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 QUARTER ENDED JUNE 30, 2012

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 000-18672



ZOOM TECHNOLOGIES, INC.



|Delaware                                                       | 51-0448969                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number)

Headquarters:
                                                Sanlitun SOHO, Building A, 11th Floor 
                                                  No.8 Workers Stadium North Road 
                                                Chaoyang District, Beijing, China 100027

U.S. office:
                                                    c/o Ellenoff Grossman & Schole LLP
                                                     150 East 42nd Street, 11th FloorNew York, NY 10017(Address of principal executive offices including zip code)

(917) 609-0333



Explanatory Note:  Pursuant to Rule 405(a)(2) of Regulation S-T, the registrant is relying upon the applicable 30-day grace period for the
initial filing of its first Interactive Data File required to contain detail-tagged footnotes or schedules.  The registrant intends
to file the required detail-tagged footnotes or schedules by the filing of an amendment to this Quarterly Report on Form 10-Q within the 30-day period.

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


Large accelerated filer      ̈
Accelerated filer     ̈
Non-accelerated filer     ̈ (Do not check if a smaller reporting company)
Smaller reporting company    xIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES     ̈ NO    x Applicable only to corporate issuers:

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:
The number of shares of common stock, par value $0.01, outstanding as of August 15, 2012 is 29,106,668.
Zoom Technologies, Inc.
                                               and Subsidiaries 

FORM 10-Q

For June 30, 2012

TABLE OF CONTENTS

Part I.

Consolidated Financial InformationItem 1.

Consolidated Financial Statements (unaudited)

2Consolidated Balance Sheetsas of June 30, 2012 (unaudited) and December 31, 2011 (audited)

2Consolidated Statements of Incomefor The Three and Six Months ended June 30, 2012 and 2011 (Unaudited)

3Consolidated Statements of Comprehensive Incomefor The Three and Six Months ended June 30, 2012 and 2011 (Unaudited)

4Consolidated Statements of Cash
Flowsfor The Six Months ended June 30, 2012 and 2011 (unaudited)

5Notes to Unaudited Consolidated Financial Statements

7Item 2.

Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations

45Item 3.

Quantitative and Qualitative Disclosures About Market Risk

52Item 4.

Controls and Procedures

52Part II.

Other InformationItem 1.

Legal Proceedings

53Item 1A.

Risk Factors

53Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

53Item 3.

Default Upon Senior Securities

53Item 4.

Mine Safety Disclosures

54Item 5.

Other Information

54Item 6.

Exhibits

54Signatures



55Exhibits



561PART I — FINANCIAL INFORMATION

ITEM 1 Consolidated Financial Information - (unaudited) 



ZOOM TECHNOLOGIES, INC., AFFILIATES & SUBSIDIARIES
                                       CONSOLIDATED BALANCE SHEETS


AT JUNE 30, 2012

AT DECEMBER 31, 2011ASSETS



(UNAUDITED)

(AUDITED)Current assetsCash and equivalents



$
5,943,116

$
1,131,109Restricted cash




14,196,046


15,507,408Accounts receivable, net




69,929,220


48,970,549Inventories, net




7,458,737


3,070,000Purchase deposit




6,860,108


8,549,315Other receivables and prepaid expenses




9,623,044


9,784,007Advance to suppliers




2,296,412


9,834,017Notes receivable




-


1,086,606Due from related parties




22,267,993


30,425,700Costs in excess of revenue - R&D contracts




514,797


91,880Deferred tax assets, net




56,548


56,149Total current assets




139,146,021


128,506,740Long-term investment




12,342,358


-Property, plant and equipment, net




5,743,876


6,260,675Equipment deposit




39,710


101,859Construction in progress deposit - related party




-


10,170,809Intangible assets




704,074


772,527Goodwill




34,725,680


36,332,497TOTAL ASSETS



$
192,701,719

$
182,145,107LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilitiesShort-term loans



$
25,565,867

$
26,405,343Notes payable




28,231,522


29,443,650Accounts payable




4,972,190


14,336,883Accrued expenses and other payables




11,010,728


10,173,712Advance from customers




1,343,394


1,112,179Taxes payable




3,478,555


4,287,309Interest payable




97,569


85,323Dividends payable




627,039


622,606Due to related parties




25,444,409


6,742,373Total current liabilities




100,771,273


93,209,378Long-term payables




145,000


145,000Long-term notes payable




500,000


500,000Long-term loan




-


10,458TOTAL LIABILITIES




101,416,273


93,864,836COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS' EQUITYPreferred stock: authorized 1,000,000 shares, par value $0.01




-


-none issued and outstandingCommon stock: authorized 35,000,000 shares, par value $0.01Issued 28,935,723 shares and outstanding 28,934,043 shares;and Issued 23,865,723 shares and outstanding 23,864,043shares at June 30, 2012 and December 31, 2011




289,340


238,640Shares to be issued




1,726


1,000Deferred expenses




(6,038,757)


(1,400,068)Additional paid-in capital




58,992,716


53,133,895Treasury shares: 1,680 shares at cost




(7,322)


(7,322)Statutory surplus reserve




682,528


682,528Accumulated other comprehensive income




2,471,146


2,081,429Retained earnings




23,110,363


22,048,539TOTAL STOCKHOLDERS' EQUITY




79,501,740


76,778,641Noncontrolling interest




11,783,706


11,501,630TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY



$
192,701,719

$
182,145,107The accompanying notes are an integral part of these consolidated financial statements.

2ZOOM TECHNOLOGIES, INC., AFFILIATES & SUBSIDIARIES
                                  CONSOLIDATED STATEMENTS OF INCOME 
                                                           (UNAUDITED)

FOR THE THREE MONTHS ENDED JUNE 30,

FOR THE SIX MONTHS ENDED JUNE 30,2012

2011

2012

2011Net revenues


$
98,628,326

$
57,564,265

$
189,536,590

$
116,175,951Cost of goods sold



90,305,883


51,682,375


175,058,589


103,945,192Gross profit



8,322,443


5,881,890


14,478,001


12,230,759Operating expenses:Sales and marketing



302,319


179,255


547,927


387,794General and administrative



4,585,044


1,663,774


7,979,684


2,929,965Research and development



859,332


1,393,511


1,386,046


3,028,715Non-cash equity-based compensation



837,310


307,469


1,271,559


614,938Total operating expenses



6,584,005


3,544,009


11,185,216


6,961,412Income from operations



1,738,438


2,337,881


3,292,785


5,269,347Other income (expenses)Interest income



59,540


38,997


261,822


143,258Loss on disposal of fixed assets



0


(64)


-


(8,432)Government grants



19,027


15,342


76,592


15,342Other income



153,315


443,622


167,027


458,847Interest expense



(626,898)


(609,883)


(1,210,143)


(968,911)Exchange loss



(10,593)


(21,051)


(12,754)


(37,223)Other expenses



(162,534)


(61,473)


(238,725)


(142,054)Total other expenses



(568,143)


(194,510)


(956,181)


(539,173)Income before income taxes and non-controlling interest



1,170,295


2,143,371


2,336,604


4,730,174
      Income taxes



556,639


653,206


903,549


1,440,805Income before noncontrolling interest



613,656


1,490,165


1,433,055


3,289,369Less: income attributable to noncontrolling interest



193,717


(5,058)


371,231


7,333Net income attributable to Zoom Technologies, Inc.


$
419,939

$
1,495,223

$
1,061,824

$
3,282,036Basic and diluted earnings per common share:Basic


$
0.02

$
0.09

$
0.04

$
0.21Diluted


$
0.02

$
0.09

$
0.04

$
0.21Weighted average common shares outstanding:Basic



26,191,186


15,866,685


25,075,087


15,825,501Diluted



26,233,271


15,924,013


25,127,366


15,892,287The accompanying notes are an integral part of these consolidated financial statements.

3ZOOM TECHNOLOGIES, INC., AFFILIATES & SUBSIDIARIES
                                  CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 
                                                           (UNAUDITED)

FOR THE THREE MONTHS ENDED JUNE 30,

FOR THE SIX MONTHS ENDED JUNE 30,2012

2011

2012

2011Net income attributable to Zoom Technologies, Inc.


$
419,939

$
1,495,223

$
1,061,824

$
3,282,036Net income attributable to noncontrolling interest


$
193,717

$
(5,058)

$
371,231

$
7,333Other comprehensive income:Foreign currency translation adjustments - Zoom Technologies, Inc.



80,139


478,791


389,717


709,060Foreign currency translation adjustments - noncontrolling interest



2,620


52,235


23,893


72,344Comprehensive income - Zoom Technologies, Inc.


$
500,078

$
1,974,014

$
1,451,541

$
3,991,096Comprehensive income - noncontrolling interest


$
196,337

$
47,177

$
395,124

$
79,677The accompanying notes are an integral part of these consolidated financial statements.

4ZOOM TECHNOLOGIES, INC., AFFILIATES & SUBSIDIARIES
                                     CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)


FOR THE SIX MONTHS ENDED JUNE 30,2012


2011Cash flows from operating activities:Income including noncontrolling interest


$
1,433,055

$
3,289,369Adjustments to reconcile income including non-controlling interest to cashprovided by (used in) operating activities:Depreciation and amortization



849,667


785,222Non-cash equity-based compensation



1,271,559


614,938Provision for inventory obsolescence



(39,160)


(69,037)Provision on accounts receivable



(11,390)


-Loss on disposal of fixed assets



856


8,432Changes in deferred tax assets



-


(40,080)Changes in operating assets and liabilities:Accounts receivable



(20,865,478)


(11,665,449)Inventories



(4,381,831)


473,053Advances to suppliers



7,545,083


3,630,754Prepaid expenses and other assets



1,976,882


49,645Accounts payable



(9,398,126)


42,557Advance from customers



243,638


655,962Related parties-net



26,647,200


(2,134,811)Accrued expenses and other current liabilities



1,509,985


1,062,926Net cash provided by (used in) operating activities



6,781,940


(3,296,519)Cash flows from investing activities:Restricted cash



1,420,436


1,615,628Purchase of property and equipment and other long-term assets



(618,063)


128,037Proceeds from collection on notes receivable



1,093,306


624,341Equity method investee



(12,330,651)


-Refund from factory construction deposit



12,330,651


-Cash increase due to acquisition of subsidiaries



-


235,112Net cash  provided by investing activities



1,895,679


2,603,118Cash flows from financing activities:Issuance of shares for cash



-


166,570Proceeds from short-term loans



7,121,220


14,133,539Advance to related parties



(360,015)


(312,941)Proceeds from borrowings from related parties



40


-Repayment on notes payable



(1,420,436)


(1,527,067)Receipts from (payments to) related parties



(1,663,571)


513,325Repayment on borrowing from related parties



(4,867,558)


-Receipt from related parties



5,343,053


9,075Repayments on short-term loans



(8,131,999)


(12,216,538)Repayments on long-term loan



(10,468)


(4,818)Net cash (used in) provided by financing activities



(3,989,734)


761,145Effect of exchange rate changes on cash & equivalents



124,122


140,200Net decrease in cash and equivalents



4,812,007


207,944Cash and equivalents, beginning balance



1,131,109


6,374,103Cash and equivalents, ending balance


$
5,943,116

$
6,582,047The accompanying notes are an integral part of these consolidated financial statements.


5FOR THE SIX MONTHS ENDED JUNE 30,2012


2011SUPPLEMENTARY DISCLOSURES:Interest paid


$
919,423

$
929,846Income tax paid


$
1,362,364

$
116,122Non-cash investing and financing activitiesAcquisition of 100% of CDE by issuing 484,800 shares


$
-

$
1,818,000The accompanying notes are an integral part of these consolidated financial statements.

6NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      ZOOM TECHNOLOGIES, INC., AFFILIATES & SUBSIDIARIES  
                                   JUNE 30, 2012 AND DECEMBER 31, 2011 (UNAUDITED)

NOTE 1  —  ORGANIZATION AND NATURE OF BUSINESS OPERATIONS

The Acquisition

On
September 22, 2009, Zoom Technologies, Inc. ("Zoom", "us", "we", or the "Company"),
pursuant to the share exchange agreement ("SEA") dated January 28, 2009, (amended May 12, 2009) acquired all the
outstanding shares of Gold Lion Holding Limited ("Gold Lion"), a company organized and existing under the laws of the British Virgin
Islands ("BVI") (the "Merger").  In connection with the SEA, the Company spun off its then-existing business to
its stockholders, by distributing all assets and liabilities of the subsidiary and issuing shares of its then operating subsidiary as a
dividend to its stockholders.

The
parties to the SEA were: (1) Zoom Technologies, Inc., (2) Tianjin Tong Guang Group Digital Communication Co., Ltd., ("TCB
Digital") a company organized under the laws of the People's Republic of China, ("PRC"); (3) Zoom Telephonics, Inc.,
or Zoom Telephonics, a wholly owned subsidiary of Zoom; (4) Gold Lion, (5) Lei (Leo) Gu, a citizen of the PRC; and (6) Songtao Du, a
citizen of the PRC.

Gold Lion
owns 100% of the outstanding stock of Jiangsu Leimone Electronics Co., Ltd., ("Jiangsu Leimone"), a foreign investment
enterprise organized under the laws of the PRC that engages in the manufacturing, R&D, and sales of electronic components for
3rd generation mobile phones, wireless communication circuitry, GPS equipment, and related software products. Jiangsu Leimone
owned 51.03% of the outstanding stock of TCB Digital. Gold Lion also owns 100% of Profit Harvest Corporation Ltd, ("Profit
Harvest"), a marketing and sales company organized and existing under the laws of Hong Kong.

As of the
date of the Merger, Mr. Gu owned 70.6% of the outstanding capital stock of Gold Lion.  Mr. Du owned 29.4% of the
outstanding capital stock of Gold Lion, which was pledged to Mr. Wei Cao.

On
September 22, 2009, pursuant to the SEA and approval of the majority of the stockholders of the Company, the Company acquired
from the Gold Lion shareholders 100% of Gold Lion's outstanding equity for 4,225,219 shares of the Company's common stock.  As a
result of this issuance, the former Gold Lion shareholders owned 69.3% of the outstanding stock of the Company and the transaction
was recorded as a reverse acquisition. Prior to the Merger, the Company had 1,980,978 shares outstanding which were recapitalized
as part of the Merger. The Company, which had an option to acquire an additional 29.0% of the outstanding capital stock of TCB
Digital, pursuant to the SEA and the approval of the majority of the stockholders of the Company, agreed to provide the Company the
option in exchange for the 2,402,576 shares of the Company's common stock. As of March 31, 2010, Mr. Gu exercised this option (See
details in Section entitled "The Subsidiaries" below).

Simultaneous with the closing of the Merger, the Company issued a dividend of 100% of the issued and
outstanding stock of Zoom Telephonics to the Company's stockholders of record immediately prior to the closing which is referred to
herein as the "spin-off").  In connection with the spin-off, the Company distributed all assets and liabilities related to the
Company to Zoom Telephonics, subject to certain licensing rights discussed below. Zoom's stockholders immediately prior to the
closing of the Merger retained their existing shares in Zoom and also received an equal number of new shares in Zoom Telephonics.
After the Merger and the spin-off, the Company and Zoom Telephonics became independent companies.


7TCB Digital and Zoom Telephonics entered into a license agreement which granted TCB Digital rights to the
"Zoom" and "Hayes" trademarks for certain products and geographic regions. Zoom and Zoom Telephonics also
entered into a separation and distribution agreement that allocates responsibility for obligations arising before and after the spin-off,
including, among others, obligations relating to taxes.

Our former
directors, entered into founder lock-up agreements pursuant to which they agreed that during the one-year period commencing on the
date of closing of the Merger each will not sell, transfer, assign, pledge or hypothecate, in any calendar month, greater than 3% of the
aggregate amount of shares of the Company's common stock sold in the previous four calendar weeks.

On June 1, 2010, Zoom pursuant to a share exchange agreement (the "Agreement") dated April 29,
2010, acquired 100% of the shares of Nollec Wireless Company Ltd., ("Nollec Wireless") a mobile phone and wireless communication
design company in Beijing, China (the "Acquisition").

The parties to the Agreement include: (1) Zoom Technologies, Inc.; (2) Silver Tech Enterprises, Ltd. ("Silver
Tech"), a holding company founded in July 2005, organized and existing under the laws of the BVI, which owned 100% of Ever Elite
Corporation, Ltd. ("Ever Elite"); (3) Ever Elite, a holding company founded in June 2007, organized under the laws of Hong Kong, or
HK, which owned 100% of Nollec Wireless; (4) Nollec Wireless, the operating company founded in June 2007, organized under the
laws of the PRC; (5) Key Network Holdings, Ltd. ("KNH"), a BVI company, then owner of 76.8% of the outstanding stock of Silver Tech;
and (6) Better Day Finance, Ltd. ("BDF"), a BVI company, then owner of 23.2% of the outstanding stock of Silver Tech.

Pursuant to the terms of the Agreement, the Company purchased 100% of the outstanding stock of Silver Tech
from KNH and BDF, the existing shareholders of Silver Tech, for $10.96 million, comprised of $1.37 million in cash and 1,342,599 newly
issued unregistered shares of common stock of Zoom valued at $9.59 million at the weighted average closing price of shares for 10
days prior and leading up to the Agreement date.  At the closing of the Acquisition on May 31, 2010, the Company issued 1,342,599
shares of its common stock and paid $500,000; the balance of $870,000 in cash will be paid in six equal installments over a period of
three years.  As of June 30, 2011, the Company owed three remaining payments of $145,000 each.  The Company paid $275,000 in
year 2011 and $137,500 in 2010 and as of June 30, 2012, $290,000 was included in other payables and $145,000 was included in
long-term payables (See Note 19). After the closing of the Acquisition on June 1, 2010, Silver Tech, Ever Elite and Nollec Wireless
became wholly owned subsidiaries of Zoom.  The Company determined the Acquisition did not require the preparation and filing of
audited financial statements of Silver Tech under Rule 3-05(b)(2)(i) of Regulation S-X.

