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 June 30, 2004

                                       or

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

         For the transition period from ______________ to ______________

                         Commission File Number 0-18672

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

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

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

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

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

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

The number of shares outstanding of the registrant's Common Stock, $.01 Par
Value, as of August 4, 2004 was 8,786,191 shares.
<PAGE>


                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                                      INDEX

Part I. Financial Information                                              Page

  Item 1.      Consolidated Balance Sheets as of June 30, 2004
                      and December 31, 2003 (unaudited)                     3

               Consolidated Statements of Operations for the three and six
                      months Ended June 30, 2004 and 2003
                      (unaudited)                                           4

               Consolidated Statements of Cash Flows for the six
                      months Ended June 30, 2004 and 2003
                      (unaudited)                                           5

               Notes to Consolidated Financial Statements                  6-8

  Item 2.      Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                  9-20

  Item 3.      Quantitative and Qualitative Disclosures About Market
                      Risk                                                 20

  Item 4.      Controls and Procedures                                     20


Part II. Other Information

  Item 4.    Submission of Matters to a Vote of Security Holders           20

  Item 6.      Exhibits and Reports on Form 8-K                            21

               Signatures                                                  22

               Exhibit Index                                               23


<PAGE>


PAGE>
PART I - FINANCIAL INFORMATION


                                     ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                                           Consolidated Balance Sheets
                                                   (unaudited)
<TABLE>
<CAPTION>
                                                                June 30, 2004    December 31, 2003
                                                                --------------   -----------------
<S>                                                             <C>              <C>

   Assets

Current assets:
    Cash and cash equivalents                                   $  10,553,371    $   9,904,384
    Accounts receivable, net of reserves for doubtful
       accounts, returns, and allowances of $1,700,822 at
       June 30, 2004 and $1,790,205 at December 31, 2003            3,313,985        3,944,699
    Inventories, net                                                5,105,662        4,771,216
    Prepaid expenses and other current assets                         421,866          434,694
                                                                   ----------       ----------
             Total current assets                                  19,394,884       19,054,993

    Property, plant and equipment, net                              2,763,348        2,918,985
                                                                   ----------       ----------
             Total assets                                       $  22,158,232    $  21,973,978
                                                                   ==========       ==========
   Liabilities and Stockholders' Equity

Current liabilities:
    Current portion of long-term debt                           $     228,897    $     223,833
    Accounts payable                                                1,648,779        2,172,028
    Accrued expenses                                                1,305,175        1,011,910
                                                                   ----------       ----------
             Total current liabilities                              3,182,851        3,407,771

 Long-term debt, less current portion                               4,982,650        5,095,986
                                                                   ----------       ----------
             Total liabilities                                      8,165,501        8,503,757
                                                                   ----------       ----------
Stockholders' equity:
  Common stock, $0.01 par value. Authorized 25,000,000 shares; issued 8,638,541
    shares and outstanding 8,630,141 shares at June 30, 2004 and issued
    8,084,616 shares and outstanding
    8,076,216 shares at December 31, 2003                              86,385           80,846
  Additional paid-in capital                                       30,058,762       28,500,421
  Retained earnings (accumulated deficit)                         (16,575,760)     (15,438,333)
  Accumulated other comprehensive income (loss)                       430,666          334,609
  Treasury stock, at cost                                              (7,322)          (7,322)
                                                                   ----------       ----------
             Total stockholders' equity                            13,992,731       13,470,221
                                                                   ----------       ----------

             Total liabilities and stockholders' equity         $  22,158,232    $  21,973,978
                                                                   ==========       ==========
</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 Ended June 30,     Six Months Ended June 30,
                                                       -----------------------------   ---------------------------
                                                             2004            2003            2004          2003
                                                             ----            ----            ----          ----
Net sales                                               $  8,091,470    $  7,536,664    $ 15,883,075    $15,075,177
Costs of goods sold                                        5,841,074       5,776,863      11,320,623     11,170,582
                                                        ------------    ------------    ------------    -----------
            Gross profit                                   2,250,396       1,759,801       4,562,452      3,904,595

Operating expenses:
         Selling                                           1,171,054       1,226,966       2,397,031      2,588,734
         General and administrative                        1,063,384         843,039       2,016,716      1,800,835
         Research and development                            665,442         742,969       1,343,661      1,495,173
                                                        ------------    ------------    ------------    -----------
            Total operating expenses                       2,899,880       2,812,974       5,757,408      5,884,742
                                                        ------------    ------------    ------------    -----------
            Operating income (loss)                         (649,484)     (1,053,173)     (1,194,956)    (1,980,147)

Other income (expense):
            Interest income                                   25,425          23,272          49,608         44,584
            Interest (expense)                               (53,510)        (40,452)       (106,158)       (95,264)
            Other, net                                        97,704          79,238         114,079        200,144
                                                        ------------    ------------    ------------    -----------
            Total other income (expense), net                 69,619          62,058          57,529        149,464
                                                        ------------    ------------    ------------    -----------

            Income (loss) before income tax
                   expense                                  (579,865)       (991,115)     (1,137,427)    (1,830,683)

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

            Net income (loss)                           $   (579,865)   $   (991,115)   $ (1,137,427)   $(1,830,683)
                                                        ============    ============    ============    ===========
Earnings (loss) per common share:
                        Basic                           $       (.07)   $       (.13)   $       (.14)   $      (.23)
                                                        ============    ============    ============    ===========
                        Diluted                         $       (.07)   $       (.13)   $       (.14)   $      (.23)
                                                        ============    ============    ============    ===========

