**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**









**FORM
      10-Q**









(Mark
      One)




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




**For
      the quarterly period ended March 31, 2007**




or




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




**For
      the transition period from________ to ________**




**Commission
      File Number 0-18672**




**ZOOM
      TECHNOLOGIES, INC.**


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





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




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




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





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





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




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




Yes o      No
x




The
      number of shares outstanding of the registrant’s Common Stock, $.01 par value,
      as of May 11, 2007, was 9,346,966 shares.












**ZOOM
      TECHNOLOGIES, INC. AND SUBSIDIARY**


**INDEX**











**Page****Part
                I.**
            **Financial
                Information**Item
                1.
            Condensed
                Consolidated Balance Sheets as of March 31, 2007 and December 31,
                2006
                (unaudited)
            
            3Condensed
                Consolidated Statements of Operations for the three months ended
                March 31,
                2007 and 2006 (unaudited)
            
            4Condensed
                Consolidated Statements of Cash Flows for the three months ended
                March 31,
                2007 and 2006 (unaudited)
            
            5Notes
                to Condensed Consolidated Financial Statements
            
            6-8Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            8-13Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            13Item
                4.
            Controls
                and Procedures
            
            13**Part
                II.**
            **Other
                Information**Item
                1A
            Risk
                Factors
            
            14-20Item
                6.
            Exhibits
            
            20Signatures
            
            21Exhibit
                Index
            
            22Exhibits
            
            23-36




2




**PART
      I - FINANCIAL INFORMATION**





**ZOOM
      TECHNOLOGIES, INC.**


**Condensed
      Consolidated Balance Sheets**


**(unaudited)**




**March
                31, 2007**
            
            **December
                31, 2006****ASSETS***Current
                assets*Cash
                and cash equivalents
            
            $
            6,240,543
            
            $
            7,833,046Accounts
                receivable, net of allowances of $1,109,679 at March 31, 2007 and
                $915,969
                at December 31, 2006
            
            
            2,831,912
            
            
            3,385,280Inventories
            
            
            4,922,308
            
            
            4,511,814Prepaid
                expenses and other current assets
            
            
            305,827
            
            
            269,301Total
                current assets
            
            
            14,300,590
            
            
            15,999,441Equipment,
                net
            
            
            223,657
            
            
            249,221Total
                assets
            
            $
            14,524,247
            
            $
            16,248,662**LIABILITIES
                AND STOCKHOLDERS' EQUITY***Current
                liabilities*Accounts
                payable
            
            $
            1,584,547
            
            $
            2,639,935Accrued
                expenses
            
            
            666,016
            
            
            562,349Deferred
                gain on sale of real estate
            
            
            367,245
            
            
            367,245Total
                current liabilities
            
            
            2,617,808
            
            
            3,569,529Deferred
                gain on sale of real estate
            
            
            261,447
            
            
            357,373Total
                liabilities
            
            
            2,879,255
            
            
            3,926,902*Stockholders'
                equity*Common
                stock, $0.01 par value:Authorized
                - 25,000,000 shares; issued - 9,355,366 shares, including shares
                held in
                treasury
            
            
            93,554
            
            
            93,554Additional
                paid-in capital
            
            
            31,344,628
            
            
            31,275,169Accumulated
                deficit
            
            
            (20,347,388
            )
            
            (19,597,296
            )Accumulated
                other comprehensive income -currency translation
                adjustment
            
            
            561,520
            
            
            557,655Treasury
                stock (8,400 shares), at cost
            
            
            (7,322
            )
            
            (7,322
            )Total
                stockholders' equity
            
            
            11,644,992
            
            
            12,321,760Total
                liabilities and stockholders' equity
            
            $
            14,524,247
            
            $
            16,248,662





See
      accompanying notes .





3





**ZOOM
      TECHNOLOGIES, INC. AND SUBSIDIARY**


**Condensed
      Consolidated Statements of Operations**


**(Unaudited)**





**Three
                Months Ended**
              **March
                31,********2007**
            
            ******2006**Net
                sales
            
            $
            4,754,255
            
            $
            5,280,710Cost
                of goods sold
            
            
            3,634,473
            
            
            4,314,953Gross
                profit
            
            
            1,119,782
            
            
            965,757Operating
                expenses:Selling
            
            
            893,571
            
            
            903,944General
                and administrative
            
            
            638,917
            
            
            848,908Research
                and development
            
            
            491,340
            
            
            631,7602,023,828
            
            
            2,384,612Operating
                profit (loss) before gain on sale of real estate
            
            
            (904,046
            )
            
            (1,418,855
            )Gain
                on sale of real estate
            
            
            95,926
            
            
            -Operating
                profit (loss)
            
            
            (808,120
            )
            
            (1,418,855
            )Other
                :Interest
                income
            
            
            78,046
            
            
            80,322Interest
                expense
            
            
            -
            
            
            (90,727
            )Other,
                net
            
            
            (20,018
            )
            
            54,414Total
                other income(expense), net
            
            
            58,028
            
            
            44,009Income
                (loss) before income taxes
            
            
            (750,092
            )
            
            (1,374,846
            )Income
                taxes (benefit)
            
            
            -
            
            
            -Net
                income (loss)
            
            $
            (750,092
            )
            $
            (1,374,846
            )Basic
                and diluted net income (loss) per share
            
            $
            (0.08
            )
            $
            (0.15
            )Weighted
                average common and common equivalent shares:Basic
                and diluted
            
            
            9,346,966
            
            
            9,346,966





See
      accompanying notes.





4


**ZO
      ZOOM TECHNOLOGIES, INC.**


**Condensed
      Consolidated Statements of Cash Flows**


**(Unaudited)**


**Three
                  Months Ended**
                **March
                  31,****2007**
              
              **2006****Operating
                  activities**:Net
                  income (loss)
              
              $
              (750,092
              )
              $
              (1,374,846
              )Adjustments
                  to reconcile net income (loss) to net cash provided by (used in)
                  operating
                  activities:Stock
                  based compensation
              
              
              69,459
              
              
              62,168Depreciation
              
              
              25,083
              
              
              52,025Changes
                  in operating assets and liabilities:Accounts
                  receivable, net
              
              
              555,954
              
              
              18,773Inventories
              
              
              (410,019
              )
              
              449,482Prepaid
                  expenses and other assets
              
              
              (36,252
              )
              
              35,577Accounts
                  payable and accrued expenses
              
              
              (1,047,213
              )
              
              (1,344,266
              )Net
                  cash provided by (used in) operating activities
              
              
              (1,593,080
              )
              
              (2,101,087
              )**Investing
                  activities:**Additions
                  to equipment
              
              
              572
              
              
              (23,107
              )Net
                  cash provided by (used in) investing activities
              
              
              572
              
              
              (23,107
              )**Financing
                  activities:**Principal
                  payments on long-term debt
              
              
              —
              
              
              (1,363,478
              )Net
                  cash provided by (used in) financing activities
              
              
              —
              
              
              (1,363,478
              )Effect
                  of exchange rate changes on cash
              
              
              5
              
              
              895Net
                  change in cash
              
              
              (1,592,503
              )
              
              (3,486,777
              )Cash
                  and cash equivalents at beginning of period
              
              
              7,833,046
              
              
              9,081,122Cash
                  and cash equivalents at end of period
              
              $
              6,240,543
              
              $
              5,594,345**Supplemental
                  disclosures of cash flow information:**Cash
                  paid during the period for:Interest
              
              $
              —
              
              $
              90,727Income
                  taxes
              
              $
              —
              
              $
              —





See
      accompanying notes. ****




5




**ZOOM
      TECHNOLOGIES, INC.**


**Notes
      to Condensed Consolidated Financial Statements**


**(Unaudited)**





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




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




The
      condensed consolidated financial statements of Zoom Technologies, Inc. (the
      "Company") presented herein have been prepared pursuant to the rules of the
      Securities and Exchange Commission for quarterly reports on Form 10-Q and do
      not
      include all of the information and disclosures required by accounting principles
      generally accepted in the United States of America. These statements should
      be
      read in conjunction with the audited consolidated financial statements and
      notes
      thereto for the year ended December 31, 2006 included in the Company's 2006
      Annual Report on Form 10-K.




