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

                                    FORM 10-Q

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

                  For the quarterly period ended March 31, 2005

                                       or

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

         For the transition period from ______________ to ______________

                         Commission File Number 0-18672

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

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

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

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

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

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

The number of shares  outstanding  of the  registrant's  Common Stock,  $.01 Par
Value, as of May 11, 2005, was 9,080,091 shares.

<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                                      INDEX

Part I. Financial Information                                              Page

  Item 1.      Consolidated Balance Sheets as of March 31, 2005
                      and December 31, 2004 (unaudited)                     3

               Consolidated Statements of Operations for the three months
                      ended  March 31, 2005 and 2004 (unaudited)            4

               Consolidated Statements of Cash Flows for the three
                      months ended March 31, 2005 and 2004 (unaudited)      5

               Notes to Consolidated Financial Statements                   6-10

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

  Item 3.      Quantitative and Qualitative Disclosures About Market
                      Risk                                                   22

  Item 4.      Controls and Procedures                                     22-23

Part II. Other Information

  Item 6.      Exhibits                                                      23

               Signatures                                                    24

               Exhibit Index                                                 25


<PAGE>


PART I - FINANCIAL INFORMATION


                              ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                                     Consolidated Balance Sheets
                                               (unaudited)
<TABLE>
<CAPTION>
                                                                March 31, 2005   December 31, 2004
                                                                --------------   -----------------
<S>                                                                           <C>              <C>
   Assets

Current assets:
    Cash and cash equivalents                                                 $   7,607,957    $   9,438,596
    Accounts receivable, net of reserves for doubtful
       accounts, returns, and allowances of $1,366,518 at
       March 31, 2005 and $1,359,455 at December 31, 2004                         2,674,323        3,349,781
    Inventories                                                                   6,245,027        5,030,478
    Prepaid expenses and other current assets                                       302,876          529,989
                                                                                 ----------       ----------
             Total current assets                                                16,830,183       18,348,844

    Property, plant and equipment, net                                            2,640,329        2,703,208
                                                                                 ----------       ----------
             Total assets                                                     $  19,470,512    $  21,052,052
                                                                                 ==========       ==========

   Liabilities and Stockholders' Equity

Current liabilities:
    Current portion of long-term debt                                         $   5,050,262    $     229,555
    Accounts payable                                                              1,841,891        2,006,819
    Accrued expenses                                                              1,145,478        1,275,088
                                                                                 ----------       ----------
             Total current liabilities                                            8,037,631        3,511,462

Long-term debt, less current portion                                                      -        4,872,298
                                                                                 ----------       ----------
             Total liabilities                                                    8,037,631        8,383,760
                                                                                 ----------       ----------
Stockholders' equity:
  Common stock, $0.01 par value. Authorized 25,000,000 shares; issued 9,032,391
    shares, outstanding 9,023,991 at March 31, 2005 and issued 8,935,516 shares,
    outstanding 8,927,116 at December 31, 2004                                       90,324           89,355
  Additional paid-in capital                                                     30,676,495       30,572,727
  Retained earnings (accumulated deficit)                                       (19,814,732)     (18,510,181)
  Accumulated other comprehensive income (loss)                                     488,116          523,713
  Treasury stock, at cost                                                            (7,322)          (7,322)
                                                                                 ----------       ----------
             Total stockholders' equity                                          11,432,881       12,668,292
                                                                                 ----------       ----------
             Total liabilities and stockholders' equity                       $  19,470,512    $  21,052,052
                                                                                 ==========       ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.


<PAGE>
                         ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                          Consolidated Statements of Operations
                                       (Unaudited)
<TABLE>
<CAPTION>
                                                                    Three Months Ended
                                                                          March 31,
                                                               -----------------------------
                                                                    2005            2004
                                                                    ----            ----
<S>                                                             <C>             <C>
Net sales                                                       $  6,436,543    $  7,791,605
Costs of goods sold                                                4,904,354       5,479,549
                                                                ------------    ------------
                      Gross profit                                 1,532,189       2,312,056

Operating expenses:
         Selling                                                   1,120,090       1,225,977
         General and administrative                                  822,456         953,332
         Research and development                                    749,298         678,219
                                                                ------------    ------------
                      Total operating expenses                     2,691,844       2,857,528
                                                                ------------    ------------
                      Operating income (loss)                     (1,159,655)       (545,472)

Other income (expense):
         Interest income                                              46,981          24,182
         Interest (expense)                                          (65,783)        (52,648)
         Other, net                                                 (126,094)         16,376
                                                                ------------    ------------
                      Total other income (expense), net             (144,896)        (12,090)
                                                                ------------    ------------
                      Income (loss) before income tax
                        expense                                   (1,304,551)       (557,562)

Income tax expense (benefit)                                               -               -
                                                                ------------    ------------

                      Net income (loss)                         $ (1,304,551)   $   (557,562)
                                                                ============    ============
Earnings (loss) per common share:

                      Basic                                     $      (0.15)   $      (0.07)
                                                                ============    ============
                      Diluted                                   $      (0.15)   $      (0.07)
                                                                ============    ============

Weighted average common and common equivalent shares

                      Basic                                        8,967,122       8,136,012
                                                                ============    ============
                      Diluted                                      8,967,122       8,136,012
                                                                ============    ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.

