months of 2007 increased 9.7% from the first nine
      months of 2006, primarily due to a 26% increase in DSL modem sales, a 792%
      increase in cable modem sales, and a 12% decrease in dial-up modem sales. DSL
      modem net sales increased to $7.3 million in the first nine months of 2007
      compared to $5.8 million in the first nine months of 2006. Cable modem sales
      increased to $1.2 million in the first nine months of 2007 from $0.1 million
      net
      sales in the first nine months of 2006. Dial-up modem net sales declined from
      $6.5 million in the first nine months of 2006 to $5.7 million in the first
      nine
      months of 2006, primarily resulting from the continued decline of the dial-up
      modem after-market. Zoom has increased its DSL and cable broadband product
      placements at existing and new large retailer customers and sales activity
      has
      grown as a result.




Our
      net
      sales in North America were $3.3 million in the third quarter of 2007, an
      increase of 43% from $2.3 million in the third quarter of 2006. Our net sales
      outside North America were $2.3 million in the third quarter of 2007, an
      increase of 79% from $1.3 million in the third quarter of 2006, primarily due
      to
      our net sales in the U.K. of $1.5 million in the third quarter of 2007 compared
      to $0.7 million in the third quarter of 2006. The increase in sales in North
      America and the U.K. resulted from higher sales through our retailer channel.
      Net sales in Turkey were very low at $0.04 million in the third quarter of
      2007
      and $0.05 million in the third quarter of 2006. Our net sales outside North
      America, Turkey and the U.K. were $0.8 million in the third quarter of 2007,
      an
      increase from $0.6 million in the third quarter of 2006.




Our
      net
      sales in North America were $9.2 million in the first nine months of 2007,
      an
      increase from $7.7 million in the first nine months of 2006, primarily due
      to
      stronger retailer customer sales. Our net sales in Turkey were $0.06 million
      in
      the first nine months of 2007 and $1.1 million in the first nine months of
      2006.
      The main reason for the sales decrease in Turkey was the decline of DSL modem
      sales due to actions by Turkish Telecom to dramatically increase their bundling
      of DSL modems with their service. Our net sales in the U.K. were $3.2 million
      in
      the first nine months of 2007, an increase from $2.5 million in the first nine
      months of 2006 due to stronger retailer sales of DSL modems. Our net sales
      in
      countries outside North America, Turkey and the U.K. were $2.2 million for
      the
      first nine months of 2007 and $2.1 million for the first nine months of 2006.




In
      the
      third quarter of 2007 our net sales to our top three customers accounted for
      50%
      of our total net sales, with our net sales to a United Kingdom/European retailer
      accounting for 23% of total net sales. The remaining 27% was split equally
      between two large electronics retailers in North America. For the first nine
      months of 2007, our net sales to our top three customers accounted for 44%
      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.




12




**Gross
      Profit.** Our
      total
      gross profit was $1.3 million in the third quarter of 2007, an increase from
      $0.2 million in the third quarter of 2006. Our gross margin percent of net
      sales
      increased to 23.2% in the third quarter of 2007 from 6.7% in the third quarter
      of 2006. Gross margins were higher in the third quarter of 2007 primarily due
      to
      the move of our Boston final assembly operation to Tijuana, Mexico, which
      lowered manufacturing personnel, space, and occupancy costs compared to the
      third quarter of 2006. Sales of products that were written off as obsolete
      in
      prior periods contributed $0.2 million to the improvement in gross
      margins.




Our
      total
      gross profit was $2.9 million in the first nine months of 2007, an improvement
      from the $1.4 million recorded in the first nine months of 2006. Our gross
      margin percent of net sales increased to 19.6% in the first nine months of
      2007
      from the 10.7% recorded in the first nine months of 2006. Gross margins were
      higher primarily due to lower manufacturing expense as a result of the transfer
      of our production operation from Boston to Mexico in the third quarter of
      2006.




**Selling
      Expense.** Selling
      expense increased to $1.0 million for the third quarter of 2007 from $0.8
      million in the third quarter of 2006. Selling expense as a percentage of net
      sales was 17.5% in the third quarter of 2007 and 21.8% of net sales in the
      third
      quarter of 2006. The dollar increase in selling expense was primarily due to
      increased variable selling costs of freight, warehousing and commissions to
      support the sales increase, partially offset by the reduction of other personnel
      costs.




