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

                                    FORM 10-Q


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

                  For the quarterly period ended September 30, 2002

                                       or

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

         For the transition period from ______________ to ______________


                         Commission File Number 0-18672


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


            Delaware                                         04-2621506
            --------                                         ----------
(State or Other Jurisdiction of                           (I.R.S. Employer
Incorporation or Organization)                            Identification No.)


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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

YES  [ X ]    NO [    ]


The number of shares  outstanding  of the  registrant's  Common Stock,  $.01 Par
Value, as of November 12, 2002 was 7,860,866 shares.
<PAGE>


                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                                      INDEX




Part I. Financial Information                                              Page

  Item 1.      Consolidated Balance Sheets as of September 30, 2002
                      (unaudited) and December 31, 2001                     3

               Consolidated Statements of Operations for the Three
                      Months and Nine Months Ending September 30,
                      2002 and 2001 (unaudited)                             4

               Consolidated Statements of Cash Flows for the Nine
                      Months Ending September 30, 2002 and 2001
                     (unaudited)                                            5

               Notes to Consolidated Financial Statements                 6 - 10

  Item 2.      Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                10 - 23

  Item 3.      Quantitative and Qualitative Disclosures About Market
                      Risk                                                  24

  Item 4.      Controls and Procedures                                      24


Part II. Other Information

   Item 5.      Other Events                                                25

   Item 6.      Exhibits and Reports on Form 8-K                            25

                Signatures                                                  26

<PAGE>

PART I - FINANCIAL INFORMATION

                                   ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                                       Consolidated Balance Sheets
<TABLE>
                                                                 September 30, 2002    December 31, 2001
                                                                     (Unaudited)           (Audited)
                                                                --------------------   -----------------
<S>                                                             <C>                    <C>

   Assets

Current assets:
    Cash                                                        $   6,990,244          $ 5,252,058
    Accounts receivable, net of reserves for doubtful
       accounts, returns, and allowances of $2,755,223 at
       September 30, 2002 and $2,816,449 at December 31, 2001       5,459,407            5,652,035
    Inventories, net                                                7,086,342           11,083,143
    Prepaid expenses and other current assets                         974,174              999,662
                                                                   ----------           ----------
             Total current assets                                  20,510,167           22,986,898

    Property, plant and equipment, net                              3,613,637            4,128,916
    Net deferred tax assets                                                 -            2,012,844
    Other assets                                                            -               56,666
                                                                   ----------           ----------
             Total assets                                       $  24,123,804        $  29,185,324
                                                                   ==========           ==========

   Liabilities and Stockholders' Equity

Current liabilities:
    Current portion of long-term debt                           $     189,947        $     139,201
    Accounts payable                                                3,371,739            2,750,174
    Accrued expenses                                                1,208,824            1,879,566
                                                                   ----------           ----------
             Total current liabilities                              4,770,510            4,768,941

 Long-term debt                                                     5,390,053            5,745,368
 Other non-current liabilities                                              -              255,287
                                                                   ----------           ----------
             Total liabilities                                     10,160,563           10,769,596
                                                                   ----------           ----------
Stockholders' equity:
  Common stock, $0.01 par value at September 30, 2002 and
    no par value at December 31, 2001. Authorized 25,000,000
    shares; issued and outstanding 7,860,866 shares at
    September 30, 2002 and at December 31, 2001                        78,609           28,245,215
  Additional paid-in capital                                       28,166,606                    -
  Retained earnings (accumulated deficit)                         (14,241,223)          (9,634,692)
  Accumulated other comprehensive income (loss)                       (40,751)            (194,795)
                                                                   ----------           ----------
             Total stockholders' equity                            13,963,241           18,415,728
                                                                   ----------           ----------

             Total liabilities and stockholders' equity         $  24,123,804        $  29,185,324
                                                                   ==========           ==========

</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>

                                   ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                                    Consolidated Statements of Operations
                                                (Unaudited)
<TABLE>
<S>                                                    <C>              <C>               <C>             <C>
                                                            Three Months Ending           Nine Months Ending
                                                                  September 30,              September 30,
                                                       -----------------------------      --------------------------
                                                            2002            2001          2002             2001
                                                            ----            ----          ----             ----

Net sales                                               $ 10,878,334    $ 11,719,317    $29,059,126    $ 31,991,512
Costs of goods sold                                        7,707,513       8,889,253     22,115,801      26,855,076
                                                        ------------    ------------   ------------    ------------

         Gross profit                                      3,170,821       2,830,064      6,943,325       5,136,436

Operating expenses:
         Selling                                           1,423,216       1,802,103      4,487,702       5,837,656
         General and administrative                          824,863       1,433,023      2,587,701       4,571,519
         Research and development                            878,901       1,334,617      2,810,385       4,155,051
                                                        ------------    ------------   ------------    ------------

         Total operating expenses                          3,126,980       4,569,743      9,885,788      14,564,226
                                                        ------------    ------------   ------------    ------------

         Operating income (loss)                              43,841      (1,739,679)    (2,942,463)     (9,427,790)

Other income (expense):
            Interest income                                   23,091          46,386         88,603         166,725
            Interest (expense)                               (73,502)       (121,330)      (232,568)       (336,761)
            Equity in losses of affiliate                          -               -        (56,666)       (135,166)
            Other, net                                        99,012          97,464        294,120         171,304
                                                        ------------    ------------   ------------    ------------
         Total other income (expense), net                    48,601          22,520         93,489        (133,898)
                                                        ------------    ------------   ------------    ------------

         Income (loss) before income tax expense
            and extraordinary item                            92,442      (1,717,159)    (2,848,974)     (9,561,688)

Income tax expense (benefit)                                      --       3,800,000      2,012,844       3,800,000
                                                        ------------    ------------   ------------    ------------

         Income (loss) before extraordinary item              92,442      (5,517,159)    (4,861,818)    (13,361,688)
         Extraordinary gain on elimination of
           negative goodwill                                      --              --        255,287              --
                                                        ------------    ------------   ------------    ------------

         Net income (loss)                              $     92,442    $ (5,517,159)   $(4,606,531)   $(13,361,688)
                                                        ============    ============   ============    ============

         Earnings (loss) per common share before
         extraordinary item:

            Basic                                       $       0.01    $       (.70)   $      (.62)   $      (1.70)
                                                        ============    ============   ============    ============
            Diluted                                     $       0.01    $       (.70)   $      (.62)   $      (1.70)
                                                        ============    ============   ============    ============


           Extraordinary gain on elimination of
           negative goodwill -basic and diluted         $         --    $         --    $       .03    $         --
                                                        ============    ============   ============    ============


           Earnings (loss) per common share:

           Basic                                        $       0.01    $       (.70)   $      (.59)   $      (1.70)
                                                        ============    ============    ===========    ============
           Diluted                                      $       0.01    $       (.70)   $      (.59)   $      (1.70)
                                                        ============    ============    ===========    ============

Weighted average common and common equivalent shares

             Basic                                         7,860,866       7,860,866      7,860,866       7,860,866
                                                        ============    ============   ============    ============
             Diluted                                       7,862,235       7,860,866      7,860,866       7,860,866
                                                        ============    ============   ============    ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>

                                ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                                 Consolidated Statements of Cash Flows
                                              (Unaudited)
<TABLE>
<S>                                                             <C>                  <C>
                                                                         Nine Months Ending
                                                                            September 30,
                                                                     2002                  2001
                                                                -----------------------------------
Cash flows from operating activities:
    Net income (loss)                                           $  (4,606,531)       $(13,361,688)
    Adjustments to reconcile net income (loss) to net cash
      provided by (used in) operating activities:
      Extraordinary gain on elimination of negative
        goodwill                                                     (255,287)                  -
      Depreciation and amortization                                   653,544           1,613,269
      Amortization of restricted stock                                      -              74,880
      Write-off of net deferred tax assets                          2,012,844           3,800,000
      Equity in losses of affiliate                                    56,666             135,165
      Changes in operating assets and liabilities:
        Accounts receivable, net                                      332,873             607,618
        Inventories, net                                            3,996,801           9,039,742
        Prepaid expenses and other assets                             508,188            (308,076)
        Accounts payable and accrued expenses                         (49,177)         (3,934,570)
                                                                    ---------           ---------
           Net cash provided by (used in) operating activities      2,649,921          (2,333,660)
                                                                    ---------           ---------
Cash flows from investing activities:
    Proceeds from sale of investment securities                             -                  53
    Investment in affiliate                                          (482,700)            (74,999)
    Additions to property, plant and equipment                       (138,266)           (547,319)
                                                                    ---------            ---------
           Net cash provided by (used in) investing activities       (620,966)           (622,265)
                                                                    ---------            ---------
Cash flows from financing activities:
    Proceeds from the issuance of long-term debt                            -           6,000,000
    Principal payments on long-term debt                             (304,569)            (83,395)
                                                                    ---------           ---------
           Net cash provided by (used in) financing activities       (304,569)          5,916,605
                                                                    ---------           ---------

Effect of exchange rate changes on cash                                13,800             (43,423)
                                                                    ---------           ---------

Net increase (decrease) in cash                                     1,738,186           2,917,257

Cash beginning of period                                            5,252,058           2,906,270
                                                                    ---------           ---------
Cash end of period                                              $   6,990,244        $  5,823,527
                                                                    =========           =========
Supplemental disclosures of cash flow information:

    Cash paid during the year for:
    Interest                                                    $     235,937        $    310,956
                                                                    =========           =========
    Income taxes                                                $           -        $          -
                                                                    =========           =========

</TABLE>
   See accompanying notes to consolidated financial statements.
<PAGE>

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

(1)     Basis of Presentation

     The  consolidated  financial  statements  of Zoom  Technologies,  Inc. (the
"Company")  presented  herein  have been  prepared  pursuant to the rules of the
Securities and Exchange Commission for quarterly reports on Form 10-Q and do not
include all of the information and footnote  disclosures  required by accounting
principles generally accepted in the United States of America.  These statements
should be read in conjunction with the audited consolidated financial statements
and  notes  thereto  for the year  ending  December  31,  2001  included  in the
Company's 2001 Annual Report on Form 10-K.

     The  consolidated  balance sheet as of September 30, 2002, the consolidated
statements of operations  for the three months and nine months ending  September
30, 2002 and 2001,  and the  consolidated  statements of cash flows for the nine
months ending September 30, 2002 and 2001 are unaudited,  but, in the opinion of
management,   include  all   adjustments   (consisting   of  normal,   recurring
adjustments)  necessary  for a fair  presentation  of results for these  interim
periods.