<PAGE>

                             ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                              Consolidated Statements of Cash Flows
                                           (Unaudited)
<TABLE>
<CAPTION>
                                                                         Three Months Ended
                                                                               March 31,
                                                                       2005               2004
                                                                -----------------------------------
<S>                                                             <C>                  <C>
Cash flows from operating activities:
    Net income (loss)                                           $  (1,304,551)       $   (557,562)
    Adjustments to reconcile net income (loss) to net cash
      provided by (used in) operating activities:
      Depreciation                                                     85,556             116,721
      Changes in operating assets and liabilities:
        Accounts receivable, net                                      635,475             (24,938)
        Inventories                                                (1,214,549)           (796,786)
        Prepaid expenses and other assets                             227,113             (24,411)
        Accounts payable and accrued expenses                        (294,538)            (58,129)
                                                                   ----------          ----------
           Net cash provided by (used in) operating activities     (1,865,494)         (1,345,105)
                                                                   ----------          ----------
Cash flows from investing activities:
Additions to property, plant and equipment                            (22,677)            (26,176)
                                                                   ----------          ----------
           Net cash provided by (used in) investing activities        (22,677)            (26,176)
                                                                   ----------          ----------
Cash flows from financing activities:
    Principal payments on long-term debt                              (51,591)            (54,544)
    Proceeds from exercise of stock options                           104,737             570,204
                                                                   ----------          ----------
           Net cash provided by (used in) financing activities         53,146             515,660
                                                                   ----------          ----------
Effect of exchange rate changes on cash                                 4,386                 179
                                                                   ----------          ----------
Net increase (decrease) in cash                                    (1,830,639)           (855,442)

Cash beginning of period                                            9,438,596           9,904,384
                                                                   ----------           ---------
Cash end of period                                              $   7,607,957       $   9,048,942
                                                                   ==========           =========
Supplemental disclosures of cash flow information:

    Cash paid during the period for:
    Interest                                                    $      65,783       $      52,648
                                                                   ==========           =========
    Income taxes                                                $           -       $           -
                                                                   ==========           =========
</TABLE>
   See accompanying notes to unaudited consolidated financial statements.


<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

(1)  Summary of Significant Accounting Policies

     (a) Basis of Presentation and Principles of Consolidation

     The  consolidated  financial  statements  of Zoom  Technologies,  Inc. (the
"Company")  presented  herein  have been  prepared  pursuant to the rules of the
Securities and Exchange Commission for quarterly reports on Form 10-Q and do not
include all of the information and footnote  disclosures  required by accounting
principles generally accepted in the United States of America.  These statements
should be read in conjunction with the audited consolidated financial statements
and notes thereto for the year ended December 31, 2004 included in the Company's
2004 Annual Report on Form 10-K.

     The  consolidated  balance  sheet as of March 31,  2005,  the  consolidated
statements of operations for the three months ended March 31, 2005 and 2004, and
the  consolidated  statements of cash flows for the three months ended March 31,
2005 and 2004 are  unaudited,  but,  in the opinion of  management,  include all
adjustments  (consisting of normal,  recurring adjustments) necessary for a fair
presentation of results for these interim periods.

     The consolidated  financial  statements include the accounts and operations
of the Company's  wholly-owned  subsidiary,  Zoom Telephonics,  Inc., a Delaware
corporation.  All significant  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 ending December 31,
2005.

(b)  Stock-Based Compensation

     The Company  accounts for its stock option plans under the  recognition and
measurement  principles  of  Accounting  Principles  Board (APB) Opinion No. 25,
"Accounting  for Stock Issued to  Employees,  and Related  Interpretations."  No
stock-based  compensation  expense is reflected  in net income  (loss) for these
plans,  as all options  granted under these plans had an exercise price equal to
the  market  value of the  underlying  common  stock on the date of  grant.  The
following  table  illustrates  the  effect on net loss and loss per share if the
Company  had  applied  the  fair  value  recognition   provisions  of  Financial
Accounting Standards Board (FASB) Statement No. 123, "Accounting for Stock Based
Compensation", to stock based compensation:
                                                    Three Months
                                                   Ended March 31,
                                            ---------------------------
                                                 2005          2004
                                            ------------   ------------
Net income (loss), as reported.........     $ (1,304,551)  $   (557,562)
Deduct:  Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects.............          (89,566)      (173,868)
                                            ------------   ------------
Pro forma net income (loss)............       (1,394,117)  $   (731,430)
                                            ============   ============
Income (loss) per share:
Basic and diluted - as reported........     $      (0.15)  $      (0.07)
Basic and diluted - pro forma..........     $      (0.16)  $      (0.09)

(c)  Recently Issued or Proposed Accounting Pronouncements

     In December 2004 the FASB issued SFAS No. 123 (revised 2004),  "Share-Based
Payment" ("SFAS 123R"), which replaces SFAS No. 123, "Accounting for Stock-Based
Compensation,"  ("SFAS 123") and supersedes APB Opinion No. 25,  "Accounting for
Stock Issued to Employees."  All  share-based  payments to employees,  including
grants of employee stock options, must be recognized in the financial statements
based on their fair values  beginning  with the first  annual  period  beginning
after June 15, 2005, with early adoption  encouraged.  The pro forma disclosures
previously  permitted  under  SFAS  123 no  longer  will  be an  alternative  to
financial statement  recognition.  The Company is required to adopt SFAS 123R in
the first  quarter of 2006,  beginning  January 1,  2006.  Under SFAS 123R,  the
Company must determine the appropriate fair value model and related  assumptions
to be used  for  valuing  share-based  payments,  the  amortization  method  for
compensation cost and the transition method to be used at date of adoption.  The
transition  methods  include  modified  prospective  and modified  retrospective
adoption options.  Under the modified retrospective option, prior periods may be
restated  either as of the  beginning of the year of adoption or for all periods
presented.  The modified  prospective method requires that compensation  expense
starts being  recorded for all unvested  stock  options at the  beginning of the
first quarter of adoption of SFAS 123R, while the modified  retrospective method
would record compensation  expense for all unvested stock options beginning with
the first period restated.  Zoom is evaluating the requirements of SFAS 123R and
expects  that the  adoption  of SFAS  123R will  have a  material  impact on its
consolidated results of operations and earnings per share.

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

(2)  Liquidity; Revolving Line of Credit

     On  March  31,  2005 the  Company  had  working  capital  of $8.8  million,
including $7.6 million in cash and cash equivalents.