Weighted average common and common equivalent shares:
                        Basic                              8,466,356       7,852,466       8,332,599      7,852,921
                                                        ============    ============    ============    ===========
                        Diluted                            8,466,356       7,852,466       8,332,599      7,852,921
                                                        ============    ============    ============    ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>

                                ZOOM TECHNOLOGIES, INC. AND SUBSIDIARY
                                 Consolidated Statements of Cash Flows
                                              (Unaudited)
<TABLE>
<CAPTION>
                                                                         Six Months Ended
                                                                              June 30,
                                                                      2004               2003
                                                                --------------       -------------
<S>                                                             <C>                <C>
Cash flows from operating activities:
    Net income (loss)                                           $  (1,137,427)      $  (1,830,683)
    Adjustments to reconcile net income (loss) to net cash
      provided by (used in) operating activities:
      Non-operating gain on refund of deposit                              -              (40,237)
      Depreciation and amortization                                   225,399             369,496
      Changes in operating assets and liabilities:
        Accounts receivable, net                                      728,692             184,908
        Inventories, net                                             (334,446)          2,315,295
        Prepaid expenses and other assets                              12,828             598,293
        Accounts payable and accrued expenses                        (229,984)           (671,583)
                                                                   ----------           ---------
           Net cash provided by (used in) operating activities       (734,938)            925,489
                                                                   ----------           ---------
Cash flows from investing activities:
Additions to property, plant and equipment                            (69,762)            (14,626)
                                                                   ----------           ---------
           Net cash provided by (used in) investing activities        (69,762)            (14,626)
                                                                   ----------           ---------
Cash flows from financing activities:
    Principal payments on long-term debt                             (108,272)           (105,076)
    Proceeds from exercise of stock options                         1,563,880                   -
    Purchase of Treasury stock                                              -              (5,126)
                                                                   ----------           ---------
Net cash provided by (used in) financing activities                 1,455,608            (110,202)
                                                                   ----------           ---------
Effect of exchange rate changes on cash and cash equivalents           (1,921)              3,706
                                                                   ----------           ---------
Net increase (decrease) in cash and cash equivalents                  648,987             804,367

Cash and cash equivalents  - beginning of period                    9,904,384           7,612,274
                                                                   ----------           ---------
Cash and cash equivalents - end of period                       $  10,553,371        $  8,416,641
                                                                   ==========           =========
Supplemental disclosures of cash flow information:

    Cash paid during the period for:
    Interest                                                    $     106,158        $    111,306
                                                                    =========           =========
    Income taxes                                                $           -        $          -
                                                                    =========           =========
</TABLE>
   See accompanying notes to consolidated financial statements.

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

(1)  Summary of Significant Accounting Policies

     (a) Basis of Presentation and Principles of Consolidation

     The  consolidated  financial  statements  of Zoom  Technologies,  Inc. (the
"Company")  presented  herein  have been  prepared  pursuant to the rules of the
Securities and Exchange Commission for quarterly reports on Form 10-Q and do not
include all of the information and footnote  disclosures  required by accounting
principles generally accepted in the United States of America.  These statements
should be read in conjunction with the audited consolidated financial statements
and notes thereto for the year ended December 31, 2003 included in the Company's
2003 Annual Report on Form 10-K.

     The  consolidated  balance  sheet as of June  30,  2004,  the  consolidated
statements of operations for the three months and six months ended June 30, 2004
and 2003, and the consolidated statements of cash flows for the six months ended
June 30, 2004 and 2003 are unaudited, but, in the opinion of management, include
all adjustments  (consisting of normal,  recurring  adjustments) necessary for a
fair presentation of results for these interim periods.

     The consolidated  financial  statements include the accounts and operations
of the Company's  wholly-owned  subsidiary,  Zoom Telephonics,  Inc., a Delaware
corporation.  All significant  intercompany  accounts and transactions have been
eliminated in consolidation.

     The results of operations  for the periods  presented  are not  necessarily
indicative of the results to be expected for the entire year ended  December 31,
2004.

(b)  Stock-Based Compensation

     The Company  accounts for its stock option plans under the  recognition and
measurement  principles  of  Accounting  Principles  Board (APB) Opinion No. 25,
"Accounting  for Stock Issued to  Employees,  and Related  Interpretations."  No
stock-based  compensation  expense is reflected  in net income  (loss) for these
plans,  as all options  granted under these plans had an exercise price equal to
the  market  value of the  underlying  common  stock on the date of  grant.  The
following  table  illustrates  the  effect on net loss and loss per share if the
Company  had  applied  the  fair  value  recognition   provisions  of  Financial
Accounting Standards Board (FASB) Statement No. 123, "Accounting for Stock Based
Compensation", to stock based compensation:
<TABLE>
<CAPTION>
                                                FOR THE THREE MONTHS           FOR THE SIX MONTHS
                                                    ENDED JUNE 30,                ENDED JUNE 30,
                                                     (UNAUDITED)                    (UNAUDITED)
                                            ----------------------------   ----------------------------
                                                 2004           2003           2004           2003
                                            -------------   ------------   -------------   ------------
<S>                                         <C>             <C>            <C>            <C>
Net loss, as reported...............        $  (579,865)    $  (991,115)   $(1,137,427)   $(1,830,683)
Deduct:  Total stock-based employee
compensation expense determined under
fair value based method for all awards,
 net of related tax effects............        (172,724)       (105,545)      (346,592)     (222,804)
                                            ------------    ------------   ------------   ------------
Pro forma net loss.....................     $  (752,589)    $(1,096,660)   $(1,484,019)  $(2,053,487)
                                            ============    ============   ============   ============
Loss per share:
Basic and diluted - as reported........     $      (.07)    $     (0.13)   $     (0.14)   $     (0.23)
Basic and diluted - pro forma..........     $      (.09)    $     (0.14)   $     (0.18)   $     (0.26)
</TABLE>