     The results of operations  for the periods  presented  are not  necessarily
indicative of the results to be expected for the entire year ending December 31,
2002.

(2)   Liquidity

     On December 31, 2001, Zoom had cash of approximately $5.3 million.  For the
nine months  ending  September  30, 2002,  the  Company's  net cash  provided by
operating  activities  was $2.5  million,  and net cash  used in  investing  and
financing  activities was $.9 million.  On September 30, 2002,  Zoom had cash of
approximately $7.0 million. Currently, the Company does not have a debt facility
from which it can  borrow,  and it does not  expect to obtain one on  acceptable
terms unless there is operating performance improvement.

     To conserve cash and manage its liquidity,  the Company implemented expense
reductions  throughout  2001 and in the first nine months of 2002.  The employee
headcount was 329 at December 31, 2000, and 190 at September 30, 2002.

     In addition to expense reductions, the Company's liquidity in the remainder
of 2002 is  expected  to be  enhanced  by the  utilization  of $3.0  million "no
charge"  components,  as a result of supply  agreements  entered in 2001.  Under
these arrangements, the Company received $3 million of components at "no charge"
in exchange  for its  commitment  to purchase at least $8 million of  components
over the  30-month  period  commencing  January  1,  2002,  provided  that those
components   are  offered  at  competitive   terms  and  prices.   Purchases  of
approximately  $1.9 million have been made as of September  30, 2002 against the
$8 million commitment.  The utilization of "no-charge" components is expected to
supplement the Company's cash flow in 2002 and 2003, as it will be able to avoid
the purchase and payment of an equivalent  dollar  amount of  inventory.  In the
first nine months of 2002,  the Company had a favorable  impact to its cash flow
from this arrangement of approximately $2.0 million. The favorable impact to the
Company's  statement of  operations  will be  recognized on a delayed basis as a
purchase  discount  over the total  number of  components  acquired  through the
supply agreement.

     In  2000,  the  Company  made a  significant  investment  to  build  up its
broadband access products,  particularly cable modems.  However, the Company was
not able to  penetrate  the  broadband  modem and  wireless  local area  network
markets to the extent it had expected. On December 31, 2001 the Company had $4.1
million net inventory in broadband and wireless  products and  components.  This
inventory was primarily paid for in 2000 and 2001. Sales of products in 2002 and
2003 using any portion of this  inventory  are expected to enhance our liquidity
in those  years,  as we will be able to avoid the  purchase  and  payment  of an
equivalent dollar amount of new materials. We are currently selling cable modems
and  wireless  products  that  consume a portion  of this  inventory  and we are
pursuing  additional  orders in markets  worldwide.  At  September  30, 2002 our
balance of broadband and wireless net inventory was $2.0 million.

     Additionally,  during the past several years the Company has  experienced a
declining  demand for its dial-up modem products.  Trends including the bundling
by  PC  manufacturers  of  dial-up  modems  into  computers  and  the  increased
popularity  of broadband  modems lower the total  available  market  through the
Company's sales channels. Because of this, the Company's dial-up modem sales are
unlikely to grow unless the  Company's  market share grows,  or the new V.92 and
V.44 modem standards grow sales through the Company's channels. If the Company's
dial-up  modem sales do not grow,  the Company's  future  success will depend in
large  part on its  ability  to  successfully  penetrate  the  broadband  modem,
networking, and dialer markets.

     The  Company's  cash  position on December 31, 2001 was $5.3 million and on
September  30, 2002 was $7.0  million.  Management  believes  it has  sufficient
resources to fund its planned operations over the next 12 months.  These planned
operations  anticipate  modest  declines  to  modest  increases  in the sales of
dial-up  modems,  as a result of V.92  deployment by some of the major  Internet
Service  Providers and/or  continuing  increases in market share,  counteracting
decreases in average selling  prices,  and some growth in the sales of broadband
and  wireless  products.  However,  if the  Company  is unable to  increase  its
revenues,  continue to reduce its  expenses,  or raise  capital,  the  Company's
longer-term  ability to  continue as a going  concern and achieve the  Company's
intended business objectives could be adversely affected.

(3)  Earnings Per Share

     The  reconciliation  of the  numerators and  denominators  of the basic and
diluted net income (loss) per share  computations for the Company's reported net
income (loss) is as follows:

<TABLE>
<S>                             <C>           <C>                 <C>            <C>
                                    Three Months Ending                Nine Months Ending
                                        September 30,                      September 30,
                                ---------------------------       ---------------------------
                                    2002            2001              2002            2001
                                ------------   ------------       ------------   ------------
Basic:
  Net income (loss)            $    92,442    $(5,517,159)        $(4,606,531)   $(13,361,688)

Weighted average shares
  outstanding                    7,860,866      7,860,866           7,860,866       7,860,866
                                -----------    -----------         -----------    ------------
Net income (loss) per share    $      0.01    $      (.70)        $      (.59)   $      (1.70)
                                ===========    ===========         ===========    ============

Diluted:
  Net income (loss)            $    92,442    $(5,517,159)        $(4,606,531)   $(13,361,688)
Weighted average shares
  outstanding                    7,860,866      7,860,866           7,860,866       7,860,866

Net effect of dilutive stock
  options based on the
  Treasury stock method using
  average market price               1,369             --                  --              --

Weighted average shares
  outstanding                    7,862,235      7,860,866           7,860,866       7,860,866
                               -----------    -----------         -----------     -----------
Net income (loss) per share    $      0.01    $      (.70)        $      (.59)    $     (1.70)
                               ===========     ===========         ===========    ===========
</TABLE>

     Potential  common  shares  for which  inclusion  would  have the  effect of
increasing diluted earnings per share (i.e., antidilutive) are excluded from the
computation.  Options to purchase  14,167 and 24,486  shares of common  stock at
September 30, 2002 and 2001, respectively,  were outstanding but not included in
the  computation  of  diluted  earnings  per  share  for the nine  months  ended
September 30, 2002 and 2001, as their effect would be  antidilutive.  Options to
purchase 1,369 shares of common stock at September 30, 2001 were outstanding but
not  included in the  computation  of diluted  earnings  per share for the three
months ended September 30, 2001, as their effect would be antidilutive.

(4)   Inventories
<TABLE>
<S>                                                     <C>                     <C>
      Inventories consist of the following:             September 30, 2002      December 31, 2001
                                                        ------------------      -----------------
      Raw materials                                       $   2,603,018           $  6,276,480
      Work in process                                         1,777,767                462,389
      Finished goods                                          2,705,557              4,344,274
                                                             ----------             ----------
                                                          $   7,086,342          $  11,083,143
                                                             ==========             ==========
</TABLE>
     During the nine months ending September 30, 2002 the Company recorded lower
of cost or market  write-downs  of $812,596  related to  broadband  and wireless
inventory.

(5)   Comprehensive Income

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

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

                                         Three Months Ending               Nine Months Ending
                                             September 30,                    September 30,
                                    ----------------------------     ---------------------------
                                        2002            2001             2002           2001
                                    ------------    ------------     ------------   ------------

 Net income (loss)                  $   92,442      $ (5,517,159)    $ (4,606,531)  $(13,361,688)

 Foreign currency translation
  adjustment                            62,751           132,536          154,044        (43,423)

 Net unrealized holding gain
  on investment securities                  --                --               --             53
                                   -----------      ------------     ------------   ------------
Comprehensive income (loss)         $  155,193    $  (5,384,623)     $ (4,452,487)  $(13,405,058)
                                   ===========     ============      ============   ============
</TABLE>

(6)        Mortgage

     On January 10, 2001 the Company  obtained a mortgage  for $6 million on its
real estate property located at 201 and 207 South Street, Boston, Massachusetts.
This is a 20-year direct reduction mortgage.  The interest rate is fixed for one
year, based on the one-year Federal Home Loan Bank rate plus 2.5% per annum. The
rate is adjusted on January 10th of each calendar year commencing on January 10,
2002.  The  current  rate of  interest  as of  September  30, 2002 was 4.97% and
interest  expense was $232,568 and $336,761 for the nine months ending September
30, 2002 and 2001, respectively.

(7)    Commitments

     During the three and nine months ending  September 30, 2002,  there were no
material changes to the capital  commitments and contractual  obligations of the
Company  from  those  disclosed  in the Form  10-K for the  fiscal  year  ending
December 31, 2001.

     During 2001,  the Company  entered into an agreement to purchase the ground
lease for a  manufacturing  facility  located  at 27  Drydock  Avenue in Boston,
Massachusetts (the "Drydock Building"). In connection with the proposed purchase
of the Drydock Building, the Company paid $513,500 which was held in escrow as a
deposit  pending the closing of the  transaction.  Of this deposit,  $25,000 was
nonrefundable.  When the Company was unable to obtain  acceptable  financing the
seller  (i.e.,  the then  current  leaseholder)  retained  the  deposit  pending
resolution of some disputed facts  concerning the Company's  withdrawal from the
transaction  under  the  terms of the  Purchase  and Sale  Agreement.  While the
Company  believed  that it was entitled to a return of the  $488,500  refundable
portion of the deposit plus  interest,  the seller  directed the escrow agent to
hold the funds pending resolution of the dispute.

     As an  alternative  to  pursing  legal  remedies  to obtain a return of the
deposit,  the Company pursued an arrangement to acquire the Drydock  Building in
partnership with the following  individuals:  Frank B. Manning,  President and a
director  of the  Company;  Peter R.  Kramer,  Executive  Vice  President  and a
director of the Company;  Bruce M. Kramer,  Peter Kramer's brother;  and a third
party.  Under this arrangement,  these  individuals,  either directly or through
entities  controlled by them,  joined  together with the Company as of March 29,
2002 to form the Zoom Group  LLC,  a  Massachusetts  limited  liability  company
("Zoom  Group") to purchase  the Drydock  Building.  The Company and each of the
investors owns a 20% interest in the Zoom Group.  The managers of the Zoom Group
are Peter Kramer and the third party. There are no special allocations among the
members of the Zoom Group,  and each member is required to contribute his or its
proportionate amount of capital in return for its 20% interest.