On January 4, 2011, pursuant to a share exchange agreement (the `Share Exchange Agreement") the
Company acquired 100% ownership of Celestial Digital Entertainment, Ltd., ("CDE") a mobile platform video game
development company based in HK.  The consideration was $1,818,000 in shares of common stock of the Company; the number of
shares was calculated by dividing $1,818,000 by the higher of i) $3.75 per share or ii) the Volume Weighted Average Closing Price of
the Company's shares for the 10 consecutive trading days leading up to the day before the date of the Share Exchange Agreement
which was December 20, 2010. This resulted in the issuance of 484,800 shares of the Company's common stock to acquire CDE.  CDE
primarily focuses on development of video games and applications for mobile phones and mobile platforms.  CDE has developed over
40 titles for the Apple iPhone and is one of the largest developers of iPhone applications in Asia.  The Company acquired CDE through
its wholly owned HK subsidiary, Profit Harvest.


8On
October 11, 2011, the Company and Zoom USA Holdings, Inc., a newly formed wholly-owned subsidiary of the Company ("Zoom Sub")
entered into a Securities Purchase Agreement ("Securities Purchase Agreement") to purchase from The Cellular Network
Communications Group, Inc. ("CNCG") a 50% interest in Portables Unlimited LLC ("Portables"), an exclusive wholesale distributor of
T-Mobile products in the United States. As consideration of the 50% interest in Portables, the Company (i) issued 1,494,688 shares of
Zoom common stock (the "Equity Consideration") to the principals of CNCG and (ii) through Zoom Sub, issued a promissory note of
$500,000 payable to CNCG. The promissory note accrues interest at 2% and matures three years from the date of issuance.  The
Equity Consideration was to be held in escrow until the date that Portables provided to the Company financial statements for Portables'
third quarter ended September 30, 2011.  The financial statements were provided in January 2012 and the stock certificates were
released from escrow.  In addition, Zoom Sub purchased an additional 5% interest in Portables for $750,000, to be paid within 30 days
of the closing date, which is currently outstanding.  Further, in connection with the transaction, the Company assumed the responsibility
for repaying certain indebtedness owed by Portables to T-Mobile USA, Inc. in the amount of $4,757,187 (the "T-Mobile Indebtedness"),
and agreed to arrange for a $500,000 letter of credit in the name of Portables to secure obligations of Portables to T-Mobile. The
T-Mobile Indebtedness was payable under the following schedule: $2,500,000 was due on November 10, 2011 (the "Initial Payment"),
$1,400,000 was due on December 10, 2011 (the "Second Payment"), and the remaining $853,788 was due on December 20, 2011 (the
"Final Payment"). The Initial Payment and Second Payment were made in a timely manner, and pursuant to an agreement with T-
Mobile the Final Payment was waived. The waiver of the final payment was recognized as other income in 2011 because this
settlement was not a required condition in the Company's acquisition of Portables.  Additionally, the Company agreed to pay other
outstanding indebtedness of Portables in the amount of $4,500,000, less the amount of T-Mobile Indebtedness paid off.

The Company had previously recognized acquisition payables to Portables in
the amount of $1,350,000 and the need to arrange a $500,000 Letter of Credit in Portables' name to secure obligations
to T-Mobile.  On April 13, 2012, the Company received notice that it was in default on the Securities Purchase
Agreement.  The Securities Purchase Agreement provides that if the Company was in default, the Company's ownership
of Portables will be reduced and CNCG will be entitled to enforce certain rescission rights against the Company, as
more fully described in the Securities Purchase Agreement.  Also, in case of a default, Portables, CNCG and the other
member of Portables may bring claims for indemnification against the Company for a breach under the Securities
Purchase Agreement, as more fully described in the Securities Purchase Agreement. The Company's non-payment to
Portables has reduced its percentage of ownership from 55.0% to 50.5%.  Portables Unlimited Inc. owns 49.5% of
Portables.  As of June 30, 2012, the Company is in dispute with Portables Unlimited Inc. over the Company's
percentage of ownership of Portables.  The Company derecognized the $1,350,000 acquisition payable and does not
expect to make payment for that liability.  In the event that the Company is not able to maintain its majority ownership of
Portables, the Company would account for its investment in Portables using the equity method of accounting.  The
Company was advised that on or about August 14, Portables Unlimited Inc., both individually and derivatively, filed an
action in the Supreme Court of the State of New York, County of Nassau against the Company, its US subsidiary, and
two officers of the Company. The Complaint seeks damages up to an aggregate amount of $5 million for breach of
contract, and a declaration as to the percentage interest the Company retains in Portables Unlimited, Inc. equal to 46%.
The Company believes that it is entitled to hold 50.5% interest in Portables based on the terms of the Securities
Purchase Agreement. Once the Complaint is served, the Company intends to defend itself vigorously and to assert
counterclaims that will, in the aggregate, seek a higher damages award than Portables Unlimited, Inc. seeks.

On October 26, 2011, the Company closed the sale of 1,676,300 shares of common stock to
Spreadtrum Communications, Inc., ("Spreadtrum") pursuant to the Common Stock Purchase Agreement (the "Purchase
Agreement") entered into by and among the Company, Spreadtrum and Leo (Lei) Gu (the "Key Stockholder").  In
consideration, Spreadtrum paid $2,900,000. The Company, Key Stockholder and Spreadtrum executed the Purchase
Agreement in reliance upon the exemption from securities registration afforded by the rules and regulations promulgated
by the Securities and Exchange Commission under Section 4(2) of the Securities Act of 1933, as amended. Spreadtrum
did not receive any registration rights and no warrants were issued pursuant to the Agreement.  Pursuant to the
Purchase Agreement, the Company also agreed to design and develop all applicable Company products to integrate
and operate solely with Spreadtrum's products, and to not design and develop any Company products to integrate or
operate with any Spreadtrum's competitive products for a term of three years from the Purchase Agreement.  Also
pursuant to the Agreement, Spreadtrum shall have the right to nominate one nominee to the board of directors of the
Company (the "Nomination Right"), subject to approval of the Company's independent directors, as required under
Nasdaq Rule 5605(e)-Independent Director Oversight of Director Nominations. Spreadtrum's Nomination Right shall
continue until such time that Spreadtrum owns not less than 838,150 shares of the Company's outstanding common
stock.  In accordance to the Purchase Agreement, Dr. Leo Li, Chairman and Chief Executive Officer of Spreadtrum
Communications Inc., was added to our Board of Directors.

The Subsidiaries

Gold Lion
was founded by Mr. Lei Gu ("Gu") in September 2002 in the BVI.  Pursuant to an agreement dated June 30, 2007, Mr. Wei
Cao ("Cao"), purchased from Gu 29.4% of then outstanding shares of the Company.  Through a resolution of the Company
on November 26, 2008, the Company's issued 705 shares to Gu and 294 shares to Mr. Songtao Du ("Du"), resulting in
1,000 issued and outstanding shares of common stock. Pursuant to a pledge agreement dated November 26, 2008, Du pledged his
294 shares to Cao, including all rights to such shares.  As such, Gu and Cao jointly controlled 100% of Gold Lion.

On August
2, 2007, Gu founded Profit Harvest in Hong Kong, and in December 2008, 100% ownership of Profit Harvest was transferred to Gold
Lion.  Profit Harvest serves two purposes: i) to facilitate the export of the Company's finished goods to international markets, and ii)
trading of components and chipsets for a profit.

Pursuant
to the capital injection agreement ("the CIA") by and among Tianjin Communication and Broadcasting Group Co., Ltd.
("TCBGCL"), TCBGCL Labor Union, Hebei Leimone Science and Technology Co., Ltd. ("Hebei Leimone"),
Tianjin 712 Communication and Broadcasting Co., Ltd. ("712"), Beijing Depu Investment Co., Ltd. ("Beijing
Depu") and other natural person shareholders on May 8, 2007 and a resolution of the shareholder's meeting on June 30, 2007,
Hebei Leimone, a company controlled by Gu, acquired 25.1% of TCB Digital from TCBGCL Labour Union and various natural person
shareholders for RMB9,000,000, equivalent to USD $1,286,000.  Pursuant to this CIA, Hebei Leimone and Beijing Depu, the
companies controlled by Gu and Cao, were to invest RMB15,928,700 and RMB10,377,600 respectively in TCB Digital, bringing the
total investment from Hebei Leimone and Beijing Depu to USD $4,679,111 (RMB35,306,300).  After this investment was made as of
June 30, 2007, Hebei Leimone and Beijing Depu held 36.0% and 15.0% respectively of TCB Digital, or 51.0% aggregate ownership in
TCB Digital.  Pursuant to an agreement dated June 30, 2007, Cao irrevocably pledged his 15.0% interest in TCB Digital through his
ownership in Beijing Depu to Gu for a 29.4% stake in Gold Lion.  As of March 31, 2010, Gu exercised his option to transfer an
additional 29.0% of TCB Digital to the Company.  The Company issued 2,402,576 common shares to Mr. Gu and his assignees as
purchase consideration and 60,000 common shares to an investment banker as compensation for this transaction.  The Company's
ownership interest in TCB Digital was increased to 80% as of March 31, 2010. This transaction was recorded under SFAS No. 160
(Included in ASC 810 "Consolidation") "Noncontrolling Interests in Consolidated Financial Statements", an amendment of
ARB No. 51,with the excess of fair value of shares over the carrying value of minority interests charged to additional paid in capital.
During the three months ended June 30, 2010, the Company issued 2,462,576 shares.

10On
November 30, 2007, Gold Lion and GD Industrial Company signed a share transfer agreement, pursuant to which, GD Industrial
Company transferred to the Company 60% interest of Nantong Zong Yi Kechuang Digital Camera Technology Co., Ltd. ("Nantong
Zong Yi") for $10,273.  In July 2008, Nantong Zong Yi changed its name to Jiangsu Leimone Electronic Co., Ltd. ("Jiangsu
Leimone").  Before the acquisition, Jiangsu Leimone had no operating activities.  In January 2008, the Company invested
$5,074,226 (HK$38,800,000) in Jiangsu Leimone to increase the Company's ownership in Jiangsu Leimone to 80%.  Pursuant to the
share transfer agreement by and between Gold Lion and Nantong Zong Yi Investment Co., Ltd. dated November 26, 2008, the
Company acquired the remaining 20% of Jiangsu Leimone from Nantong Zong Yi Investment Co., Ltd. for $103,214 (HK$800,000).
After this transaction, the Company owned 100% of Jiangsu Leimone.

Pursuant
to the share transfer agreement by and among Hebei Leimone, Beijing Depu Investment Co., Ltd and Jiangsu Leimone, dated
December 15, 2008, Hebei Leimone and Beijing Depu Investment Co., Ltd. transferred their 51.03% ownership of TCB Digital to
Jiangsu Leimone on December 30, 2008.

Because
TCB Digital and Profit Harvest were under common control with the Company since July 2007 and August 2007, respectively, the
Company consolidated their financials at historical cost with the Company from the dates the Company acquired control.

TCB Digital is a high technology company engaged in electronic and telecommunication product design,
development, and manufacturing for OEM customers and for our own products under the brand name of "Leimone". TCB
Digital started its business in 1999 and was originally established as an Electronic Manufacturing Service ("EMS") factory for
mobile phone vendors. TCB Digital was Motorola's first independent outsource manufacturing vendor responsible for producing
Motorola mobile phones in China. Moreover, TCB Digital was the first EMS factory in China to receive Motorola's International Quality
Product and Qualification certificate. Since 2004, TCB Digital developed and produced GSM and CDMA mobile phones, wireless data
modules and GPS equipment.  Beginning in 2009, TCB Digital started to manufacture and market mobile phones under its own brand
name of "Leimone"; and in 2010, its product line also included 3G mobile handsets. TCB Digital is headquartered in Tianjin, China. TCB
Digital's two main business operations are EMS for Original Equipment Manufacturer (OEM) customers and the design, production and
sale of its own brand mobile phone products.

TCB
Digital offers high quality and comprehensive EMS to both domestic and global customers, including, Samsung, Tianyu, CECT,
Danahar and Spreadtrum. TCB Digital's primary products include mobile phones, wireless telecommunication modules, digital cameras,
cable TV set-top boxes and GPS equipment. In addition, TCB Digital has developed various state-of-the-art mobile phones and
Smartphones based on both of the main network technologies: Global System for Mobile Communications, or GSM, and Code Division
Multiple Access, or CDMA, and beginning in 2010 also 3G capable products. Presently, TCB Digital markets its mobile phone products
through distributors in China and also supplies GSM, CDMA and 3G mobile phones to major customers, including China Mobile
Communications Corporation, or CMCC, China UNICOM and China Telecom.

Nollec Wireless primarily focuses on R&D of mobile phones, and hardware and software solutions for
domestic Chinese and overseas customers. Its design team includes experienced engineers in the core technologies of wireless
communication and mobile phone development. Nollec provides state of the art industrial, user inter-phase, mechanical and
engineering designs and software and hardware integration. Its clients include certain domestic and international mobile phone
manufacturers including Philips, Lenovo, Sonim, Gionee and Borqs.

CDE primarily focuses on development of video games and applications for mobile phones and mobile
platforms.  CDE has developed over 40 titles for the Apple iPhone and is one of the largest developers of iPhone applications in
Asia.

On September 19, 2011, the Company incorporated Zoom USA Holdings, Inc. ("Zoom Sub"), to
acquire Portables Unlimited.


11On October 12, 2011, the Company acquired 55% of Portables Unlimited LLC ("Portables"), one of the largest
exclusive wholesale distributors of T-Mobile products in the United States. Portables has direct access to more than 1,000 retail
locations across twenty U.S. States selling T-Mobile products, including approximately 100 exclusive T-Mobile carrier locations.  The
Company's percentage of ownership has been subsequently adjusted down to 50.5%.  Please see above paragraph regarding the
acquisition of Portables.

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Principles of Consolidation

The
Company's accompanying consolidated balance sheet at June 30, 2012 includes the accounts of Gold Lion Holding Ltd, its 100%-
owned subsidiary Profit Harvest which wholly owns Celestial Digital Entertainment, its 100%-owned subsidiary Jiangsu Leimone, which
owns 80% of TCB Digital, its 100%-owned subsidiary Silver Tech, which wholly owns Ever Elite, and Ever Elite's wholly owned
subsidiary Nollec Wireless, and its specifically formed wholly owned Zoom Sub which owned 55% of Portables.  Zoom's consolidated
balance sheet as of June 30. 2012 includes the balance sheets of Gold Lion, TCB Digital, Jiangsu Leimone, Profit Harvest, Silver Tech,
Ever Elite, Nollec Wireless, CDE, Zoom Sub, and Portables.  The consolidated operating results for the six months ended June 30,
2012 include Gold Lion, TCB Digital, Jiangsu Leimone, Profit Harvest, Silver Tech, Ever Elite, Nollec Wireless, CDE, Zoom Sub, and
Portables.  Portables ownership interest reduced to 50.5% as of June 30, 2012 and its operating results reported accordingly (See Note
1).  The consolidated operating results for the six months ended June 30, 2011 include Gold Lion, TCB Digital, Jiangsu Leimone, Profit
Harvest, Silver Tech, Ever Elite, Nollec Wireless, and CDE.

Equity Method Accounting

In May 2012, the Company invested $12.3 million to establish a new joint venture named
SpreadZoom Technologies Co. Ltd., ("SpreadZoom"). The Company owns 47.4% of SpreadZoom and
accounted for this investment under the equity method of accounting (ASC 323-30). The Company recorded its
investment at original cost. This balance will increase with income and decrease for dividends and losses from the
joint venture that accrue to the Company. SpreadZoom has no operations as of June 30, 2012.

Exclusion of Related Party Lessor from Consolidation

Portables commencing in January 2009, subleased its principal facility from one of its noncontrolling member. The
member began leasing the facility in December 2005 from a related party, AUM Realty, LLC ("AUM"). The Company's management has
assessed whether AUM should be consolidated pursuant to FASB ASC 810 Consolidations. ASC 810 is not a "rules based" standard
and thereby includes limited circumstances under which it can be conclusively determined whether an entity should be consolidated.
Management believes that AUM is not a variable interest entity ("VIE") as defined in ASC 810 because AUM was adequately
capitalized. Equity contributions from AUM's owners exceeded 20% of the acquisition costs of the property. Management believes that
this is, according to ASC 810 criteria, "sufficient to permit the entity to finance its activities without additional subordinated financial
support." Portables noncontrolling member and the owners of AUM provided guarantees of AUM's Rockland County Industrial
Development Agency ("IDA") supported bank loan. Such a guarantee constitutes a form of "subordinated financial support," which
provides a contrary indication to management's assessment that AUM is not a VIE. Management believes, however, that the
guarantees were not necessary for AUM to finance its activities, and its equity capital was sufficient to support its activities if necessary,
but the guarantees were only required under IDA rules in order to obtain the reduced financing costs of the IDA support. Management
believes that the same is true at June 30, 2012 (See Note 27 for details).

Based on this assessment, management believes that AUM is not a VIE and therefore is not consolidated as a
component of these consolidated financial statements. If the matter were to be assessed differently, these consolidated financial
statements would have included AUM's assets (principally land and building), liabilities (principally loan payable) and expenses, with the
excess of AUM's assets over liabilities shown as a "noncontrolling interest".

Basis of Presentation

The
consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of
America ("US GAAP").  For the Company's subsidiaries of JS Leimone, TCB Digital and Nollec Wireless, the functional
currency is the Chinese Renminbi ("RMB"); the functional currency of Gold Lion, Profit Harvest, silver Tech, Zoom Sub and
Portables is United States Dollars ("USD" or "$"), and the functional currency of Ever Elite and CDE is Hong
Kong Dollars ("HKD").  The accompanying consolidated financial statements were translated and presented in USD.