(c) RECENTLY ISSUED ACCOUNTING STANDARDS

     In March  2004,  the FASB  indicated  that  they will  require  stock-based
employee  compensation  to be recorded  as a charge to  earnings  pursuant to an
exposure draft they have  published for comment,  which they believe will become
effective  for fiscal  years ending on or after  December 15, 2004.  The Company
will  continue to monitor the progress on the issuance of this  standard and the
impact it may have on the Company's consolidated financial statements.

(2)  Liquidity

     On December 31, 2003 Zoom had cash and cash  equivalents  of  approximately
$9.9  million.  On  June  30,  2004  Zoom  had  cash  and  cash  equivalents  of
approximately $10.6 million. Currently the Company does not have a debt facility
from which it can borrow.  The  Company is  currently  reviewing  a  non-binding
proposal from a lender for a one-year $2 million line of credit;  however, there
can be no  assurance  that the Company  will  accept  such  proposal or that the
parties will be able to agree on a definitive agreement.

     To conserve cash and manage its liquidity,  the Company implemented expense
reductions  throughout 2002, 2003 and the first six months of 2004. The employee
headcount  was 185 at December  31, 2002 and 155 at June 30,  2004.  The Company
will  continue to assess its cost  structure  as it relates to its  revenues and
cash  position in 2004,  and may make further  reductions  if these  actions are
deemed necessary.

     Management  believes  it has  sufficient  resources  to  fund  its  planned
operations over the next 12 months.  However, if over time the Company continues
to incur losses or does not raise capital, the Company's  longer-term ability to
continue as a going concern and achieve its intended  business  objectives could
be adversely  affected.  See "Risk Factors" below, for further  information with
respect to events and  uncertainties  that  could harm the  Company's  business,
operating results, and financial condition.

(3)  Earnings Per Share

     The  reconciliation  of the  numerators and  denominators  of the basic and
diluted net earnings (loss) per share  computations  for the Company's  reported
net income (loss) is as follows:
<TABLE>
<CAPTION>
                                     Three Months Ended June 30,          Six Months Ended June 30,
                                     ----------------------------          --------------------------
                                        2004               2003             2004              2003
                                    ------------      -------------      ----------        -----------
<S>                                 <C>               <C>               <C>               <C>
Basic:
   Net income (loss)                $  (579,865)      $  (991,115)      $(1,137,427)      $(1,830,683)

Weighted average shares
   outstanding                        8,466,356         7,852,466         8,332,599         7,852,921
                                    -----------       -----------       -----------       -----------
Net income (loss) per share         $      (.07)      $      (.13)      $      (.14)      $      (.23)
                                    ===========       ===========       ===========       ===========

Diluted:
    Net income (loss)               $  (579,865)      $   (991,115)     $(1,137,427)      $(1,830,683)

Weighted average shares
   outstanding                        8,466,356          7,852,466        8,332,599         7,852,921

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

Weighted average shares
   outstanding                        8,466,356         7,852,466         8,332,599         7,852,921
                                    -----------       -----------       -----------       -----------
Net income (loss) per share         $      (.07)      $      (.13)      $      (.14)      $      (.23)
                                    ===========       ===========       ===========       ===========
</TABLE>

     Potential  common  shares  for which  inclusion  would  have the  effect of
increasing diluted earnings per share (i.e., antidilutive) are excluded from the
computations. Options to purchase 1,277,825 and 1,658,400 shares of common stock
at June 30, 2004 and 2003,  respectively,  were  outstanding but not included in
the  computations  of  diluted  earnings  per share for the three and six months
ended June 30, 2004 and 2003, as their effect would be antidilutive.

(4)   Inventories
<TABLE>
<CAPTION>
      Inventories consist of the following:               June 30, 2004         December 31, 2003
                                                        ------------------      -----------------
<S>                                                       <C>                     <C>
      Raw materials                                       $   1,931,972           $  1,754,850
      Work in process                                         1,069,753                639,425
      Finished goods                                          2,109,937              2,376,941
                                                             ----------             ----------
                                                          $   5,105,662           $  4,771,216

                                                             ==========             ==========
</TABLE>

     During the three  months  ended June 30, 2004 and June 30, 2003 the Company
recorded lower of cost or market write-downs of zero and $257,384, respectively,
related to broadband  and wireless  inventory.  During the six months ended June
30,  2004  and June 30,  2003,  the  Company  recorded  lower of cost or  market
write-downs of $0 and $495,099, respectively,  related to broadband and wireless
inventory.