     Effective as of March 29, 2002,  the Company  entered into a  Reinstatement
Agreement,  Assignment  Agreement and Second  Amendment to Agreement of Purchase
and Sale with the Zoom Group and the owner of the Drydock  ground  lease.  Under
this  Reinstatement  Agreement,  the original purchase agreement for the Drydock
Building was amended and reinstated,  and the Company  assigned its rights under
the purchase  agreement to the Zoom Group,  together with rights to the $488,500
refundable  portion  of the  deposit  plus  interest.  In  connection  with this
transaction,  under a separate letter  agreement,  the other members of the Zoom
Group  paid  to  the  Company  $390,800  ($97,700  each),   representing   their
proportionate  share of the deposit assigned to the Zoom Group. As a result, the
Company's  remaining  interest  in  the  deposit  is  $97,700.  As  part  of the
reinstatement  of the purchase  agreement,  the members of the Zoom Group agreed
that an  additional  $25,000 of the  $488,500  deposit  would be  nonrefundable,
$5,000 of which has been allocated to each investor.

     Under the  Reinstatement  Agreement,  the Zoom Group agreed to purchase the
Drydock Building,  subject to financing and other contingencies,  for a purchase
price of $6.1 million,  subject to  adjustment.  Effective  August 29, 2002, the
parties closed on the purchase and sale of the Drydock Building.  Each member of
the Zoom Group  contributed  $483,000 to fund the cash  portion of the  purchase
price plus initial working capital.  These initial capital contributions include
each member's share of the deposit.

     Under the Zoom Group Operating Agreement, the Company has the right to sell
its interest in the Zoom Group to the other  members of the Zoom Group,  and the
right to purchase the other  members'  entire  interests in the Zoom Group.  The
Company's right of sale expires on January 5, 2003.  Should the Company exercise
its  sale  right,  it would be  entitled  to  recover  the  full  amount  of all
refundable  investments (the $92,700  refundable  portion of the $97,700 deposit
and any additional investment made in the Zoom Group.) Under the Company's right
to  purchase,  it has the  option to  purchase  all the  interests  of the other
members of the Zoom Group for a purchase price  determined in accordance  with a
prearranged  formula  based  upon the  initial  purchase  price  of the  Drydock
Building  plus 20% a year,  prorated  after the first  year.  The Company has no
obligation to exercise  either its purchase or sale right,  and no member of the
Zoom  Group has any right to require  the  Company  to do so.  Any  decision  to
exercise  any of these rights will be made by the  independent  directors of the
Company.

(8)  Income Taxes

     At December  31,  2001,  the  Company's  net  deferred  tax asset of $2.013
million was the result of the Company's  specific tax planning  strategy to sell
its headquarters building in Boston. In the first quarter ending March 31, 2002,
the  Company  recorded  an income  tax charge  and  valuation  reserve of $2.013
million,  which  reduced  its net  deferred  tax  asset  balance  to zero.  This
additional  reserve reflects the Company's  decision to discontinue its specific
tax planning  strategy to sell its  headquarters  building in Boston in light of
the less favorable market conditions for the sale of that building.

(9)  Segment and Geographic Information

     The Company's  operations are classified into one reportable  segment.  The
Company's  domestic  and  international  net sales for the three months and nine
months  ending  September  30, 2002 and 2001,  respectively,  were  comprised as
follows:

 <TABLE>
<S>            <C>              <C>       <C>            <C>     <C>            <C>     <C>             <C>
                  Three Months           Three Months              Nine Months          Nine Months
                     Ending     % of        Ending       % of         Ending    % of      Ending        % of
               Sept 30, 2002    Total   Sept 30, 2001    Total   Sept 30, 2002  Total   Sept 30, 2001   Total
               -------------    -----   -------------    -----  -------------   -----   -------------   -----
North America    $ 6,907,233      63%     $ 7,675,217      65%     $17,775,036     61%    $20,411,112     64%
International      3,971,101      37%       4,044,101      35%      11,284,090     39%     11,580,400     36%
                 -----------     ---      -----------      ---     -----------    ---     -----------    ---
Total             10,878,334     100%     $11,719,318      100%    $29,059,126    100%    $31,991,512    100%
                 ===========     ===      ===========      ===     ===========    ===     ===========    ===

</TABLE>
(10)    Extraordinary Gain

     On January 1, 2002, the Company recorded an extraordinary gain of $255,287,
upon the adoption of SFAS No. 142 "Goodwill and Other  Intangible  Assets" (SFAS
142). The gain resulted from the elimination of the remaining  negative goodwill
on the Company's  consolidated balance sheet related to a previous  acquisition,
and was recorded in accordance with the provisions of SFAS 142.

(11) New Accounting Pronouncements

     In  September  2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs
Associated  with Exit or  Disposal  Activities"  (SFAS 146).  SFAS 146  requires
companies to recognize costs  associated  with exit or disposal  activities when
they are incurred rather that at the date of a commitment to an exit or disposal
plan.  This statement is effective for fiscal years beginning after December 31,
2002.  The Company  does not believe  that the impact of adopting  SFAS 146 will
have a material impact on its consolidated financial statements.

     FASB  Emerging  Issues Task Force Issue No. 00-14  "Accounting  for Certain
Sales Incentives" addresses the recognition,  measurement,  and income statement
classification  for certain types of sales  incentives.  The  application of the
guidance  in Issue No.  00-14  resulted  in a change in the  manner in which the
Company  records  certain types of discounts and sales and marketing  incentives
that are  provided  to its  customers.  The Company  has  historically  recorded
certain types of these incentives as marketing expenses.  Under Issue No. 00-14,
beginning on January 1, 2002, the Company records these discounts and incentives
as reductions  of revenue.  In April 2001,  the FASB Emerging  Issues Task Force
reached a consensus  on Issue No. 00-25  "Accounting  for  Consideration  from a
Vendor to a  Retailer  in  Connection  with the  Purchase  or  Promotion  of the
Vendor's  Products".  Issue No. 00-25 addresses  whether  certain  consideration
offered  by a vendor to a  distributor,  including  slotting  fees,  cooperative
advertising  arrangements  and "buy-down"  programs,  should be characterized as
operating  expenses or  reductions  of revenue.  Issue No.  00-14 and 00-25 were
implemented in the first quarter of 2002 and prior period reported  amounts have
reclassified to conform to the new presentation. Third quarter 2001 results have
been reclassified as follows:
<TABLE>
<S>                            <C>                             <C>
                                   Three Months Ending             Nine Months Ending
                                       September 30,                  September 30,
                               ---------------------------     --------------------------
                                          2001                           2001
                                          ----                           ----
Revenues:

As previously reported                $ 12,317,900                   $ 33,408,216
As reclassified                         11,719,317                     31,991,512

Selling expenses:

As previously reported                $  2,400,686                   $  7,254,360
As reclassified                          1,802,103                      5,837,656
</TABLE>

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

     The following  discussion and analysis  should be read in conjunction  with
the safe harbor statement and the risk factors contained herein and set forth in
our Annual  Report on Form 10-K for the fiscal year ending  December  31,  2001.
Readers should also be cautioned  that results of any reported  period are often
not indicative of results for any future period.

Critical Accounting Policies

     The  following  is a  discussion  of what we view as our  more  significant
accounting  policies.  These  policies  are also  described  in the notes to our
audited consolidated  financial statements included in our Annual Report on Form
10-K  for the  fiscal  year  ending  December  31,  2001.  As  described  below,
management  judgments and estimates must be made and used in connection with the
preparation of our consolidated financial statements. Material differences could
result in the amount and timing of our revenue and expenses for any period if we
made different judgments or used different estimates.

     Revenue  Recognition.  We sell  hardware  products  to our  customers.  The
products include dial-up modems, embedded modems, cable modems, PC cameras, ISDN
and ADSL modems, telephone dialers, and wireless and wired networking equipment.
We generally do not sell software or services. We earn a small amount of royalty
revenue.  We derive our revenue primarily from the sales of hardware products to
three types of customers:

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

     We sell a very small  amount of our hardware  products to direct  consumers
and to customers via the Internet.  We recognize  revenue for all three types of
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 point specified in signed contracts and purchase orders, which are both used
extensively.  Many of our  customer  contracts or purchase  orders  specify that
ownership passes to the customer at the destination of delivery.  Since it would
be impractical to verify  ownership  change for each individual  delivery to the
destination  point, we estimate the day the customer  receives delivery based on
our ship date and the  carrier's  published  delivery  schedule  specific to the
freight class and location.

     Our revenues  are reduced by certain  events  which are  characteristic  of
hardware  sales to  computer  peripherals  retailers.  These  events are product
returns,  price protection refunds, store rebates, and consumer mail-in rebates.
Each of these is  accounted  for as a  reduction  of  revenue  based on  careful
management  estimates,  which are reconciled to actual  customer or end-consumer
refunds and credits on a monthly or quarterly  basis.  The estimates for product
returns  are  based on recent  historical  trends  plus  estimates  for  returns
prompted by events such as new product introductions, announced stock rotations,
and announced customer store closings.  We analyze historical  returns,  current
economic  trends,  and changes in customer demand and acceptance of our products
when evaluating the adequacy of sales return allowances. Our estimates for price
protection refunds require 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 reserve  against  accounts
receivable and a reduction of current period revenue. Our estimates for consumer
mail-in  rebates are comprised of actual  rebate claims  processed by the rebate
redemption  centers  plus an accrual for an  estimated  lag in  processing.  Our
estimates for store  rebates are  comprised of actual  credit  requests from the
eligible customers.

     On January 1, 2002,  we adopted FASB  Emerging  Issues Task Force Issue No.
00-14  "Accounting for Certain Sales Incentives" and Issue No. 00-25 "Accounting
for Consideration from a Vendor to a Retailer in Connection with the Purchase or
Promotion of the Vendor's  Products."  The  application of the guidance in Issue
No.  00-14 and No.  00-25  resulted in a change in the manner in which we record
certain types of discounts and sales and marketing  incentives that are provided
to our  customers.  We had  historically  recorded  these  incentives as selling
expenses.  Under  Issue No.  00-14 and No.  00-25,  we are now  recording  these
incentives  as  reductions  of revenue for the current and prior  periods.  This
change reduced revenues,  which, in turn, reduced gross margins.  The offset was
an equal reduction of selling expenses. There was no change in net income (loss)
for either the historical  periods  restated or the quarter ending September 30,
2002 (see note 11 to the consolidated financial statements).  To ensure that the
discounts and sales and marketing  incentives are recorded in the proper period,
we perform  extensive  tracking and documenting by customer,  by period,  and by
type of marketing event. This tracking  includes  reconciliation to the accounts
receivable records for deductions taken by our customers for these discounts and
incentives.

     Accounts  Receivable  Valuation.  We establish accounts receivable reserves
for product returns,  store rebates,  consumer mail-in rebates, price protection
refunds,  and bad debts.  These  reserves  are drawn down as actual  credits are
issued to the customer's  accounts.  Our total year bad-debt write-offs for 2000
and 2001 were .3% and .2% of total revenue, respectively.  During the first nine
months of 2002, our bad debt write-offs were .08% of total revenue.