12Use of Estimates

The
preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of
the consolidated financial statements and the amount of revenues and expenses during the reporting periods.  Management makes
these estimates using the best information available at the time the estimates are made. However, actual results could differ materially
from those results.
Risks and Uncertainties


The
Company is subject to substantial risks from, among other things, intense competition associated with the industry in general, other
risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign
currency exchange rates and the volatility of public markets.

Comprehensive Income

The Company follows the provisions of ASC 220 "Reporting Comprehensive Income", previously
SFAS No. 130, establishes standards for the reporting and display of comprehensive income, its components and accumulated
balances in a full set of general purpose financial statements.

ASC 220
defines comprehensive income is comprised of net income and all changes to the statements of stockholders' equity, except those due
to investments by stockholders, changes in paid-in capital and distributions to stockholders, including adjustments to minimum pension
liabilities, accumulated foreign currency translation, and unrealized gains or losses on marketable securities.
Foreign
Currency Transactions

The
accounts of the Company's Chinese subsidiaries are maintained in the RMB and the accounts of the U.S. parent company are
maintained in the USD.   The accounts of the Chinese subsidiaries were translated into USD in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation," (codified in Financial Accounting Standards
("FASB") Accounting Standards Codification ("ASC") Topic 810) with the RMB as the functional currency for the
Chinese subsidiaries.  According to SFAS 52, all assets and liabilities were translated at the exchange rate at the date of the balance
sheet; stockholders' equity is translated at historical rates; the line items on the statement of operations are translated at the weighted
average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in
accordance with SFAS No. 130, "Reporting Comprehensive Income" (codified in FASB ASC Topic 220). Gains and losses
resulting from the translations of foreign currency transactions and balances are reflected in the income statement.

Translations adjustments resulting from this process are included in accumulated other
comprehensive income in the stockholders' equity were $2,471,146 and $2,081,429 as of June 30, 2012 and December 31, 2011.

Cash and Equivalents


For
Statement of Cash Flows purposes, the Company considers all cash on hand and in banks, including accounts in book overdraft
positions, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash
and cash equivalents.  The Company maintains cash with various banks and trust companies located in China.  Cash accounts are not
insured or otherwise protected.  Should any bank or trust company holding cash deposits become insolvent, or if the Company is
otherwise unable to withdraw funds, the Company would lose the cash on deposit with that particular bank or trust company.

13Accounts
Receivable

The
Company maintains reserves for potential credit losses on accounts receivable.  Management reviews the composition of accounts
receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and
changes in customer payment patterns to evaluate the adequacy of these reserves.   Accounts are
written off against the allowance when it becomes evident collection will not occur.   For the contracted manufacturing activities, our
standard terms for accounts receivable from our customers are between 60 to 75 days from close of the billing cycle; and for sales of
own brand phones our terms include prepaid arrangements and extending receivable to customers up to 60 days.  We also offer credit
terms of up to 150 days in our trading activities to a certain customers. As of June 30, 2012, management concluded that the
allowances as accrued and disclosed in Note 4 - Accounts Receivable were adequate to cover any potential unrecoverable balances
as a result of delinquency.

InventoriesInventories are stated at the lower of cost or market.  Cost is determined on a weighted average basis and includes
all expenditures incurred in bringing the goods to the point of sale and putting them in a saleable condition.  In assessing the ultimate
realization of inventories, the management makes judgments as to future demand requirements compared to current or committed
inventory levels.  Our reserve requirements generally increase as our projected demand requires; or decrease due to market conditions
and product life cycle changes.  The Company estimates the demand requirements based on market conditions, forecasts prepared by
its customers, sales contracts and orders in hand.

In
addition, the Company estimates net realizable value based on intended use, current market value and inventory ageing analyses.  The
Company writes down inventories for estimated obsolescence or unmarketable inventory equal to the difference between the cost of
inventories and their estimated market value based upon assumptions about future demand and market conditions.  Historically, the
actual net realizable value has been close to management's estimate.

Property, Plant and Equipment


Property,
plant and equipment are recorded at cost.  Gains or losses on disposals are reflected as gain or loss in the year of disposal.  All
ordinary repair and maintenance costs are expensed as incurred.  Expenditures for maintenance and repairs are expensed as incurred.
Major renewals and betterments are charged to the property accounts while replacements, maintenance and repairs, which do not
improve or extend the lives of the respective assets, are expensed in the current period.

Depreciation for financial reporting purposes is provided using the straight-line method over the estimated
useful lives of assets as set out below.

Fixed Asset Class

Estimated Useful LivesMachinery and
equipment

4-6
yearsElectronic
equipment

4-6
yearsReconstruction of workshop and
assembling line

5
yearsTransportation
equipment

4-6
yearsCapitalized Interest

Interest
associated with major development and construction projects is capitalized and included in the cost of the project.   When no debt is
incurred specifically for a project, interest is capitalized on amounts expended on the project using weighted-average cost of the
Company's outstanding borrowings.  Capitalization of interest ceases when the project is substantially complete or development activity
is suspended for more than a brief period.

14Impairment of Long-lived Assets

In
accordance with ASC 360, "Property, Plant and Equipment", previously SFAS No. 144, the Company reviews the carrying
values of long-lived assets, including property, plant and equipment and other intangible assets, whenever facts and circumstances
indicate that the assets may be impaired.  Recoverability of assets to be held and used is measured by a comparison of the carrying
amount of an asset to future net undiscounted cash flows expected to be generated by the asset.  If an asset is considered impaired,
the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value.  Assets
to be disposed of are reported at the lower of the carrying amount or fair value, less costs of disposal.  The Company performed as
annual review of its long-lived assets at December 31, 2011, and management concluded that for year 2011 there was no impairment.
As of and for the six months ended June 30, 2012, management did not become aware of events that impaired the carrying value of the
Company's long lived assets.

Goodwill

The
Company recognizes goodwill for the excess of the purchase price over the fair value of the identifiable net assets of the business
acquired.  ASC 350 "Intangible Assets-Goodwill and Other", previously SFAS No. 142, an impairment test for goodwill is
undertaken by the Company at the reporting unit level annually, or more frequently if events or changes in circumstances indicate that
goodwill might be impaired.  As of June 30, 2012, and December 31, 2011 the Company recorded impairment of goodwill of $1,033,762 and
$1,033,762 respectively.

Revenue Recognition

The
Company recognizes sales in accordance with the U.S. Securities and Exchange Commission ("SEC") Staff Accounting
Bulletin ("SAB") No. 104, "Revenue Recognition in Financial Statements" (FASB ASC Topic 605),
"Revenue Recognition."

The Company recognizes revenue when the following criteria are met:

(i)   persuasive evidence of an arrangement exists;

(ii)  delivery has occurred or services were rendered;

(iii) the price to the customer is fixed or determinable and,

(iv) collection of the resulting receivable is reasonably assured.  Revenue is not recognized until title and risk of
loss is transferred to the customer, which occurs upon delivery of goods, and objective evidence exists that customer acceptance
provisions were met.

The Company bases its estimates on historical experience taking into consideration the type of products sold,
the type of customer, and the type of specific transaction in each arrangement. Revenues represent the invoiced value of goods, net of
value added tax ("VAT").

The
Company does not offer promotional payments, customer coupons, rebates or other cash redemption offers to its customers.  Deposits
or advance payments from customers prior to delivery of goods and passage of title of goods are recorded as advanced from
customers.

15The Company's subsidiary, Nollec Wireless is in the mobile phone design, software integration and mobile
solution R&D business, Nollec Wireless, recognizes revenue under the percentage of completion method ASC Topic 605-35-25
(Construction - Type and Production - Type Contracts) when reasonably dependable estimates can be made and all the following
conditions exist:

Contracts executed by the parties normally include provisions that clearly specify the enforceable rights
regarding goods or services to be provided and received by the parties, the consideration to be exchanged, and the manner and terms
of settlement.
The buyer can be expected to satisfy all obligations under the contract.
The contractor can be expected to perform all contractual obligations.

Estimates
of cost to complete is reviewed periodically and revised as appropriate to reflect new information. When the current estimates of total
contract revenue and contract cost indicate a loss, a provision for the entire loss on the contract is made.

Income is recognized as the percentage of estimated total income, and is determined by dividing incurred costs
to date by estimated total costs after giving effect to adjustments, if any, in estimates of costs to completion based upon the most recent
information.  Percentage of completion is based on labor hours incurred to date divided by total estimated labor hours for the
contract.

Royalty income on sales of licensed products by its customers is recorded when the customers report sales to
the Company.  Royalty income is reported monthly and recorded in the period in which the product is sold.  The Company has the right
to audit the books of the licensees.

The Company's subsidiary, CDE is in the business of video games and applications for mobile phones and
mobile platforms development. Revenue is recognized in accordance with ASC 985-605-55-125. Cost of Software Development
Revenue is accounted for under ASC 985-20 to be sold, leased or otherwise marketed.

CDE
capitalizes cost of development of software for hosting purpose in accordance with ASC subtopic 350-40 ("ASC 350-40"),
Intangibles-Goodwill and Other: Internal-Use Software (Pre-codification: Statement of Position ("SOP") No. 98-1, Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use). As such, CDE expenses all costs that are incurred in
connection with the planning and implementation phases of development and costs that are associated with repair or maintenance.
Costs incurred in the development phase are capitalized and amortized over the estimated product life. Since the inception of CDE, the
amount of costs qualifying for capitalization has been insignificant and as a result all internally used software development costs have
been expensed as incurred.

The Company's subsidiary, Portables is in the business of distribution of mobile phone and provision of wireless
service.  Revenue from the sale of equipment is recognized upon shipment or when purchased at Portables retail locations.
Commission income is recognized upon activation of wireless communication services with T-Mobile.

Income Taxes

The
Company accounts for income taxes in accordance with ASC 740 "Income Taxes", previously SFAS No. 109.  Under this
method, deferred income taxes are recognized for the estimated tax consequences in future years of differences between the tax bases
of assets and liabilities and their financial reporting amounts and each year-end based on enacted tax laws and statutory rates
applicable to the periods in which the differences are expected to affect taxable income.  Valuation allowances are established to
reduce deferred tax assets to the amount expected to be realized when, in management's opinion; it is more likely than not that some
portion of the deferred tax assets will not be realized.  The provision for income taxes represents current taxes payable net of the
change during the period in deferred tax assets and liabilities.

16

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Operating Leases

Leases
where substantially all the rewards and risks of ownership of assets remain with the leasing company that do not meet the capitalization
criteria of ASC 840 "Leases", previously SFAS No. 13, are accounted for as operating leases. Rental payables under
operating leases are expensed on the straight-line basis over the lease term.

Research and Development Costs

Research and development costs are related primarily to the development of cell phone technology, video
games and applications for mobile phones and mobile platforms development. Research and development costs are expensed as
incurred.

Earnings Per Share

The
Company reports earnings per share in accordance with the provisions of ASC 260 "Earnings Per Share", previously SFAS
No. 128.  ASC 260 requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology
used in computing such earnings per share.  Basic earnings per share excludes dilution and is computed by dividing income available
to common stockholders by the weighted average common shares outstanding during the period.  Diluted earnings per share takes into
account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into
common stock using the treasury method.

Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock
options and warrants, using the treasury stock method, at either the beginning of the respective period presented or the date of
issuance, whichever is later, and only if the common stock equivalents are considered dilutive based upon the Company's net income
(loss) position at the calculation dates.

Fair
Values of Financial Instruments

ASC 820
"Fair Value Measurements and Disclosures", previously FAS 157, adopted January 1, 2008, defines fair value, establishes a
three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value
measures.  The carrying amounts reported in the balance sheets for current receivables and payables qualify as financial instruments.
Management concluded the carrying values are a reasonable estimate of fair value because of the short period of time between the
origination of such instruments and their expected realization and if applicable, their stated interest rate approximates current rates
available.  The three levels are defined as follows:







17

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The
assets measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820 as of June 30, 2012 and
December 31, 2011 are as follows:

|                          |  | Carrying value |            | Active  marketsFor identical Assets |   | Significantother Observable
                  Inputs |  | SignificantUnobservableInputs
|------------------------- |  | -------------- | ---------- | ----------------------------------- | - | ---------------------------------------------------- |  | -----------------------------
|                          |  | 2012           |            | (Level 1)                           |   | (Level 2)                                            |  | (Level 3)                    
|                          |  |                |            |                                     |   |                                                      |  |                              
|Cash and cash equivalents |  | $              | 5,942,846  |                                     | $ | 5,942,846                                            |  | -                            
|                          |  |                |            |                                     |   |                                                      |  |                              
|Restricted cash           |  | $              | 14,196,046 |                                     | $ | 14,196,046                                           |  | -                            

 

|                          |  | Carrying value |            | Active  marketsFor identical Assets |   | Significantother Observable
                  Inputs |  | SignificantUnobservableInputs
|------------------------- |  | -------------- | ---------- | ----------------------------------- | - | ---------------------------------------------------- |  | -----------------------------
|                          |  | 2011           |            | (Level 1)                           |   | (Level 2)                                            |  | (Level 3)                    
|                          |  |                |            |                                     |   |                                                      |  |                              
|Cash and cash equivalents |  | $              | 1,131,109  |                                     | $ | 1,131,109                                            |  | -                            
|                          |  |                |            |                                     |   |                                                      |  |                              
|Restricted cash           |  | $              | 15,507,408 |                                     | $ | 15,507,408                                           |  | -                            

The
Company's financial instruments include cash and equivalents, restricted cash, accounts receivable, notes receivables, other
receivables, accounts payable, notes payable.  Cash and cash equivalents consist primarily of high rated money market funds at a
variety of well-known institutions with original maturities of three months or less.  Restricted cash represents time deposits on account
to secure short-term bank loans and notes payable (Note 15). Management estimates the carrying amounts of the non-related party
financial instruments approximate their fair values due to their short-term nature.

Concentration of Credit Risk

Financial
instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and equivalents
and trade and bills receivables.   As of June 30, 2012 and December 31, 2011, substantially all of the Company's cash and
equivalents and restricted cash were held by major financial institutions located in the PRC, Hong Kong and the United States, which
management believes are of high credit quality.  With respect to trade and notes receivables, the Company extends credit based on an
evaluation of the customer's financial condition.  The Company generally does not require collateral for trade receivables and maintains
an allowance for doubtful accounts of trade receivables.

Notes receivable are undertaken by the banks to honor the payments at maturity and the customers are
required to place deposits with the banks equivalent to certain percentage of the notes amount as collateral.  These notes receivable
can be sold to any third party at a discount before maturity.  The Company does not maintain an allowance for notes receivable in the
absence of bad debt experience and the payments are undertaken by the banks.

Non-controlling Interests

The Company follows ASC 810, previously SFAS No. 160 "Non-controlling Interests in Consolidated
Financial Statements-reported in equity" for reporting non-controlling interest ("NCI") in a subsidiary.  As a result, the
Company reports NCI as a separate component of Stockholders' Equity in the Consolidated Balance Sheet. Additionally, the Company
reports the portion of net income and comprehensive income attributed to the Company and NCI separately in the Consolidated
Statement of Income.  The Company also includes a separate column for NCI in the Consolidated Statement of Changes in
Stockholders' Equity.

18

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Statement
of Cash Flows

In
accordance with ASC 230, "Statement of Cash Flows", previously SFAS No. 95, cash flows from the Company's operations
are calculated based upon the local currencies.  As a result, amounts related to assets and liabilities reported on the statement of cash
flows may not necessarily agree with changes in the corresponding balances on the balance sheet.

Recent
Accounting Pronouncements

In July 2012, the FASB issued ASU 2012-02, Intangibles-Goodwill and Other (Topic 350) - Testing Indefinite-Lived
Intangible Assets for Impairment.  The ASU provides entities with an option to first assess qualitative factors to determine whether events or
circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired.  If an entity concludes
that it is more than 50% likely that an indefinite-lived intangible asset is not impaired, no further analysis is required.  However,
if an entity concludes otherwise, it would be required to determine the FV of the indefinite-lived intangible asset to measure the amount
of actual impairment, if any, as currently required under US GAAP. The ASU is effective for annual and interim impairment tests
performed for fiscal years beginning after September 15, 2012.  Early adoption is permitted. The adoption of this
pronouncement will not have a material impact on its financial statements.

As of June 30, 2012, there are no other recently issued accounting standards not yet adopted that would have a material
effect on the Company's consolidated financial statements.

19

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NOTE 3 - MERGER AND
ACQUISITIONS

The
Company acquired 100% equity in Silver Tech on May 31, 2010. As of May 31, 2010, the net assets of Silver Tech were $2,564,160.
The purchase consideration was $10,960,000 which resulted in goodwill of $8,395,840.

Silver Tech's subsidiary Nollec Wireless primarily focuses on R&D for mobile phones, and hardware and
software solutions for domestic Chinese and overseas customers. Its design team includes experienced engineers in the core
technologies of wireless communication and mobile phone development. Nollec provides state of the art industrial, user inter-phase,
mechanical and engineering designs and software and hardware integration.  The acquisition of Nollec allows the Company to provide
complete original design and manufactured solutions to its customers in order to maintain a competitive advantage in the mobile
handset manufacturing market.

The Company acquired 100% ownership of CDE on January 4, 2011. As of January 4, 2011, the net assets of
CDE were $(43,409).  The purchase consideration was $1,818,000 which resulted in goodwill of $1,861,409.  The Company acquired
CDE to broaden and deepen its knowledge base towards software solutions for mobile handsets.  CDE has designed games for iOS
and Android platforms for several years.  The accumulated knowledge and source codes can be useful to the Company in integrating
and testing operating systems with the hardware that the Company produces.