(5) Comprehensive Income (Loss)

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

     The components of comprehensive income (loss), net of tax, are as follows:
<TABLE>
<CAPTION>
                                            Three Months Ended June 30,            Six Months Ended June 30,
                                            ---------------------------            -------------------------
                                              2004                2003                2004                2003
                                          ------------        ------------        ------------        ------------
<S>                                       <C>                 <C>                 <C>                 <C>
 Net income (loss)                        $  (579,865)        $  (991,115)        $(1,137,427)        $(1,830,683)

 Foreign currency translation
   adjustment                                 (16,139)             33,326              96,057              19,803

 Net unrealized holding gain
   on investment securities                        --                  --                  --                  --
                                          -----------         -----------         -----------         -----------
Comprehensive income (loss)               $  (596,004)         $ (957,789)        $(1,041,370)        $(1,810,880)
                                          ===========         ===========         ===========         ===========
</TABLE>

     At June 30, 2004 and  December 31, 2003,  Accumulated  other  comprehensive
income (loss) as reported on the Company's  balance sheet is comprised solely of
foreign currency translation adjustments.

(6)  Long-Term Debt

     On January  10, 2001 the  Company  obtained a mortgage  loan for $6 million
secured by the real estate property located at 201 and 207 South Street, Boston,
Massachusetts.  This is a 20-year  direct  reduction  mortgage  with a five-year
balloon due January 10, 2006.  As of June 30, 2004,  our  indebtedness  was $5.2
million.  This real estate was  appraised  on July 24, 2002 at $9.3  million and
generally  the real estate  market in Boston has  appreciated  since  then.  The
interest  rate on the  mortgage  is fixed  for one  year,  based on the one year
Federal Home Loan Bank rate plus 2.5% per annum.  The interest  rate is adjusted
on January 10th of each  calendar year  commencing  on January 10, 2002.  Zoom's
interest rate was adjusted to 3.99% on January 10, 2004.

(7)  Commitments

     During  the six month  period  ended June 30,  2004 there were no  material
changes to the capital  commitments and  contractual  obligations of the Company
from those disclosed in the Form 10-K for the year ended December 31, 2003.

(8)  Segment and Geographic Information

     The Company's  operations are classified into one reportable  segment.  The
Company's United States and international net sales for the three and six months
ended June 30, 2004 and 2003, respectively, were comprised as follows
<TABLE>
<CAPTION>

                            Three Months             Three Months            Six Months              Six Months
                               Ended       % of         Ended       % of        Ended       % of       Ended       % of
                           June 30, 2004   Total    June 30, 2003   Total   June 30, 2004   Total  June 30, 2003   Total
                           -------------   -----    -------------   -----   -------------   -----  -------------   -----
<S>                        <C>             <C>      <C>             <C>     <C>             <C>    <C>             <C>
United States              $ 3,840,234      47%     $ 4,317,123      57%    $ 7,617,444      48%   $ 8,897,555      59%
International-UK             1,915,023      24%       2,402,007      32%      4,384,336      28%     4,617,088      31%
Other International          2,336,213      29%         817,534      11%      3,881,295      24%     1,560,534      10%
                           -----------     ---      -----------     ---     -----------     ---    -----------     ---
Total                      $ 8,091,470     100%     $ 7,536,664     100%    $15,883,075     100%   $15,075,177     100%
                           ===========     ===      ===========     ===     ===========     ===    ===========     ===
</TABLE>

(9)  Customer Concentrations

     Three customers accounted individually for more than 10% of total net sales
in the  second  quarter  and first  six  months of 2004,  and  collectively  for
approximately  44% of  total  net  sales  in the  second  quarter  of  2004  and
approximately 36% of total net sales in the first six months of 2004. One of the
three  customers  is  included  in each of these  geographic  categories:  Other
International, the UK, and the United States. As disclosed in the Company's Form
10-Q for the first quarter of 2004, the Company's fourth largest customer in the
first  quarter of 2004,  Best Buy,  advised the Company in the first  quarter of
2004 that they planned to discontinue  the sale of the Company's  dial-up modems
around  June  2004,  coincident  with  their  reduction  of shelf  space for the
category and their  introduction  of a house brand  modem.  The  Company's  last
volume shipments to Best Buy were in April, 2004. Total net sales to Best Buy in
the second  quarter of 2004 were $139,584,  or 1.7% of net sales,  and total net
sales to Best Buy in the six months ended June 30, 2004 were  $651,792,  or 4.1%
of net  sales.  Total net sales to Best Buy in the  second  quarter of 2003 were
$970,134,  or 12.9% of net  sales,  and  total  net sales to Best Buy in the six
months ended June 30, 2003 were $2,163,118, or 14.3% of net sales.
<PAGE>

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

     The following  discussion and analysis  should be read in conjunction  with
the safe harbor statement and the risk factors contained herein and set forth in
our Annual  Report on Form 10-K for the year ended  December 31,  2003.  Readers
should  also be  cautioned  that  results of any  reported  period are often not
indicative of results for any future period.

OVERVIEW

     Zoom primarily sells communication  products,  principally dial-up and ADSL
modems,  to retailers,  distributors,  Internet Service  Providers  (ISPs),  and
Original Equipment Manufacturers (OEMs). We sell our products to these customers
through our direct sales force and through  commissioned sales  representatives.
The  majority  of our  employees  work in Boston,  Massachusetts,  either in our
corporate-owned  headquarters or our leased production facility.  We also have a
sales and  support  office in the United  Kingdom  and a support  center in Boca
Raton, Florida.