     Inventory  Valuation  and Cost of Goods  Sold.  Inventory  is  valued  on a
standard cost basis where the material  standards are  periodically  updated for
current  material  pricing.  Reserves for obsolete  inventory are established by
management  based on usability  reviews  performed  each  quarter.  Our reserves
against this inventory range from 0% to 100%, based on management's  estimate of
the probability  that the materials will not be consumed.  In the second half of
2000, when industry  expectations  were very high for expansion of the broadband
and wireless markets,  we purchased parts to support our aggressive forecast for
a  ramp-up  of sales of cable  modems,  ADSL  modems,  and  wireless  networking
products. This resulted in a significant inventory position of materials. During
2001, the market selling prices for the broadband and wireless products declined
significantly  because of an  industry-wide  oversupply.  During 2001,  and to a
lesser  extent in the first nine months of 2002 (see note 2 to the  consolidated
financial  statements),  the sales prices for some of the products dropped below
our cost and  accordingly,  we then valued our  inventory on a "lower of cost or
market" basis. Our valuation process involves  comparing 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 permanently  write-down the inventory on a
"lower of cost or market" basis.

     We have entered into supply  arrangements with suppliers of some components
that include price and other concessions,  including no-charge  components,  for
meeting certain purchase requirements or commitments.  Under these arrangements,
we are  committed to purchase at least $8.0 million of  components  over the 30-
month period  commencing on January 1, 2002,  provided that those components are
offered at competitive terms and prices. Purchases of approximately $1.9 million
have been made as of September  30, 2002 against the $8 million  commitment.  We
are also required to purchase either a minimum  percentage,  as measured by unit
purchases or dollar amount of components, from a supplier over a two-year period
commencing on January 1, 2002. In connection  with these  arrangements,  we were
entitled to receive at least $3.0  million of no-charge  components,  based upon
the supplier's  market price for the components in late 2001 and early 2002, and
other  pricing  concessions  based upon our purchase  volumes.  We received $1.2
million of these no-charge components in the fourth quarter of 2001. We received
the  remainder of the $3.0 million of no-charge  components in the first quarter
of 2002.  At September  30, 2002,  the gross  inventory  value of the  no-charge
components has been reduced to $1.5 million, offset by a $2.4 million reserve in
inventory,  yielding  a net  inventory  value of  ($.9)  million  for  inventory
acquired  under these  arrangements.  We expect that the remaining  $1.5 million
gross value of "no  charge"  components  will be  consumed in our  manufacturing
process and shipped in finished  products to customers in the ensuing 12 months.
If this occurs, our cash provided by (used in) operating  activities in 2002 and
2003 is  expected  to be  improved  by $3.0  million,  as we expect to avoid the
purchase and payment of an equivalent dollar amount. In the first nine months of
2002,   our  purchases   and  payments  of  the   components  in  question  were
approximately  $2.0  million  less  than we  would  have  expected  without  the
no-charge components.  Our statement of operations will reflect the $3.0 million
of  favorability  as we ship products  containing the components  acquired under
these supply arrangements.  At the end of the third quarter ending September 30,
2002, the cumulative  favorable  impact of this  arrangement to our statement of
operations  was $.6  million,  with the  favorable  impact of $.1  million,  $.2
million, and $.3 million in the first, second, and third quarters, respectively.

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

     Significant  management  judgment is required in determining  our provision
for income taxes and any valuation  allowance  recorded against our net deferred
tax assets in  accordance  with the  provisions  of the  Statement  of Financial
Accounting  Standards  No.  109,  "Accounting  for Income  Taxes."  In 2001,  we
recorded a $3.8 million  income tax charge to reflect an additional  increase in
our deferred  tax asset  valuation  allowance.  This is equal to 100% of the tax
benefits  derived from our 2001 pre-tax losses and certain of our pre-tax losses
incurred prior to 2001.  Management's decision to record the valuation allowance
was based on the uncertain  recoverability of the deferred tax asset balance. At
December 31, 2001, a portion of our net deferred tax asset was  supported by our
specific tax planning strategy to sell our appreciated  headquarters building in
Boston.  The  amount of the  projected  tax  benefit  from this sale was used to
support the $2.013 million  deferred tax asset remaining on our balance sheet as
of December 31, 2001. In our first quarter ending March 31, 2002, we recorded an
additional  income tax charge  and  valuation  reserve,  which  reduced  our net
deferred  tax asset  balance  to zero.  This  additional  reserve  reflects  our
decision  to  discontinue  our  specific  tax  planning  strategy  to  sell  our
headquarters building in Boston in light of the less favorable market conditions
for the sale of such building.

Results of Operations

     We  recorded  net  sales of $10.9  million  for our  third  quarter  ending
September  30, 2002,  down 7.2% from $11.7 million in the third quarter of 2001.
We reported an operating  income of $0.04 million for the third quarter of 2002,
compared to an operating  loss of $1.7 million in the third  quarter of 2001. We
reported a net income of $0.1 million for our third quarter ending September 30,
2002  compared  to a net  loss of $5.5  million  for the  third  quarter  ending
September 30, 2001. Earnings per share improved as we reported earnings of $0.01
per share for the third  quarter of 2002  compared  to a loss of $0.70 per share
for the  third  quarter  of 2001.  Our net  sales  were  $29.1  million  and our
operating  loss was $2.9 million for the nine months  ending  September 30, 2002
compared to net sales of $32.0 million and an operating loss of $9.4 million for
the nine months  ending  September 30, 2001.  The net loss was $4.6 million,  or
$0.59 per share for the nine months  ending on  September  30, 2002 versus a net
loss of $13.4 million,  or $1.70 per share for the nine months ending  September
30, 2001.

     Our total net sales in Q3 2002  decreased  7.2% from Q3 2001.  This decline
was primarily due to a large drop in OEM sales to one of our OEM  customers.  In
Q3 2002 we did not  generate any sales to this OEM customer as compared to sales
of  approximately  $.6 million to this  customer in Q3 2001. We are currently in
discussions  with this customer  about renewed sales in 2003.  Although our unit
sales of dial-up modems were stronger,achieving our highest quarterly unit sales
of dial-up  modems in three years and  reflecting  our increased unit and dollar
market share at retail in the U.S. and the U.K, our net sales of dial-up  modems
were down 5% in Q3 2002 as compared to Q3 2001  primarily  because  lower-priced
modems had a higher  share of our dial-up  modem sales mix. In Q3 2002 net sales
in our broadband and wireless categories increased compared to Q3 2001, with our
strongest quarter sales to date of ADSL modems.

     Our gross profit  increased to $3.2 million in Q3 2002 from $2.8 million in
Q3 2001. Our gross profit percentage of net sales improved from 24.1% in Q3 2001
to 29.1% of net sales in Q3 2002. The  improvement  resulted  primarily from our
material  and  overhead  cost   reductions,   which   outpaced  the   continuing
market-driven  reduction in average selling prices,  and lower inventory charges
for  obsolescence  and  lower  of cost or  market  valuations.  Our  nine  month
year-to-date  gross profit in 2002  increased to $6.9  million,  or 23.9% of net
sales,  from $5.1  million,  or 16.1% of net sales for the first nine  months of
fiscal 2001.  The major reason for the low 16.1% gross profit  percentage of net
sales  in the  first  nine  months  of 2001  was the  recording  of  significant
inventory  write-downs and obsolescence  reserves during that period,  primarily
relating to broadband  modems and wireless  networking  products.  Excluding the
inventory  charges for obsolescence  and lower of cost or market  write-downs in
both years, our nine-month  year-to-date gross profit percentage of net sales in
2002 was more comparable to the first nine months of fiscal 2001.

     Our operating expenses decreased by $1.4 million to $3.1 million in Q3 2002
from $4.6  million in Q3 2001.  The  decrease of $1.4  million was  comprised of
lower selling expenses of $.4 million, lower general and administrative expenses
of $.6 million,  and lower research and development  expenses of $.5 million. We
have reduced our worldwide staff from 243 employees on September 30, 2001 to 190
employees on September 30, 2002.  We also continue to maintain a temporary  wage
freeze and tight controls on discretionary spending.

     Our operating  expenses for the first nine months ending September 30, 2002
decreased by $4.7 million to $9.9 million compared to $14.6 million in the first
nine  months  ending  September  30,  2001.  The  decrease  of $4.7  million was
comprised  of  lower  selling  expenses  of  $1.4  million,  lower  general  and
administrative  expenses of $2.0  million,  and lower  research and  development
expenses of $1.3  million.  Our  operating  expenses for the nine months  ending
September 30, 2002 were 34.0% of net sales, compared to 45.5% for the first nine
months of 2001.

     Selling expenses in Q3 2002 decreased to $1.4 million or 13.1% of net sales
from $1.8 million or 15.4% of net sales in Q3 2001.  Selling expenses were lower
primarily  because of reduced personnel costs,  marketing costs,  freight costs,
commissions, and other selling expenses.

     Selling expenses for the nine months ending September 30, 2002 decreased in
dollars to $4.5  million or 15.4% of net sales from $5.8 million or 18.2% of net
sales in the nine months  ending  September  30, 2001.  The dollar  decrease was
mainly due to reduced personnel costs, marketing costs, freight costs, and other
selling expenses.

     General and administrative  expenses were $0.8 million or 7.6% of net sales
in Q3 2002  compared to $1.4  million or 12.2% of net sales in Q3 2001.  General
and  administrative  expenses were lower primarily due to lower depreciation and
amortization,  personnel costs, insurance costs, and bad debt expense, partially
offset by increases in legal and audit  expenses and  printing.  Our general and
administrative  expenses  in Q3  2001  included  goodwill  amortization  of  $.5
million, compared to no amortization in Q3 2002, as a result of the write-off of
our goodwill assets in Q4 2001.

     General and  administrative  expenses for the nine months ending  September
30, 2002  decreased  to $2.6  million or 8.9% of net sales from $4.6  million or
14.3% of net sales in the nine months ending  September  30, 2001.  The decrease
was primarily due to lower  depreciation and amortization,  personnel costs, bad
debt expense, bank fees, real estate taxes, facility maintenance costs, business
insurance  costs,  and legal expenses,  partially offset by increases in outside
services, postage, and filing fees.

     Research and development  expenses decreased to $0.9 million or 8.1% of net
sales in Q3 2002 from $1.3  million  or 11.4% of net sales in Q3 2001.  Research
and development costs decreased primarily as a result of reduced personnel costs
and fees for consulting and outside  services,  and reduced fees associated with
obtaining licenses and third-party approvals.  Development and support continues
on all of our product lines.