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




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




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




(b)  *Recently
      Issued or Proposed Accounting Pronouncements*





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





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





Historically
      the Company has not accrued or paid significant interest and penalties for
      underpayments of income taxes. Interest and penalties related to such
      underpayments would be classified as a component of income tax expense. No
      material amounts of interest or penalties for underpayments of income taxes
      were
      required to be accrued as of March 31, 2007.




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





In
      June
      2006, the FASB issued Emerging Issues Tax Force No. 06-3, or EITF 06-3, “How
      Sales Taxes Collected from Customers and Remitted to Governmental Authorities
      Should Be Presented in the Income Statement (That Is, Gross Versus Net
      Presentation).” EITF 06-3 requires disclosure of accounting policy regarding the
      gross or net presentation of point-of-sales taxes such as sales tax and
      value-added tax. If taxes included in gross revenues are significant, the amount
      of such taxes for each period for which an income statement is presented should
      also be disclosed. The Company adopted EITF 06-3 effective January 1, 2007.
      EITF
      06-3 did not have a significant effect on the Company’s financial statements in
      the first quarter of 2007.





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




6


**(2)
      Liquidity**





On
      March
      31, 2007 the Company had working capital of $11.7 million, including $6.2
      million in cash  and


cash
      equivalents.





To
      conserve cash and manage liquidity, the Company has implemented cost cutting
      initiatives including the reduction of employee headcount and overhead costs.
      The employee headcount was 124 at March 31, 2006 and 68 at March 31, 2007.
      Forty-three of this total reduction of 56 resulted from the closing of the
      Company’s Boston manufacturing facility in August 2006. The Company’s production
      activity was outsourced to a lower-cost maquiladora factory in Tijuana, Mexico.
      The Company plans to continue to assess its cost structure as it relates to
      revenues and cash position, and the Company may make further reductions if
      the
      actions are deemed necessary.





The
      Company's total current assets at March 31, 2006 were $14.3 million and current
      liabilities were $2.6 million. The Company did not have any long-term debt
      at
      March 31, 2007. Management believes it has sufficient resources to fund its
      planned operations through at least March 31, 2008. However, if the Company
      is
      unable to increase its revenues, reduce its expense, or raise capital the
      Company's longer-term ability to continue as a going concern and achieve its
      intended business objectives could be adversely affected.




**(3)
      Earnings Per Share**




Options
      to purchase 1,380,250 shares of common stock at March 31, 2007 and 1,241,200
      shares at March 31, 2006 were outstanding but not included in the computation
      of
      diluted earnings per share for the three months ended March 31, 2007 and 2006
      because their effect would be antidilutive.




**(4)
      Inventories**


**March
                  31, 2007**
              
              **December
                  31, 2006**Inventories
                  consist of :Raw
                  materials
              
              $
              2,722,263
              
              $
              2,969,375Work
                  in process
              
              
              470,410
              
              
              522,307Finished
                  goods
              
              
              1,729,635
              
              
              1,020,132Total
                  Inventories
              
              $
              4,922,308
              
              $
              4,511,814




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




Comprehensive
      income (loss) follows::


**Three
                  Months Ended March 31**,**2007**
              
              **2006**Net
                  income (loss)
              
              $
              (750,092
              )
              $
              (1,
                  374,846
              )Foreign
                  currency translation adjustment
              
              
              3,865
              
              
              5,
                  642Comprehensive
                  income (loss)
              
              $
              (746,227
              )
              $
              (1,
                  369,204
              )




****  **((6)
      Contingencies**




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





7




**(7)
      Segment and Geographic Information**




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


**Three
                  Months**
              
              
              
              **Three
                  Months****Ended**
              
              **%
                  of**
              
              **Ended**
              
              **%
                  of****March
                  31, 2007**
              
              **Total**
              
              **March
                  31, 2006**
              
              **Total**North
                  America
              
              $
              3,485,661
              
              
              73
              %
              
              
              
              $
              2,
                  952, 123
              
              
              56
              %Turkey
              
              
              (38,714
              )
              
              (1
              )%
              
              
              
              
              661,222
              
              
              13
              %UK
              
              
              662,956
              
              
              14
              %
              
              
              
              
              906,
                  366
              
              
              17
              %All
                  Other
              
              
              642,352
              
              
              14
              %
              
              
              
              
              760,999
              
              
              14
              %Total
              
              $
              4,754,255
              
              
              100
              %
              
              
              
              $
              5,280,710
              
              
              100
              %




**(8)
      Customer Concentrations**




Relatively
      few customers account for a substantial portion of the Company's net sales.
      In
      the first quarter of 2007 the Company's net sales to its top three customers
      accounted for 41% of its total net sales. In the first quarter of 2006 the
      Company's net sales to its top three customers accounted for 34% of its total
      net sales. The Company's customers generally do not enter into long-term
      agreements obligating them to purchase the Company’s products. The Company may
      not continue to receive significant revenues from any of these or from other
      large customers. A reduction or delay in orders from any of the Company's
      significant customers, or a delay or default in payment by any significant
      customer could materially harm the Company's business and prospects. Because
      of
      the Company's significant customer concentration, its net sales and operating
      income could fluctuate significantly due to changes in political or economic
      conditions, or the loss, reduction of business, or less favorable terms for
      any
      of our significant customers.





**ITEM
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OF
      OPERATIONS**




*The
      following discussion and analysis should be read in conjunction with the safe
      harbor statement and the risk factors contained in Item IA of Part II of this
      Quarterly Report on Form 10-Q set forth in our Annual Report on Form 10-K for
      the year ended December 31, 2006 and our other filings with the SEC. Readers
      should also be cautioned that results of any reported period are often not
      indicative of results for any future period.*




**Overview**




We
      derive
      our net sales primarily from sales of Internet-related communication products,
      principally broadband and dial-up modems and other communication products,
      to
      retailers, distributors, Internet Service Providers and Original Equipment
      Manufacturers. We sell our products through a direct sales force and through
      independent sales agents. Our employees are primarily located at our
      headquarters in Boston, Massachusetts, our support office in Boca Raton,
      Florida, and our sales office in the United Kingdom. We typically design our
      hardware products, though we do sometimes use another company’s design if it
      meets our requirements. Electronic assembly and testing of the Company’s
      products in accordance with our specifications is typically done in China or
      Taiwan.