     Historically  most of Zoom's sales have resulted from the after-market sale
of  dial-up  modems  through  retailers  to  end-users  for  use in the  home or
business.  These end-user customers  typically either wanted to add a modem to a
computer  that did not have a modem,  needed to replace a  defective  modem,  or
wanted to  upgrade  to a modem with a higher  speed or more  advanced  features.
Since the vast  majority of retail  personal  computers now come with 56K modems
installed,  and since 56K is the highest  speed  dial-up  modem  available,  the
upgrade  market has steadily  declined  over the past few years.  This  decline,
coupled  with  competition  from  broadband  access  devices like ADSL and cable
modems  and  lower  selling  prices  for  dial-up  modems,  has  resulted  in  a
corresponding decline in Zoom's dial-up modem sales.

     As a vehicle for potential growth, Zoom has made significant investments in
broadband and other  technologies.  The broadband  market has grown rapidly over
the past few years and is expected to continue to grow quickly.  So far Zoom has
been more  successful  in the ADSL modem market than in the cable modem  market.

     Zoom's product philosophy emphasizes quality, reliability, and low cost. We
therefore continually seek to optimize our product designs and lower our cost of
goods through intelligent  design,  aggressive  outsourcing,  and the use of new
technology.  Most of our products  use modem or other  chipsets  purchased  from
outside vendors.  This allows us to take advantage of the extensive research and
development  capabilities  and  competitiveness  of our  chipset  suppliers  and
reduces our development  time and the associated costs and risks of bringing new
products  to  market.  As a result  of this  approach,  Zoom is able to  quickly
develop new and innovative  products while keeping its research and  development
expense relatively small as a percentage of sales.

     Zoom also out-sources most of its board-level manufacturing, allowing us to
take advantage of the competitive  worldwide  market for contract  manufacturing
services.  This contract  manufacturing frees us from the capital equipment cost
and  the   inflexibility,   expense,   and  management  burden  associated  with
maintaining  a  dedicated   workforce  for  electronics   assembly   operations.
Packaging,  testing and shipping are typically done at our Boston, Massachusetts
manufacturing  facility.  This helps to reduce  shipping costs from our contract
assemblers and gives us the opportunity to monitor  manufacturing quality and to
efficiently customize products for our customers.

     In recent years Zoom has benefited from purchase discount programs with our
major chipset  suppliers.  These  agreements have resulted in reduced unit costs
for our  dial-up  modems.  From the first  quarter  of 2002  through  the second
quarter of 2004, we realized significant benefits to our Cost of Goods Sold as a
result  of these  agreements.  The  benefit  to Cost of Goods  Sold  from  these
purchase discount  agreements will end in the fourth quarter of 2004. Zoom hopes
to replace these agreements,  but our ability to negotiate  favorable terms will
depend on a number of factors  including our projected  volumes,  our ability to
reach those volumes,  and the competitive  landscape in the chipset market.  The
failure to obtain new favorable  discount  programs  could  increase our Cost of
Goods Sold and could have a  significant  adverse  effect on the gross profit of
our products that use chipsets covered by our previous agreements.

     In the first and second  quarter  of 2004 and the  fourth  quarter of 2003,
respectively,  our net sales for the quarter were up 3.4%,  7.4%, and 11.5% over
the comparable  quarter in the prior year.  The main reason for these  increases
was the growth in ADSL modem sales, which more than offset our declining dial-up
modem sales.  While we remain  optimistic  about  continued  success in the ADSL
modem area,  our ADSL sales are  currently  concentrated  with a small number of
customers,  so there is no  predictable  uniformity for our quarterly ADSL sales
and our sales may  fluctuate  significantly.  We are  continuing  our efforts to
expand our ADSL customer base and to use our strength in ADSL to expand our ADSL
product  line and enter new  markets  later  this  year.  One new  product  will
incorporate  "Voice over Internet  Protocol" or "VoIP"  capability  into an ADSL
modem.  We also plan to introduce  our own VoIP (Voice over  Internet  Protocol)
telephone  service  called  "Global  Village(TM)"  to offer free IP-to-IP  phone
service, low-cost calling to virtually anyone worldwide, and the option for home
users of unlimited fixed price domestic calling.

     During the past few years,  to conserve  cash and manage our  liquidity  we
implemented expense reductions,  including reductions in employee headcount. Our
employee headcount was 185 at December 31, 2002 which has been reduced to 155 at
June 30, 2004.  We will  continue to assess our cost  structure as it relates to
our revenues and cash position in 2004, and may make further reductions if these
actions are deemed necessary.

     Our cash and cash  equivalents  balance at June 30, 2004 was $10.6 million,
up from $9.9 million at December 31, 2003. This improvement  resulted  primarily
from cash received from the exercise of employee stock options, partially offset
by a reduction of cash from operating activities.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     The  following  is a  discussion  of what we view as our  more  significant
accounting  policies  and  estimates.  These  policies  and  estimates  are also
described in the notes to our audited  consolidated  financial statements in our
Annual  Report on Form 10-K for the fiscal  year ended  December  31,  2003.  As
described  below,  management  judgments and estimates  must be made and used in
connection with the preparation of our consolidated financial statements.  Where
noted,  material  differences  could  result in the amount and timing of our net
sales, costs, and expenses for any period if we made different judgments or used
different estimates.