     Research and development  expenses for the nine months ending September 30,
2002  decreased  to $2.8 million or 9.7% of net sales from $4.2 million or 13.0%
of net sales in the nine months  ending  September  30,  2001.  The decrease was
primarily due to reduced  personnel  costs and fees for  consulting  and outside
services,  reduced fees  associated  with  obtaining  licenses  and  third-party
approvals, and other research and development expenses.

     Other income (expense) net improved from income of $0.02 million in Q3 2001
to income of $.05  million in Q3 2002.  Included in other income  (expense)  are
interest income, interest expense, and other income, net.

o    Interest income.  Interest income decreased to $.02 million in Q3 2002 from
     $.05  million in Q3 2001.  The  decrease was the result of our lower earned
     interest rate partially  offset by the interest  earned on a higher average
     invested  cash  balance  during Q3 2002  compared  to Q3 2001.  The average
     interest rate earned in 2002 was approximately 165 basis points lower in Q3
     2002 than in Q3 2001.
o    Interest  expense.  Interest  expense  decreased to $.07 million in Q3 2002
     from $.12  million in Q3 2001.  The interest  expense  decrease is due to a
     lower interest rate for the $6.0 million mortgage taken out in January 2001
     on our headquarters building. This interest is adjusted annually in January
     of each year.
o    Other income, net. Other income and non-interest income remained relatively
     unchanged at $.10 million, comparing Q3 2002 to Q3 2001.

     Other income  (expense)  net  improved  from expense of $.13 million in the
first nine  months of 2001 to income of $.09  million  in first  nine  months of
2002. Included in other income (expense) are interest income,  interest expense,
equity in losses of an affiliate, and other income, net.

o    Interest  income.  Interest  income  decreased to $.09 million in the first
     nine months of 2002 from $.17 million in the first nine months of 2001. The
     decrease  was the  result  of our  lower  earned  interest  rate  which was
     partially offset by a higher average invested cash balance during the first
     nine months of 2002 compared to 2001.  The average  interest rate earned in
     the first nine months of 2002 was approximately 260 basis points lower than
     in the first nine months of 2001.
o    Interest  expense.  Interest expense decreased to $.23 million in the first
     nine months of 2002 from $.34 million in the first nine months of 2001. The
     interest  expense  decrease  is due to a lower  interest  rate for the $6.0
     million  mortgage taken out in January 2001 on our  headquarters  building.
     This interest rate is adjusted annually in January of each year.
o    Equity in losses of affiliate.  Our equity losses in an affiliate were $.06
     million in the first nine months of 2002  compared  to $.14  million in the
     first nine months of 2001. Our investment  balance in the affiliate is zero
     as of September 30, 2002.
o    Other income,  net. Other income and non-interest  income increased to $.29
     million in first nine  months of 2002 from $0.17  million in the first nine
     months of 2001.  The main  reason for the  increase  was the  reversal of a
     reserve for $0.1 million relating to a dispute involving a deposit that was
     resolved in March 2002.  Other  activity in this account  includes  foreign
     exchange  transaction  losses  which  were $.05  million  in the first nine
     months of 2002  compared to $0.07 million for the first nine months of 2001
     and an increase in rental income to $0.25 million for the first nine months
     of 2002 compared to $0.19 million for the first nine months of 2001.

     Income tax expense was zero for the three months ending  September 30, 2002
and $3.8  million for the three months  ending  September  30, 2001.  Income tax
expense was $2.0 million for the nine months ending  September 30, 2002 and $3.8
million for the nine months ending September 30, 2001. In Q3 2001, we recorded a
$3.8 million income tax charge to reflect an additional increase in our deferred
tax  asset  valuation  allowance.  This was  equal  to 100% of the tax  benefits
derived from our 2001 pre-tax losses and certain of our pre-tax losses  incurred
prior to 2001. Management's decision to record the valuation allowance was based
on the uncertain  recoverability of the deferred tax asset balance. Based on our
specific tax planning strategy to sell our appreciated  headquarters building in
Boston,  a $2.013 million deferred tax asset remained on our balance sheet until
the first quarter ending March 31, 2002,  when we recorded an additional  income
tax charge and  valuation  reserve,  which  reduced our net  deferred  tax asset
balance to zero.  This additional  reserve  reflects our decision to discontinue
our specific tax planning strategy to sell our headquarters  building in Boston.
This reserve is also discussed under the caption "Critical  Accounting Policies"
set forth herein.

Liquidity and Capital Resources

     We ended the third  quarter of 2002 with cash of $7.0  million  and working
capital of $15.7 million.

     Operating  activities  generated $2.5 million in cash during the first nine
months  of 2002.  Our net loss  during  the first  nine  months of 2002 was $4.6
million,  which  included  significant  non-cash  charges for a write-off of net
deferred tax assets of $2.0 million, a cost of sales charge for obsolescence and
lower  of cost or  market  write-downs  of $.8  million,  and  depreciation  and
amortization of $.7 million.  These non-cash charges were partially offset by an
extraordinary  non-cash  gain on the  elimination  of  negative  goodwill of $.3
million. The net loss during the first nine months of 2002 excluding these major
non-cash  charges  and gain was $1.4  million.  Sources of cash from  operations
included reduction of inventory,  excluding the above-mentioned obsolescence and
lower of cost or market  adjustments,  of $3.2  million,  a reduction of prepaid
expenses of $.5 million,  and a reduction of accounts receivable of $.2 million.
The reduction of inventory was primarily due to reduced inventory purchases as a
result of the receipt of no-charge  components from key component vendors.  Uses
of cash from operations were the net loss and a decrease in accounts payable and
accrued expenses of $.1 million.

     Investing  activities  used $.5  million  in cash for an  investment  in an
affiliate and $.1 million for capital  expenditures during the first nine months
of 2002.  The  investment in an affiliate was our 20%  investment in Zoom Group,
LLC, formed to purchase the Drydock  building and discussed in further detail in
the Commitments section of this document. We do not have any significant capital
commitments,  and we anticipate that we will continue with modest investments in
equipment and in improvements to our facilities during the year.

     During the first nine months of 2002, we used cash for financing activities
of $.3 million  consisting of $.12 million for nine monthly  principal  payments
plus a one-time principal  reduction payment of $.18 million on the $6.0 million
mortgage on our headquarters  facility. The one-time principal reduction payment
was requested by the mortgage holder in September  2002,  following an appraisal
of our  headquarters  building of $9.3  million,  in order to  maintain  the 60%
maximum  loan-to-value ratio specified in the mortgage  agreement.  Principal on
the loan is amortized on a 20-year basis. The interest rate is adjusted annually
in January of each year based on the  one-year  Federal Home Loan Bank rate plus
2.5 % per annum. The interest rate for the current year is 4.97%.

     Currently we do not have a debt facility  from which we can borrow,  and we
do not  expect to obtain  one on  acceptable  terms  unless  there is  operating
performance  improvement.  However,  we  believe  we  would  be able  to  obtain
additional funds, if and when required,  by factoring  accounts  receivable.  We
have engaged in preliminary  negotiations with a financial organization,  but we
do not plan to put  anything  in place  until and unless it is  necessary  since
there would be an up-front cost to finalize the arrangement.

     To conserve  cash and manage our  liquidity,  we have reduced our worldwide
staff from 243 employees on September 30, 2001 to 190 employees on September 30,
2002.  We continue to maintain  our  temporary  wage freeze and our  controls on
discretionary  spending.  We will  continue to assess our cost  structure  as it
relates to our revenues and cash position in the remainder 2002, and we may make
further reductions if the actions are deemed necessary.

     In addition to expense reductions,  our liquidity in 2002 is expected to be
enhanced by the  utilization of a portion of  approximately  $3.0 million of "no
charge" components as a result of supply agreements entered in 2001. Under these
arrangements,  we are  committed to purchase at least $8.0 million of components
over the  30-month  period  commencing  January  1,  2002,  provided  that those
components  are offered at  competitive  terms and prices.  The  utilization  of
"no-charge" components is expected to supplement our cash flow in 2002 and 2003,
as we will be able to avoid the  purchase  and payment of an  equivalent  dollar
amount of inventory.  We believe that we have had a favorable impact to our cash
flow in the  first  nine  months of 2002  resulting  from  this  arrangement  of
approximately $2.0 million.

     On December  31, 2001 we had $4.1 million net  inventory  in broadband  and
wireless products and components.  This inventory was primarily paid for in 2000
and 2001. Sales of products in 2002 and 2003 using any portion of this inventory
are  expected to enhance our  liquidity  in those  years,  as we will be able to
avoid the purchase and payment of an equivalent  dollar amount of new materials.
We are  currently  selling  cable  modems and wireless  products  that consume a
portion of this inventory and we are aggressively  pursuing additional orders in
markets  worldwide.  At September 30, 2002 our balance of broadband and wireless
net inventory was $2.0 million.

     Our cash position on December 31, 2001 was $5.3 million,  which improved to
$7.0 million at September 30, 2002. We believe we have  sufficient  resources to
fund our planned  operations over the next 12 months.  These planned  operations
anticipate  steady to modest  increases  in the sales of  dial-up  modems,  as a
result of V.92 deployment by some of the major Internet Service Providers and/or
continuing  increases  in  market  share,  and  steady  growth  in the  sales of
broadband  and  wireless  products.  However,  if we are unable to increase  our
revenues,  reduce 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 "Risk Factors" below, for further  information with
respect to events and  uncertainties  that  could harm our  business,  operating
results, and financial condition.

Commitments

     During the nine month  period  ending  September  30,  2002,  there were no
material changes to the capital  commitments and contractual  obligations of the
Company  from  those  disclosed  in the Form  10-K for the  fiscal  year  ending
December 31, 2001.

     During 2001,  we entered into an agreement to purchase the ground lease for
a manufacturing  facility located at 27 Drydock Avenue in Boston,  Massachusetts
(the  "Drydock  Building").  In  connection  with the  proposed  purchase of the
Drydock Building, we paid $513,500 which was held in escrow as a deposit pending
the closing of the transaction. Of this deposit, $25,000 was nonrefundable. When
Zoom was unable to obtain  acceptable  financing  the seller  (the then  current
leaseholder)  retained the deposit  pending  resolution of some  disputed  facts
concerning  Zoom's  withdrawal  from  the  transaction  under  the  terms of the
Purchase and Sale Agreement. While we believed that we were entitled to a return
of the  $488,500  refundable  portion of the deposit plus  interest,  the seller
directed the escrow agent to hold the funds pending resolution of the dispute.