Selling
      expense increased to $2.8 million for the first nine months of 2007 from $2.6
      million in the first nine months of 2006. Selling expense as a percentage of
      net
      sales was 18.7% in the first nine months of 2007 and 19.2% of net sales in
      the
      first nine months of 2006. The dollar increase was primarily due to increased
      variable selling costs of freight, warehousing and commissions, to support
      the
      sales increase, partially offset by the reduction of other personnel
      costs.




**General
      and Administrative Expense.** General
      and administrative expense was $0.6 million or 11.1% of net sales in the third
      quarter of 2007 compared to $0.7 million or 19.3% of net sales in the third
      quarter of 2006. The dollar reduction was primarily the result of reduced
      personnel and legal expense.




General
      and administrative expense was $1.9 million or 12.7% of net sales in the first
      nine months of 2007 compared to $2.2 million or 16.7% of net sales in the first
      nine months of 2006. The dollar reduction was primarily the result of reduced
      personnel and legal expense.




**Research
      and Development Expense.** Research
      and development expense decreased $0.1 million to $0.4 million or 7.8% of net
      sales in the third quarter of 2007 from $0.5 million or 14.5% of net sales
      in
      the third quarter of 2006. Research and development costs decreased primarily
      as
      a result of lower personnel costs due to headcount reductions. Development
      and
      support continues on all of our major product lines with particular emphasis
      on
      DSL products, VoIP products and service, and wireless products




Research
      and development expense decreased $0.3 million to $1.4 million or 9.6% of net
      sales in the first nine months of 2007 from $1.7 million or 12.8% of net sales
      in the first nine months of 2006. Research and development costs decreased
      primarily as a result of lower personnel costs due to headcount reductions.




**Gain
      on sale of real estate.** In
      December 2006 we sold our headquarters building in Boston and agreed to
      lease-back some of the office space. This lease-back arrangement resulted in
      a
      gain of which a portion ($0.725 million) was deferred. The deferred portion
      of
      the gain is being recognized over the lease-back term at $0.096 million per
      quarter. The gain will be fully recognized by year-end 2007. We recognized
      $0.096 million on this deferred gain in the third quarters of 2007.




**Total
      Other Income (Expense), Net.** Other
      income (expense), net was income, net of $0.03 million in the third quarter
      of
      2007, primarily from interest income, compared to income, net of $0.92 million,
      a portion of Zoom’s gain from the sale of its investment in Intermute and
      interest income.




Total
      other income (expense), net was income, net of $0.16 million in the first nine
      months of 2007, primarily from interest income, compared to income, net of
      $1.02
      million, a portion of Zoom’s gain from the sale of its investment in Intermute
      and interest income.




**Income
      Tax Expense (Benefit).** We
      did
      not record any tax expense in the first, second, or third quarter of 2007 or
      the
      first, second, or third quarter of 2006. The net deferred tax asset balance
      at
      September 30, 2007 was zero. This accounting treatment is described in further
      detail under the caption **Critical
      Accounting Policies and Estimates** above.





13




**Liquidity
      and Capital Resources**




On
      September 30, 2007 we had working capital of $8.6 million, with $3.7 million
      of
      cash and a current ratio of 3.6. On December 31, 2006 we had $7.8 million of
      cash. In the first nine months of 2007 our cash declined by $4.2 million, with
      $3.0 million by operating activities and $1.2 million used by investing
      activities. Our use of cash from operating activities included a net loss of
      $2.7 million, the amortization of our deferred gain on sale of real estate
      of
      $0.3 million, an increase in accounts receivable of $0.2 million, and a decrease
      in accounts payable and accrued expense of $0.3 million. Sources of cash from
      operating activities were a decrease of inventory of $0.2 million and stock
      based compensation of $0.2 million. The use of cash from investing
      activities  was
      due
      to Zoom’s Q3 2007 $1.2 million investment in Unity Business Systems, which
      included $0.1 million of Unity transaction costs. Shareholder equity on
      September 30, 2007 was $9.85 million, over $1 per share. Zoom has no long-term
      debt.