The following table summarizes the preliminary fair values of the assets acquired and liabilities
assumed from CDE as of the date of acquisition on January 4, 2011.

|Cash                 |  | $         | 235,112  
|-------------------- |  | --------- | ---------
|Other receivables    |  | 5,895    
|Prepaid expenses     |  | 3,259    
|Accounts receivable  |  | 8,413    
|Fixed assets         |  | 6,565    
|Goodwill             |  | 1,861,409
|Short-term loan      |  | (20,075) 
|Accounts payable     |  | (990)    
|MPF payable          |  | (1,758)  
|Due to related party |  | (277,774)
|Accrued expenses     |  | (2,056)  
|                     |  |           |          
|Purchase price       |  | $         | 1,818,000

The Company acquired 55% ownership of Portables on October 11, 2011. As of October 11, 2011, the net assets of Portables
were $(9,290,241).  The purchase consideration was $9,851,486 which resulted in goodwill of $ 27,005,953.  The Company acquired
Portables for two reasons; (a) to diversify its revenue sources, and (b) to gain access to the most mature mobile handset market in the
world.

20

---



The following table summarizes the fair market values assigned to the assets acquired and liabilities assumed from
Portables as of October 11, 2011.

|Cash                                  |  | $ | 81,048      
|------------------------------------- |  | - | ------------
|Other receivables                     |  |   | 4,054,550   
|Prepaid expenses                      |  |   | 255,816     
|Accounts receivable                   |  |   | 3,896,008   
|Inventory                             |  |   | 1,045,478   
|Due from related parties              |  |   | 3,813,514   
|Fixed assets                          |  |   | 2,216,272   
|Equipment deposit                     |  |   | 103,602     
|Intangible assets                     |  |   | 223,557     
|Goodwill                              |  |   | 27,005,953  
|Short-term loan                       |  |   | (1,352,562) 
|Notes payable                         |  |   | (4,757,186) 
|Accounts payable                      |  |   | (10,717,533)
|Accrued expenses                      |  |   | (2,749,780) 
|Due to related party                  |  |   | (2,818,775) 
|Other payables                        |  |   | (2,584,250) 
|Valuation of non-controlling interest |  |   | (7,864,226) 
|                                      |  |   |             
|Purchase Price                        |  | $ | 9,851,486   

Our purchase price allocation is preliminary and will be finalized within one year from the date of acquisition of
Portables.  The Company derecognized the $1,350,000 acquisition payable and revised goodwill from $27,005,953 as at December 31,
2011 to $25,668,755 as at June 30, 2012 as a result of this de recognition. (See Note 1)

The
following table summarizes goodwill as of June 30, 2012 and December 31, 2011 resulting from the acquisitions of Jiangsu Leimone,
Silver Tech, CDE and Portables:

|                 |  | June 30,
                  2012 |             | December 31,
                  2011
|---------------- |  | ------------------------------- | ----------- | -----------------------------------
|                 |  |                                 | (Unaudited) |                                    
|                 |  |                                 |             |                                    
|Jiangsu Leimone  |  | $                               | 103,057     |                                    
|Silver Tech      |  |                                 | 8,395,840   |                                    
|CDE              |  |                                 | 1,583,198   |                                    
|Portables        |  |                                 | 25,677,347  |                                    
|                 |  |                                 | 35,759,442  |                                    
|Less: Impairment |  |                                 | (1,033,762) |                                    
|                 |  |                                 |             |                                    
|Total goodwill   |  | $                               | 34,725,680  |                                    

As of
December 31, 2011, the Company had recorded total impairment of goodwill of $1,033,762. During the six months ended June 30,
2012, after considering markets conditions and the performance of those subsidiaries listed above, the Company concluded that it did
not need to record additional impairment of goodwill.  The Company continues to closely monitor its subsidiaries when major events
occur that may cause the carrying value of the goodwill associated with the above subsidiaries to be impaired.

21

---



NOTE 4 - RESTRICTED
CASH

Restricted
cash was deposits in banks as collateral for the banks to issue banker's acceptances.  Restricted cash may not be recovered when the
secured notes payable cannot be paid (see Note 15).

NOTE 5 - ACCOUNTS RECEIVABLE

As of
June 30, 2012 and December 31, 2011, the Company's accounts receivable consisted of the following:

|                                      |  | June 30,
                  2012 |            | December 31,
                  2011
|------------------------------------- |  | ------------------------------- | ---------- | -----------------------------------
|                                      |  | (Unaudited)                     |            | (Audited)                          
|                                      |  |                                 |            |                                    
|Accounts receivable                   |  | $                               | 70,662,360 |                                    
|Less: Allowance for doubtful accounts |  |                                 | (733,140)  |                                    
|                                      |  |                                 |            |                                    
|Accountants receivable, net           |  | $                               | 69,929,220 |                                    

NOTE
6 - INVENTORIES

Inventories, by major categories, as of June 30, 2012 and December 31, 2011 were as follows:

|                                          |  | June 30,
                  2012 |           | December 31,
                  2011
|----------------------------------------- |  | ------------------------------- | --------- | -----------------------------------
|                                          |  | (Unaudited)                     |           | (Audited)                          
|                                          |  |                                 |           |                                    
|Raw materials                             |  | $                               | 2,474,432 |                                    
|Finished goods                            |  |                                 | 5,017,982 |                                    
|                                          |  |                                 | 7,492,414 |                                    
|Less: Allowance for obsolete  inventories |  |                                 | (33,677)  |                                    
|                                          |  |                                 |           |                                    
|Inventories, net                          |  | $                               | 7,458,737 |                                    

22

---

NOTE 7 - ADVANCE TO SUPPLIERS

As of June
30, 2012 and December 31, 2011, the Company's advance to suppliers consisted of the following:

June 30,
                  2012

December 31,
                  2011(Unaudited)

(Audited)Yuechangrui

$
-

$
7,399,939Media Tak Inc.


124,490


-Shenzhen Sangfei Entertainment Communication Co., Ltd.


103,018


-Dongguan Yaxin Semi-conductor Co., Ltd.


660,612


-Shenzhen Bolixin Technology Co., Ltd.


219,244


-Shenzhen Zhuoershi Electronic Technology Co., Ltd.


189,053Shenzhen Tongxincheng Photoelectric Co., Ltd.


119,553Shenzhen Chuangjie Supply Chain Co., Ltd.


175,237


-Jiangxi TongGuJiangQian


-


478,000Foshan Import and Export


-


129,384Dewav Technology


-


877,650Qualcomm


128,318


101,181Konka


62,294


79,852Other - multiple vendors of various amounts


514,593


644,401Total advance to suppliers

$
2,296,412

$
9,834,017NOTE 8 -
PURCHASE DEPOSIT

As of June
30, 2012 and December 31, 2011, the Company's purchase deposit consisted of the following:

June 30,
                  2012

December 31,
                  2011(Unaudited)

(Audited)Shenzhen Wuxing Commercial & Trade Co.

$
5,435,989

$
7,135,266Shenzhen Nanxin Communication Equipment Co.,
Ltd.


791,177


785,583Shenzhen Futian District Longchengfa Electronic Co.,
Ltd.


632,942


628,466Total purchase deposit

$
6,860,108

$
8,549,315These
three suppliers provide purchasing platforms.  The purchase deposits are paid to ensure the Company is able to purchase components
at competitive price. These deposits are refundable during the normal course of business and do not represent any commitment.

The Company signed a purchase agreement with Shenzhen Wuxing Commercial & Trade Co. for the
supply of components for the E33 mobile phone.  These components have been delivered during the fourth quarter of 2011 and the first
half year of 2012. The amounts are advanced under such arrangements as of June 30, 2012.

As of June 30, 2012, contracts with suppliers to use purchase platform were expired and not renewed.  The
Company has not recovered all of the deposits and it is pursuing their recovery.  The recovery of these amounts is still expected,
accordingly, no allowance for non-recovery has been accrued.

23NOTE 9 -
OTHER RECEIVABLES & PREPAID EXPENSES

As of June
30, 2012 and December 31, 2011, the Company's other receivables and prepaid expenses consisted of the following:

June 30,
                  2012

December 31,
                  2011(Unaudited)

(Audited)Advance to employees

$
112,915

$
23,882Deposit for equipment lease


212,689


211,583Prepaid expenses


224,401


238,857Bank notes (a)


8,949,931


9,226,641Other


123,108


83,044Total other receivables

$
9,623,044

$
9,784,007The deposit for equipment lease is recoverable within one year.

(a)
Per purchase contract signed in 2010, CECCC provided mobile phone components to the Company. The
Company paid in advance to CECCC by payment of ' bank notes'. During 2011, no purchase transaction was completed. As of June
30, 2012, the total outstanding amount is $8.9 million (RMB 56.6 million)
which represents bank notes paid by the bank to CECCC but no purchases made by the Company.NOTE 10 -
RESEARCH AND DEVELOPMENT CONTRACTS IN PROGRESS

June 30,
                  2012

December 31,
                  2011(Unaudited)

(Audited)Costs in excess of billings

$
514,797

$
91,880Research
and development contracts in progress include cost plus profit attributable to mobile phone development contracts in progress. Cost to
date is calculated based on the value of man-month engineering costs and related overhead expenses.  Company's R&D
cost as at June 30, 2012 and December 31, 2011 was $0.5 million and $0.09 million respectively while its progress billings were $0
million and $0 million respectively.


24NOTE 11 -
PROPERTY, PLANT AND EQUIPMENT

Property,
plant and equipment as of June 30, 2012 and December 31, 2011 consisted of the following:

June 30,
                  2012

December 31,
                  2011(Unaudited)

(Audited)Machinery and equipment

$
9,761,009

$
9,678,543Electronic equipment


2,482,774


2,431,834Transportation equipment


166,405


182,250Workshop reconstruction


175,167


173,928Leasehold improvements


2,668,915


2,547,847Computer equipment


97,127


96,982Office equipment


707,946


614,71016,059,343


15,726,094Less: Accumulated depreciation


(10,315,467)


(9,465,419)Property, plant and equipment, net

$
5,743,876

$
6,260,675Depreciation for the six months ended June, 2012 and 2011 was $797,092 and $372,915 respectively.  The
depreciation for the three months ended June 30, 2012 and 2011 was $398,216 and $391,701 respectively.

NOTE 12 - CONSTRUCTION
IN PROGRESS DEPOSIT - RELATED PARTY

June 30,
                  2012

December 31,
                   2011(Unaudited)

(Audited)Manufacturing plant

$
-

$
10,170,809The
Company signed an agreement with Leimone (Tianjin) Industrial Co., Ltd. ("Tianjin Leimone") to construct a manufacturing
plant on June 26, 2010 for $15,063,000 (RMB 99,591,000).  The contract included land use rights for 46,021 square meters and space
of 21,029 square meters. At December 31, 2011, the Company had paid to Tianjin Leimone $10,170,809 (RMB 64,734,150).  During
the three months ended June 30, 2012, the Company incorporated a new joint venture, SpreadZoom Technologies Co., Ltd., that will
be the entity to legally hold title to the Company's new factory.  The Company believes the valuation of the assets and economic
benefits derived from the Company's ownership via the newly formed entity remained unchanged.  See note 28 - SpreadZoom
Investment for details.
The deposit paid to Tianjin Leimone was repaid to the Company and
immediately used to capitalize SpreadZoom and then subsequently paid back to Tianjin Leimone for the factory that will
owned by SpreadZoom.

Leimone (Tianjin) Industrial Co., Ltd ("Leimone Tianjin"), a related party, is
currently involved with a dispute with the construction company contracted to build our new manufacturing facility in
Tianjin.  On August 15, 2011, Leimone Tianjin filed a claim against Henan Urban Construction Group
("HUCG").  The claim is for the termination of the construction contract between Leimone Tianjin and HUCG
and claims damages of approximately $1.3 million (RMB 8,072,310) against HUCG.  In Leimone Tianjin's court filing, it
has accused HUCG of improper use of the funds paid to HUCG by Leimone Tianjin, as a result, construction project has
been delayed.  HUCG's has claimed as its defense that the delay in construction was a result of poor conditions at the
construction site.  The outcome of the dispute is still pending decision from the courts from the 2nd Mid-
Level People's Court of Tianjin City.  The Company is currently unable to determine the probability that it will be
successful in this claim.  The Company believes the decision by the courts will be issued before the end of third quarter
of 2012.  As of June 30, 2012, the courts have not yet issued their judgment.

25NOTE 13 -
 INTANGIBLE ASSETS

As of June 30, 2012 and
December 31, 2011, the Company's intangible assets were summarized as follows:

Useful life

June 30,
                  2012

December 31,
                  2011(Unaudited)

(Audited)Software

3 years

$
202,295

$
201,275Domain name, logo & trade mark

Indefinite


349,600


349,600Customer list

5 years


86,250


86,250Technology use right

1 year


126,325


125,432Patent techniques

10 years


182,651


181,360Total cost




947,121


943,917Less: Accumulated amortization




(243,047)


(171,390)Intangible assets, net



$
704,074

$
772,527Intangible
assets are stated at cost less accumulated amortization.  The Company acquired domain name "zoom.com" and related
logo & trade name for 80,000 shares of common stock valued $349,600 as of the date of purchase.  The domain name, logo and
trademark have indefinite lives and no amortization was recorded.  The amortization of intangible assets for the six months ended June,
2012 and 2011 was $52,575 and $20,606 respectively.  The amortization of intangible assets for the three months ended June 30,
2012 and 2011 was $21,374 and $14,990 respectively. The estimated amortization for the next five years as of June 30, 2012
and thereafter is expected to be as follows by years:

2013

$
182,5452014


66,5962015


18,2652016


18,2652017


18,265Thereafter


50,538Total

$
354,47426NOTE 14 -
SHORT-TERM LOANS

Short-term
loans are due to various financial institutions which are normally due within one year.  As of June 30, 2012 and December 31, 2011, the
Company's short term loans consisted of the following:

June 30,
                  2012

December 31,2011(Unaudited)

(Audited)Bank of Communication Tianjin Branch ("BOCTB"), due from
July 4, 2011 to July 3, 2012 with benchmark interest rate plus 5%, guaranteed by TCBGCL - related party


3,164,707


3,142,332BOCTB, due from June 20, 2011 to June 16, 2012 with benchmark interest
rate plus 5%, guaranteed by TCBGCL - related party


-


3,142,332BOCTB, due from June 14, 2011 to June 13, 2012 with benchmark interest
rate plus 5%, guaranteed by TCBGCL - related party


-


3,079,485BOCTB, due from August 18, 2011 to August 17, 2012, with benchmark
interest rate plus 5%, mortgaged by fixed assets


3,164,707


3,142,332BOCTB, due from August 3, 2011 to August 1, 2012 with benchmark
interest rate plus 5%, guaranteed by TCBGCL - related party


4,747,060


4,713,498BOCTB, due from June 13, 2012 to June 14, 2013 with interest at 6.941%,
guaranteed by TCBGCL - related party


6,329,414


-China Merchant Bank Tianjin branch, due from July 29, 2011 to January 28,
2012, interest at 7.93%, mortgaged by bank notes of $785,583 (RMB5,000,000); repaid in full on January 28,
2012


-


754,160Key Network Holdings Limited, due on demand with interest at
6%.


715,018


715,064JP Morgan Chase credit line for $1.3 million secured by certificate of deposit from Portables
Unlimited, Inc. (the 49.5% owner of Portables) due from September 1, 2011 - August 31, 2012, at Libor plus
2.95%


$2,945,670


$854,469HSBC, due on demand with interest at 7.25%


$5,640


$48,146Bank of Tianjin Laolian Branch, due from June 24, 2011 to June 22, 2012
with interest at 6.941%, guaranteed by Tianjin Zhonghuan Electronic Information Group Ltd.
("Electronic")


-


1,995,381Bank of Tianjin Laolian Branch, due from June 24, 2011 to June 22, 2012
with interest at 6.941%, guaranteed by Electronic


-


628,466Bank of Tianjin Laolian Branch, due from June 27, 2011 to June 22, 2012
with interest at 6.941%, guaranteed by Electronic


-


157,117Bank of Tianjin Laolian Branch, due from June 28, 2011 to June 22, 2012
with interest at 6.941%, guaranteed by Electronic


-


361,36827Shanghai Pudong Development Bank Pucheng Branch, due from November
1, 2011 to November 1, 2012 with interest at 7.216%, guaranteed by Tianjin Loan Guaranty Company, price is 1.2% of total principal,
shall pay off within 5 days after all principal are paid off


1,582,354


1,571,166North International Trust Company, due from April 12, 2012 to April 12,
2013 with interest at 11.5%, guaranteed by Tianjin Loan Guaranty Company


1,582,354


-Bank of China Tianjin Branch, due from May 18, 2012 to August 16, 2012
with interest at 4.166850%, by export invoice discount contract


202,632


-Bank of China Tianjin Branch, due from May 25, 2012 to August 23, 2012
with interest at 4.166850%, by export invoice discount contract


67,544


-Bank of China Tianjin Branch, due from June 258, 2012 to September 23,
2012 with interest at 4.167600%, by export invoice discount contract


438,240


-HSBC Suzhou Branch, due from August 15, 2011 to January 12, 2012 with
interest at SIBOR plus 4.0%, guaranteed by tangible assets of the Company (a)


-


1,000,000HSBC Suzhou Branch, due from April 27, 2012 to January 12, 2013 with
interest at SIBOR plus 4.0%, guaranteed by the Company (a)


600,000


-Beijing Bank Zhongguancun Haidianyuan Sub-branch, due March 14, 2012
with interest at 6.67%, guaranteed by TCB Digital; repaid in full on March 14, 2012


-


235,675Beijing Bank Zhongguancun Haidianyuan Sub-branch, due March 14, 2012
with interest at 6.67%, guaranteed by TCB Digital, repaid in full on March 14, 2012


-


314,233Beijing Bank Zhongguancun Haidianyuan Sub-branch, due March 14, 2012
with interest at 6.67%,  guaranteed by TCB Digital; repaid in full on March 12, 2012