     As an  alternative  to  pursing  legal  remedies  to obtain a return of the
deposit,   we  pursued  an  arrangement  to  acquire  the  Drydock  Building  in
partnership with the following  individuals:  Frank B. Manning,  President and a
director of Zoom;  Peter R. Kramer,  Executive  Vice President and a director of
Zoom; Bruce M. Kramer,  Peter Kramer's  brother;  and a third party.  Under this
arrangement,  these individuals,  either directly or through entities controlled
by them,  joined  together  with us as of March 29,  2002 to form the Zoom Group
LLC, a Massachusetts  limited  liability  company ("Zoom Group") to purchase the
Drydock Building. Zoom and each of the investors owns a 20% interest in the Zoom
Group.  The  managers  of the Zoom Group are Peter  Kramer and the third  party.
There are no special  allocations  among the members of the Zoom Group, and each
member is required to contribute his or its  proportionate  amount of capital in
return for its 20% interest.

     Effective as of March 29, 2002, we entered into a Reinstatement  Agreement,
Assignment Agreement and Second Amendment to Agreement of Purchase and Sale with
the  Zoom  Group  and  the  owner  of  the  Drydock  ground  lease.  Under  this
Reinstatement  Agreement,  the  original  purchase  agreement  for  the  Drydock
Building  was  amended and  reinstated,  and we  assigned  our rights  under the
purchase  agreement  to the Zoom Group,  together  with  rights to the  $488,500
refundable  portion  of the  deposit  plus  interest.  In  connection  with this
transaction,  under a separate letter  agreement,  the other members of the Zoom
Group paid us $390,800 ($97,700 each), representing their proportionate share of
the deposit assigned to the Zoom Group. As a result,  our remaining  interest in
the deposit is $97,700.  As part of the reinstatement of the purchase agreement,
the members of the Zoom Group agreed that an additional  $25,000 of the $488,500
deposit  would be  nonrefundable,  $5,000  of which has been  allocated  to each
investor.

     Under the  Reinstatement  Agreement,  the Zoom Group agreed to purchase the
Drydock Building,  subject to financing and other contingencies,  for a purchase
price of $6.1 million,  subject to  adjustment.  Effective  August 29, 2002, the
parties closed on the purchase and sale of the Drydock Building.  Each member of
the Zoom Group  contributed  $483,000 to fund the cash  portion of the  purchase
price plus initial working capital.  These initial capital contributions include
each member's share of the deposit.

     Under  the Zoom  Group  Operating  Agreement  we have the right to sell our
interest in the Zoom Group to the other members of the Zoom Group, and the right
to purchase the other members' entire  interests in the Zoom Group. Our right of
sale expires on January 5, 2003.  Should we exercise our sale right, we would be
entitled to recover the full amount of all refundable  investments  (the $92,700
refundable portion of the $97,700 deposit and any additional  investment made in
the Zoom Group.) If we exercise  this right,  the other  members will be jointly
and severally  liable to pay this amount  within ninety (90) days.  Our right to
purchase  the  interests  of the other  members  of the Zoom  Group  expires  on
December 31, 2005.  Under our right to purchase,  we have the option to purchase
all the  interests of the other  members of the Zoom Group for a purchase  price
determined  in  accordance  with a  prearranged  formula  based upon the initial
purchase price of the Drydock Building plus 20% a year, prorated after the first
year. We have no obligation to exercise  either our purchase or sale right,  and
no member of the Zoom Group has any right to  require us to do so. Any  decision
to exercise  any of these  rights will be made by the  independent  directors of
Zoom.

Recently Issued Accounting Standards

     In  September  2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs
Associated  with Exit or  Disposal  Activities"  (SFAS 146).  SFAS 146  requires
companies to recognize costs  associated  with exit or disposal  activities when
they are incurred rather that at the date of a commitment to an exit or disposal
plan.  This statement is effective for fiscal years beginning after December 31,
2002.  We do not  believe  that the  impact  of  adopting  SFAS 146 will  have a
material impact on our consolidated financial statements.

     FASB  Emerging  Issues Task Force Issue No. 00-14  "Accounting  for Certain
Sales Incentives" addresses the recognition,  measurement,  and income statement
classification  for certain types of sales  incentives.  The  application of the
guidance  in Issue No.  00-14  resulted  in a change  in the  manner in which we
record  certain types of discounts and sales and marketing  incentives  that are
provided to our customers.  We have  historically  recorded these  incentives as
selling expenses.  Under Issue No. 00-14, beginning on January 1, 2002, we began
recording  The Company has  historically  recorded  these  incentives as selling
expenses.  Under  Issue No.  00-14,  beginning  on January 1, 2002,  the Company
records these discounts and incentives as reductions of revenue.  In April 2001,
the FASB  Emerging  Issues  Task Force  reached a consensus  on Issue No.  00-25
"Accounting for Consideration from a Vendor to a Retailer in Connection with the
Purchase or  Promotion  of the Vendor's  Products".  Issue No.  00-25  addresses
whether certain  consideration  offered by a vendor to a distributor,  including
slotting fees,  cooperative  advertising  arrangements and "buy-down"  programs,
should be  characterized as operating  expenses or reductions of revenue.  Issue
No. 00-14 and 00-25 were  implemented  in the first  fiscal  quarter of 2002 and
prior  period  reported  amounts  have   reclassified  to  conform  to  the  new
presentation (see note 11 to the consolidated financial statements).

<PAGE>
RISK FACTORS

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

     Our revenues have declined and we have incurred significant losses and used
significant cash in operations over the last three years.

     We  incurred a net loss of $4.6  million in the first nine months of fiscal
2002 and net losses of approximately  $18.3 million in fiscal 2001, $3.1 million
in fiscal 2000,  and $1.4 million in fiscal 1999.  During 1999 through 2001, our
revenue  declined  from $62.2 million in 1999 to $57.7 million in 2000 and $41.6
million in 2001. In the nine months ending on September 30,2002, our revenue was
$29.1 million,  a 9.2% decline from the prior year's first nine months. The cash
used in  operations  during 1999  through  2001 was $2.6  million in 2001,  $8.0
million in 2000, and $2.7 million in 1999. In the first nine months of 2002, our
cash provided from operations was positive, at $2.5 million. As of September 30,
2002 we had net working capital of $15.7 million including cash of $7.0 million.

     We  attribute  the decline of our  business  primarily  to a decline in the
retail  dial-up  modem  market  and  delays in the  roll-out  of the V.92  modem
standard.  We anticipate that we will continue to incur significant expenses for
the foreseeable future as we:

o    continue to develop and seek  appropriate  approvals for our dial-up modem,
     broadband access, wireless local area network, Internet gateway, and dialer
     products; and
o    continue to make efforts to expand our sales channels internationally,  and
     into new channels appropriate to our new product areas.

     Although we have reduced our operating  expense levels  significantly,  our
revenues must increase or we will continue to incur operating  losses. We cannot
guarantee that our expenditure  reductions will continue or that we will be able
to halt the decline in our revenues. Although we believe that we have sufficient
resources  to fund our  planned  operations  over the next  year,  if we fail to
increase  our  revenues,  our  longer-term  ability to stay in  business  and to
achieve our  intended  business  objectives  could be  adversely  effected.  Our
continuing  losses and use of cash could also  adversely  affect our  ability to
fund the growth of our business should our strategies prove successful.

     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  should growth occur. We currently do not
have a debt facility from which we can borrow and we do not expect to obtain one
on  acceptable  terms  unless our  operating  performance  improved.  Additional
financing  may not be  available  to us on a timely basis if at all, or on terms
acceptable  to us. If we fail to obtain  acceptable  additional  financing  when
needed,  we may be required to further  reduce  planned  expenditures  or forego
business  opportunities,  which could reduce our revenues,  increase our losses,
and harm our business.  Moreover,  additional  equity financing could dilute the
per  share  value  of our  common  stock  held by  current  shareholders,  while
additional   debt   financing   could  restrict  our  ability  to  make  capital
expenditures  or incur  additional  indebtedness,  all of which would impede our
ability to succeed.

     Our  existing  indebtedness  could  prevent  us from  obtaining  additional
financing and harm our liquidity.

     In  January  2001,  we  obtained a $6  million,  20 year  direct  reduction
mortgage from a bank, secured by our owned real estate in Boston, Massachusetts.
Our  outstanding  indebtedness  could  adversely  affect  our  ability to obtain
additional financing for working capital,  acquisitions,  or other purposes. Our
existing  indebtedness  could also make us more vulnerable to economic downturns
and  competitive  pressures,  make it more difficult to obtain  additional  debt
financing, and adversely affect our liquidity. In the event of a cash shortfall,
we could be forced to reduce other  expenditures to meet our  requirements  with
respect to our  outstanding  debt. Our ability to meet our  obligations  will be
dependent  upon our future  performance,  which  will be  subject to  financial,
business and other factors  affecting our operations.  Many of these factors are
beyond our  control.  If we are  unable to  generate  sufficient  cash flow from
operations  in the future to service our debt,  we may be required to  refinance
all or a portion of these obligations or obtain additional financing in order to
stay in business.

     Our revenues and operating results have been adversely  affected because of
a decline in average  selling  prices for our dial-up  modems and because of the
decline in the retail market for dial-up modems.

     The dial-up  modem  industry has been  characterized  by declining  average
selling  prices and a declining  retail market.  The decline in average  selling
prices is due to a number of  factors,  including  technological  change,  lower
component costs,  and competition.  The decline in the size of the retail market
for dial-up  modems is primarily  due to the  inclusion  of dial-up  modems as a
standard feature contained in new PCs, and the advent of broadband products.  As
the market for cable and ADSL modems matures and  competition  between cable and
ADSL service  providers  intensifies,  it is likely that there will be increased
retail  distribution of cable and ADSL modems.  While  increased  retail sale of
broadband  modems could increase our sales of these  products,  it could further
reduce demand for our dial-up  modems.  Decreasing  average  selling  prices and
reduced  demand for our dial-up  modems would  result in  decreased  revenue for
dial-up modems, which has been our primary source of revenue.

     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,   cable  and  ADSL,  modem  markets.  These  markets  have  been
challenging  markets,  with significant  barriers to entry,  that have adversely
affected  our sales to these  markets.  Although  some cable and ADSL modems are
sold at retail, the high volume purchasers of these modems are concentrated in a
relatively few large cable,  telecommunications,  and internet service providers
which offer  broadband  modem  services  to their  customers.  These  customers,
particularly cable services  providers,  also have extensive and varied approval
processes for modems to be approved for use on their  network.  These  approvals
are expensive, time consuming, and continue to evolve.  Successfully penetrating
the broadband modem market therefore presents a number of challenges including:

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

     Our initial sales of broadband products have been adversely affected by all
of  these  factors.  We  cannot  assure  that we  will  be able to  successfully
penetrate these markets.