     On March 16, 2005 Zoom Telephonics,  Inc., a wholly owned subsidiary of the
Company,  entered into a Loan and Security  Agreement  with Silicon  Valley Bank
that provides for a revolving line of credit of up to $2 million.  The revolving
line of credit  can be used to (i)  borrow  under  revolving  loans for  working
capital and general  corporate  purposes,  (ii) issue  letters of credit,  (iii)
enter into foreign  exchange  forward  contracts,  and (iv) support certain cash
management  services.  Revolving  loans will bear interest at a floating rate of
interest  equal to Silicon  Valley  Bank's  prime rate plus 1%. The loan rate at
March 31, 2005 was 6.75%.  This interest rate will be reduced to Silicon  Valley
Bank's prime rate plus .5% if the Company  records two  consecutive  quarters of
combined  profitability.  The  revolving  line  of  credit  terminates,  and all
outstanding  obligations under the Loan and Security  Agreement  become,  due on
March 15, 2006.

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

     The Loan and Security  Agreement  contains  events of default that include,
among other things,  non-payment  of principal,  interest or fees,  violation of
covenants,  inaccuracy  of  representations  and  warranties,  cross  default to
certain other indebtedness, bankruptcy and insolvency events, change of control,
and material judgments.  Upon occurrence of an event of default,  Silicon Valley
Bank is entitled to, among other  things,  accelerate  all of Zoom  Telephonics'
obligations  and sell its  assets  to  satisfy  obligations  under  the Loan and
Security  Agreement.  The Company's  current  availability  under the line is $2
million.  As of March 31, 2005 no amounts were  outstanding  under the revolving
line of credit and the Company was in compliance with all covenants.

     To  conserve  cash and manage  liquidity  during  the past few  years,  the
Company has implemented expense reductions,  including the reduction of employee
headcount  and overhead  costs.  The employee  headcount was 185 at December 31,
2002 and 143 at March 31,  2005.  The Company  will  continue to assess its cost
structure  as it relates to its  revenues  and cash  position  in 2005,  and the
Company may make further cost reductions if the actions are deemed necessary.

     Management believes the Company has sufficient resources to fund its normal
operations through March 31, 2006. However, if the Company is unable to increase
its revenues,  reduce or otherwise  adequately  control its  expenses,  or raise
capital,  the Company's  longer-term  ability to continue as a going concern and
achieve its intended business objectives could be adversely affected.  Moreover,
the Company's  liquidity  could be  significantly  impaired if it is not able to
either  refinance  the mortgage or sell the  buildings on or before the maturity
date of the mortgage in January  2006.  See "Risk  Factors"  below,  for further
information  with  respect  to events  and  uncertainties  that  could  harm the
Company's business, operating results, and financial condition.

(3) Earnings Per Share

     The  reconciliation  of the  numerators and  denominators  of the basic and
diluted net earnings (loss) per share  computations  for the Company's  reported
net income (loss) is as follows:
                                         Three Months Ended
                                              March 31,
                                    -----------------------------
                                        2005               2004
                                    -----------       -----------
Basic:
   Net income (loss)                $(1,304,551)      $  (557,562)
Weighted average shares
   outstanding                        8,967,122         8,136,012
                                    -----------       -----------
Net income (loss) per share         $      (.15)      $      (.07)
                                    ===========       ===========
Diluted:
    Net income (loss)               $(1,304,551)      $  (557,562)

Weighted average shares
   outstanding                        8,967,122         8,136,012

Net effect of dilutive stock
   options based on the
   Treasury stock method using
   average market price                       -                 -
                                    -----------       -----------
Weighted average shares
   outstanding                        8,967,122         8,136,012
                                    -----------       -----------
Net income (loss) per share         $      (.15)      $      (.07)
                                    ===========       ===========

     Potential  common  shares  for which  inclusion  would  have the  effect of
increasing diluted earnings per share (i.e., antidilutive) are excluded from the
computation  for the three  months  ended  March 31,  2005 and 2004.  Options to
purchase 984,200 and 1,518,000 shares of common stock at March 31, 2005 and 2004
respectively,  were  outstanding  but not included in the computation of diluted
earnings per share as their effect would be antidilutive.

(4)   Inventories
<TABLE>
<CAPTION>
      Inventories consist of the following:               March 31, 2005        December 31, 2004
                                                          --------------        -----------------
<S>                                                       <C>                     <C>
      Raw materials                                       $   3,187,875           $  2,595,730
      Work in process                                         1,295,617                920,075
      Finished goods                                          1,761,535              1,514,673
                                                             ----------             ----------
      Total Inventories                                   $   6,245,027           $  5,030,478
                                                             ==========             ==========
</TABLE>
(5) Comprehensive Income (Loss)

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

 The components of comprehensive income (loss), net of tax, are as follows:
<PAGE>

                                          Three Months Ended March 31,
                                          ------------------------------
                                              2005                2004
                                          -----------        -----------
 Net income (loss)                        $(1,304,551)       $  (557,562)

 Foreign currency translation
   adjustment                                 (35,597)           112,196
                                          -----------        -----------
 Comprehensive income (loss)              $(1,340,148)       $  (445,366)
                                          ===========        ===========

     At March 31, 2005 and December 31, 2004,  Accumulated  other  comprehensive
income (loss) as reported on the Company's  balance sheet is comprised solely of
foreign currency translation adjustments.