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





Since
      1983 our headquarters has been near South Station in downtown Boston. Zoom
      has
      owned two adjacent buildings which connect on most floors, and which house
      our
      entire Boston staff. In December 2006 we sold our headquarters buildings to
      a
      third party, with a two-year lease-back of approximately 25,000 square feet
      of
      the 62,000 square foot facility. Our net sale proceeds were approximately $7.7
      million, of which approximately $3.6 million was repaid to our mortgage holder,
      eliminating the mortgage debt from our balance sheet.




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




8


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




Over
      the
      past several years our net sales have declined. In response to declining sales
      volume, we have cut costs by reducing staffing and some overhead costs. Our
      total headcount of full-time employees, including temporary workers, went from
      124 on March 31, 2006 to 68 on March 31, 2007. Of the decline of 56 employees,
      43 were related to the outsourcing of our final assembly manufacturing operation
      to Mexico. The manufacturing personnel in Mexico are not included in our 2007
      headcount. Of the 68 employees on December 31, 2006, 14 were engaged in research
      and development, 20 were involved in purchasing, assembly, packaging, shipping
      and quality control, 22 were engaged in sales, marketing and technical support,
      and the remaining 12 performed accounting, administrative, management
      information systems, and executive functions.




Generally
      our gross margin for a given product depends on a number of factors including
      the type of customer to whom we are selling. The gross margin for retailers
      tends to be higher than for some of our other customers; but the sales,
      marketing, support, and overhead costs associated with retailers also tend
      to be
      higher. Zoom’s sales to certain countries, including Turkey, Vietnam, and Saudi
      Arabia, are currently handled by a single master distributor for each country
      who handles the support and marketing costs within the country. Gross margin
      for
      sales to these master distributors tends to be low, since lower pricing to
      these
      distributors helps them to cover the support and marketing costs for their
      country. Our gross margin for broadband modems tends to be lower than for
      dial-up modems for a number of reasons, including that retailers are currently
      a
      more significant channel for our dial-up modems than for our broadband modems,
      that a higher percentage of our DSL sales come from low-margin countries, and
      that there is stronger competition in the broadband market than in the dial-up
      market.




In
      the
      first quarter of 2007 our net sales were down 10.0% compared to the first
      quarter of 2006. The main reason for the sales decrease was the significant
      decline in DSL modem sales to Turkey due to actions by Turkish Telecom to
      dramatically increase their bundling of DSL modems with their service. We are
      seeing growth in some areas, including DSL sales to U.S. Internet Service
      Providers and U.S. retailers, and we are continuing our efforts to expand our
      DSL customer base and product line. Because of our significant customer
      concentration, however, our net sales and operating results have fluctuated
      and
      in the future could continue to fluctuate significantly due to changes in
      political or economic conditions or the loss, reduction of business, or less
      favorable terms for any of our significant customers.





Our
      cash
      and cash equivalents balance at March 31, 2007 was $6.2 million, down from
      $7.8
      million at December 31, 2006. This reduction was due primarily to a reduction
      in
      accounts payable and accrued expenses, our operating loss for the quarter,
      and
      an increase in inventory, partially offset by a decrease in accounts
      receivable.




**Critical
      Accounting Policies and Estimates**




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




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




9


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





·
            computer
                peripherals retailers,




·
            computer
                product distributors,




·
            Internet
                service providers, and




·
            original
                equipment manufacturers (OEMs)




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




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




Our
      2007
      VoIP service revenues were recorded as the end-user-customer consumed billable
      VoIP services. The end-user-customer became a service customer by electing to
      sign up for the Global Village billable service on the Internet. Zoom recorded
      revenue either as billable services were consumed or as a monthly flat-fee
      service was billed.




**Product
      Returns** .
      Products are returned by retail stores and distributors for inventory balancing,
      contractual stock rotation privileges, and warranty repair or replacements.
      We
      estimate the sales and cost value of expected future product returns of
      previously sold products. Our estimates for product returns are based on recent
      historical trends plus estimates for returns prompted by, among other things,
      new product introductions, announced stock rotations and announced customer
      store closings, etc. Management reviews historical returns, current economic
      trends, and changes in customer demand and acceptance of our products when
      estimating sales return allowances. The estimate for future returns is recorded
      as a reserve against accounts receivable, a reduction of net sales, and the
      corresponding change to inventory and cost of sales. The relationship of
      quarterly physical product returns to quarterly product sales remained
      relatively stable for many years, but has been declining from a high of 10.6%
      to
      a low of 5.4% in the past two years as retail sales as a percent of total sales
      have declined. Product returns as a percentage of total net sales were 9.4%
      in
      the first quarter of 2007.




**Price
      Protection Refunds.** We have
      a policy of offering price protection to certain of our retailer and distributor
      customers for some or all their inventory. Under the price protection policies,
      when we reduce our prices for a product, the customer receives a credit for
      the
      difference between the original purchase price and our reduced price for their
      unsold inventory of that product. Our estimates for price protection refunds
      are
      based on a detailed understanding and tracking by customer and by sales program.
      Estimated price protection refunds are recorded in the same period as the
      announcement of a pricing change. Information from customer inventory-on-hand
      reports or from direct communications with the customers is used to estimate
      the
      refund, which is recorded as a reduction of net sales and a reserve against
      accounts receivable. Reductions in our net sales due to price protection were
      $0.2 million in 2005, and $0.1 million in 2006. In the first quarter of 2007
      the
      reduction in our net sales due to price protection was $0.04 million.




**Sales
      and Marketing Incentives** .
      Many of
      our retailer customers require sales and marketing support funding, usually
      set
      as a percentage of our sales in their stores. The incentives were reported
      as
      reductions in our net sales and were $1.1 million in 2005 and $1.1 million
      in
      2006. In the first quarter of 2007, the reduction in our net sales due to sales
      and marketing incentives was $0.3 million compared to $0.2 million in the first
      quarter of 2006.




**Consumer
      Mail-In and in Store Rebates.** Our
      estimates for consumer mail-in and in-store rebates are based on a detailed
      understanding and tracking by customer and sales program, supported by actual
      rebate claims processed by the rebate redemption centers plus an accrual for
      an
      estimated lag in processing at the redemption centers. The estimate for mail-in
      and in-store rebates is recorded as a reserve against accounts receivable and
      a
      reduction of net sales in the same period that the rebate obligation was
      triggered. Reductions in our net sales due to the consumer rebates $0.8 million
      in 2005 and 2006. In the first quarter of 2007 the reduction in our net sales
      due to consumer rebates was $0.2 million compared to $0.3 million in the first
      quarter of 2006.




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




10


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




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




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




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




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





**Results
      of Operations**




**Summary** .
      Net
      sales were $4.8 million for our first quarter ended March 31, 2007, down 10.0%
      from $5.3 million in the first quarter of 2006. We had a net loss of $0.75
      million for the first quarter of 2007, compared to a net loss of $1.4 million
      in
      the first quarter of 2006. Loss per diluted share improved from $0.15 for the
      first quarter of 2006 to $0.08 for the first quarter of 2007.