-


534,196JP Morgan Chase - Bank Overdraft Account; Due on Demand


20,527


15,923Total short-term loans

$
25,565,867

$
26,405,34(a)
Based on a corporate guarantee from the Company and a personal guarantee
from Mr. Gu for financing up to 85% of invoice for approved buyer of Profit Harvest, this loan is subject to certain
covenants which should be complied at all times.  Those covenants includes but not limited to tangible net worth not less
than $40 million and net gearing not greater than 1.2 times.  As of December 31, 2011, the Company was in
violation of one of its loan covenant with HSBC.  The covenant calls for the Guarantor, Zoom, on behalf of the
Borrower, Profit Harvest, to maintain a minimum tangible net worth of $40,000,000.  The Company's tangible
net worth at December 31, 2011 was $39,673,617 (Stockholders' equity of $76,778,641 less Goodwill of $36,332,497,
less intangible assets of $772,527).  With exception to the aforementioned covenant violation, the Company complied
with all the other covenants.  The Company repaid the loan to HSBC Suzhou Branch on February 13,
2012.  The loan was renewed by HSBC in April 2012 requiring the same loan covenants as detailed above.  The
Company's tangible net worth at June 30, 2012 was $44,071,986; its net gearing was 0.96 times.  Accordingly, the
Company was in compliance with all of the loan covenants.28NOTE 15 - NOTES PAYABLE

These notes are payable in three to six months and bear no interest.  The balance of notes payable as of June 30,
2012 and December 31, 2011 consisted of the following (all were bankers' acceptances):

June 30,
                  2012

December 31,2011(Unaudited)

(Audited)CECCC, honored by the BOCTB, from July 14, 2011 to January 14, 2012,
secured by $942,700 of cash in bank; Repaid January 16, 2012


-

1,885,399CECCC, honored by the BOCTB, from July 20, 2011 to January 20, 2012,
secured by $1,414,049 of cash in bank, Repaid January 20, 2012


-

2,828,099Shanghai Zhanqiao, honored by the BOCTB, from August 8, 2011 to
February 8, 2012, secured by $1,571,166 of cash in bank; repaid February 8, 2012


-

1,571,166CECCC, honored by the BOCTB, from September 20, 2011 to March 20,
2012, secured by $3,927,915 of cash in bank; repaid March 20, 2012


-

7,855,830CECCC, honored by the BOCTB, from September 22, 2011 to March 22,
2012, secured by $3,220,890 of cash in bank; repaid March 22, 2012


-

6,441,780CECCC, honored by the BOCTB, from September 27, 2011 to March 27,
2012, secured by $974,123 of cash in bank;repaid March 27, 2012


-

1,948,246CECCC, honored by the BOCTB, from October 14, 2011 to April 14, 2012,
secured by $790,551 of cash in bank


-

1,571,166CECCC, honored by the BOCTB, from October 19, 2011 to April 19, 2012,
secured by $2,687,875 of cash in bank


-

5,341,964CECCC, honored by the BOCTB, from January 16 to July 16, 2012, secured
by $2,373,530 of cash in bank;


4,747,061

6,441,780CECCC, honored by the BOCTB, from March 30 to September 30, 2012,
secured by $3,955,884 of cash in bank;


7,911,768

1,948,246CECCC, honored by the BOCTB, from April 5 to October 5, 2012, secured
by $4,224,884 of cash in bank;


8,449,768

-CECCC, honored by the BOCTB, from April 9 to October 9, 2012, secured
by $2,057,060 of cash in bank;


4,114,119

-CECCC, honored by the BOCTB, from April 16 to October 16, 2012,
secured by $1,424,118 of cash in bank;


2,848,237

-Dongguan Yaxing Semiconductor Co., Ltd, honored by Industrial Bank
Jinweilu Branch, from June 1 to September 1, 2012, secured by $74,054 of cash in bank;


74,054

-29Shenzhen Bolixin Technical Co., Ltd, honored by Industrial Bank Jinweilu
Branch, from June 6 to September 6, 2012, secured by $26,900 of cash in bank;


26,900

-Shenzhen Bolixin Technical Co., Ltd, honored by the Industrial Bank
Jinweilu Branch, from June 6 to September 6, 2012, secured by $27,968 of cash in bank;


27,968

-Shen Zhen Jun Cheng Hao Trading Ltd., honored by the Bank of China
Heping Branch, from March 7 to September 7, 2012, secured by $31,647 of cash in bank


31,647

1,571,166Total notes payable

$
28,231,522

$
29,443,650

NOTE 16 - ACCRUED EXPENSES AND OTHER PAYABLES

As of
June 30, 2012 and December 31, 2011, the accrued expenses and other payables of the Company were summarized as follows:

June 30,
                  2012

December 31,
                  2011(Unaudited)

(Audited)Accrued filing fees

$
433,029

$
445,391Accrued rework cost


227,963


215,560Accrued commission payable


5,460,873


4,616,079Acquisition payable*


312,500


1,662,500Accrued expenses


3,410,591


2,686,016Welfare & salary payable


518,224


341,137Others


647,548


207,029Total accrued expenses and other payables

$
11,010,728

$
10,173,71230*Current portion of acquisition payable related to our acquisition of Nollec Wireless on June 1, 2010 of $312,500
(see Note 1).



Pursuant to the terms of the Securities Purchase Agreement, in case Zoom and/or Zoom Sub does not pay the T-Mobile
liabilities of Portables which were assumed in the transaction, (collectively, the "Cash Payments") in full and arrange for the
Letter of Credit within the Payment Period (30 days after the closing), then the unpaid portion of the Cash Payments shall incur interest
at an annual rate of 2% during the 60-day period following the Payment Period (the end of such 60-day period shall be the "Final
Payment Date"). Subject to Rescission Remedy, in the event the Cash Payments are not made in full and the Letter of Credit is
not arranged for by Zoom and/or Zoom Sub by the Final Payment Date, then a percentage of the Portables shall be returned by Zoom
Sub to Portables, effective immediately following the Final Payment Date, based on the certain formula as stipulated in the Securities
Purchase Agreement. The Company currently is in default of this payment.  On April 13, 2012, we received notice that we are in default
on the Securities Purchase Agreement.  The Securities Purchase Agreement provides that if we are in default, the Company's
ownership of Portables will be reduced.  CNCG will be entitled to enforce certain rescission rights against the Company, as more fully
described in the Securities Purchase Agreement.  Also, in case of a default, Portables, CNCG and the other member of Portables may
bring claims for indemnification against the Company for a breach under the Securities Purchase Agreement, as more fully described in
the Securities Purchase Agreement.  The Company's non-payment to Portables has reduced its percentage of ownership from 55.0%
to 50.5%.  Portables Unlimited Inc. owns 49.5% of Portables.  As of May 15, 2012, the Company is in dispute with two of the managing
members of Portables over the Company's percentage of ownership of Portables.  In the event that the Company was not able to
maintain its 50.5% ownership of Portables, the Company would account for its investment in Portables using the equity method of
accounting.

Accrued commission payable reflects commissions earned by and payable to store operators based on monthly
commission reports from T-Mobile.

Accrued expenses include a $2.4 million retention bonus payable to certain executives of Portables for services
rendered prior to the acquisition.


NOTE
17 - DIVIDENDS PAYABLE

In
June 2007, before the Company acquired 51.0% of TCB Digital, TCB Digital decided to distribute dividends to its original shareholders
of $1,074,068 (RMB 7,862,700).  The Company paid dividends of $495,926 (RMB 3,900,000) in July 2007 to its original shareholders.
The balance of dividends payable was $627,039 and $622,606 as of June 30, 2012 and December 31, 2011 respectively, representing
the dividend payable to TCBGCL of RMB 3,962,700.  The specific due date of the dividend will be negotiated between the current
shareholders and original shareholders of the Company.  The fluctuation of the balance of dividend payable represents the fluctuation
of currency exchange rate.


31NOTE 18 -
RELATED PARTY TRANSACTIONS

Due from related parties

As of June
30, 2012 and December 31, 2011, due from related parties were:

June 30,
                  2012

December 31,2011(Unaudited)

(Audited)Due from related parties - short termTianjin Tong Guang Group Electronics Science  & Technology Co.,
Ltd.

$
8,505,151

$
3,883,641Beijing Leimone Shengtong Wireless Technology Co., Ltd.


128,487


167,172Leimone (Tianjin) Industrial Co., Ltd.


7,367,123


20,473,338Beijing Leimone Shengtong Cultural Development Co., Ltd.


1,727,525


2,744,697Tianjin Tong Guang Group


712,850


379,994Shenzhen Leimone


400,893


429,170712 (Prior Shareholder)


758,774


992,815Raja R Amar - Chief Executive Officer of Portables


334,634


741,448AUM Realty


2,332,556


-Others


-


613,425Total due from related parties

$
22,267,993

$
30,425,700Tianjin
Tong Guang Group Electronics Science & Technology Co., Ltd. ("Electronics Science & Tech"), an entity related
to the Company through a common shareholder of TCB Digital, purchased products from the Company.  For the six months ended
June 30, 2012 and 2011, the Company recorded revenues of $29,728,814 and $12,541,921 from sales to Electronics Science &
Tech respectively. For the three months ended June 30, 2012 and 2011, the Company recorded revenues of $20,259,709 and
$6,270,484 from sales to Electronics Science & Tech respectively.

Beijing Leimone Shengtong Wireless Technology Co., Ltd. ("Beijing Leimone") was founded by Gu,
the largest shareholder of the Company.  Beijing Leimone borrows money from the Company.  The borrowings bore no interest and had
a maturity of 12 months.


Leimone (Tianjin) Industrial Co., Ltd. ("Tianjin Leimone") was controlled by Gu, the largest shareholder
of the Company.  Tianjin Leimone sells raw materials to the Company.  For the six months ended June 30, 2012 and 2011, the
Company recorded total purchases from Tianjin Leimone of $72,137,320and $23,684,030 respectively.  The amount due from Tianjin Leimone represented advances of $553,641 and
$13,708,030 as of June 30, 2012 and December 31, 2011 respectively.  The Company also sold certain products to Tianjin Leimone.
In addition, Tianjin Leimone borrowed money from the Company and these borrowings bore no interest. As of June 30, 2012 and
December 31, 2011, the balance of such loans was $6,813,482 and $6,765,308 respectively.

The amount due from Beijing Leimone Shengtong Cultural Development Co., Ltd. ("Beijing Leimone
Cultural") for short term loan granted by the Company. Beijing Leimone Cultural was controlled by Gu. The borrowing bore no
interest and is due on demand.

Tianjin Tong Guang Group, a 20% shareholder of our TCB subsidiary, borrowed money from the Company.
The borrowings bear no interest and are due on demand.

32712 was a minority shareholder of TCB Digital before Mr. Gu exercised the option to acquire 29.0% of TCB
Digital.  (See note 1.)  712 purchases raw materials from the Company.  For the six months ended June 30, 2012 and 2011, the
Company recorded revenues from sales to 712 of $316,870 and $15,757,425 respectively.  For the three months ended June 30, 2012
and 2011, the Company recorded revenues from sales to 712 of $316,870 and $7,838,896 respectively.  As of June 30, 2012 and
December 31, 2011, the balance of such sales was $560,980 and $796,419 respectively. In addition, the Company purchases raw
materials from 712. For the six months ended June 30, 2012 and 2011, the Company recorded purchases from 712 of Nil and
$15,523,282 respectively. For the three months ended June 30, 2012 and 2011, the Company recorded total purchases from 712 of Nil
and $6,399,926 respectively. 712 was no longer a related party of the Company after Mr. Gu exercised his option to acquire the
additional 29.0% of TCB Digital in March 2010.

Shenzhen Leimone Company, Ltd., formed by individuals including our Chairman, Mr. Gu, is set up with the
intention of providing manufacturing services to our Company particularly for exports.  $400,893 and $408,831 as of June 30, 2012 and
December 31, 2011 was a loan to Shenzhen Leimone for setup costs.  Our Chairman, Mr. Gu, plans to personally fund the cost of
equipment as his investment into Shenzhen Leimone and become the controlling shareholder of Shenzhen Leimone.  The Company
purchased raw materials from Shenzhen Leimone in 2011. The balance as of December 31, 2011 was advance to Shenzhen Leimone
amounted to $20,339. In addition, for the six months ended June 30, 2012 and 2011, the Company recorded revenues from sales to
Shenzhen Leimone of $16,024 and Nil respectively. For the three months ended June 30, 2012 and 2011, the Company recorded total
revenue from sales to Shenzhen Leimone of Nil and Nil respectively.

The
amounts due from Raja R Amar are related to loans made to Raja R Amar by Portables prior to its acquisition by Zoom.  The loans are
interest free and are unsecured and are expected to be repaid by December 31, 2012.

Due to related parties


As of June 30, 2012 and December 31, 2011, due to related parties was:


June 30,
                  2012

December 31,
                  2011(Unaudited)

(Audited)Gu

$
2,926,135

$
2,788,635Tianjin Tong Guang Group


598,063


-Leimone (Tianjin) Industrial Co., Ltd.


15,871,694


-AUM Realty, Inc.


-


269,049Wireless Holdings of Northeast


-


117,600Portables Unlimited International


4,620,665


2,633,147Portables Unlimited, Inc.


1,110,000


650,000Others


317,852


283,943Total due to related parties

$
25,444,409

$
6,742,373The Company borrowed money from Hui Pak Kong, a prior shareholder of
CDE before the Company's acquisition on January 4, 2011.  The borrowings bear no interest and are due on demand.
As of June 30, 2012 and December 31, 2011, the balance of such loans was Nil and $277,943 respectively.  The loan
owed to Hui Pak Kong was forgiven and the amount was added to the additional paid in capital during the six months
ended June 30, 2012.

Gu provides fund to the Company with no interest and are due on demand.  As of June 30, 2012
and December 31, 2011, the balances of funds provided by Gu was $2,926,135 and $2,788,635 respectively.

TCB Digital had outstanding related party payable of $15,871,694 owed to Tianjin Leimone for
raw materials that TCB Digital purchased through Tianjin Leimone for its manufacturing in the normal course of
business.  During the six months ended June 30, 2012, the TCB Digital purchased approximately $72.1 million of
material from Tianjin Leimone.

In January 2011, the Portables entered into a line of credit agreement with a Portables Unlimited
International for $3,000,000.  Interest on the line is due and payable on demand at 5.6%.  The unpaid balance as of June 30, 2012 and
December 31, 2011 was $4,620,665 and $2,633,147 respectively.


33Portables received advances from one of its non-controlling owner, Portables Unlimited, Inc., totaling
$1,110,000.  The advance has an interest rate of 12% per annum and is due on demand.


NOTE 19 - LONG-TERM PAYABLES


Acquisition
payable arose from our acquisition of Nollec Wireless on June 1, 2010.  As of June 30, 2012, there are three payments outstanding of
$145,000 each in six month intervals with the first payment due on December 1, 2012.

NOTE 20 - LONG-TERM NOTES PAYABLE

June 30,
                  2012

December 31,2011(Unaudited)

(Audited)CNCG, as part of the consideration payable to the sellers in our acquisition
of Portables, from October 11, 2011 to October 11, 2014 with interest at 2%

$
500,000

$
500,000NOTE 21 - STOCKHOLDERS' EQUITY


COMMON
STOCK

On July 2,
2012, the Company issued 137,625 shares of its common stock to the employees of its Nollec Wireless subsidiary in lieu of cash salary
within the second quarter.  The shares were valued at $1.03 per share, the closing price on the date of Board Approval, and the
Company recorded $141,754 of non-cash compensation expense for this issuance for the quarter ended June 30, 2012.

On May 22, 2012, the Company issued 302,800 shares of its common stock to its employees, consultants and
directors in replacement for cancelling 1,339,000 outstanding options that were held by the same recipients.  The shares have the
same vesting schedule as the options and were valued at $1.12 per share, the closing price on the date of Board Approval.  Based on
the difference between the market value of the shares and the Black-Scholes value of the cancelled options as of May 22, 2012, there
is an incremental non-cash compensation expense of $308,553 to be recorded over the service period.

On May 22, 2012, the Company issued 4,497,200 shares of its common stock, with claw back provisions, to
consultants for their services over the next four years beginning with the second quarter of 2012.  The shares were valued at $1.12 per
share, the closing price on the date of Board Approval. The projects these consultants are pursuing include but are not limited to
marketing our ODM business to large Southeast Asian customers, sales of our own brand and ODM products to private companies and
government supported programs in China aimed at various demographic sectors of the domestic mobile market, and other cooperative
ventures with the three mobile operators of the PRC.  The Company recorded $314,804 of non-cash compensation expense for this
issuance for the quarter ended June 30, 2012; and the outstanding deferred expenses related to such shares at June 30, 2012 was
$4,722,060.

On February 28, 2012, the Company issued to members of the Board of Directors a total of 170,000 shares of
its common stock. The Company recorded $56,950 of non-cash compensation expense for this issuance for the quarter ended June 30,
2012.  The outstanding deferred expenses related to such shares at June 30, 2012 was $113,900.


34On October 4, 2011, the Board of Directors approved of a grant of 1,130,000 shares of
common stock to members of management for their services over the next three and a half years.  The shares were valued at $1.19 per
share, the closing price on the date of Board approval.  As of December 31, 2011, 100,000 of such shares were recorded as shares to
be issued; the shares were subsequently issued on February 28, 2012 during the quarterly period ended March 31, 2012.  The shares
fully vest to management over one year from their date of issue.  The Company recorded non-cash compensation expense of
$96,050 for the quarter ended June 30, 2012.  The outstanding deferred expense related to such shares at June 30, 2012 was
$1,056,550.

On November 29, 2011, the BOD approved of a grant of 200,000 shares of common stock to management and one
consultant for their services over the next two years. The shares were valued at $0.79 per share, the closing price on the date of Board
Approval. As of June 30, 2012, we recorded non-cash compensation expense of $19,750 and deferred expenses of $111,917.

WARRANTS

The Company granted Series A, B, C, D and E warrants to the accredited investors as part of its private
place offering on October 16, 2009 and November 18, 2009.