     Continued  fluctuations  in our  operating  results  could cause the market
price of our common stock to fall.

     Our  operating  results  have  fluctuated  in the  past and are  likely  to
fluctuate in the future.  It is possible that our revenues and operating results
will be below the  expectations of investors in future  quarters.  If we fail to
meet or surpass the  expectations  of investors,  the market price of our common
stock will most likely fall.  Factors  that have  affected and may in the future
affect our operating results include:

o    the overall demand for dial-up, cable and ADSL modems,  wireless local area
     network   products,   Internet  gateway   products,   dialers,   and  other
     communications products;
o    the  timing  of new  product  announcements  and  releases  by us  and  our
     competitors;
o    successful  testing,  qualification  and approval of our products,  such as
     Cablelabs(R) qualification of cable modems, telephone company qualification
     of ADSL modems,  approval by service  providers for use on their  networks,
     and governmental approvals;
o    variations in the number and mix of products we sell;
o    the timing of customer  orders and  adjustments  of delivery  schedules  to
     accommodate our customers' programs;
o    the  availability  of components,  materials and labor necessary to produce
     our products;
o    the timing and level of  expenditures  in  anticipation  of future sales;
o    pricing and other competitive conditions; and
o    seasonality.

     Our  customer  base  is  concentrated  and  the  loss of one or more of our
customers could harm our business.

     Relatively few customers  have  accounted for a significant  portion of our
net sales. In fiscal 2001,  approximately 53% of our net sales were attributable
to four customers, each of whom accounted for more than 10% of our net sales. In
the  first  nine  months  of  2002,  approximately  45% of our  net  sales  were
attributable to three  customers,  each of whom accounted for 10% or more of our
net sales.  Because our customer base is concentrated,  a loss of one or more of
these  significant  customers  or a reduction or delay in orders or a default in
payment from any of our top customers could significantly reduce our sales which
would  materially  harm our  business,  results  of  operations,  and  financial
condition.

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

     The market for PC communications  products and high-speed  broadband access
products 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  developments  and
enhancements have taken longer than planned and have delayed the availability of
our products,  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 our results of  operations  and  financial  condition may be
adversely  affected.  Our  future  success  will  depend in large  part upon our
ability to:

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

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

     Our  operating  results  have  been  adversely  affected  because  of price
protection programs.

     Our operating results have been adversely affected by reductions in average
selling  prices  because we gave credits to some of our customers as a result of
contractual price protection guarantees.  Specifically, when we reduce the price
for a product,  the customer  receives a credit for the  difference  between the
customer's most recent purchase price and our reduced price for the product, for
all unsold  product at the time of the price  reduction.  For  fiscal  2001,  we
recorded a reduction of revenue of $.9 million for customer price protection. In
the first nine months of 2002, we recorded a reduction of revenue of $.3 million
for price protection.

     We may be  subject to  product  returns  resulting  from  defects,  or from
overstocking  of our  products.  Product  returns could result in the failure to
attain market acceptance of our products, which would harm our business.

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

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

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

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

     During  fiscal  2000,  in  anticipation  of  future  sales of our  recently
introduced   broadband   access   products,   particularly   cable  modems,   we
significantly  increased our inventory for these products. We also built up this
inventory in response to shortages of components for these  products  earlier in
that  year.  Since  that  time,  most of these  component  shortages  have  been
alleviated.  We have also had  difficulty in generating  significant  orders for
some of our  products,  particularly  broadband  products,  and as a result,  we
experienced  a  significant  increase  in our  inventory,  to $21.7  million  on
December 31, 2000 from $14.3  million on December 31, 1999.  During fiscal 2001,
we were able to reduce  our  inventory  levels to $11.1  million  as a result of
sales, raw material returns to suppliers, and the write-down of value of some of
our  inventory.  At September 30, 2002, our inventory  level is $7.1 million,  a
reduction of $4.0  million from  December  31, 2001  primarily  attributable  to
reduced inventory purchases attributable to the delivery of no-charge components
from our key  component  vendors  and sales of  excess  broadband  and  wireless
inventory.  Our failure to effectively manage our inventory may adversely affect
our liquidity and  increases  the risk of inventory  obsolescence,  a decline in
market value of the inventory,  or losses from theft,  fire, or other  casualty.

We may be unable to produce  sufficient  quantities  of our products  because we
depend on third party manufacturers.  If these third party manufacturers fail to
produce quality products in a timely manner, our ability to fulfill our customer
orders would be adversely impacted.

     We use contract manufacturers to partially manufacture our products. We use
these third party  manufacturers  to help ensure low costs,  rapid market entry,
and  reliability.  Any  manufacturing  disruption  could  impair our  ability to
fulfill orders,  and failure to fulfill orders would adversely affect our sales.
Although  we  currently  use six  contract  manufacturers  for  the  bulk of our
purchases,  in some  cases a given  product  is only  provided  by one of  these
companies.  The  loss of the  services  of any of our  significant  third  party
manufacturers   or  a  material  adverse  change  in  the  business  of  or  our
relationships  with any of these  manufacturers  could harm our business.  Since
third  parties  manufacture  our  products and we expect this to continue in the
future,  our success will depend,  in part,  on the ability of third  parties to
manufacture our products cost  effectively and in sufficient  quantities to meet
our customer demand.

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

o    reduced management and control of component purchases;
o    reduced control over,delivery schedules;
o    reduced control over quality assurance;
o    reduced control over manufacturing yields;
o    lack of adequate capacity during periods of excess demand;
o    limited warranties on products supplied to us;
o    potential increases in prices;
o    interruption  of supplies from  assemblers  as a result of a fire,  natural
     calamity, strike or other significant event; and
o    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 dial-up and broadband modem chipsets
from  Conexant  Systems and Agere  Systems.  Integrated  circuit  product  areas
covered by one or both companies  include  dial-up  modems,  ADSL modems,  cable
modems, networking, routers, and gateways. We purchase chipsets for our wireless
network  interface  cards  from  Intersil  Corporation.  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 could experience difficulties in obtaining alternative sources or in
altering  product designs to use  alternative  components.  Resulting  delays or
reductions in product  shipments could damage  relationships  with our customers
and our  customers  could  decide to  purchase  products  from our  competitors.
Inability  to meet our  customers'  demand or a  decision  by one or more of our
customers to purchase  products  from our  competitors  could harm our operating
results.

     Our failure to satisfy minimum purchase requirements or commitments we have
with our sole source  suppliers  could have an adverse  affect on our results of
operations.

     We have entered into supply  arrangements with suppliers of some components
that include price and other concessions,  including no-charge  components,  for
meeting minimum purchase  requirements or commitments.  Our business and results
of  operations  could be  harmed  if we fail to  satisfy  the  minimum  purchase
requirements or commitments contained in our supply arrangements.

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

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

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

 Although we currently sell products that include these technologies, the market
for high-speed communication products and services is fragmented and still in
its development stage. The introduction of new products by competitors, market
acceptance of products based on new or alternative technologies, or the
emergence of new industry standards could render and have in the past rendered
our products less competitive or obsolete. If any of these events occur, we may
be unable to sustain or grow our business. In addition, if any of one or more of
the alternative technologies gain market share at the expense of another
technology, demand for our products may be reduced, and we may be unable to
sustain or grow our business.

 We face significant competition, which could result in decreased demand for our
products or services.

 We may be unable to compete successfully. A number of companies have developed,
or are expected to develop, products that compete or will compete with our
products. Furthermore, many of our current and potential competitors have
significantly greater resources than we do. Intense competition, rapid
technological change and evolving industry standards could decrease demand for
our products or make our products obsolete. Our competitors by product group
include the following:

o    Dial-up modem competitors: Actiontec, Askey, Best Data, Creative Labs, GVC,
     SONICblue, and US Robotics.
o    Cable modem competitors:  D-Link, Linksys,  Motorola,  Samsung,  Scientific
     Atlanta, Thomson, and Toshiba.
o    ADSL modem competitors:  Alcatel,  Siemens (formerly  Efficient  Networks),
     U.S.Robotics, and Westell.
o    Wireless Local Area Network competitors: 3Com, Buffalo Technologies,  Cisco
     Systems, D-Link, Intel, Linksys, Proxim, and SMC.

   The principal competitive factors in our industry include the following:

o    product performance, features and reliability;
o    price;
o    product availability and lead times;
o    size and stability of operations;
o    breadth of product line;
o    sales and distribution capability;
o    tailoring of product to local market needs,  sometimes including packaging,
     documentation, software, and support in the local language;
o    ease of use and technical support and service;
o    relationships with providers of broadband access services; and o compliance
     with industry standards.

     Our  business is  dependent  on the  Internet  and the  development  of the
Internet infrastructure.

     Our success will depend in large part on  increased  use of the Internet to
increase the demand for  high-speed  communications  products.  Critical  issues
concerning the commercial use of the Internet remain largely  unresolved and are
likely to affect the  development  of the market for our products.  These issues
include security, reliability, cost, ease of access, and quality of service.

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

     Any perceived  degradation  in the  performance  of the Internet as a whole
could undermine the benefits of our products.  Potentially increased performance
provided by our products and the products of others ultimately is limited by and
reliant  upon  the  speed  and  reliability  of the  Internet  backbone  itself.
Consequently,  the  emergence  and growth of the market  for our  products  will
depend on  improvements  being made to the  entire  Internet  infrastructure  to
alleviate overloading.

     Changes  in  current  or  future  laws  or  governmental  regulations  that
negatively impact our products 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 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.

     Our  international  operations are subject to a number of risks inherent in
international activities.

     Our international  sales accounted for approximately 29% in fiscal 2000 and
38%  in  fiscal  2001.  In  Q3  2002  our  international   sales  accounted  for
approximately  37% of our revenues.  Currently our operations are  significantly
dependent on our international  operations,  and may be materially and adversely
affected by many factors including:

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

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

     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, 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.

     Our future  success will depend on the continued  services of our executive
officers and key research and  development  personnel with expertise in hardware
and software development.

     The loss of any of our executive  officers or key research and  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 management  team, a key
engineer,  or  other  key  contributors,  could  harm  our  relations  with  our
customers, our ability to respond to technological change, and our business.