**Net
      Sales** .
      Our
      total net sales for the first quarter of 2007 decreased 10.0% from the first
      quarter of 2006, primarily due to a 16% decrease in DSL modem sales and a 15%
      decrease in dial-up modem sales. DSL modem net sales decreased from $2.7 million
      in the first quarter of 2006 to $2.2 million in the first quarter of 2007 as
      a
      result of decreased sales to our Turkish distributor. The main reason for the
      DSL modem sales decrease to Turkey was the action by Turkish Telecom to
      dramatically increase their bundling of DSL modems with their service. Dial-up
      modem net sales declined to $2.0 million in the first quarter of 2007 compared
      to $2.3 million in the first quarter of 2006, primarily due to the continued
      decline of the dial-up modem after-market. Cable modem sales increased from
      $0.03 million in the first quarter of 2006 to $0.5 million in the first quarter
      of 2007 as a result of recent cable modem placements in high volume retailers
      in
      the United States.




Our
      total
      net sales for the first quarter of 2007 decreased $0.5 million from the first
      quarter of 2006, Our net sales in North America increased by $0.5 million from
      $3.0 million in the first quarter of 2006 to $3.5 million in the first quarter
      of 2007. Our net sales in Turkey were $0.0 million in the first quarter of
      2007,
      a decrease from $0.7 million in the first quarter of 2006. The main reason
      for
      the significant drop in sales to Turkey was the action by Turkish Telecom to
      dramatically increase their bundling of DSL modems with their service. Our
      net
      sales in the U.K. were $0.7 million in the first quarter of 2007, a decline
      from
      $0.9 million in the first quarter of 2006. Our net sales outside North America
      other than Turkey and the U.K. were $0.6 million in the first quarter of 2007,
      a
      decrease from $0.8 million in the first quarter of 2006.




11


In
      the
      first quarter ended March 31, 2007 three customers accounted for 41% of total
      net sales. Because of our significant customer concentration, our net sales
      and
      operating income has fluctuated and could in the future fluctuate significantly
      due to changes in political or economic conditions or the loss, reduction of
      business, or less favorable terms for any of our significant
      customers.




**Gross
      Profit.** Our
      total
      gross profit was $1.1 million in the first quarter of 2007, an improvement
      from
      $1.0 million in the first quarter of 2006. Our gross margin percent of net
      sales
      increased to 23.6% in the first quarter of 2007 from 18.3% in the first quarter
      of 2006. Gross margins were higher in the first quarter of 2007 primarily due
      to
      the move of Zoom’s Boston final assembly operation to Tijuana, Mexico, which
      lowered manufacturing personnel, space, and occupancy costs compared to the
      first quarter of 2006. Reduced product obsolescence expense also contributed
      to
      the improvement in gross margins. Higher freight costs due to fuel surcharges
      and unplanned air premiums in the first quarter of 2007 compared to 2006 offset
      a large portion of these savings.




**Selling
      Expense.** Selling
      expense was $0.9 million or 18.8% of net sales in the first quarter of 2007
      compared to $0.9 million or 17.1% of net sales in the first quarter of 2006.
      Selling expense reductions from a decline in sales personnel were offset by
      increases in product delivery costs to customers.




**General
      and Administrative Expense.** General
      and administrative expense was $0.6 million or 13.4% of net sales in the first
      quarter of 2007 and $0.8 million or 16.1% of net sales in the first quarter
      of
      2006. General and administrative expense decreases included legal, audit, and
      personnel costs.




**Research
      and Development Expense.** Research
      and development expense decreased $0.1 million to $0.5 million or 10.3% of
      net
      sales in the first quarter of 2007 from $0.6 million or 12.0% of net sales
      in
      the first quarter of 2006. Research and development costs decreased primarily
      as
      a result of lower personnel costs and product evaluation fees. Development
      and
      support continues on all of our major product lines with particular emphasis
      on
      VoIP products and service, DSL products, and wireless products.




**Gain
      on sale of real estate.** A
      gain on
      sale of real estate of $0.096 million was recorded in the first quarter of
      2007.
      In December 2006 Zoom sold its headquarters building in Boston and agreed to
      lease-back some of the office space. This lease-back arrangement resulted in
      an
      accounting deferral of $0.725 million of the gain. This deferred gain will
      be
      recorded over the subsequent 8 quarters at $0.096 per quarter for 7 quarters
      and
      $0.053 million in the 8 th quarter,
      Q4 2008.




**Other
      Income (Expense).** Other
      income (expense) was net income of $0.06 million in the first quarter of 2007,
      primarily from interest income, partially offset by foreign exchange loss.
      In
      the first quarter of 2006 other income (expense) was net income of $.04 million
      primarily due to interest and rental income, partially offset by mortgage
      interest.




**Income
      Tax Expense (Benefit).** We
      did
      not record any tax expense in the first quarter of 2007 or the first quarter
      of
      2006. The net deferred tax asset balance at March 31, 2007 was zero. This
      accounting treatment is described in further detail under the caption **Critical
      Accounting Policies and Estimates** above.





**Liquidity
      and Capital Resources**




On
      March
      31, 2007 we had working capital of $11.7 million, including $6.2 million in
      cash
      and cash equivalents. We had a $1.6 million reduction in cash in the first
      three
      months of 2007. Operating activities used $1.6 million in cash, as follows:
      a
      net loss of $0.8 million, a decrease of accounts payable and accrued expense
      of
      $1.1 million, and an increase of inventory of $0.4 million Sources of cash
      from
      operations included a decrease of accounts receivable of $0.6 million.




To
      conserve cash and manage our liquidity, we continue to implement cost cutting
      initiatives including the reduction of employee headcount and overhead costs.
      The employee headcount was 124 at March 31, 2006 and was reduced to 68 at March
      31, 2007. Of the decline of 56 employees, 43 were related to the outsourcing
      of
      our final assembly manufacturing operation to Mexico. The manufacturing
      personnel in Mexico are not Zoom employees. We plan to continue to assess our
      cost structure as it relates to our revenues and cash position in 2007, and
      we
      may make further reductions if the actions are deemed necessary.




Management
      believes it has sufficient resources to fund its planned operations through
      at
      least March 31, 2008. However, if we are unable to increase our revenues, reduce
      or otherwise adequately control our expenses, or raise capital, our longer-term
      ability to continue as a going concern and achieve our intended business
      objectives could be adversely affected. See the safe harbor statement contained
      herein and the "Risk Factors" under Item IA of Part II of this Quarterly Report
      on Form 10-Q below, Zoom’s Annual Report on Form 10-K for the year ended
      December 31, 2006 and Zoom’s other filings with the SEC, for further information
      with respect to events and uncertainties that could harm our business, operating
      results, and financial condition.





12


**Commitments**





During
      the three months ended March 31, 2007, there were no material changes to our
      capital commitments and contractual obligations from those disclosed in the
      Form
      10-K for the year ended December 31, 2006.