(6)  Long-Term Debt

     On January  10, 2001 the  Company  obtained a mortgage  loan for $6 million
secured by the real estate property located at 201 and 207 South Street, Boston,
Massachusetts.  This is a 20-year  direct  reduction  mortgage  with a five-year
balloon due January 10, 2006. The interest rate is fixed for one year,  based on
the one year  Federal  Home Loan Bank  rate  plus 2.5 % per  annum.  In 2004 the
interest rate was 3.99%. As of January 10, 2005 the rate of interest  changed to
5.80%. Recently the Company renegotiated the rate to 5.0% effective February 10,
2005. As of March 31, 2005 $5.1 million was  outstanding on this loan,  which is
due and payable on January 10,  2006.  Because the  mortgage  loan is due within
twelve  months,  the  obligation  has been  reclassified  from a long-term  to a
current liability at March 31, 2005.

(7)  Commitments

     During the three month period ended March 31, 2005,  other than the line of
credit discussed in Note 2 above,  there were no material changes to the capital
commitments and  contractual  obligations of the Company from those disclosed in
the Form 10-K for the year ended December 31, 2004.

(8)  Segment and Geographic Information

     The Company's  operations are classified into one reportable  segment.  The
Company's United States and  international  net sales for the three months ended
March 31, 2005 and 2004, respectively, were comprised as follows:

                              Three Months              Three Months
                                  Ended         % of        Ended           % of
                             March 31, 2005     Total   March 31, 2004     Total

North America                   $ 2,580,145      40%       $ 3,779,156       49%
International-Turkey              1,521,737      24%           658,926        8%
International-UK                  1,288,356      20%         2,477,000       32%
International-All Other           1,046,305      16%           876,523       11%
                                -----------     ----       -----------      ----
Total                           $ 6,436,543     100%       $ 7,791,605      100%
                                ===========     ====       ===========      ====

(9)  Customer Concentrations

     Relatively few customers  have  accounted for a substantial  portion of the
Company's net sales.  In the first  quarter of 2005,  the Company's net sales to
its top three  customers  accounted  for 42% of its total  net  sales,  with the
Company's sales to its Turkish distributor,  Olusum, accounting for 24% of total
net sales.  The remaining 18% was divided fairly  equally  between the other two
customers,  both with less than a 10% share. In 2004, the Company's net sales to
each of three companies - Olusum (our  distributor in Turkey),  the Dixons Group
(Dixons,  Currys,  PC World, and PC City), and Staples - constituted over 10% of
its net sales;  and  together  these three  customers  accounted  for 35% of the
Company's total net sales. The Company's  customers  generally do not enter into
long-term agreements  obligating them to purchase our 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.

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

     The following  discussion and analysis  should be read in conjunction  with
the safe harbor statement and the risk factors contained herein and set forth in
our Annual  Report on Form 10-K for the year ended  December 31,  2004.  Readers
should  also be  cautioned  that  results of any  reported  period are often not
indicative of results for any future period.

OVERVIEW

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

     Historically  we  derived  a  majority  of our net  sales  from the  retail
after-market  sale of dial-up  modems to  customers  seeking to add or upgrade a
modem in their personal  computers.  In recent years the size of this market and
our sales to this market have declined, as personal computer  manufacturers have
incorporated a modem as a built-in component in most consumer personal computers
and as  increasing  numbers of consumers  world-wide  have switched to broadband
Internet access.  The general consensus of  communications  industry analysts is
that  after-market  sales of dial-up  modems will continue to decline.  There is
also consensus  among industry  analysts that the market for broadband  Internet
connection  devices,  such as cable  modems and DSL  modems,  will grow  rapidly
during the decade.  In response to increased  and  forecasted  demand for faster
connection  speeds and  increased  modem  functionality,  we have  invested  and
continue to invest  resources to advance our product  line of broadband  modems,
especially DSL modems,  and we have experienced  increased sales of these modems
that have  partially  offset our  declining  sales of dial-up  modems.  The last
quarter of 2004 and the first  quarter of 2005 were the first  quarters in which
our broadband modem revenues were higher than our dial-up modem revenues.

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

     In recent years we have  realized the benefit of reduced unit costs for our
dial-up  modems.  A portion  of the cost  reduction  realized  in our  financial
statements  has been derived from  purchase  discount  programs with our chipset
suppliers. From the first quarter of 2002 through the fourth quarter of 2004, we
realized  significant  benefits as a result of our volume  purchases under these
programs.  These initial  programs and their financial  benefits  expired during
2004, and in late 2004 we negotiated the award of free chipsets  relating to the
purchase of some types of modem chipsets for 2005 if we achieve certain purchase
targets.

     Over the past several years our net sales have declined. In response to the
declining sales volume,  we have engaged in cost-cutting  initiatives which have
included  reducing  staffing and overhead costs. On December 31, 2001, our total
headcount of full-time  employees,  including temporary workers,  was 215, which
was reduced to 185, 159, and 154 at year-end 2002, 2003, and 2004, respectively.
As of March 31, 2005, our employee headcount was 143.

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

     In the first quarter of 2005 and the fourth quarter of 2004,  respectively,
our net sales for the quarter  were down 17.4% and 8.4% over the same quarter in
the prior  year.  The main reason for this  decrease  was the decline in dial-up
modem  sales  which more than  offset our  growth in DSL modem  sales.  While we
remain optimistic about continued growth of the DSL modem market,  our DSL sales
are currently  concentrated  with a small number of customers,  and this reduces
the  predictability of our results.  We are continuing our efforts to expand our
DSL customer  base and to use our strength in DSL to expand our DSL product line
and  enter  new  markets.  One  new  product  introduced  in  September  of 2004
incorporates  VoIP  capability into a DSL modem. We also introduced our own VoIP
service called Global  Village(TM)  to offer free IP-to-IP  service and low-cost
calling to virtually anyone worldwide.