Following is the brief description of warrants:
Series A Warrants: The Series A warrants have an exercise price of $6.00 and a term of 5 years from
the issue date subject to the Exchange Cap (as defined in the agreement).
Series B Warrants: The Series B warrants have an exercise price of $0.01 and a term of three (3)
months from the issue date provided, however, that such date shall be extended indefinitely if the warrant cannot be
exercised due to the Beneficial Ownership Limitation (as defined in the agreement) or the Exchange Cap Limitation (as defined in the
agreement) until the warrant can be exercised in full by the holder thereof without breaching the Beneficial Ownership Limitation (as
defined in the agreement) or the Exchange Cap Limitation (as defined in the agreement).  All B Warrants were exercised in December
2009.
Series C Warrants: The Series C warrants shall be exercisable only upon the exercise of the Series B
warrants. The Series C warrants shall have an exercise price of $6.00 and a term of 5 years from the issue date.
Series D Warrants: The Series D warrants shall be exercisable if the Company fails to meet certain
performance criteria for the year 2009. The Series D warrant shall have an exercise price of $0.01 and a term of exercise equal to three
(3) months from the date the Maximum Eligibility Date (as defined in the agreement); provided, however, that such date shall be
extended indefinitely if the warrant cannot be exercised due to the Beneficial Ownership Limitation (as defined in the agreement) or the
Exchange Cap (as defined in the agreement) until the warrant can be exercised in full by the holder without breaching the Beneficial
Ownership Limitation (as defined in the agreement) or the Exchange Cap Limitation (as defined in the agreement).  Due to the Net
Income of Zoom as reported in the Company's annual report for the year 2009 exceeding the eligibility threshold pursuant to the
agreement, the Series D Warrants became ineligible for exercise.
Series E Warrants:  The Series E warrants shall be exercisable if the Company fails to meet certain
performance criteria for the year 2010. The Series E warrants shall have an exercise price of $0.01 and a term of three (3) months from
the date the Maximum Eligibility Date (as defined in the agreement); provided, however, that such date shall be extended indefinitely if
the warrant cannot be exercised due to the Beneficial Ownership Limitation (as defined in the agreement) until the Warrant can be
exercised in full by the holder thereof without breaching the Beneficial Ownership Limitation (as defined in the agreement).  Due to the
Net Income of Zoom as reported in the Company's annual report for the year 2010 exceeding the eligibility threshold pursuant to the
agreement, the Series E Warrants became ineligible for exercise.
The Company granted on May 6, 2010, Series F warrants to the above investors for their temporary forfeiture of
their right to participate in the Company's future financings.

35Series F Warrants: The Series F warrants have an exercise price of $6.00 and a term of 5 years from
the issue date.  The Company issued 375,000 Series F warrants to investors who participated in private placement transaction
pursuant to the Securities Purchase Agreement dated October 15, 2009, to temporarily waive their right for a period of eight months to
participate in a future offering of the Company.  The investors originally have a period of twenty-four months ("Rights Period") in which
they have the right to participate, and for providing a temporary waiver, an eight-month duration is added to the original expiration of the
Rights Period.

The Company granted Series G warrants to the accredited investors as part of its private place offering on
November 15, 2010.
Series G Warrants: The Series G warrants shall have an exercise price of $4.71 and a term of 5 years
from the issue date.
Anti-dilution Adjustments for Certain Warrants:  Since the private placement in November 2010 involved sales
of the Company's stock at a price that activated anti-dilution provisions in the Series A, C, F and certain placement agent warrants, the
exercise price of these warrants is adjusted to $3.74 per share and the number of warrants eligible is multiplied by a factor of 6 / 3.74 or
1.60 with fractional shares rounding up.

The following summary represents warrants activity during the quarter ended June 30, 2012:

Number ofWarrants

Weighted AverageExercise Price

AggregateIntrinsic ValueBalance, December 31, 2011

8,638,604

$2.30

-Granted

-

-Lapsed

-

-Exercised

-

-Cancelled

-

-Balance, June 30, 2012

8,638,604

$2.30

-The
following presents warrants summary as of June 30, 2012:

NumberOutstanding

Warrants OutstandingWeighted AverageRemainingContractual Life

WeightedAverageExercisePrice

Warrants ExercisableNumberExercisable

WeightedAverageExercise PriceWarrants

8,638,604

2.60 years

$2.30

8,638,604

$2.3036The
Company determined the grant date fair value of Series A, C and placement agent warrants of $3.26 per share which was calculated
using the Black Scholes Options Pricing Model as follows: Stock price of $6.87 per share, exercise price of $6 per share, expected life
of 5 years, volatility of 46.63% and discount rate of 2.37%. These warrants were recorded net off the value of proceeds.

The Company determined the grant date fair value of F warrants of $1.51 per share which was calculated using
the Black Scholes Options Pricing Model as follows: Stock price of $5.52 per share, exercise price of $6 per share, expected life of 5
years, volatility of 30.30% and discount rate of 2.10%.  These warrants were recorded net off the value of proceeds.


The Company determined the grant date fair value of placement agent warrants of $1.23 per share which was
calculated using the Black Scholes Options Pricing Model as follows: Stock price of $5.52 per share, exercise price of $6.90 per share,
expected life of 5 years, volatility of 30.30% and discount rate of 2.10%.  These warrants were recorded net of the value of
proceeds.

The Company determined the grant date fair value of the Series G and placement warrants of $1.04 per share
which was calculated using the Black Scholes Options Pricing Model as follows: Stock price of $3.99 per share, exercise price of $4.71
per share, expected life of 5 years, volatility of 33.57% and discount rate of 1.51%.  These warrants were recorded net of the value of
proceeds.


NOTE 22 - STOCK
OPTIONS

Previous Plan

Prior to
the acquisition of Gold Lion, the Company issued stock options to its previous employees, officers and directors.  Pursuant to terms of
the SEA, outstanding stock options at the closing of the acquisition remained valid for the full life of the options regardless if the
employee, officer and director remained in any capacity with the Company.  There were 423,100 options outstanding as of September
22, 2009, the effective date of the reverse merger between Zoom and Gold Lion, with expiration in 3 years from the date of grant and in
various stages of vesting.  The non-cash compensation charges of these stock options were recorded by the spun-off subsidiary, Zoom
Telephonics, and were expensed by the Company.

On the closing of the Merger, 30,000 stock options were granted to four exiting directors of the Company, for
their anticipated cooperation with Post-Merger management, including the provision of any historical information about the Company
that may be needed in future activities.  Such options are exercisable at $10.14 per share, vest in six months from the date of grant and
expired two years later.  The non-cash compensation charges of these 30,000 shares of options will be expensed by the Company.  All
such options have expired or were exercised.

The following summary represents options activity for the three months ended June 30, 2012 under the
previous plan.

Under PreviousPlan

Weighted AverageExercise Price

AggregateIntrinsic ValueBalance, December 31, 2011

129,350

$1.80

-Granted

-

-Lapsed

(129,350)

-Exercised

-

-Cancelled

-

-Balance, June 30, 2012

-

-

-THE 2009
EQUITY INCENTIVE COMPENSATION PLAN

On December 10, 2009, the Company's Board of Directors ("BOD") approved and adopted the
2009 Equity Incentive Compensation Plan (the "New Plan"), and a total of 1,100,000 options were granted on the same day to current
employees, executives and directors of the Company, with an exercise price of $6.18 per share, expiration between 1 and 3 years, and
vesting over the life of the options.

On November 28, 2010, the Company's BOD approved re-pricing of the outstanding options from the exercise
price of $6.18 to $3.75 per share.

37On December 1, 2010, the Company's BOD approved of the granting of 677,000 options to current employees
and executives of the Company, with an exercise price of $3.75 per share, vesting over 3 years and expiration in 3.25 years.

On May 22, 2012, the Company issued 302,800 shares of its common stock to its employees, consultants and
directors in replacement for cancelling 1,339,000 outstanding options that were held by the same recipients.  The shares have the
same vesting schedule as the options and were valued at $1.12 per share, the closing price on the date of Board Approval.  Based on
the difference between the market value of the shares and the Black-Scholes value of the cancelled options as of May 22, 2012, there
is an extra non-cash compensation expense of $25,760 for the quarter ended June 30, 2012.

The following summary represents options activity during the quarter ended June 30, 2012 under the New Plan.

Under the NewPlan

Weighted AverageExercise Price

AggregateIntrinsic ValueBalance, December 31, 2011

3,557,000

$3.02

$0Granted

-

-Lapsed

408,000

$3,18Exercised

-

-Cancelled

1,339,000

$3.18Balance, June 30, 2012

1,810,000

$2.97

$0The
following represents options summary as of June 30, 2012 under the New Plan.

NumberOutstanding

Options OutstandingWeighted AverageRemainingContractual
Life

WeightedAverageExercisePrice

Options ExercisableNumber Exercisable

Weighted Average Exercise PriceOptions

1,810,000

2.96 years

$2.97

767,500

$2.74The Company determined the grant date fair value of 865,000 options of $1.80 per share which was calculated
using the Black Scholes Options Pricing Model as follows: Stock price of $6.18 per share, exercise price of $6.18 per share, expected
life of 3.25 years, volatility of 39.18% and discount rate of 1.26%.

For
the re-pricing of the above 865,000 options on November 28, 2010, from the exercise price of $6.18 to $3.75 per share, the Company
determined the incremental fair value of $0.48 per share which was calculated by taking the difference between the Black Scholes
values of the new exercise price and that of the old exercise price.  Other data used in the calculations include: the stock market price
of $3.54, expected of 2.28 years, volatility of 33.59% and discount rate of 0.78%.

The
Company determined the grant date fair value of 235,000 options of $1.20 per share which was calculated using the Black Scholes
Options Pricing Model as follows: Stock price of $6.18 per share, exercise price of $6.18 per share, expected life of 1.5 years, volatility
of 39.18% and discount rate of 0.78%.


For the re-pricing of the above 235,000 options on November 28, 2010, from the exercise price of $6.18 to $3.75 per share, the Company
determined the incremental fair value of $0.26 per share which was calculated by taking the difference between the Black Scholes
values of the new exercise price and that of the old exercise price.  Other data used in the calculations include: the stock market price
of $3.54, expected of 0.53 years, volatility of 33.59% and discount rate of 0.28%.

38The
Company determined the grant date fair value of 677,000 options of $0.74 per share which was calculated using the Black Scholes
Options Pricing Model as follows: Stock price of $3.45 per share, exercise price of $3.75 per share, expected life of 3.25 years, volatility
of 33.42% and discount rate of 0.84%.

The Company recorded $191,156 of non-cash compensation expense related to stock options for the quarter
ended June 30, 2012.  As of June 30, 2012, there was $965,680 of non-cash compensation to be recorded up to 2014 based on
options valued at grant date.


NOTE 23 - INCOME TAX



The Company is subject to income taxes by entity on income arising in or derived from the tax jurisdiction in which
each entity is domiciled.

Zoom Technologies Inc., the parent company was incorporated in the U.S. and has net operating losses
("NOL") for income tax purposes, which can be carried forward for up to 20 years from the year the loss is incurred. Zoom
has NOL carry forwards for income taxes of approximately $10.2 million at June 30, 2012, which may be available to reduce future years'
taxable income. Management believes the realization of benefits from these losses remains uncertain due to Zoom's limited operating
history and continuing losses. Accordingly, a 100% deferred tax asset valuation allowance has been provided.


TCB Digital, Jiangsu Leimone and Nollec Wireless are governed by the Income Tax Law of the PRC concerning
the private-run enterprises, which are generally subject to tax at a statutory rate of 25% on income reported in the statutory financial
statements after appropriate tax adjustments.

Jiangsu Leimone is exempt from income tax in PRC for two years starting from the first profitable year or the
year 2008, whichever is earlier, and is subject to a 50% exemption on normal income tax rate for the following three
years.

Nollec Wireless is exempt from income tax in PRC for two years starting from 2008, and is subject to a 50%
exemption on normal income tax rate for three years starting from 2010 and is subject to normal income tax rate from 2013.

Since
Nollec has pre-tax loss for the six months period ended June 30, 2012, the Company's net income and earnings per share had no
effect due to its income tax exemption.

Profit
Harvest and CDE are governed by the Income Tax Law of Hong Kong, which is generally subject to tax at a statutory rate of 16.5% on
income reported in the statutory financial statements after appropriate tax adjustments.

Portables is governed by the Income Tax Law of United States; however, because Portables is a pass through
entity for tax purposes, tax liabilities are the responsibility of its members.  Therefore, Zoom Sub, which is responsible to report and
make payments on its portion of income generated by Portables is subject to a statutory tax rate of 34%.

TCB
Digital had pre-tax loss of $55,352 and pre-tax profit of $114,730 for the six months ended June 30, 2012 and 2011 respectively, while
Jiangsu Leimone had pre-tax loss of $128,753 and $727,077 for the six months ended June 30, 2012 and 2011 respectively, while
Profit Harvest had pre-tax profit of $5,154,344 and $8,177,552 for the six months ended June 30, 2012 and 2011 respectively, while
Nollec Wireless had pre-tax loss of $1,517,239
and $1,443,556 for the six months ended June 30, 2012 and 2011, while CDE had pre-tax profit of $93,955 and pre-tax loss of
$69,776 for the six months ended June 30, 2012 and 2011, while Portables had pre-tax profit of $758,931 for the six months ended
June 30, 2012.


39The
following table summarizes the temporary differences which result in deferred tax assets and liabilities as at June 30, 2012 and
December 31, 2011:

June 30,
                  2012

December 31,2011Deferred tax assets:

(Unaudited)

(Audited)Inventory impairment reserve

$
8,419

$
8,360Inventory shortage


61,121


60,688Long-term investment impairment


17,801


17,67687,341


86,724Less: Valuation allowance


-


-Total deferred tax assets


87,341


86,724Deferred tax liabilities:Developed products


(30,793)


(30,575)Deferred tax assets, net

$
56,548

$
56,149The following table reconciles the U.S. statutory rates to the Company's effective tax rate for the
six months ended June 30, 2012 and 2011:


June 30,
                  2012

June 30,
                    2011US statutory rates
34.0%

34.0%Tax rate difference
-24.0%

-21.8%Valuation allowance
37.0%

17.2%Tax for prior year
3.0%

1.2%Non-taxable Income of pass through entity
-11.3%

0.0%Tax per financial statements
38.7%

30.5%The following table reconciles the U.S. statutory rates to the Company's effective tax rate for the
three months ended June 30, 2012 and 2011:


June 30,
                  2012

June 30,
                  2011US statutory rates
34.0%

34.0%Tax rate difference
-27.1%

-14.2%Valuation allowance
36.1%

0.2%Tax for prior year
13.1%

10.8%Non-taxable Income of pass through entity
-8.5%

0.0%Tax per financial statements
47.6%

30.4%40Foreign
pretax earnings approximated $3.5 million for the six months ended June 30, 2012. Pretax earnings of a foreign subsidiary are subject
to U.S. taxation when effectively repatriated. The Company provides income taxes on the undistributed earnings of non-U.S.
subsidiaries except to the extent that, such earnings are invested indefinitely outside of the U.S. At June 30, 2012, approximately
$30.57 million of accumulated undistributed earnings of non-U.S. subsidiaries was invested indefinitely. At the existing U.S. federal
income tax rate, additional taxes of $7.3 million would have to be provided if such earnings were remitted currently.


NOTE
24 - STATUTORY RESERVES

As
stipulated by the Company Law of the PRC, net income after taxation can only be distributed as dividends after appropriation has been
made for the following:

i) Making
up cumulative prior years' losses, if any;

ii) Allocations to the "Statutory surplus reserve" of at least 10% of income after tax, as determined under PRC
accounting rules and regulations, until the fund amounts to 50% of the Company's registered capital;

iii)
Allocations of 5-10% of income after tax, as determined under PRC accounting rules and regulations, to the Company's "Statutory
common welfare fund", which is established for the purpose of providing employee facilities and other collective benefits to the
Company's employees; and Statutory common welfare fund is no longer required per the new cooperation law executed in 2006.

iv)
Allocations to the discretionary surplus reserve, if approved in the shareholders' general meeting.

In accordance with Chinese
Company Law, the Company allocated 10% of its net income to surplus.  For the six months ended June 30, 2012 and 2011, the
Company appropriated Nil and $3,667 to statutory surplus reserve respectively.  As of June 30, 2012 and December 31, 2011, the
Company's statutory surplus reserve was $682,528 and $682,528 respectively.


NOTE 25 - CONCENTRATION DISCLOSURE

(a)
During the reporting periods, the customers accounting for 10% or more of the Company's consolidated sales were:

Six months ended June 30, 2012

Sales Revenue

% to Total SalesTCB Group Electronic & Science Co. Ltd - related
party

$
29,728,814

16%Tianjin Optical & Electronic Co. Ltd.


22,405,547

12%Total

$
52,134,361

28% 

Six months ended June 30, 2011

Sales Revenue

% to Total SalesTianjin Optical Communication Technology Co.,
Ltd.

$
20,137,058

17%Tianjin 712 Communications and Broadcasting Ltd. - related party


15,757,425

13%TCB Group Electronic & Science Co., Ltd. - related party


12,541,921

11%Larson Limited


14,705,795

13%Total

$
63,142,199

54%41(b) During
the reporting periods, the suppliers accounting for 10% or more of the Company's consolidated purchases are:

Six months ended June 30, 2012

Total Purchases

% to TotalPurchasesLeimone (Tianjin) Industrial Co., Ltd. - related
party


72,137,320

37%TMO


22,770,516

12%Total

$
94,907,836

49% 

Six months ended June 30, 2011

Total Purchases

% to TotalPurchasesLeimone (Tianjin) Industrial Co., Ltd. - related
party

$
23,684,030

22%Tianjin 712 Communication and Broadcasting Co.,
Ltd. - related party


15,523,282

14%Total

$
39,207,312

36%NOTE
26 - OPERATING RISK


Industry risk


The industry in which we compete is a rapidly evolving, highly competitive and fragmented market driven by
consumer preferences and quickly evolving technology. Increased competition may result in price reductions, reduced gross margin
and loss of market share. Failure to compete successfully against current or future competitors could have a material adverse effect on
the Company's business, operating results and financial condition.