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




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




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





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





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





**ITEM
      4. CONTROLS AND PROCEDURES**




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




As
      of
      March 31, 2007 we carried out an evaluation, under the supervision and with
      the
      participation of our management, including our Chief Executive Officer and
      Chief
      Financial Officer, of the effectiveness of the design and operation of our
      disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
      under the Securities Exchange Act of 1934. Based upon that evaluation, our
      Chief
      Executive Officer and Chief Financial Officer concluded that our disclosure
      controls and procedures are effective in enabling us to record, process,
      summarize and report information required to be included in our periodic SEC
      filings within the required time period.




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




13


PART
        II - OTHER
        INFORMATION
  **ITEM
        1A.**  **RISK
        FACTORS**
  *This
        report contains forward-looking statements that involve risks and uncertainties,
        such as statements of our objectives, expectations and intentions. The
        cautionary statements made in this report are applicable to all forward-looking
        statements wherever they appear in this report. Our actual results could
        differ
        materially from those discussed herein. Factors that could cause or contribute
        to such differences include those discussed below, as well as those discussed
        elsewhere in this report.*
 
 **To
        stay in business we may require future additional funding which we may be
        unable
        to obtain on favorable terms, if at all.**
 
 Over
        the
        next twelve months we may require additional financing for our operations
        either
        to fund losses beyond those we anticipate or to fund growth in our inventory
        and
        accounts receivable. Our revolving credit facility expired on March 15, 2006
        and
        we currently have no line of credit from which we can borrow. Additional
        financing may not be available to us on a timely basis if at all, or on terms
        acceptable to us. If we fail to obtain acceptable additional financing when
        needed, we may not have sufficient resources to fund our normal operations
        and
        we may be required to further reduce planned expenditures or forego business
        opportunities. These factors could reduce our net sales, increase our losses,
        and harm our business. Moreover, additional equity financing could dilute
        the
        per share value of our common stock held by current shareholders, while
        additional debt financing could restrict our ability to make capital
        expenditures or incur additional indebtedness, all of which would impede
        our
        ability to succeed.
 
 **The
        market for high-speed communications products and services has many competing
        technologies and, as a result, the demand for certain of our products and
        services is declining.**
 
 Industry
        analysts believe that the market for our dial-up modems will continue to
        decline. If we are unable to increase demand for and sales of our broadband
        modems, we may be unable to sustain or grow our business. The market for
        high-speed communications products and services has a number of competing
        technologies. For instance, Internet access can be achieved
        by:
  ·
              using
                  a standard telephone line and appropriate service for dial-up modems;
  ·
              ISDN
                  modems, or DSL modems, possibly in combination;
  ·
              using
                  a cable modem with a cable TV line and cable modem service;
  ·
              using
                  a router and some type of modem to service the computers connected
                  to a
                  local area network; or
  ·
              other
                  approaches, including wireless links to the
                  Internet.
  Although
        we currently sell products that include these technologies, our most successful
        products have historically been our dial-up modems. The introduction of new
        products by competitors, market acceptance of products based on new or
        alternative technologies, or the emergence of new industry standards have
        in the
        past rendered and could continue to render our products less competitive
        or even
        obsolete. For example, these factors have caused the market for our dial-up
        modems to shrink dramatically. If we are unable to increase demand for our
        broadband modems, we may be unable to sustain or grow our business.
 
 **Our
        reliance on a limited number of customers for a large portion of our revenues
        could materially harm our business and prospects.**
 
 Relatively
        few customers have accounted for a substantial portion of our net sales.
        In the
        first quarter of 2007 the Company's net sales to its top three customers
        accounted for 41% of its total net sales. In the first quarter of 2006 the
        Company's net sales to its top three customers accounted for 34% of its total
        net sales. Our customers generally do not enter into long-term agreements
        obligating them to purchase our products. We may not continue to receive
        significant revenues from any of these or from other large customers. Because
        of
        our significant customer concentration, our net sales and operating income
        could
        fluctuate significantly due to changes in political or economic conditions
        or
        the loss of, reduction of business with, or less favorable terms for any
        of our
        significant customers. A reduction or delay in orders from any of our
        significant customers, or a delay or default in payment by any significant
        customer could materially harm our business, results of operation and
        liquidity.
 
 **Delays,
        unanticipated costs, interruptions in production or other problems in connection
        with the transfer of our manufacturing operations to Mexico or the continuing
        operation of that facility could harm our business.** ****
  14
  In
        September 2006 we transferred most of our manufacturing operations from Boston,
        Massachusetts to Tijuana, Mexico. As a result of moving our manufacturing
        options to Mexico, we experienced delays and interruptions in production
        and may
        experience additional delays and interruptions as well as unanticipated costs
        and other problems. We incurred approximately $280,000 in costs in connection
        with the move of our manufacturing operations to Mexico. Delays, interruptions
        in production or other problems related to the move could lead to increased
        or
        unexpected costs, reduced margins, delays in product deliveries, order
        cancellations, and lost revenue, all of which could harm our business, results
        of operation, and liquidity. Our conduct of business in Mexico is subject
        to the
        additional challenges and risks associated with international operations,
        including those related to integration of operations across different cultures
        and languages, currency risk, and economic, legal, political and regulatory
        risks.
 
 **Capacity
        constraints in our Mexican operations could reduce our sales and revenues
        and
        hurt customer relationships.**
 
 We
        now
        rely on our Mexican operations to finish and ship most of the products we
        sell.
        Since moving our manufacturing operations to our Mexican facility we have
        experienced and may continue to experience constraints on our manufacturing
        capacity as we address challenges related to operating our new facility,
        such as
        hiring and training workers, creating the facility’s infrastructure, developing
        new supplier relationships, complying with customs and border regulations,
        and
        resolving shipping and logistical issues. Our sales and revenues may be reduced
        and our customer relationships may be impaired if we continue to experience
        constraints on our manufacturing capacity. We are working to minimize capacity
        constraints in a cost-effective manner, but there can be no assurance that
        we
        will be able to adequately minimize capacity constraints.
 
 **Our
        reliance on a business processing outsourcing partner to conduct our operations
        in Mexico could materially harm our business and
        prospects.**
 
 In
        connection with the move of most of our manufacturing operations to Mexico,
        we
        rely on a business processing outsourcing partner to hire, subject to our
        oversight, the production team for our manufacturing operation, provide the
        selected facility described above, and coordinate some of the start-up and
        ongoing manufacturing logistics relating to our operations in Mexico. Our
        outsourcing partner’s related functions include acquiring the necessary Mexican
        permits, providing the appropriate Mexican operating entity, assisting in
        customs clearances, and providing other general assistance and administrative
        services in connection with the start-up and ongoing operation of the Mexican
        facility. Our outsourcing partner’s performance of these obligations efficiently
        and effectively will be critical to the success of our operations in Mexico.
        Failure of our outsourcing partner to perform its obligations efficiently
        and
        effectively could result in delays, unanticipated costs or interruptions
        in
        production, delays in deliveries to our customers or other harm to our business,
        results of operation, and liquidity. Moreover, if our outsourcing arrangement
        is
        not successful, we cannot assure our ability to find an alternative production
        facility or outsourcing partner to assist in our operations in Mexico or
        our
        ability to operate successfully in Mexico without outsourcing or similar
        assistance.
 