     Our cash and cash  equivalents  balance at March 31, 2005 was $7.6 million,
down from $9.4 million at December 31, 2004.  Most of this change  resulted from
our $1.3 million  operating loss and a $1.2 million increase in inventory due to
the re-scheduling of customer orders into the second quarter of 2005.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

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

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

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

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

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

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

     Price Protection  Refunds. We have a policy of offering price protection to
certain  of our  retailer  and  distributor  customers  for  some  or all  their
inventory.  Under the price protection policies, when we reduce our prices for a
product,  the customer receives a credit for the difference between the original
purchase price and our reduced price for their unsold inventory of that product.
Our estimates for price protection refunds are based on a detailed understanding
and  tracking by  customer  and by sales  program.  Estimated  price  protection
refunds are recorded in the same period as the announcement of a pricing change.
Information   from   customer   inventory-on-hand   reports   or   from   direct
communications  with the  customers  is used to estimate  the  refund,  which is
recorded as a reduction of net sales and a reserve against accounts  receivable.
Reductions  in our net sales due to price  protection  were $.7 million in 2002,
$.2  million in 2003,  and $.1 million in 2004.  In the quarter  ended March 31,
2005, Zoom's recorded price protection was $.05 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 primarily  reported as reductions in our net
sales and were $1.7 million in 2002,  $1.5 million in 2003,  and $1.3 million in
2004. In the quarter ended March 31, 2005,  Zoom's net sales were reduced by $.3
million due to sales and marketing  support  funding.  The  declining  trend was
primarily due to lower retailer sales.

     Consumer Mail-In and In-Store Rebates and Store Rebates.  Our estimates for
consumer mail-in rebates are based on a detailed  understanding  and tracking by
customer and sales program,  supported by actual rebate claims  processed by the
rebate redemption  centers plus an accrual for an estimated lag in processing at
the redemption centers.  Our estimates for store rebates are comprised of actual
credit requests from the eligible customers.  The estimate for mail-in and store
rebates is recorded as a reserve against accounts  receivable and a reduction of
net  sales  in the  same  period  that  the  rebate  obligation  was  triggered.
Reductions  in our net sales due to the  consumer  rebates  were $1.6 million in
2002, $2.1 million in 2003, and $1.4 million in 2004. In the quarter ended March
31,  2005,  Zoom's  recorded  consumer and store  rebates were $.3 million.  The
declining trend was primarily due to lower retailer sales.

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

     ACCOUNTS  RECEIVABLE  VALUATION.  We establish accounts receivable reserves
equal to the  above-discussed  net sales  adjustments  for  estimates of product
returns,  price  protection  refunds,  and  consumer  and store  rebates.  These
reserves are drawn down as actual credits are issued to the customer's accounts.
Over the past several years, our bad-debt write-offs have not been significant.

     INVENTORY  VALUATION  AND COST OF GOODS  SOLD.  Inventory  is  valued  on a
standard cost basis where the material  standards are  periodically  updated for
current  material  pricing.  Reserves for obsolete  inventory are established by
management  based on usability  reviews  performed  each  quarter.  Our reserves
against the inventory of a particular  product  range from 0% to 100%,  based on
management's  estimate of the probability that the material will not be consumed
or that it will be sold below cost. Our valuation process is to compare our cost
to the selling  prices each  quarter,  and if the selling  price of a product is
less than the "if completed" cost of our inventory,  we write-down the inventory
on a "lower of cost or market"  basis.  In 2002 and 2003,  we  recorded  charges
against  inventory  of $.7 million and $.3 million  respectively  as a result of
lower of cost or market  valuation  issues.  No charges  against  inventory were
recorded in 2004 or the quarter ended March 31, 2005.

     During the last three years we  benefited  from  various  component  supply
arrangements that provided us with free products based on the amount of goods we
purchased from the supplier. The favorable impact to our statement of operations
was recognized as the products  employing the acquired  components  were sold. A
new supply  arrangement  for 2005, with free products to be earned on purchases,
received similar accounting treatment in the quarter ended March 31, 2005.

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

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

     VALUATION OF INVESTMENT  IN  AFFILIATES.  We have a minority  interest in a
privately held software company,  InterMute, Inc., which we have been accounting
for  under  the  equity  method  of  accounting.  Under  the  equity  method  of
accounting, our investment is increased or decreased, not below zero, based upon
our proportionate share of the net earnings or losses of InterMute.  We made our
original  investment in 1999, at the time of the company's  formation,  and have
subsequently made additional investments.  As a result of the losses incurred by
InterMute  subsequent to our investments,  our investment balance was reduced to
zero during 2002. We discontinued applying the equity method when the investment
was reduced to zero and did not provide for  additional  losses,  as we have not
guaranteed  obligations of the investee and are not committed to provide further
financial  support.  On May 10, 2005, Trend Micro Inc.  announced it has entered
into an agreement to acquire InterMute,  subject to completion of due diligence.
If this transaction is completed,  the Company expects that it would recognize a
gain on the  transaction  based  upon the  consideration  received  by Zoom as a
stockholder of InterMute.

Results of Operations

     SUMMARY.  Net sales were $6.4 million for our first quarter ended March 31,
2005,  down 17.4% from $7.8 million in the first  quarter of 2004.  We had a net
loss of $1.3  million for the first  quarter of 2005,  compared to a net loss of
$0.6 million in the first quarter of 2004.  Loss per diluted share was $0.15 for
the first  quarter of 2005  compared to a loss per diluted share of $.07 for the
first quarter of 2004.