     REVENUE (NET SALES) RECOGNITION. We currently sell hardware products to our
customers. These products include dial-up modems, embedded modems, cable modems,
PC cameras,  ISDN and ADSL  modems,  telephone  dialers,  and wireless and wired
networking equipment.  While we generally have not sold software or services, we
plan to offer phone service to VoIP customers under our Global Village brand. We
currently  derive our net sales primarily from the sale of hardware  products to
four types of customers:

o    computer product retailers,
o    computer product distributors,
o    Internet Service Providers (ISPs), and
o    original equipment manufacturers (OEMs).

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

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

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

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

     Sales and Marketing Incentives. Many of our retail customers require sales
and marketing support funding, usually set as a percentage of our sales in their
stores. The percentages are taken from our customer contracts.

     Consumer Mail-In and In-Store Rebates and Store Rebates.  Our estimates for
consumer mail-in rebates are based on a detailed  understanding  and tracking by
customer and by sales  program,  supported by actual rebate claims  processed by
the rebate redemption centers plus an accrual for an estimated lag in processing
at the  redemption  centers.  Our  estimates  for store rebates are comprised of
actual credit requests from the eligible customers. The estimate for mail-in and
store  rebates  is  recorded  as a reserve  against  accounts  receivable  and a
reduction  of net  sales  in the same  period  that the  rebate  obligation  was
triggered.

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

     ACCOUNTS  RECEIVABLE  VALUATION.  We establish accounts receivable reserves
equal to the  above-discussed  net sales  adjustments  for  estimates of product
returns,  price  protection  refunds,  and  consumer  and store  rebates.  These
reserves are drawn down as actual credits are issued to the customer's accounts.

     Our bad-debt  write-offs  have not been  significant  during the last three
years.

     INVENTORY  VALUATION  AND COST OF GOODS  SOLD.  Inventory  is  valued  on a
standard cost basis where the material  standards are  periodically  updated for
current  material  pricing.  Reserves for obsolete  inventory are established by
management  based on usability  reviews  performed  each  quarter.  Our reserves
against the inventory of a particular  product  range from 0% to 100%,  based on
management's estimate of the probability that the material will not be consumed.
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.  The subsequent slow down in the industry resulted
in a significant excess inventory position of materials. During 2001, the market
selling prices for the broadband and wireless  products  declined  significantly
because of an industry-wide oversupply.  Starting in 2001 and to a lesser extent
in 2002 and 2003,  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 is to compare  our cost to the  selling
prices each quarter, less cost to sell or dispose, and if the selling price of a
product is less than the "if completed" cost of our inventory, we write-down the
inventory on a "lower of cost or market" basis.

     In  2002  we  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 one
of these  arrangements,  we committed to purchase  approximately $8.0 million of
components over a period of approximately 30-months that commenced on January 1,
2002,  provided  that those  components  were offered at  competitive  terms and
prices.  We  believe  that at June  30,  2004,  we are on track to meet the $8.0
million  commitment  in 2004.  In connection  with this  arrangement,  we became
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 on 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 no-charge  components  in the first  quarter of 2002.  The
favorable  impact  to our  statement  of  operations  has been  calculated  as a
purchase discount over the estimated total number of components acquired through
the  approximate 30 month supply  agreement and recognized on a delayed basis as
the  products  employing  the  acquired   components   involved  in  the  supply
arrangement  are sold.  This method of accounting has been consistent each year.
The benefit to our statement of operations  for the delayed  recognition  of the
$3.0 million of no-charge components is expected to end in the fourth quarter of
2004.

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

     Significant  management  judgment is required in determining  our provision
for income taxes and any valuation  allowance  recorded against our net deferred
tax assets.  In 2001, we recorded a $3.8 million income tax charge to reflect an
additional increase in our deferred tax asset valuation allowance.  Management's
decision  to  record  the  valuation   allowance  was  based  on  the  uncertain
recoverability  of our deferred tax asset  balance.  In our first  quarter ended
March 31, 2002,  we recorded an  additional  $2.0 million  income tax charge and
valuation  reserve,  which  reduced our net deferred tax asset  balance to zero.
This additional  reserve  reflected 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.  At June 30,
2004,  we currently  have a 100%  valuation  allowance  against our deferred tax
assets.  It is management's  estimate that, after  considering all the available
objective  evidence,  historical and  prospective,  with greater weight given to
historical  evidence,  it is more likely than not that these  assets will not be
realized. If we establish a record of continuing profitability, at some point we
will be required to reverse the  valuation  allowance  and restore the  deferred
asset value to the balance  sheet,  recording an equal income tax benefit  which
will increase net income in that period(s).

Results of Operations

     SUMMARY.  Net sales were $8.1 million for the second quarter ended June 30,
2004,  up 7.4% from $7.5  million for the second  quarter of 2003.  We had a net
loss of $0.6 million for the second  quarter of 2004,  compared to a net loss of
$1.0 million for the second  quarter of 2003.  Loss per diluted  share was $0.07
for the first  quarter of 2004  compared to a loss per diluted share of $.13 for
the first quarter of 2003. Net sales were $15.9 million for the six months ended
June 30,  2004,  up 5.4% from $15.1  million  for the six months  ended June 30,
2003.  We had a net loss of $1.1 million for the six months ended June 30, 2004,
compared to a net loss of $1.8  million for the six months  ended June 30, 2003.
Loss per diluted  share for the six month period in 2004 was $.14  compared to a
loss per diluted share of $.23 for the six month period in 2003.