 **Our
        net sales, operating results and liquidity have been and may in the future
        be
        adversely affected because of the decline in the retail market for dial-up
        modems.**
 
 The
        dial-up modem industry has been characterized by declining average selling
        prices and a declining retail market. The decline in average selling prices
        is
        due to a number of factors, including technological change, lower component
        costs, and competition. The decline in the size of the retail market for
        dial-up
        modems is primarily due to the inclusion of dial-up modems as a standard
        feature
        contained in new PCs, and the advent of broadband products. Decreasing average
        selling prices and reduced demand for our dial-up modems have resulted and
        are
        likely to continue to result in decreased net sales for dial-up modems. If
        we
        fail to replace declining revenue from the sales of dial-up modems with the
        sales of our other products, including our broadband modems, our business,
        results of operation and liquidity will be harmed.
 
 **Less
        advantageous terms of sale of our products could harm our
        business.**
 
 The
        Company entered into a consignment arrangement with a significant retailer
        customer in October 2006. In connection with this arrangement ownership of
        all
        unsold products previously purchased from the Company reverted to the Company
        in
        November 2006. The new arrangement resulted in an accounting adjustment that
        reduced the Company’s net sales and net profit for 2006. Under the consignment
        arrangement we are not able to recognize revenue from the sale of a product
        until the retailer actually sells such product to its customer. The consignment
        arrangement also results in a delay in the dating of invoices, the recognition
        of accounts receivable, and the due dates for payment by the retailer for
        goods
        sold. If additional significant customers adopt similar arrangements or
        otherwise change the terms of sale, our business, results of operation and
        liquidity will be harmed.
  15
  **We
        believe that our future success will depend in large part on our ability
        to more
        successfully penetrate the broadband modem markets, which have been challenging
        markets, with significant barriers to entry.**
  With
        the
        shrinking of the dial-up modem market, we believe that our future success
        will
        depend in large part on our ability to more successfully penetrate the broadband
        modem markets, DSL and cable, and the VoIP market. These markets have
        significant barriers to entry that have adversely affected our sales to these
        markets. Although some cable and DSL modems are sold at retail, the high
        volume
        purchasers of these modems are concentrated in a relatively few large cable,
        telecommunications, and Internet service providers which offer broadband
        modem
        services to their customers. These customers, particularly cable services
        providers, also have extensive and varied approval processes for modems to
        be
        approved for use on their network. These approvals are expensive, time
        consuming, and continue to evolve. Successfully penetrating the broadband
        modem
        market therefore presents a number of challenges including:
  ·
              the
                  current limited retail market for broadband modems;
  ·
              the
                  relatively small number of cable, telecommunications and Internet
                  service
                  provider customers that make up a substantial part of the market
                  for
                  broadband modems;
  ·
              the
                  significant bargaining power of these large volume purchasers;
  ·
              the
                  time consuming, expensive, uncertain and varied approval process
                  of the
                  various cable service providers; and
  ·
              the
                  strong relationships with cable service providers enjoyed by incumbent
                  cable equipment providers like Motorola and Scientific
                  Atlanta.
 
 Our
        sales
        of broadband products have been adversely affected by all of these factors.
        Sales of our broadband products in European countries have fluctuated and
        may
        continue to fluctuate due to approvals and delays in the deployment by service
        providers of cable and DSL service in these countries. We cannot assure that
        we
        will be able to successfully penetrate these markets.
 
 **Our
        failure to meet changing customer requirements and emerging industry standards
        would adversely impact our ability to sell our products and
        services.**
  The
        market for PC communications products and high-speed broadband access products
        and services is characterized by aggressive pricing practices, continually
        changing customer demand patterns, rapid technological advances, emerging
        industry standards and short product life cycles. Some of our product and
        service developments and enhancements have taken longer than planned and
        have
        delayed the availability of our products and services, which adversely affected
        our sales and profitability in the past. Any significant delays in the future
        may adversely impact our ability to sell our products and services, and our
        results of operations and financial condition may be adversely affected.
        Our
        future success will depend in large part upon our ability to:
  ·
              identify
                  and respond to emerging technological trends and industry standards
                  in the
                  market;
  ·
              develop
                  and maintain competitive products that meet changing customer demands;
  ·
              enhance
                  our products by adding innovative features that differentiate our
                  products
                  from those of our competitors;
  ·
              bring
                  products to market on a timely basis;
  ·
              introduce
                  products that have competitive prices;
  ·
              manage
                  our product transitions, inventory levels and manufacturing processes
                  efficiently;
  ·
              respond
                  effectively to new technological changes or new product announcements
                  by
                  others; and
  ·
              meet
                  changing industry standards.
 
 Our
        product cycles tend to be short, and we may incur significant non-recoverable
        expenses or devote significant resources to sales that do not occur when
        anticipated. Therefore, the resources we devote to product development, sales
        and marketing may not generate material net sales for us. In addition, short
        product cycles have resulted in and may in the future result in excess and
        obsolete inventory, which has had and may in the future have an adverse affect
        on our results of operations. In an effort to develop innovative products
        and
        technology, we have incurred and may in the future incur substantial
        development, sales, marketing, and inventory costs. If we are unable to recover
        these costs, our financial condition and operating results could be adversely
        affected. In addition, if we sell our products at reduced prices in anticipation
        of cost reductions and we still have higher cost products in inventory, our
        business would be harmed and our results of operations and financial condition
        would be adversely affected.
  16
  **Our
        international operations are subject to a number of risks that could harm
        our
        business.**
 
 Currently
        our business is significantly dependent on our operations outside the United
        States, particularly sales of our products and the production of most of
        our
        products. All of our manufacturing operations except our rework operations
        are
        now located outside of the United States. In 2005 sales outside of North
        America
        were 55% of our net sales. In 2006 sales outside North America were 44% of
        our
        net sales. In the first quarter of 2007 sales outside North America were
        27% of
        our total net sales. The inherent risks of international operations could
        harm
        our business, results of operation, and liquidity. The types of risks faced
        in
        connection with international operations and sales include, among
        others:
  ·
              regulatory
                  and communications requirements and policy changes;
  ·
              favoritism
                  toward local suppliers;
  ·
              delays
                  in the rollout of broadband services by cable and DSL service providers
                  outside of the United States;
  ·
              local
                  language and technical support requirements;
  ·
              difficulties
                  in inventory management, accounts receivable collection and the
                  management
                  of distributors or representatives;
  ·
              cultural
                  differences;
  ·
              reduced
                  control over staff and other difficulties in staffing and managing
                  foreign
                  operations;
  ·
              reduced
                  protection for intellectual property rights in some
                  countries;
  ·
              political
                  and economic changes and disruptions;
  ·
              governmental
                  currency controls;
  ·
              shipping
                  costs;
  ·
              currency
                  exchange rate fluctuations, including, as a result of the move
                  of our
                  manufacturing operations to Mexico, changes in value of the Mexican
                  Peso
                  relative to the US dollar; and import, export, and tariff
                  regulations.
  **We
        may be subject to product returns resulting from defects, or from overstocking
        of our products. Product returns could result in the failure to attain market
        acceptance of our products, which would harm our business.** ****
  If
our
        products contain undetected defects, errors, or failures, we could
        face:
  ·
              delays
                    in the development of our products;
  ·
              numerous
                  product returns; and
  ·
              other
                  losses to us or to our customers or end
                  users.
 