     NET SALES. Our net sales for the first quarter of 2005 decreased 17.4% from
the first  quarter of 2004,  primarily  due to a 44%  decrease in dial-up  modem
sales,  partially offset by a 51% increase in DSL modem sales. Dial-up modem net
sales  declined to $2.6  million in the first  quarter of 2005  compared to $4.7
million  in the first  quarter  of 2004,  primarily  due to a  decrease  of both
dial-up  modem unit sales and, to a lesser  extent,  lower dial-up modem average
selling prices,  primarily  resulting from the continued  decline of the dial-up
modem  after-market.  DSL modem net sales increased to $3.4 million in the first
quarter of 2005 compared to $2.2 million in the first quarter of 2004, primarily
due to increased unit net sales of DSL modems in Turkey and other countries. The
first quarter of 2005 and the fourth  quarter of 2004 were the first quarters in
which our DSL modem net sales exceeded our dial-up modem net sales. However, net
sales of DSL modems in the first quarter of 2005 compared to the fourth  quarter
of  2004  declined  by $.7  million.  Net  sales  in  our  other  product  sales
categories, which include cable modems, cameras, ISDN modems, telephone dialers,
and wireless networking  equipment declined $.5 million, or 52% from $.9 million
from the first  quarter  of 2004 to $.4  million  in the first  quarter of 2005,
primarily due to decreased sales emphasis on these products.

     Our net sales in North  America were $2.6  million in the first  quarter of
2005,  a  decline  from  $3.8  million  in  the  first  quarter  of  2004.   Our
international  net sales in Turkey  were $1.5  million  in the first  quarter of
2005,  an  increase  from  $0.7  million  in the  first  quarter  of  2004.  Our
international  net sales in the U.K.  were $1.3 million in the first  quarter of
2005,  a  decline  from  $2.5  million  in  the  first  quarter  of  2004.   Our
international  net sales other than Turkey and the U.K. were $1.0 million in the
first  quarter of 2005,  an increase  from $0.9 million in the first  quarter of
2004.  These  changes  reflect our  declining  sales of dial-up  modems in North
America  and  the  U.K.   and  our  stronger  DSL  sales  in  Turkey  and  other
international markets.

     In the first quarter ended March 31, 2005 the Company's  largest  customer,
accounting for 24% of total net sales,  was Olusum,  its  distributor in Turkey.
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,  reduction of business,  or less favorable terms for any
of our significant customers.

     GROSS PROFIT.  Our total gross profit was $1.5 million in the first quarter
of 2005,  a decline from $2.3  million in the first  quarter of 2004.  Our gross
margin percent of net sales decreased to 23.8% in the first quarter of 2005 from
29.7% in the first quarter of 2004.  Gross margins were lower primarily  because
of the  continuing  product  sales shift away from dial-up  modems,  our highest
margin  product  category,  and  because of lower  absorption  of  manufacturing
overhead due to lower sales.

     OPERATING EXPENSE.  Our operating expense decreased by $0.2 million to $2.7
million or 41.8% of net sales in the first  quarter of 2005 from $2.9 million or
36.7% of net sales in the first  quarter of 2004.  The  decrease of $0.2 million
was  primarily  due  to  lower  personnel  costs  in  selling  and  general  and
administrative  expenses,  slightly offset by higher personnel costs in research
and development.

     Selling Expense.  Selling expense  decreased $.1 million to $1.1 million or
17.4% of net sales in the first  quarter  of 2005 from $1.2  million or 15.7% of
net sales in the first  quarter of 2004.  Selling  expense  was lower  primarily
because of lower personnel and related costs  resulting from employee  headcount
reductions,  partially  offset  by  higher  distribution  and  outbound  product
delivery expenses.

     General and  Administrative  Expense.  General and  administrative  expense
decreased $.1 million to $.8 million, or 12.8% of net sales in the first quarter
of 2005 from $1.0 million,  or 12.2% of net sales, in the first quarter of 2004.
General and  administrative  expense  decreases  included lower personnel costs,
professional fees, and depreciation expense.

     Research and development  expense  increased $.1 million to $0.8 million or
11.6% of net sales in the first quarter of 2005 from $0.7 million or 8.7% of net
sales in the first quarter of 2004.  Research and  development  costs  increased
primarily  as a result  of higher  personnel  costs and  product  testing  fees.
Development  and  support  continues  on all of our  major  product  lines  with
particular emphasis on VoIP hardware, the Global Village phone services, and DSL
modems.

     OTHER INCOME (EXPENSE).  Other income  (expense),  net was a net expense of
$.1  million in the first  quarter of 2005,  compared  to a net  expense of $.01
million in the first quarter of 2004  primarily due to higher  realized  foreign
exchange losses.

     INCOME TAX  EXPENSE  (BENEFIT).  We did not  record any tax  expense in the
first quarter of 2005 or the first  quarter of 2004.  The net deferred tax asset
balance at March 31, 2005 is zero.  This  accounting  treatment  is described in
further  detail under the caption  CRITICAL  ACCOUNTING  POLICIES AND  ESTIMATES
above.

Liquidity and Capital Resources

     On March 31, 2005 we had working  capital of $8.8 million,  including  $7.6
million  in cash  and cash  equivalents.  In the  first  three  months  of 2005,
operating  activities used $1.9 million in cash. Our net loss in the first three
months  of 2005 was $1.3  million.  Uses of cash  from  operations  included  an
increase of inventory  of $1.2  million and a reduction of accounts  payable and
accrued expenses of $.3 million.  The primary reason for the inventory  increase
was the rescheduling of some customers' orders to the second quarter of 2005 and
the increase of  work-in-process  for our new Wireless-G  DSL modem.  Sources of
cash from operations included a decrease of accounts receivable, consistent with
the sales  decline,  of $.6 million  and a decrease  of prepaid  expenses of $.2
million.