     NET SALES.  Our net sales were $8.1  million for the second  quarter  ended
June 30,  2004,  up 7.4% from $7.5 million for the second  quarter of 2003.  Net
sales were $15.9  million for the six months ended June 30,  2004,  up 5.4% from
$15.1  million for the six months ended June 30,  2003.  The  increases  for the
first  quarter and the first six months of 2004 were  primarily due to increases
in ADSL modem sales and positive  currency  translation  impacts from converting
sales  transactions in Euros and British Pounds to US dollars,  partially offset
by the decline in dial-up  modem sales.  Dial-up  modem sales  declined due to a
decrease of both  dial-up  modem unit sales and, to a lesser  extent,  declining
dial-up modem average  selling  prices,  primarily  resulting from the continued
decline  of the  dial-up  modem  after-market,  due in part to the trend  toward
faster  connection  speeds and broadband access  products.  The increase in ADSL
modem sales in the second  quarter of 2004  represented  our  eleventh  straight
quarterly net sales increase in this product category.

     Our net sales in the United States declined from $4.3 million in the second
quarter of 2003 to $3.8 million in the second  quarter of 2004. Our net sales in
the United States  declined from $8.9 million in the first six months of 2003 to
$7.6  million  in the first  six  months of 2004.  Our  international  net sales
increased from $3.3 million in the second quarter of 2003 to $4.2 million in the
second quarter of 2004. Our  international net sales increased from $6.2 million
in the first six months of 2003 to $8.3 million in the first six months of 2004.
These  changes  reflect our declining  sales of dial-up  modems  worldwide,  our
relatively  strong ADSL sales in the  international  markets,  and the  positive
currency  impact  on a  significant  portion  of our  international  sales.  The
positive  currency  impact on our total net sales was $.2 million for the second
quarter of 2004 compared to the second  quarter of 2003, and $.5 million for the
first  six  months of 2004  compared  to the  first  six  months of 2003.  Three
customers  accounted  individually  for more  than 10% of total net sales in the
second quarter and first six months of 2004, and collectively for  approximately
44% of total net sales in the second  quarter of 2004 and  approximately  36% of
total net sales in the first  six  months of 2004.  Our net sales and  operating
income could fluctuate  significantly due to, among other things,  approvals and
delays in the deployment by service providers of ADSL and cable service in these
countries,  changes in political or economic conditions,  or the loss, reduction
of business, or less favorable terms for any of our significant customers.

     GROSS  PROFIT.  Our gross  profit  increased to $2.3 million for the second
quarter  of 2004 from $1.8  million  for the second  quarter of 2003.  Our gross
profit as a percentage of net sales  improved to 27.8% for the second quarter of
2004 from 23.3% for the second  quarter of 2003.  Our gross profit  increased to
$4.6  million  for the first six months of 2004 from $3.9  million for the first
six months of 2003.  Our gross profit as a percentage  of net sales  improved to
28.7% for the first six  months of 2004 from  25.9% for the first six  months of
2003. The improvement in gross profit percentage  resulted  primarily from lower
retail price rebates and the favorable exchange rate impact on our international
sales.  We  recorded  a  benefit  to our gross  profit  as a result of  discount
purchase  agreements  for  chipsets,  which are  expected  to end in the  fourth
quarter of 2004. If we are unable to obtain new favorable discount programs, our
costs for  chipsets  could  increase  and our gross  profit  could be  adversely
affected.  In the second quarter of 2004, the chipset discounts contributed 2.1%
of gross profit.

     OPERATING EXPENSE.  Our operating expense increased by $0.1 million to $2.9
million or 35.8% of net sales for the second  quarter of 2004 from $2.8  million
or 37.3% of net sales for the second  quarter  of 2003.  Our  operating  expense
decreased  by $.1  million to $5.8  million or 36.2% of net sales for six months
ended June 30,  2004 from $5.9  million or 39.0% of net sales for the six months
ended June 30, 2003.

     Selling Expense.  Selling expense decreased  approximately  $.05 million to
$1.2  million  or 14.5% of net  sales in the  second  quarter  of 2004 from $1.2
million or 16.3% of net sales in the second  quarter  of 2003.  Selling  expense
decreased  $.2  million  to $2.4  million or 15.1% of net sales in the first six
months of 2004 from $2.6  million  or 12.0% of net sales in the first six months
of 2003. Selling expense was slightly lower primarily because of lower personnel
costs resulting from employee headcount  reductions,  reduced  commissions,  and
reduced product delivery expense.

     General and  Administrative  Expense.  General and  administrative  expense
increased  $.2  million  to $1.1  million  or 13.1% of net  sales in the  second
quarter of 2004 from $.8 million or 11.2% of net sales in the second  quarter of
2003. General and administrative  expense in the second quarter of 2004 included
$.3 million  ($250,000) of  acquisition-related  expense for an acquisition that
was not consummated. General and administrative expense increased $.2 million to
$2.0  million or 12.7% of net sales in the six months  ended June 30,  2004 from
$1.8  million  or 12.0% of net  sales in the six  months  ended  June 30,  2003.
General and  administrative  expense in the six months  ended 2004  included $.3
million   ($286,000)   of   the   acquisition-related   expense.   General   and
administrative  expense  increased  $.2 million in the quarter and the six month
period due primarily to the  acquisition-related  expenses,  partially offset by
reduced depreciation and real estate expenses.