Exchange risk


The Company cannot guarantee the Renminbi and USD exchange rate will remain steady; therefore, the Company
could post the same profit for two comparable periods and post higher or lower profit depending on exchange rate of Renminbi and
USD. The exchange rate could fluctuate depending on changes in the political and economic environments without notice.


Political risk


Currently, PRC is in a period of growth and is openly promoting business development in order to bring more
business into PRC.  Additionally PRC currently allows a Chinese corporation to be owned by a United States corporation.  If the laws or
regulations relating to ownership of a Chinese corporation are changed by the PRC government, the Company's ability to operate the
PRC subsidiaries could be affected.


Interest risk

The
Company is exposed to interest rate risk arising from short-term variable rate borrowings from time to time.  The Company's future
interest expense will fluctuate in line with any change in borrowing rates.  The Company does not have any derivative financial
instruments as of June 30, 2012 and December 31, 2011 and believes its exposure to interest rate risk is not material.

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NOTE 27 - COMMITMENTS

Operating lease commitments

The Company has an operating lease for TCB Digital's premises through
TCBGCL, a common shareholder of TCB Digital; pursuant to this lease, the rate of rent is at $1.25 (Rmb 8) per square
meter per month for production facilities and dormitory space.  The Company leases of the Tianjin factory and dormitory
expired on July 20, 2012 and December 31, 2011; the Company is currently renting on a month to month basis.  The
Company also has an operating lease in Beijing for office space shared with Nollec Wireless, with rent at $21.37 (Rmb
137) per square meter per month for 1,409 square meters and with rent at $20.44 (Rmb 131) per square meter per
month for 388 square meters. Nollec's Beijing office expires in April 15, 2013.  The Company has an operating lease in
Hong Kong for the office of CDE, rental and property management fees are $1,363 (HKD 10,588) and $438 (HKD 3,402)
respectively per month.  The lease for CDE's Hong Kong office expires August 31, 2013.  The commitments of the
Company (except for Portables which is disclosed separately below) as of June 30, 2012 for the next year are as
follows:

|Year |  |   |        
|---- |  | - | -------
|2013 |  | $ | 381,907

On July 7,
2005, a related party, AUM Realty, LLC ("AUM"), purchased real property consisting of a building and parking lot located in
Nanuet, New York for $2,050,000 and simultaneously transferred title to, and entered into a lease agreement with, The Rockland
County Industrial Development Agency, with a bargain purchase option upon expiration of the lease.  A non-controlling member of
Portables, entered into a sublease agreement with AUM for the same period as the lease agreement, expiring in July 2015, which
requires minimum monthly rent payments and all operating expenses and PILOT payments (real estate taxes).  In addition, AUM
borrowed $1,628,000 from a bank secured by a first mortgage on the property.  This loan is guaranteed by Portables non-controlling
member.

Beginning January 1, 2009, Portables entered into a sublease agreement with its non-controlling member on a
month-to-month basis for this property.

Portables leases two warehouses and 28 retail stores and kiosks.  These leases require monthly payments and
expire at various dates through 2015.  The Company has operating agreements in place with all of the retail stores and kiosks whereby
independent third parties (the "operators") operate the retail locations and provide specific services as outlined in the
operating agreements.  The leases for these locations remain in the name of the Company but are subleased by the operators of the
locations.  Rent expense is being recorded using the straight-line basis over the term of the leases in accordance with accounting
principles generally accepted in the United States of America.

The future minimum annual rental commitments of Portables as of June 30, 2012 are as follows:

|Year                         |  |   |             
|---------------------------- |  | - | ------------
|2012                         |  | $ | 371,549     
|2013                         |  |   | 283,436     
|2014                         |  |   | 195,044     
|2015                         |  |   | 114,189     
|                             |  |   |             
|Total Minimum Lease Payments |  | $ | $  1,048,388

Rent expense, net of sublease income for retail locations of $127,423, amounted to $702,562 of
which $143,924 was paid to one of the Company's members under the sublease agreement for the period ended June
30, 2012.

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NOTE 28 - INVESTMENT IN SPREADZOOM

On May 25, 2012, the Company along with Spreadtrum Communication
(Tianjin) Co., Ltd, Tianjin Baoshui District Investment Co, Ltd, and Han & Qin International (BVI) Limited
invested in the joint venture SpreadZoom Technologies, Inc ("SpreadZoom").  SpreadZoom is
domiciled in Tianjin, China with a registered capital of $47,352,700 (RMB 300,000,000.  As of June 30, 2012,
$17,520,500 (RMB 111,000,000) in capital had been contributed to SpreadZoom; the Company contributed $12,342,358
(RMB 78,000,000).  The Company has committed to invest an additional 10,117,700 (RMB 64,100,000) in SpreadZoom.
The Company's capital contribution to SpreadZoom of $12,342,358 was primarily comprised of rights to the deposits
made for the construction of the new factory in Tianjin that as of December 31, 2011, was valued at $10,170,809.  The
balance of $2,171,549 was a refund of a prepayment for the purchase raw material in the ordinary
course of business made to Leimone (Tianjin) Industrial Co., Ltd., a related party who is also
the general contractor for the construction of the new factory.  See details described in Note 12 Construction in
Progress - Related Party.  SpreadZoom is still in the initial phases of setup and registration.  Management and control of
the business have not been fully determined.  As of June 30, 2012, the Company has used the equity method to account
for its investment in SpreadZoom.

NOTE 29 - SUBSEQUENT EVENT

The Company was advised that on or about August 14, Portables Unlimited Inc., both
individually and derivatively, filed an action in the Supreme Court of the State of New York, County of Nassau against
the Company, its US subsidiary, and two officers of the Company. The Complaint seeks damages up to an aggregate
amount of $5 million for breach of that certain Securities Purchase Agreement and a declaration as to the percentage
interest the Company retains in Portables Unlimited, Inc. equal to 46%. The Company believes that it is entitled to hold
50.5% interest in Portables based on the terms of the Securities Purchase Agreement. Once the Complaint is served,
the Company intends to defend itself vigorously and to assert counterclaims that will, in the aggregate, seek a higher
damages award than Portables Unlimited, Inc. seeks.







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

Forward Looking Information

The following discussion contains forward-looking statements. Forward looking statements are identified by
words and phrases such as "anticipate", "intend", "expect", and words and phrases of similar import. We caution investors that
forward-looking statements are only predictions based on our current expectations about future events and are not guarantees of future
performance. Actual results, performance or achievements could differ materially from those expressed or implied by the forward-looking
statements due to risks, uncertainties and assumptions that are difficult to predict. We encourage you to read those risk factors
carefully along with the other information provided in this report and in our other filings with the SEC before deciding to invest in our
stock or to maintain or change your investment. We undertake no obligation to revise or update any forward-looking statement for any
reason, except as required by law.

You should read this Management's Discussion and Analysis in conjunction with the Consolidated Financial
Statements and Related Notes.

Corporate Overview

Zoom Technologies, Inc. (the "Company", "we", "us", "our", or
"Zoom") was incorporated in the state of Delaware on February 29, 2002.  Until September 22, 2009, our business was the
design, production, marketing, sales, and support of broadband and dial-up modems, Voice over Internet Protocol or "VoIP" products
and services, Bluetooth® wireless products, and other communication-related products.

On September 22, 2009, the Company consummated a share exchange transaction and acquired all the
outstanding shares of Gold Lion Holding Limited ("Gold Lion"), a company organized and existing under the laws of the British Virgin
Islands ("BVI").  In connection with the share exchange transaction, the Company spun off its then-existing business to its
stockholders, by distributing and transferring all assets and liabilities to its then subsidiary, Zoom Telephonics, Inc., and issuing shares
of its then operating subsidiary as a dividend to its stockholders.

The Company, through Gold Lion, is the owner of 100% of Profit Harvest Corporation Ltd., a company
organized under the laws of Hong Kong ("Profit Harvest") and through Gold Lion's wholly owned subsidiary, Jiangsu Leimone, is the
owner of 80% of TCB Digital, a company organized under the laws of the People's Republic of China ("PRC").  The
Company's ownership of TCB Digital increased from 51% to 80% when our Chairman and Chief Executive Officer, Mr. Lei Gu, through
Hebei Leimone Technology Company, Ltd. ("Hebei Leimone"), a company controlled by him, exercised an option to purchase an
additional 28.97% of TCB Digital and transferred such ownership to the Company on March 29, 2010.  The Company issued 2,402,576
shares of common stock to Hebei Leimone's assignees as consideration for such transfer.  Profit Harvest serves as the sales and
marketing arm of TCB Digital and Jiangu Leimone serves as a complimentary and supplemental manufacturing arm for TCB Digital.
Substantially all of the revenues of Zoom are currently generated by TCB Digital and Profit Harvest, and from June 1, 2010 onwards by
Nollec Wireless (see next paragraph), and from October 12, 2011 onwards by Portables Unlimited LLC. Both TCB Digital and Jiangsu
Leimone are in the business of manufacturing, research and development, and sales of electronic components for third generation
mobile phones, whole phones, wireless communication circuitry, GPS equipment, and related software products.

On June 1, 2010 the Company acquired 100% ownership of Silver Tech Enterprises, Ltd ("Silver
Tech"), a BVI holding company which owns 100% of Ever Elite Corporation, Ltd ("Ever Elite"), a Hong Kong holding
company, which owns 100% of Nollec Wireless, a mobile phone and wireless communication design company located in Beijing, China,
founded in June 2007 and organized under the laws of the PRC.  The Company purchased all of the outstanding shares of Silver Tech
from its previous owners for $10.96 million, comprised of $1.37 million in cash and 1,342,599 newly issued unregistered shares of
common stock of Zoom valued at $9.59 million.

On January 4, 2011, the Company through its wholly-own subsidiary in Hong Kong, Profit Harvest, acquired
100% ownership of Celestial Digital Entertainment, Ltd., ("CDE") a mobile platform video game development company
based in Hong Kong.  The consideration was $1,818,000 to be divided by the Volume Weighted Average Closing Price of the
Company's common stock for the 10 consecutive trading days leading up to the day before the date of this Share Exchange
Agreement, or $3.75 per share, whichever is greater. This resulted in the issuance of 484,800 shares to acquire CDE.

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CDE primarily focuses on development of video games and applications for mobile phones and mobile
platforms.  CDE has developed over 40 titles for the Apple iPhone and is one of the largest developers of iPhone apps in Asia.  The
acquisition transaction closed on January 4, 2011, and CDE became a wholly owned subsidiary of Profit Harvest.

On October 12, 2011, the Company and Zoom USA Holdings, Inc., a wholly-owned subsidiary of the Company
("Zoom Sub") entered into a Securities Purchase Agreement to purchase from The Cellular Network Communications
Group, Inc. ("CNCG") a 50% interest in Portables Unlimited LLC ("Portables"), an exclusive wholesale distributor of T-
Mobile products in the United States.  As consideration of the 50% interest in Portables, Zoom (i) issued 1,494,688 shares of Zoom
common stock (the "Equity Consideration") to the principals of CNCG and (ii) through Zoom Sub, issued a promissory note
of $500,000 payable to CNCG.  The promissory note accrues interest at 2% and matures three years from the date of issuance.  In
addition, Zoom Sub purchased an additional 5% interest in Portables for $750,000.  Further, in connection with the transaction, Zoom
assumed the responsibility for repaying certain indebtedness owed by Portables to T-Mobile USA, Inc. of $4,757,187 (the "T-
Mobile Indebtedness"), and agreed to arrange for a $500,000 letter of credit in the name of Portables to secure obligations of
Portables to T-Mobile.  The T-Mobile Indebtedness was payable under the following schedule:  $2,500,000 was due on November 10,
2011 (the "Initial Payment"), $1,400,000 was due on December 10, 2011 (the "Second Payment"), and the
remaining $857,186 was due on December 20, 2011 (the "Final Payment").  The Initial Payment and Second Payment were
made timely, and pursuant to the agreement with T-Mobile the Final Payment was waived.  Zoom also agreed to pay other outstanding
indebtedness of Portables of $4,500,000, less the amount of T-Mobile Indebtedness paid off.  Additionally, the Company had previously
recognized acquisition payables to Portables in the amount of $1,350,000 and the need to arrange a $500,000 Letter of Credit in
Portables' name to secure obligations to T-Mobile.  On April 13, 2012, the Company received notice that it was in default on the
Securities Purchase Agreement.  The Securities Purchase Agreement provides that if the Company was in default, a portion of the
Company's ownership of Portables will be transferred to Portables, and CNCG will be entitled to enforce certain rescission rights
against the Company, as more fully described in the Securities Purchase Agreement.  Also, in case of a default, Portables, CNCG and
the other member of Portables may bring claims for indemnification against the Company for a breach under the Securities Purchase
Agreement, as more fully described in the Securities Purchase Agreement. The Company's non-payment to Portables has reduced its
percentage of ownership from 55.0% to 50.5%.  Portables Unlimited Inc. owns 49.5% of Portables.  As of May 15, 2012, the Company
is in dispute with Portables Unlimited Inc. over the Company's percentage of ownership of Portables.  The Company derecognized the
$1,350,000 acquisition payable and does not expect to make payment for that liability.  The Company was advised that on or about
August 14, 2012, Portables Unlimited Inc., both individually and derivatively, filed an action in the Supreme Court of the State of New
York, County of Nassau against the Company, its US subsidiary, and two officers of the Company.
The Complaint seeks damages up to an aggregate amount of $5 million for breach of contract, and a declaration as to the percentage
interest the Company retains in Portables Unlimited, Inc. equal to 46%. The Company believes that it is entitled to hold 50.5% interest
in Portables based on the terms of the Securities Purchase Agreement. Once the Complaint is served, the Company intends to defend
itself vigorously and to assert counterclaims that will, in the aggregate, seek a higher damages award than Portables Unlimited, Inc.
seeks.

Please see more details in Note 1 - Organization and Nature of Business Operations of the Accompanying
Notes to Consolidated Financial Statements.

Our principal executive offices are located in the People's Republic of China at Sanlitun SOHO, Building A, 11th
Floor, No.8 Workers Stadium North Road, Chaoyang District, Beijing, China 100027; our telephone number is 86-10-5935-9000.  Our
U.S. office is located at Portables' offices at 136 First Street, Nanuet, NY 10954, and the telephone number is 1-845-507-8200.  Our
corporate web site address is

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The diagram below summarizes our corporate structure as of June 30, 2012:



Plan of Operation

During the next 12 months, Zoom, through its operating subsidiaries will continue to execute its business plan
by:

- Continuing to grow its EMS business by delivering cost effective value added services to OEM and ODM customers;
- Continuing to develop "Leimone" and "ZOOM" brand phones through strategic
marketing initiatives and partnerships with industry leaders;
- Continuing to spend on research and development for products based on 2.5G, 3G, and 4G platforms;
- Develop solutions, and build according to specifications for mobile operators in China, Asia, and Latin America;
- Gain product penetration into new foreign markets;
- Continue to leverage new products and initiatives introduced by T-Mobile USA

Critical Accounting Policies and
Estimates

The preparation of Zoom's consolidated financial statements in conformity with accounting principles generally
accepted in the United States ("US GAAP") requires it to make estimates and judgments that affect its reported assets, liabilities,
revenues, and expenses, and the disclosure of contingent assets and liabilities. Zoom based its estimates and judgments on historical
experience and on various other assumptions that it believes to be reasonable under the circumstances. Future events, however, may
differ markedly from current expectations and assumptions. While there are a number of significant accounting policies affecting Zoom's
consolidated financial statements, we believe the following critical accounting policies involve the most complex, difficult and subjective
estimates and judgments: allowance for doubtful accounts; income taxes; asset impairment.

Revenue Recognition

In accordance with US GAAP, revenue is recognized only when the price is fixed or determinable,
persuasive evidence of an arrangement exists, the service is performed, and collection of the resulting receivable is reasonably
assured. Noted below are brief descriptions of the product or service revenues that Zoom recognizes in the financial statements
contained herein.

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The Company recognizes sales in accordance with the U.S. Securities and Exchange Commission
("SEC") Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition in Financial Statements"
(FASB ASC Topic 605), "Revenue Recognition."

The Company recognizes revenue when the following criteria are met:

(i)	persuasive evidence of an arrangement exists;

(ii)	delivery has occurred or services were rendered;

(iii)	the price to the customer is fixed or determinable and,

(iv)	collection of the resulting receivable is reasonably assured.  Revenue is not recognized until title and
risk of loss is transferred to the customer, which occurs upon delivery of goods, and objective evidence exists that customer acceptance
provisions were met.

The Company bases its estimates on historical experience taking into consideration the type of products sold,
the type of customer, and the type of specific transaction in each arrangement. Revenues represent the invoiced value of goods, net of
value added tax ("VAT").

The Company does not offer promotional payments, customer coupons, rebates or other cash redemption
offers to its customers.  Deposits or advance payments from customers prior to delivery of goods and passage of title of goods are
recorded as advanced from customers.

Company's subsidiary, Nollec Wireless is in the mobile phone design, software integration and mobile
solution R&D business, Nollec Wireless, recognizes revenue under percentage of completion method ASC Topic 605-35-25
(Construction - Type and Production - Type Contracts) when reasonably dependable estimates can be made and in which all the
following conditions exist:

1. Contracts executed by the parties normally include provisions that clearly specify the enforceable rights
regarding goods or services to be provided and received by the parties, the consideration to be exchanged, and the manner and terms
of settlement.
2. The buyer can be expected to satisfy all obligations under the contract.
3. The contractor can be expected to perform all contractual obligations.

Estimates of cost to complete is reviewed periodically and revised as appropriate to reflect new information.
When the current estimates of total contract revenue and contract cost indicate a loss, a provision for the entire loss on the contract is
made.

Income is recognized as the percentage of estimated total income that incurred costs to date divided by
estimated total costs after giving effect to estimates of costs to complete based on most recent information.  Percentage of completion
is based on labor hours incurred to date divided by total estimated labor hours for the contract.

Royalty income on sales of licensed products by its customers is recorded when the customers report sales to
the Company.  Royalty income is reported monthly and recorded in the period in which the product is sold.  The Company has the right
to audit the books of the licensees.