 Any
        of
        these occurrences could also result in the loss of or delay in market acceptance
        of our products, either of which would reduce our sales and harm our business.
        We are also exposed to the risk of product returns from our customers as
        a
        result of contractual stock rotation privileges and our practice of assisting
        some of our customers in balancing their inventories. Overstocking has in
        the
        past led and may in the future lead to higher than normal returns.
  **Our
        failure to effectively manage our inventory levels could materially and
        adversely affect our liquidity and harm our business.** ****
 
 Due
        to
        rapid technological change and changing markets we are required to manage
        our
        inventory levels carefully to both meet customer expectations regarding delivery
        times and to limit our excess inventory exposure. In the event we fail to
        effectively manage our inventory our liquidity may be adversely affected
        and we
        may face increased risk of inventory obsolescence, a decline in market value
        of
        the inventory, or losses from theft, fire, or other casualty. We incurred
        a $0.3
        million inventory obsolescence charge in 2006 for inventory reserves related
        to
        some slow-moving VoIP products.
 
 **We
        may be unable to produce sufficient quantities of our products because we
        depend
        on third party manufacturers. If these third party manufacturers fail to
        produce
        quality products in a timely manner, our ability to fulfill our customer
        orders
        would be adversely impacted.** ****
  17
  We
        use
        contract manufacturers to partially manufacture our products. We use these
        third
        party manufacturers to help ensure low costs, rapid market entry, and
        reliability. Any manufacturing disruption could impair our ability to fulfill
        orders, and failure to fulfill orders would adversely affect our sales. Although
        we currently use four contract manufacturers for the bulk of our purchases,
        in
        some cases a given product is only provided by one of these companies. The
        loss
        of the services of any of our significant third party manufacturers or a
        material adverse change in the business of or our relationships with any
        of
        these manufacturers could harm our business. Since third parties manufacture
        our
        products and we expect this to continue in the future, our success will depend,
        in part, on the ability of third parties to manufacture our products cost
        effectively and in sufficient quantities to meet our customer
        demand.
  We
        are subject to the following risks because of our reliance on third party
        manufacturers:
  ·
              reduced
                  management and control of component purchases;
  ·
              reduced
                  control over delivery schedules, quality assurance and manufacturing
                  yields;
  ·
              lack
                  of adequate capacity during periods of excess demand;
  ·
              limited
                  warranties on products supplied to us;
  ·
              potential
                  increases in prices;
  ·
              interruption
                  of supplies from assemblers as a result of a fire, natural calamity,
                  strike or other significant event; and
  ·
              misappropriation
                  of our intellectual property.
 
 **We
        may be unable to produce sufficient quantities of our products because we
        obtain
        key components from, and depend on, sole or limited source
        suppliers.**
 
 We
        obtain
        certain key parts, components, and equipment from sole or limited sources
        of
        supply. For example, we purchase most of our dial-up and broadband modem
        chipsets from Conexant Systems, Agere Systems, and Ikanos Communications.
        Integrated circuit product areas covered by at least one of these companies
        include dial-up modems, DSL modems, cable modems, networking, routers, and
        gateways. In the past we have experienced delays in receiving shipments of
        modem
        chipsets from our sole source suppliers. We may experience similar delays
        in the
        future. In addition, some products may have other components that are available
        from only one source. If we are unable to obtain a sufficient supply of
        components from our current sources, we would experience difficulties in
        obtaining alternative sources or in altering product designs to use alternative
        components. Resulting delays or reductions in product shipments could damage
        relationships with our customers, and our customers could decide to purchase
        products from our competitors. Inability to meet our customers’ demand or a
        decision by one or more of our customers to purchase products from our
        competitors could harm our operating results.
  **We
        face significant competition, which could result in decreased demand for
        our
        products or services.**
  We
        may be
        unable to compete successfully. A number of companies have developed, or
        are
        expected to develop, products that compete or will compete with our products.
        Furthermore, many of our current and potential competitors have significantly
        greater resources than we do. Intense competition, rapid technological change
        and evolving industry standards could result in less favorable selling terms
        to
        our customers, decrease demand for our products or make our products
        obsolete.
 
 **Changes
        in existing regulations or adoption of new regulations affecting the Internet
        could increase the cost of our products or otherwise affect our ability to
        offer
        our products and services over the Internet.**
  Congress
        has adopted legislation that regulates certain aspects of the Internet,
        including online content, user privacy, taxation, liability for third-party
        activities and jurisdiction. In addition, a number of initiatives pending
        in
        Congress and state legislatures would prohibit or restrict advertising or
        sale
        of certain products and services on the Internet, which may have the effect
        of
        raising the cost of doing business on the Internet generally. Federal, state,
        local and foreign governmental organizations are considering other legislative
        and regulatory proposals that would regulate the Internet. We cannot predict
        whether new taxes will be imposed on our services, and depending on the type
        of
        taxes imposed, whether and how our services would be affected thereafter.
        Increased regulation of the Internet may decrease its growth and hinder
        technological development, which may negatively impact the cost of doing
        business via the Internet or otherwise harm our business.
  18
  **New
          environmental regulations recently implemented or scheduled to be implemented
          in
          2007 may increase our manufacturing costs and harm our
          business.** ****
  The
        Federal government has announced plans to reduce the use of hazardous materials,
        such as lead, in electronic equipment. The implementation of these new
        requirements, currently scheduled to begin in 2007, may require us and other
        electronics companies to change or discontinue many products. We believe
        compliance with these new requirements will be difficult, and will typically
        increase our product costs by up to $.50 per unit, depending on the product.
        In
        addition, we may incur additional costs involved with the disposal of inventory
        or with returned products that do not meet the new requirements, which could
        further harm our business. In addition the State of California has implemented
        regulations requiring the use of highly efficient power cubes. These new
        requirements will effect many of our products and may result in an increase
        in
        our product costs.
  **Changes
        in current or future laws or governmental regulations and industry standards
        that negatively impact our products, services and technologies could harm
        our
        business.** ****
  The
        jurisdiction of the Federal Communications Commission, or the FCC, extends
        to
        the entire United States communications industry including our customers
        and
        their products and services that incorporate our products. Our products are
        also
        required to meet the regulatory requirements of other countries throughout
        the
        world where our products and services are sold. Obtaining government regulatory
        approvals is time-consuming and very costly. In the past, we have encountered
        delays in the introduction of our products, such as our cable modems, as
        a
        result of government certifications. We may face further delays if we are
        unable
        to comply with governmental regulations. Delays caused by the time it takes
        to
        comply with regulatory requirements may result in cancellations or postponements
        of product orders or purchases by our customers, which would harm our
        business.
 
 In
        addition to reliability and quality standards, the market acceptance of our
        VoIP
        products and services is dependent upon the adoption of industry standards
        so
        that products from multiple manufacturers are able to communicate with each
        other. Standards are continuously being modified and replaced. As standards
        evolve, we may be required to modify our existing products or develop and
        support new versions of our products. The failure of our products to comply,
        or
        delays in compliance, with various existing and evolving industry standards
        could delay or interrupt volume production of our products, which could harm
        our
        business.
 