 Our business may be harmed by acquisitions we may complete in the future.

     We may pursue  acquisitions of related  businesses,  technologies,  product
lines,  or  products.  Our  identification  of suitable  acquisition  candidates
involves risk inherent in assessing the values, strengths, weaknesses, risks and
profitability of acquisition  candidates,  including the effects of the possible
acquisition on our business,  diversion of our management's  attention,  risk of
increased  leverage,  shareholder  dilution,  risk associated with unanticipated
problems, and risks associated with liabilities we assume.

 We may have difficulty protecting our intellectual property.

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

 We could infringe the intellectual property rights of others.

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

     Our  executive  officers and directors  may control  certain  matters to be
voted on by the shareholders.  These officers and directors may vote in a manner
that is not in your best interests.

     Based upon information provided to us, our executive officers and directors
beneficially own, in the aggregate as of September 30, 2002, approximately 23.9%
of  our  outstanding  common  stock.  As  a  result,  these  shareholders  could
significantly  influence  certain  matters  to be voted on by the  shareholders.
These matters  include the election of directors,  amendments to our certificate
of  incorporation  and approval of  significant  corporate  transactions.  These
executive  officers and directors may vote as  shareholders  in a manner that is
not in your best interests.

     The volatility of our stock price could  adversely  affect an investment in
our common stock.

     The market price of our common stock has been and may continue to be highly
volatile.  We believe  that a variety of  factors  have  caused and could in the
future cause the stock price of our common stock to fluctuate, including:

o    announcements   of   developments   related  to  our  business,   including
     announcements of  certification by the FCC or other regulatory  authorities
     of our products or our competitors products;
o    quarterly  fluctuations  in our actual or  anticipated  operating  results,
     assets, liabilities, and order levels;
o    general conditions in the US and worldwide economies;
o    announcements of technological innovations;
o    new products or product enhancements introduced by us or our competitors;
o    developments  in  patents  or  other   intellectual   property  rights  and
     litigation; and
o    developments in our relationships with our customers and suppliers.

     In  addition,  in recent  years the stock market in general and the markets
for shares of small capitalization and "high-tech" companies in particular, have
experienced  extreme price  fluctuations  which have often been unrelated to the
operating  performance of affected  companies.  Any  fluctuations  in the future
could adversely affect the market price of our common stock and the market price
of our common stock may decline.
<PAGE>

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

     The Company owns financial  instruments  that are sensitive to market risks
as  part  of its  investment  portfolio.  The  investment  portfolio  is used to
preserve  the  Company's  capital  until  it is  required  to  fund  operations,
including  the  Company's  research and  development  activities.  None of these
market-risk  sensitive  instruments are held for trading  purposes.  The Company
does not own derivative financial instruments in its investment  portfolio.  The
investment  portfolio  contains  instruments  that are  subject to the risk of a
decline in interest rates.

     Investment Rate Risk - The Company's 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,  the Company does not
believe  that it has a material  exposure  to  interest  rate risk.  The 20 year
mortgage of our headquarters  building is a variable rate loan with the interest
rate  adjusted  annually.  A 1% change in the  interest  rate would  result in a
decrease or increase of approximately $60,000 of interest expense per year.

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

     This report contains forward-looking  information relating to Zoom's plans,
expectations  and intentions,  including  statements  relating to Zoom's dial-up
modem,  cable  modem,  ADSL modem,  wireless  networking,  and dialer  sales and
development  activities,  the anticipated growth of sales resulting from the V92
service  rollout,  the  anticipated  development  of  Zoom's  markets  and sales
channels,  the anticipated level of demand for Zoom's products,  the anticipated
effect  of the "no  charge"  components  will  have  on  Zoom's  liquidity,  the
anticipated  impact  of  Zoom's  cost-cutting  initiatives,  Zoom's  ability  to
continue listing on the Nasdaq National Market or, if necessary,  obtain listing
on the Nasdaq  Small Cap market,  and Zoom's  financial  condition or results of
operations.  Actual results may be materially  different than those expectations
as a result of known and unknown risks,  including:  Zoom's  continuing  losses;
Zoom's  ability to obtain  additional  financing  for working  capital and other
purposes; Zoom's ability to effectively manage its inventory; uncertainty of new
product development and introduction,  including budget overruns, project delays
and the risk that newly  introduced  products may contain  undetected  errors or
defects or otherwise not perform as  anticipated,  and other delays in shipments
of  products;  the  early  stage of  development  of the  cable  and  ADSL  data
communications  markets,  the uncertainty of market growth of those markets, and
Zoom's ability to more  successfully  penetrate  those markets,  which have been
challenging markets with significant barriers to entry; Zoom's dependence on one
or a limited number of suppliers for certain key components; rapid technological
change; competition; the risk that Zoom's common stock will be delisted from the
Nasdaq  National  Market or be unable to qualify for listing on the Nasdaq Small
Cap Market; and other risks set forth in herein and in Zoom's other filings with
the Securities and Exchange Commission. Zoom cautions readers not to place undue
reliance upon any such  forward-looking  statements,  which speak only as of the
date made.  Zoom  expressly  disclaims any  obligation or undertaking to release
publicly any updates or revisions to any such  statements  to reflect any change
in the Zoom's  expectations or any change in events,  conditions or circumstance
on which any such statement is based.

Item 4.  Controls and Procedures.

     Within  the  90-day  period  prior to the date of this  report,  our  Chief
Executive  Officer and Chief  Financial  Officer  performed an evaluation of the
effectiveness of our disclosure  controls and procedures (as defined in SEC Rule
13a-14), which have been designed to ensure that material information related to
the company is timely disclosed. Based upon that evaluation, they concluded that
the disclosure controls and procedures were effective.

     Since the last  evaluation  of our  internal  controls and  procedures  for
financial  reporting,  Zoom has made no  significant  changes in those  internal
controls and procedures or in other factors that could significantly  affect our
internal controls and procedures for financial reporting.
<PAGE>

PART II - OTHER INFORMATION

Item 5. Other Events and Information

NASDAQ Hearing

     We received a letter from the Nasdaq Stock Market stating that Zoom had not
regained  compliance  with the $1.00  minimum  bid  requirement  for the  Nasdaq
National Market and that our common stock would be delisted on October 30, 2002.
We have requested a hearing  regarding the  delisting,  which has been scheduled
for December 12, 2002. Pending the outcome of the hearing, our common stock will
continue  to be listed on the  Nasdaq  National  Market.  If the  outcome of our
hearing is not successful, Zoom intends to apply for listing on the Nasdaq Small
Cap Market. Zoom believes it currently meets the requirements to transfer to the
Nasdaq Small Cap Market.

SFAS No. 142 Disclosure

     Effective  January 1, 2002,  we adopted  Statement of Financial  Accounting
Standards (SFAS) No. 142, which addresses financial accounting and reporting for
acquired  goodwill and other intangible  assets.  On January 1, 2002, we did not
report any  goodwill  or other  intangible  assets on our  consolidated  balance
sheet.  On  January 1, 2002,  the  Company  recorded  an  extraordinary  gain of
$255,287 upon the adoption of SFAS No. 142, which resulted from the  elimination
of the remaining negative goodwill on the Company's  consolidated  balance sheet
related to a previous acquisition.

     We believe that all audited financial statements  incorporated by reference
into our open  registration  statements  are fairly  presented,  in all material
respects,  without  transitional  disclosure.  Accordingly,  we  present in this
quarterly report, net loss before goodwill amortization,  net of tax and related
per share  amounts  for the years  ended  December  31,  1999,  2000 and 2001 as
follows (in thousands, except per share amounts):

Year ended
<TABLE>
<S>                                       <C>                 <C>                 <C>
                                          December 31,        December 31,        December 31,
                                             1999                 2000                2001

Net loss as reported                      $ (1,409)            $ (3,077)          $ (18,329)
Add back: Goodwill amortization
expense, net of tax effect                     421                  569                 781
                                            ------                -----               -----
Adjusted net loss                         $   (988)            $ (2,508)         $  (17,548)

Basic and diluted loss per
share, as reported                        $  (0.19)           $   (0.39)         $    (2.33)
Add back: Goodwill amortization
expense, net of tax effect                    0.06                 0.07                0.10
                                             -----                -----               -----
Pro-forma basic and diluted
loss per share                            $  (0.13)           $   (0.32)         $    (2.23)
</TABLE>

ITEM 6 - Exhibits and reports on Form 8-K


(a)  Exhibits

     99.1    Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of
             2002

(b)  No reports on Form 8-K were filed by the Company  during the quarter ending
     September 30, 2002.

<PAGE>


                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY


SIGNATURES

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


                               ZOOM TECHNOLOGIES, INC.


Date: November 13 , 2002       By:  /s/ Frank B. Manning
                               ------------------------------------------
                               Frank B. Manning, President


Date: November 13, 2002        By:  /s/ Robert Crist
                               -------------------------------------------
                               Robert Crist, Vice President of Finance
                               and Chief Financial Officer (Principal
                               Financial and Accounting Officer)




<PAGE>


                                  CERTIFICATION

I, Frank B. Manning, Chief Executive Officer of Zoom Technologies, Inc., certify
that:

1. I have  reviewed  this  quarterly  report on Form 10-Q of Zoom  Technologies,
Inc.;

2. Based on my  knowledge,  this  quarterly  report  does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this quarterly report is being prepared;

     b) evaluated the effectiveness of the registrant's  disclosure controls and
procedures  as of a date  within  90  days  prior  to the  filing  date  of this
quarterly report (the "Evaluation Date"); and

     c)  presented  in  this  quarterly   report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

     a) all  significant  deficiencies  in the design or  operation  of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
employees who have a significant role in the registrant's internal controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 13, 2002
-----------------------
/s/ Frank B. Manning,
Chief Executive Officer


<PAGE>


                                  CERTIFICATION

I, Robert Crist,  Chief Financial Officer of Zoom  Technologies,  Inc.,  certify
that:

1. I have  reviewed  this  quarterly  report on Form 10-Q of Zoom  Technologies,
Inc.;

2. Based on my  knowledge,  this  quarterly  report  does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this quarterly report is being prepared;

     b) evaluated the effectiveness of the registrant's  disclosure controls and
procedures  as of a date  within  90  days  prior  to the  filing  date  of this
quarterly report (the "Evaluation Date"); and

     c)  presented  in  this  quarterly   report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

     a) all  significant  deficiencies  in the design or  operation  of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
employees who have a significant role in the registrant's internal controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 13, 2002
-----------------------
/s/ Robert Crist,
Chief Financial Officer