In our Portables operations, revenue from the sale of equipment is recognized upon shipment or when
purchased at Company retail locations.  Commission income is recognized upon activation of wireless communication services with T-Mobile.

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Allowance for doubtful accounts

Zoom maintains an allowance for doubtful accounts to reduce amounts to their estimated realizable value.
A considerable amount of judgment is required when Zoom assesses the realization of accounts receivables, including assessing the
probability of collection and the current credit-worthiness of each customer. If the financial condition of customers were to deteriorate,
resulting in an impairment of their ability to make payments, an additional provision for doubtful accounts could be required. Zoom
initially records a provision for doubtful accounts based on its historical experience, and then adjusts this provision at the end of each
reporting period based on a detailed assessment of its accounts receivable and allowance for doubtful accounts. In estimating the
provision for doubtful accounts, Zoom considers: (i) the aging of the accounts receivable; (ii) trends within and ratios involving the age
of the accounts receivable; (iii) the customer mix in each of the aging categories and the nature of the receivable; (iv) its historical
provision for doubtful accounts; (v) the credit worthiness of the customer; and (vi) the economic conditions of the customer's industry as
well as general economic conditions, among other factors.  Management regularly reviews outstanding receivables to determine their
recoverability.  Zoom regularly reviews the credit policies and procedures of its operating subsidiaries to ensure that procedures are
appropriate to the Company's risk management approach as well as the general economic environment.

Income taxes

Zoom accounts for income taxes in accordance with SFAS No. 109 (ASC Topic 740), "Accounting for
Income Taxes". Under this method, deferred income taxes are recognized for the estimated tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial reporting amounts and each year-end based on enacted
tax laws and statutory rates applicable to the periods in which the differences are expected to affect taxable income. Valuation
allowances are established to reduce deferred tax assets to the amount expected to be realized when, in management's opinion; it is
more likely than not that some portion of the deferred tax assets will not be realized. The provision for income taxes represents current
taxes payable net of the change during the period in deferred tax assets and liabilities. Zoom adopted FIN 48 (ASC Topic 740),
Accounting for Uncertainty in Tax Positions.  Zoom engages tax preparers in all of the jurisdictions in which it operates to determine if
the Company is both fully compliant with applicable tax laws and is lawfully maximizing tax benefits to the Company.

Asset Impairment

Zoom periodically evaluates the carrying value of other long-lived assets, including, but not limited to, property
and equipment and intangible assets, when events and circumstances warrant such a review. The carrying value of a long-lived asset
is considered impaired when the anticipated undiscounted cash flows from such asset is less than its carrying value. In that event, a
loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is
determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Significant estimates
are utilized to calculate expected future cash flows utilized in impairment analyses. Zoom also utilizes judgment to determine other
factors within fair value analyses, including the applicable discount rate.  As of June 30, 2012, the Company has completely written off
goodwill resulting from its acquisition of Jiangsu Leimone.  During 2011, the Company took 50% impairment charges for goodwill
related to its acquisition of CDE.  The Company will closely monitor the development and carrying value of CDE on a quarterly basis in
2012 to determine if additional impairment charges will be necessary.  For the six months ended June 30, 2012, the Company has not
recorded any impairment of goodwill; however, the Company reviewed the current and projected future cash flows of its subsidiaries in
concluding no impairment of goodwill was necessary during the period.

Commitments

As detailed in Note 27-Commitments of the accompanying notes to the financial statements, the Company
had operating leases commitments for it leased facilities.

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Results of Operations for the Quarter ended June 30, 2012

Revenues

The Company's revenues were $98,628,326 for the quarter ended June 30, 2012, an increase of
$41,064,061 or 71.3% compared to $57,564,265 in the corresponding quarter in 2011.  The increase of revenues in the second quarter
of 2012 compared to the corresponding quarter in 2011 was mainly attributable to the Company's continued increase in sales of whole
phones.  In the second quarter of 2012, the Company sold 3.09 million whole phones, of which 0.82 million units were Leimone brand
phones, with 0.17 million units of those phones being 3G handsets compared to 0.89 million whole phones, of which 0.21 million units
were Leimone brand phones, with 0.15 million units being 3G, for the same period in 2011.  Revenue from sales of the Company's own
branded products in the second quarter of 2012 was $36.0 million as compared to $13.6 million for the same period in 2011.

For the three months ended June 30, 2012, Portables contributed $11,691,462 in revenue, of which $3,548,158
was derived from the sale of phones and accessories, and $8,143,304 was derived from activation and reoccurring carrier service
fees.

Cost of goods sold

For the quarter ended June 30, 2012 the Company's cost of goods sold was $90,305,841 or 91.6% of
revenues while cost of goods sold for the same period in 2011, was $51,682,375 or 89.8% of revenues. The increase in the cost of
goods sold as a percentage of revenues was mainly due to a highly competitive mobile handset market.  As the Company continues to
increase its purchasing volume, it expects its bargaining power with suppliers to improve which will lead to lower costs of goods sold on
a per unit basis.

Gross Profit

Gross profit for the quarter ended June 30, 2012 increased by 41.5% to $8,322,485 compared to
$5,881,890 for the corresponding same period in 2011. Gross profit as a percentage of revenues for the second quarter of 2012 was
8.4%, a decrease from 10.2% for the same period in 2011.  Overall dollar amount of gross margins increased during the second quarter
of 2012 because revenues grew significantly relative to revenues for the same quarter in 2011.  The Company expects gross profit to
continue to improve as the Company continues to increase its revenue going forward.  The Company also expects gross margin
expansion as result of the expected decrease in cost of goods sold on a per unit basis relative to stable sales prices.

The sales of mobile handsets and accessories by Portables produced gross margins of 3.3%, while activation
and reoccurring carrier service fees provided for 26.3% gross margins during the quarter ended June 30, 2012.  Gross margins, on
weighted average basis for the combined product and services mix derived from Portables was $2,259,393 or 19.3%.

Operating expenses

Sales and marketing expenses mainly represent salaries of sales personnel, and marketing and transportation
costs; such expenses were $302,319 for the three months ended June 30, 2012 compared to $179,255 for the corresponding period in
2011.   The Company's continued increase in sales activities correlates with our increase in sales and marketing
expenses.

General and administrative expenses primarily consisted of compensation for administrative personnel,
depreciation, travel expenses, rental, materials expenses related to ordinary administration, and fees for professional services; and
these were $4,585,044 for the three months ended June 30, 2012 compared to $1,663,774 for the corresponding period in 2011.  The
increase of such expenses in 2012 was due to our inclusion of $1,824,486 of general and administrative expenses generated by
Portables, our newly acquired subsidiary, increased overall business activity, and increased costs of legal, accounting and related
expenses in order to maintain the Company's compliance with SEC and NASDAQ rules and regulations.

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The Company's research and development expenditures for the three months ended June 30, 2012 and 2011
were $859,332 and $1,393,511 respectively.  These costs were incurred by our Nollec Wireless subsidiary for developmental costs in
mobile handset design and software integration.  R&D expenditures decreased by $534,179, or -38.3% as compared to the same
period in the prior year. The Company continues to spend on research and development; however, its spending is focused on the
continued development of products on platforms in which Company invested heavily in 2011.  Accordingly, the Company expects future
R&D expenditures to be steady as percentage of revenue.

The Company's non-cash equity-based compensation charges were $837,310 and $307,469 for the three
months ended June 30, 2012, and 2011, respectively.  The $529,841 increase, or 172.3%, in such expenses during the period
represents the Company's investment in human capital for new business development initiatives and retention of key engineers and
managers.

Other income/(expenses)-net

The Company's other expenses-net were $568,143 and $194,510 for the three months ended June 30, 2012
and 2011 respectively.  These expenses were the results of interest expense offset by interest income and also income from various
non-recurring activities.  The primary reason for the increase of 65.4% was primarily attributable to decrease in other income.

Net income

For the quarter ended June 30, 2012, the Company's net income was $419,939 a decrease of $1,075,284
or -71.9% from $1,495,223 for the corresponding period in 2011.  Net income as a percentage of revenues, for the three months ended
June 30, 2012 and 2011 were 0.4% and 2.6% respectively.  The Company's decreased gross margin as percentage of sales led to
lower net profit margins during the quarter.  As noted above, the Company expects gross margin to improve moving forward from
increased bargaining power with suppliers as a function of expected increases in revenues in the future.  Increases in general and
administrative expenses are expected to decrease as a percentage of revenue as a result of the Company expectations such costs
should scale with the Company's increase revenue in the future.  Equity based compensation is expected to remain stable in the future.
The Company also believes those that have been incentivized through equity based compensation will help the Company create brand
recognition and improved profitability in the future.

Other comprehensive income/(loss)

For the three months ended June 30, 2012 and 2011, the Company's other comprehensive income
was $80,139 and $478,791 respectively. Other comprehensive income resulted from foreign currency exchange fluctuations
particularly the Renminbi against the USD.

Liquidity and Capital Resources

Zoom generally finances its operations from cash flow generated internally, interest-free credit lines in the
form of banker acceptances and short-term loans from domestic banks. As of June 30, 2012, the Company had cash and equivalents of
$5,942,846 and restricted cash of $14,196,046. Restricted cash is our deposit held as security at banks for the ability to issue twice the
amount in interest-free notes for our purchase of production materials.  We had cash and equivalents of $1,131,109 and restricted cash
of $15,507,408 as of December 31, 2011.

Net cash provided by operating activities for the six months ended June 30,
2012 was $6,781,940 compared to net cash used in operating activities of $3,296,519 for the same period in 2011. In
the first six months of 2012, operational sources of funds included net decreases in net due from related parties of
$26,647,200, reduction in advances to suppliers of $7,545,083, and increases in accruals and other payables of
$1,509,985.  These increases were primarily partially offset by an increase in accounts receivable of $20,865,478, an
increase of $4,381,831 in inventories.  The significant increase in accounts receivable was related to the growth in sales
activity by the Company.  The Company does not expect difficulties in recovering its receivable as the Company has
been successful with collections subsequent to June 30, 2012.

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Net cash provided by investing activities of $1,895,679 in the six months ended June 30, 2012 was
primarily attributable to $12,330,651 provided by the Company's subsidiary, TCB Digital, to capitalize SpreadZoom
Technologies Co., Ltd. in an equity investment in which TCB Digital will ultimately own 47.37% interest.  This amount
was offset by the refund of construction deposits for the new factory by Tianjin Leimone, a related party, for the amount
of $12,330,651.  Cash was also provided to the Company via the release of $1,420,436 from restricted cash, and the
maturation and discount of notes receivable in the amount of $1,093,306.  Net cash provided by investing activities in
the same period of 2011 was $2,603,118 primarily derived from $1,615,628 of funds released from restricted cash and
liquidation of notes receivable for $624,341.

Net cash used in financing activities was $3,989,734 for the six months ended June 30, 2012 as
compared to $761,145 sourced in the same period in 2011.  The Company used cash to repay related parties
$4,867,558.  The Company also repaid $8,131,999 in short term bank borrowings.  These amounts were partially offset
by proceeds from short term bank borrowing of $7,121,220, and receipt of proceeds from related parties of $5,343,053.

Contractual Obligations

As of June 30, 2012, the Company has short-term loan obligations of $25,565,867 with interest rates between
5.00% and  7.93%.  In addition, notes payable are secured by our restricted cash deposits at the banks,
payable in three to six months and bear no interest.  The outstanding balance of notes payable as of June 30, 2012 was $28,231,522.

On a go forward basis over the next 12 months, Zoom intends to continue to rely on short-term loans and
restricted cash secured notes to fund its operational cash needs.  In the event that expansion or acquisition opportunities exist, we may
contemplate additional conventional bank and/or equity financing to take advantage of such opportunities.  However, there is no
assurance that such opportunities can be found, and if so, whether financing is available at acceptable terms.

Off Balance Sheet Arrangements

As of June 30, 2012, Zoom had no off balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures.

(a) Disclosure Controls and Procedures.

The Company's disclosure controls and procedures are designed to ensure that information required to be
disclosed in the Company's reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized,
and reported within the time periods specified in the SEC's rules and forms, including, without limitation, that such information is
accumulated and communicated to Company management, including the Company's principal executive and financial officer, as
appropriate to allow timely decisions regarding required disclosures.

Limitations on the Effectiveness of Disclosure Controls. In designing and evaluating the Company's
disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are
met. Additionally, in designing disclosure controls and procedures, Company management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure
controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all potential future conditions.

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Evaluation of Disclosure Controls and Procedures. The Company's principal executive and financial
officers have evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e) as of March 31, 2012, and based on this evaluation, the Company's principal executive
and financial officers have concluded that the Company's disclosure controls and procedures were effective to ensure that material
information is recorded, processed, summarized and reported by management of the Company on a timely basis in order to comply
with the Company's disclosure obligations under the Exchange Act and the rules and regulations promulgated thereunder. The
Company's principal executive and financial officers conclusion regarding the Company's disclosure controls and procedures is based
solely on management's conclusion that the Company's internal control over financial reporting are effective.

(b) Changes in Internal Control over Financial Reporting.

There were no significant changes in the Company's internal control over financial reporting that occurred
during the first three months of fiscal 2012 that have materially affected, or are reasonably likely to materially affect, such control.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

Leimone (Tianjin) Industrial Co., Ltd ("Leimone Tianjin"), a
related party, is currently involved with a dispute with the construction company contracted to build our new manufacturing facility in
Tianjin.  On August 15, 2011, Leimone Tianjin filed a claim against Henan Urban Construction Group ("HUCG").  The claim
is for the termination of the construction contract between Leimone Tianjin and HUCG and claims damages of approximately $1.3
million (RMB 8,072,310) against HUCG.  In Leimone Tianjin's court filing, it has accused HUCG of improper use of the funds paid to
HUCG by Leimone Tianjin, as a result, construction project has been delayed.  HUCG's has claimed as its defense that the delay in
construction was a result of poor conditions at the construction site.  The outcome of the dispute is still pending decision from the courts
from the 2nd Mid-Level People's Court of Tianjin City.  The Company is currently unable to determine the probability that
it will be successful in this claim.  The Company believes the decision by the courts will be issued before the end of third quarter of
2012.  As of August 16, 2012, the courts have not yet issued their judgment.

The Company was advised that on or about August 14, Portables Unlimited Inc., both individually and
derivatively, filed an action in the Supreme Court of the State of New York, County of Nassau against the Company, its US subsidiary,
and two officers of the Company. The Complaint seeks damages up to an aggregate amount of $5 million for breach of that certain
Securities Purchase Agreement and a declaration as to the percentage interest the Company retains in Portables Unlimited, Inc. equal
to 46%. The Company believes that it is entitled to hold 50.5% interest in Portables based on the terms of the Securities Purchase
Agreement. Once the Complaint is served, the Company intends to defend itself vigorously and to assert counterclaims that will, in the
aggregate, seek a higher damages award than Portables Unlimited, Inc. seeks. For detailed description of the Securities Purchase
Agreement, please refer to the section entitled "Corporate Overview"in Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations hereof.

Other than our dispute disclosed above we are not a party to any material legal proceedings nor are we aware
of any circumstance that may reasonably lead a third party to initiate legal proceedings against us.

Item 1A. Risk Factors.

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Not applicable.

Item 3. Defaults Upon Senior Securities.

Not applicable.

53

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Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

Item 6. Exhibits.

The following exhibits are included with this report.

Exhibit 31.1 Rule 13a-14(a) / 15d-14(a) Certification of Lei Gu, CEO.
Exhibit 31.1 Rule 13a-14(a) / 15d-14(a) Certification of Anthony K. Chan, CFO.
Exhibit 32.0 Section 1350 Certifications.
101.INS**  (1)     XBRL Instance Document
101.SCH**  (1)     XBRL Taxonomy Extension Schema Document
101.CAL**  (1)     XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**  (1)     XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**  (1)     XBRL Taxonomy Extension Label Linkbase Document
101.PRE**  (1)     XBRL Taxonomy Extension Presentation Linkbase Document

_______________

|**  | XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration
statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under
these sections.                            
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Pursuant to Rule 405(a)(2) of Regulation S-T,
the registrant is relying upon the applicable 30-day grace period for the initial filing of its first Interactive Data File required to contain
detail-tagged footnotes and schedules.  The registrant intends to file the required detail-tagged footnotes or schedules by the filing of an
amendment to this Quarterly Report on Form 10-Q within the 30-day period.

54

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf on August 20, 2012 by the undersigned, thereunto duly authorized.

Zoom Technologies, Inc.
   (Registrant)

By: /s/ Lei Gu
Lei Gu
Chief Executive Officer

















55

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INDEX TO EXHIBITS

Exhibits:

|31.1           | Rule 13a-14(a) / 15d-14(a) Certification of Lei Gu, CEO     PDF         
|-------------- | ------------------------------------------------------------------------
|31.2           | Rule 13a-14(a) / 15d-14(a) Certification of Anthony K. Chan, CFO     PDF
|32.0           | Section 1350 Certifications     PDF                                     
|101.INS**  (1) | XBRL Instance Document                                                  
|101.SCH**  (1) | XBRL Taxonomy Extension Schema Document                                 
|101.CAL**  (1) | XBRL Taxonomy Extension Calculation Linkbase Document                   
|101.DEF**  (1) | XBRL Taxonomy Extension Definition Linkbase Document                    
|101.LAB**  (1) | XBRL Taxonomy Extension Label Linkbase Document                         
|101.PRE**  (1) | XBRL Taxonomy Extension Presentation Linkbase Document                  
|               |                                                                         

_______________

|**  | XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration
statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under
these sections.                            
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Pursuant to Rule 405(a)(2) of Regulation S-T,
the registrant is relying upon the applicable 30-day grace period for the initial filing of its first Interactive Data File required to contain
detail-tagged footnotes and schedules.  The registrant intends to file the required detail-tagged footnotes or schedules by the filing of an
amendment to this Quarterly Report on Form 10-Q within the 30-day period.

56

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