     In the  first  three  months of 2005  financing  activities  provided  $.05
million of cash,  due  primarily  to the  receipt of $.1  million  cash from the
exercise of employee stock options, partially offset by $.05 million in cash for
monthly  principal  payments of our $6.0  million  mortgage.  Our  mortgage is a
5-year balloon mortgage,  payable in full in January, 2006, that is amortized on
a 20-year basis. The interest rate is adjusted  annually in January of each year
based on the  Federal  Home Loan Bank  rate  plus  2.5% per  annum.  In 2004 the
interest rate was 3.99%. As of January 10, 2005 the rate of interest  changed to
5.80%. Recently we renegotiated the rate to 5.0% effective February 10, 2005. As
of March 31, 2005, $5.1 million was outstanding on this loan,  which will be due
and  payable on January 10,  2006.  Because  the  mortgage is due within  twelve
months,  the  mortgage  loan has been  re-characterized  from a  long-term  to a
current liability.  Our working capital as of March 31, 2005 has been reduced by
$4.9 million due to the  re-characterization  of the mortgage  loan.  Based upon
recent  indications  of interest from potential  lenders,  we believe we will be
able to refinance the mortgage or, in the alternative,  sell our buildings for a
purchase  price  significantly  in excess of the  outstanding  amounts under the
loan.

     On March  16,  2005 we  entered  into a Loan and  Security  Agreement  with
Silicon  Valley Bank that  provides  for a revolving  line of credit of up to $2
million.  The revolving line of credit can be used to (i) borrow under revolving
loans for working capital and general corporate purposes,  (ii) issue letters of
credit,  (iii) enter into foreign exchange forward  contracts,  and (iv) support
certain  cash  management  services.  Revolving  loans will bear  interest  at a
floating rate of interest equal to Silicon Valley Bank's prime rate plus 1%. The
rate at March 31, 2005 was 6.75%.  This interest rate will be reduced to Silicon
Valley  Bank's  prime rate plus .5% if we record  two  consecutive  quarters  of
combined  profitability.  The  revolving  line  of  credit  terminates  and  all
outstanding  obligations  under the Loan and  Security  agreement  become due on
March 15, 2006.

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

     The Loan and  Security  Agreement  contains  events of default that include
among other things,  non-payment  of principal,  interest or fees,  violation of
covenants,  inaccuracy  of  representations  and  warranties,  cross  default to
certain other indebtedness,  bankruptcy and insolvency events, change of control
and material judgments.  Upon occurrence of an event of default,  Silicon Valley
Bank is entitled to, among other things, accelerate all of our obligations under
the Loan and Security  Agreement and sell our assets to satisfy our  obligations
under the Loan and Security  Agreement.  As of March 31, 2005, our  availability
under  the  revolving  line of credit  was $2  million.  We have no  outstanding
borrowings and are in compliance  with the covenants under the revolving line of
credit as of March 31, 2005.

     On May  10,  2005,  Trend  Micro  Inc.  announced  it has  entered  into an
agreement to acquire InterMute,  subject to completion of due diligence. Zoom is
a stockholder  of InterMute and expects that, if this  transaction is completed,
it would receive approximately $3 million as an initial cash payment, subject to
closing  adjustments,   representing  Zoom's  pro  rata  share  of  the  initial
acquisition  consideration.  Zoom may also receive additional  payments of up to
approximately  $3 million over  approximately 18 months following the completion
of the transaction if certain conditions and performance targets are met.

     To conserve cash and manage our  liquidity,  we continue to implement  cost
cutting  initiatives  including the reduction of employee headcount and overhead
costs. The employee  headcount was 185 at December 31, 2004 and has been reduced
to 143 at March 31, 2005. We plan to continue to assess our cost structure as it
relates to our  revenues  and cash  position  in 2005,  and we may make  further
reductions if the actions are deemed necessary.

     Management  believes  we  have  sufficient  resources  to fund  our  normal
operations over the next 12 months,  through March 31, 2006.  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.  Moreover, our liquidity could be significantly impaired if we are not
able either to  refinance  the  mortgage or sell the  buildings on or before the
maturity date of the mortgage in January 2006.  See "Risk  Factors"  below,  for
further information with respect to events and uncertainties that could harm our
business, operating results, and financial condition.

Commitments

     During the three  months  ended  March 31,  2005,  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, 2004.

"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 our dial-up, cable and DSL modems and VoIP products; the anticipated
development and timing of new product introductions;  the decline of the dial-up
modem market; the level of demand for Zoom's products;  Zoom's ability to obtain
debt or equity  financing;  the anticipated  impact of changes in the accounting
treatment  of stock  options;  and  Zoom's  financial  condition  or  results of
operations.

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

RISK FACTORS

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

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

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

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

     Our  mortgage  loan  on the two  buildings  constituting  our  headquarters
facility,  of which $5.1 million was  outstanding on March 31, 2005, will be due
and  payable on  January  10,  2006.  We cannot  assure  that we will be able to
refinance the mortgage or, in the  alternative,  sell our buildings on favorable
terms,  if at all. If we were not able to obtain such financing or complete such
sale, our liquidity could be significantly impaired.

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

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

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

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

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

     Relatively few customers  have  accounted for a substantial  portion of our
net  sales.  In 2004,  our net sales to each of three  companies  - Olusum  (our
distributor  in Turkey),  the Dixons Group  (Dixons,  Currys,  PC World,  and PC
City),  and Staples - constituted  over 10% of our net sales; and together these
three  customers  accounted for 35% of our total net sales. In the first quarter
of 2005, our net sales to our top three customers accounted for 42% of our total
net sales, with our sales to our Turkish  distributor  accounting for 24% of our
total net sales. Our customers generally do not enter into long-term  agreements
obligating  them to  purchase  our  products.  We may not  continue  to  receive
significant  revenues  from  any of  these  or from  other  large  customers.  A
reduction or delay in orders from any of our significant  customers,  or a delay
or default in payment by any  significant  customer  could  materially  harm our
business and prospects.