 **Regulation
        of VoIP services is developing and is therefore uncertain. Future regulation
        of
        VoIP services could increase our costs and restrict the grown of our VoIP
        business.** ****
 
 VoIP
        services currently have different regulations from traditional telephony
        in most
        countries including the US. The US, various states and other countries may
        impose surcharges, taxes or new regulations upon providers of VoIP services.
        The
        imposition of any such surcharges, taxes and regulations on VoIP services
        could
        materially increase our costs, may limit or eliminate our competitive pricing
        and may require us to restructure the VoIP services we currently offer. For
        example, regulations requiring compliance with the Communications Assistance
        for
        Law Enforcement Act (CALEA) or provision of the same type of 911 services
        as
        required for traditional telecommunications providers could place a significant
        financial burden on us depending on the technical changes required to
        accommodate the requirements. In May 2005 the FCC issued an order requiring
        interconnected VoIP providers to deliver 911 calls to the customer’s local
        emergency operator as a standard feature of the service. We believe our VoIP
        products are capable of meeting the FCC requirements. In the event our VoIP
        products do not meet the FCC requirements, we may need to modify our products,
        which could increase our costs.
 
 In
        many
        countries outside the US in which we operate or our services are sold, we
        cannot
        be certain that we will be able to comply with existing or future requirements,
        or that we will be able to continue to be in compliance with any such
        requirements. Our failure to comply with these requirements could materially
        adversely affect our ability to continue to offer our VoIP services in these
        jurisdictions.
  **Fluctuations
        in the foreign currency exchange rates in relation to the U.S. Dollar could
        have
        a material adverse effect on our operating results.**
 
 Changes
        in currency exchange rates that increase the relative value of the U.S. dollar
        may make it more difficult for us to compete with foreign manufacturers on
        price, may reduce our foreign currency denominated sales when expressed in
        dollars, or may otherwise have a material adverse effect on our sales and
        operating results. A significant increase in our foreign currency denominated
        sales would increase our risk associated with foreign currency fluctuations.
        A
        weakness in the U.S. dollar relative to the Mexican Peso and various Asian
        currencies including the Chinese renminbi could increase our product
        costs.
  **Our
        future success will depend on the continued services of our executive officers
        and key product development personnel.** ****
  The
        loss
        of any of our executive officers or key product development personnel, the
        inability to attract or retain qualified personnel in the future, or delays
        in
        hiring skilled personnel could harm our business. Competition for skilled
        personnel is significant. We may be unable to attract and retain all the
        personnel necessary for the development of our business. In addition, the
        loss
        of Frank B. Manning, our president and chief executive officer, or Peter
        Kramer,
        our executive vice president, some other member of the senior management
        team, a
        key engineer or salesperson, or other key contributors, could harm our relations
        with our customers, our ability to respond to technological change, and our
        business.
  19
  **We
        may have difficulty protecting our intellectual property.** ****
 
 Our
        ability to compete is heavily affected by our ability to protect our
        intellectual property. We rely primarily on trade secret laws, confidentiality
        procedures, patents, copyrights, trademarks, and licensing arrangements to
        protect our intellectual property. The steps we take to protect our technology
        may be inadequate. Existing trade secret, trademark and copyright laws offer
        only limited protection. Our patents could be invalidated or circumvented.
        We
        have more intellectual property assets in some countries than we do in others.
        In addition, the laws of some foreign countries in which our products are
        or may
        be developed, manufactured or sold may not protect our products or intellectual
        property rights to the same extent as do the laws of the United States. This
        may
        make the possibility of piracy of our technology and products more likely.
        We
        cannot assure that the steps that we have taken to protect our intellectual
        property will be adequate to prevent misappropriation of our
        technology.
 
 **We
        could infringe the intellectual property rights of others.**
 
 Particular
        aspects of our technology could be found to infringe on the intellectual
        property rights or patents of others. Other companies may hold or obtain
        patents
        on inventions or may otherwise claim proprietary rights to technology necessary
        to our business. We . We are often indemnified by our suppliers relative
        to
        certain intellectual property rights; but these indemnifications do not cover
        all possible suits, and there is no guarantee that a relevant indemnification
        will be honored by the indemnifying party.
 
 **ITEM
        6. EXHIBITS**
  Exhibit
                  No.
              
              Exhibit
                  Description10.1
              
              Change
                  of Control and Severance Agreement between the Company and Frank
                  B.
                  Manning dated as of 12/28/0610.2
              
              Change
                  of Control and Severance Agreement between the Company and Peter
                  R. Kramer
                  dated as of 12/28/0610.3
              
              Change
                  of Control and Severance Agreement between the Company and Robert
                  A. Crist
                  dated as of 4/27/0710.4
              
              Change
                  of Control and Severance Agreement between the Company and Deena
                  Randall
                  dated as of 4/27/0710.5
              
              Change
                  of Control and Severance Agreement between the Company and Terry
                  Manning
                  dated as of 4/27/07
 31.1
              
              CEO
                  Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
                  of
                  2002.31.2
              
              CFO
                  Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
                  of
                  2002.32.1
              
              CEO
                  Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
                  of
                  2002.32.2
              
              CFO
                  Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
                  of
                  2002.
 *
              Compensatory
                  plan or arrangement
 
 20
  **ZOOM
        TECHNOLOGIES, INC. AND SUBSIDIARY**
  **SIGNATURES**
  **Pursuant
        to the requirements of the Securities and Exchange Act of 1934, the Company
        has
        duly caused this report to be signed on its behalf by the undersigned thereunto
        duly authorized.**
  **ZOOM
        TECHNOLOGIES, INC.**
 **(Registrant)**
  
 **Date:
                  May 14, 2007**
              **By:
                  /s/ Frank B. Manning****Frank
                  B. Manning, President****Date:
                  May 14, 2007**
              **By:
                  /s/ Robert Crist****Robert
                  Crist, Vice President of Finance and Chief Financial**
                **Officer
                  (Principal Financial and Accounting
                  Officer)**
  21
  **EXHIBIT
        INDEX**
 Exhibit
                    No.
                
                Exhibit
                    Description10.1
                
                Change
                    of Control and Severance Agreement between the Company and Frank
                    B.
                    Manning dated as of 12/28/0610.2
                
                Change
                    of Control and Severance Agreement between the Company and Peter
                    R. Kramer
                    dated as of 12/28/0610.3
                
                Change
                    of Control and Severance Agreement between the Company and Robert
                    A. Crist
                    dated as of 4/27/0710.4
                
                Change
                    of Control and Severance Agreement between the Company and Deena
                    Randall
                    dated as of 4/27/0710.5
                
                Change
                    of Control and Severance Agreement between the Company and Terry
                    Manning
                    dated as of 4/27/07
 31.1
              
              CEO
                  Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
                  of
                  2002.31.2
              
              CFO
                  Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
                  of
                  2002.32.1
              
              CEO
                  Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
                  of
                  2002.32.2
              
              CFO
                  Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
                  of
                  2002.
 *
              Compensatory
                  plan or arrangement
 
 22