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 79 at September 30, 2006 and 65 at September 30,
      2007. The manufacturing personnel in Mexico are not Zoom employees but the
      transfer of our manufacturing operations to Mexico has significantly reduced
      the
      labor and overhead portion of the cost of our products. We plan to continue
      to
      assess our cost structure as it relates to our revenues and cash position going
      forward, and we may make further reductions if the actions are deemed necessary.




On
      July
      26, 2007 Zoom 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 Zoom’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 Zoom. In addition, Zoom 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. Zoom’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. Zoom is unable to exercise significant influence over Unity’s policies or
      operations. Zoom accounts for its investment in Unity at cost. The investment
      will be reviewed periodically for potential impairment.




The
      Company's total current assets at September 30, 2007 were $11.8 million,
      including $3.7 million of cash, and total current liabilities were $3.3 million.
      The Company did not have any long-term debt at September 30, 2007.




Management
      believes it has sufficient resources to fund its planned operations through
      at
      least September 30, 2008. 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, Zoom’s Annual Report on Form 10-K for the
      year ended December 31, 2006 and Zoom’s other filings with the SEC, for further
      information with respect to events and uncertainties that could harm our
      business, operating results, and financial condition.





**Commitments:**





Other
      than as discussed above, during the nine months ended September 30, 2007, there
      were no material changes to our capital commitments and contractual obligations
      from those disclosed in the Form 10-K for the year ended December 31, 2006.





**"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.*




14




*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.*





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





We
      own
      financial instruments that are sensitive to market risks as part of our
      investment portfolio. The investment portfolio is used to preserve our capital
      until it is required to fund operations, including our research and development
      activities. None of these market-risk sensitive instruments are held for trading
      purposes. We do not own derivative financial instruments in our investment
      portfolio. The investment portfolio contains instruments that are subject to
      the
      risk of a decline in interest rates. Investment Rate Risk - Our investment
      portfolio consists entirely of money market funds, which are subject to interest
      rate risk. Due to the short duration and conservative nature of these
      instruments, we do not believe that it has a material exposure to interest
      rate
      risk.





**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
      September 30, 2007 we carried out an evaluation, under the supervision and
      with
      the participation of our management, including our Chief Executive Officer
      and
      Chief Financial Officer, of the effectiveness of the design and operation of
      our
      disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
      under the Securities Exchange Act of 1934. Based upon that evaluation, our
      Chief
      Executive Officer and Chief Financial Officer concluded that our disclosure
      controls and procedures are effective in enabling us to record, process,
      summarize and report information required to be included in our periodic SEC
      filings within the required time period.


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





**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. 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.





15





**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.




We
      currently sell products for all these forms of Internet access. 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.





**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
      the
      third quarter of 2007 net sales to our top three customers accounted for 50%
      of
      our total net sales. In the third quarter of 2006 net sales to our top three
      customers accounted for 38% of our total net sales. Our customers generally
      do
      not enter into long-term agreements obligating them to purchase our products.
      We
      may not continue to receive significant revenues from any of these or from
      other
      large customers. 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.





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





We
      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.





16




**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
      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.





**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 U.S.;




·
            the
                significant bargaining power of these large volume purchasers;




17




·
            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 assure that
      we
      will be able to successfully penetrate these markets.





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




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




·
            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.





**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 2006 sales outside North America
      were 44% of our net sales. In the third quarter of 2007 sales outside North
      America were 42% of our total 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;




18




·
            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;




·
            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;




19




·
            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.





**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.





20




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.




**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 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.





**ITEM
      6. EXHIBITS**


**Exhibit
                No.**
            
            **Exhibit
                Description**31.1
            
            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.


21




**ZOOM
      TECHNOLOGIES, INC. AND SUBSIDIARY**




**SIGNATURES**




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




**ZOOM
                  TECHNOLOGIES, INC.**
                **(Registrant)****Date:
                  November 13, 2007**
              **By:**
              **/s/
                  Frank B. Manning****Frank
                  B. Manning, President****Date:
                  November 13, 2007**
              **By:**
              **/s/
                  Robert Crist****Robert
                  Crist, Vice President of Finance and Chief Financial Officer (Principal
                  Financial and Accounting
                  Officer)**




22




**EXHIBIT
      INDEX**


**Exhibit
                  No.**
              
              **Exhibit
                  Description**31.1
              
              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