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

     Our sales  outside of North America  continue to represent an  increasingly
significant  portion of our sales. Sales outside of North America have increased
from 38% of net  sales in 2001 to  approximately  55% of our net  sales in 2004,
including  27% in the UK and 16% in Turkey.  In the first  quarter of 2005,  our
sales  outside  of North  America  accounted  for 60% of our  total  net  sales,
including  24% in  Turkey  and 20% in the  U.K.  Currently  our  operations  are
significantly dependent on our international  operations,  particularly sales of
our DSL modems,  and may be materially  and  adversely  affected by many factors
including:

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

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

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

     In December  2004 the FASB  issued  SFAS 123R,  which is a revision of SFAS
123. SFAS 123R requires all share-based payments to employees,  including grants
of employee stock options, to be recognized in the financial statements based on
their fair values and does not permit pro forma  disclosure as an alternative to
financial statement recognition. SFAS 123R will be effective for us beginning in
the first  quarter of 2006.  The adoption of the SFAS 123R fair value method may
have a significant  adverse impact on our reported results of operations because
the  stock-based  compensation  expense  will be charged  directly  against  our
reported  earnings.  The impact of our adoption of SFAS 123R cannot be predicted
at this time  because  that will  depend on the future fair values and number of
share-based payments granted in the future.  However, had we adopted SFAS 123 in
prior  periods,  the  magnitude  of the  impact  of  that  standard  would  have
approximated   the  impact  of  SFAS  123  assuming  the   application   of  the
Black-Scholes model as described in the disclosure of pro forma net loss and pro
forma  loss  per  share in note  1(b) of our  notes  to  consolidated  financial
statements.

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

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

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

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

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

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

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

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

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

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

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

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

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

     Any of  these  occurrences  could  also  result  in the loss of or delay in
market  acceptance of our  products,  either of which would reduce our sales and
harm our business.  We are also exposed to the risk of product  returns from our
customers as a result of contractual stock rotation  privileges and our practice
of assisting some of our customers in balancing their inventories.  Overstocking
has in the past led and may in the future lead 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
first quarter of 2005 our inventory  levels increased due to the rescheduling of
customer orders into the second quarter of 2005 and resulting  decreased  sales.
In the event this trend continues or we otherwise 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 to partially manufacture our products. We use
these third party  manufacturers  to help ensure low costs,  rapid market entry,
and  reliability.  Any  manufacturing  disruption  could  impair our  ability to
fulfill orders,  and failure to fulfill orders would adversely affect our sales.
Although  we  currently  use  five  contract  manufacturers  for the bulk of our
purchases,  in some  cases a given  product  is only  provided  by one of  these
companies.  The  loss of the  services  of any of our  significant  third  party
manufacturers   or  a  material  adverse  change  in  the  business  of  or  our
relationships  with any of these  manufacturers  could harm our business.  Since
third  parties  manufacture  our  products and we expect this to continue in the
future,  our success will depend,  in part,  on the ability of third  parties to
manufacture our products cost  effectively and in sufficient  quantities to meet
our customer demand.

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

o    reduced management and control of component purchases;
o    reduced   control  over   delivery   schedules,   quality   assurance   and
     manufacturing yields;
o    lack of adequate capacity during periods of excess demand;
o    limited warranties on products supplied to us;
o    potential increases in prices; or
o    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 Analog  Devices.
Integrated  circuit  product  areas  covered by 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.  We believe the market for chipsets is  currently  experiencing
shortages and there are increased lead times for some chipsets. If we are unable
to obtain a sufficient  supply of components from our current sources,  we could
experience  difficulties in obtaining alternative sources or in altering product
designs to use alternative components. Resulting delays or reductions in product
shipments could damage  relationships with our customers and our customers could
decide  to  purchase  products  from  our  competitors.  Inability  to meet  our
customers'  demand or a decision  by one or more of our  customers  to  purchase
products from our competitors could harm our operating results.

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

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

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

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

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

     We may be unable  to  compete  successfully.  A number  of  companies  have
developed,  or are  expected to develop,  products  that compete or will compete
with our products.  Furthermore,  many of our current and potential  competitors
have  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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

WE MAY HAVE DIFFICULTY PROTECTING OUR INTELLECTUAL PROPERTY.

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

WE COULD INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.

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

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.  The  20  year  mortgage  of  our
headquarters  building is a variable  rate loan with the interest  rate adjusted
annually.  A 1% change in the  interest  rate  would  result  in a  decrease  or
increase of approximately $53,000 of interest expense per year.

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 March 31, 2005 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 6.  Exhibits

(a)  Exhibits

     10.1 First  Amendment to Commercial  Real Estate  Promissory  Note filed as
          Exhibit 10.1 to the  Company's  Current  Report on Form 8-K filed with
          the Securities and Exchange Commission on March 31, 2005.*

     10.2 Loan and Security  Agreement dated March 16, 2005, by and between Zoom
          Telephonics,  Inc. and Silicon  Valley Bank,  filed as Exhibit 10.1 to
          the Company's Current Report on Form 8-K filed with the Securities and
          Exchange Commission on March 22, 2005.*

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

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

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

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

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

          **   Filed herewith

<PAGE>
                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY


                                   SIGNATURES

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


                             ZOOM TECHNOLOGIES, INC.


Date: May 16, 2005     By:  /s/ Frank B. Manning
                               ------------------------------------------
                               Frank B. Manning, President


Date: May 16, 2005     By:  /s/ Robert Crist
                               -------------------------------------------
                               Robert Crist, Vice President of Finance and
                               Chief Financial Officer (Principal Financial
                               and Accounting Officer)


<PAGE>

                                  EXHIBIT INDEX

    Exhibit No.     Description

     10.1 First  Amendment to Commercial  Real Estate  Promissory  Note filed as
          Exhibit 10.1 to the  Company's  Current  Report on Form 8-K filed with
          the Securities and Exchange Commission on March 31, 2005.*

     10.2 Loan and Security  Agreement dated March 16, 2005, by and between Zoom
          Telephonics,  Inc. and Silicon  Valley Bank,  filed as Exhibit 10.1 to
          the Company's Current Report on Form 8-K filed with the Securities and
          Exchange Commission on March 22, 2005.*

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

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

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

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

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

          **  Filed herewith