     Research  and  Development Expense.    Research   and  development  expense
decreased $.1 million to $0.7 million or 8.2% of net sales in the second quarter
of 2004 from $0.7  million or 9.9% of net sales in the  second  quarter of 2003.
Research and development  expense  decreased $.2 million to $1.3 million or 8.5%
of net sales in the first six  months of 2004 from $1.5  million  or 9.9% of net
sales in the first six months of 2003.  Research and development costs decreased
primarily  as a result of reduced  personnel  costs and product  approval  fees.
Development  and  support  continues  on all of our major  product  lines,  with
particular  emphasis on VoIP hardware,  the Global  Village phone service,  ADSL
modems, and dial-up modems.

     OTHER INCOME (EXPENSE), NET. Other income (expense), net improved to a gain
of $.07 million in the second quarter of 2004 compared to a gain of $.06 million
in the second  quarter  of 2003,  primarily  due to higher  rental  income  from
leasing vacant space at our headquarters facility.  Other income (expense),  net
decreased to a gain of $.06 million in the first six months of 2004  compared to
a gain of $.15  million  in the  first  six  months  of 2003,  primarily  due to
increased losses realized on foreign currency exchange.

     INCOME TAX EXPENSE  (BENEFIT).  We did not record any income tax benefit in
the three and six months  ended June 30, 2004 or the three and six months  ended
June 30, 2003. The net deferred tax asset balance at June 30, 2004 is zero. This
accounting  treatment is described in further detail under the caption  CRITICAL
ACCOUNTING POLICIES AND ESTIMATES above.

Liquidity and Capital Resources

     On June 30, 2004 we had working  capital of $16.2 million,  including $10.6
million in cash and cash equivalents.

     In the six months ended June 30, 2004 operating activities used $.7 million
in cash.  Our net loss in the six months  ended June 30, 2004 was $1.1  million.
Adjustments  to  reconcile  our net loss of $1.1 million to our net cash used in
operating activities of $.7 million include favorable adjustments of $.7 million
for our decrease of accounts  receivable  and $.2 million for  depreciation  and
amortization.  Unfavorable  adjustments include our increase of inventory of $.3
million  and our  reduction  of accounts  payable  and  accrued  expenses of $.2
million.  Our accounts  receivable  balance  decreased  primarily  due to faster
collections of customer sales. Our inventory  increased to support our increased
ADSL sales.

     In the six  months  ended  June 30,  2004,  investing  activities  used $.1
million in cash for additions to our property, plant, and equipment.

     In the six months ended June 30, 2004  financing  activities  provided $1.5
million of cash, due primarily to receipt of $1.6 million cash from the exercise
of  employee  stock  options,  partially  offset by $.1 million in cash used for
monthly principal payments of our $6.0 million mortgage.

     Currently we do not have a debt facility from which we can borrow.  We are,
however, currently reviewing a non-binding proposal from a lender for a one-year
$2 million line of credit.  There can be no  assurance  that we will accept such
proposal or that the parties will be able to agree on definitive documentation.

     To  conserve  cash  and  manage  our  liquidity,   we  implemented  expense
reductions  throughout  2002,  2003 and in the  first six  months  of 2004.  Our
employee headcount was 185 at December 31, 2002 which has been reduced to 155 at
June 30, 2004.  We will  continue to assess our cost  structure as it relates to
our revenues and cash  position in 2004,  and we may make further  reductions if
the actions are deemed necessary.

     Management  believes  we have  sufficient  resources  to fund  our  planned
operations over the next 12 months.  However,  if over time we continue to incur
losses or do not 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 six months ended June 30, 2004,  there were no material  changes
to our capital  commitments and contractual  obligations from those disclosed in
the Form 10-K for the year ended December 31, 2003.

RECENTLY ISSUED ACCOUNTING STANDARDS

     In March  2004,  the FASB  indicated  that  they will  require  stock-based
employee  compensation  to be recorded  as a charge to  earnings  pursuant to an
exposure draft they have  published for comment,  which they believe will become
effective  for  fiscal  years  ending on or after  December  15,  2004.  We will
continue to monitor  their  progress on the  issuance of this  standard  and the
impact it may have on our consolidated financial statements.

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

     Some  of the  statements  contained  in  this  report  are  forward-looking
statements  within the meaning of Section 27A of the  Securities Act of 1933 and
Section 21E of the Securities  Exchange Act of 1934.  These  statements  involve
known and unknown risks,  uncertainties and other factors which may cause our or
our industry's  actual  results,  performance or  achievements  to be materially
different  from any future  results,  performance or  achievements  expressed or
implied by the forward-looking  statements.  Forward-looking statements include,
but are not limited to  statements  regarding:  Zoom's plans,  expectations  and
intentions, including statements relating to Zoom's prospects and plans relating
to  sales  of our  dial-up,  cable  and  ADSL  modems  and  VoIP  products;  the
anticipated development and timing and growth of new product introductions;  the
consolidation  in and the decline of the dial-up modem market;  the  anticipated
development of Zoom's markets and sales channels; the level of demand for Zoom's
products;  Zoom's ability to obtain debt or equity  financing;  the  anticipated
impact of Zoom's  cost-cutting  initiatives,  and Zoom's financial  condition or
results of operations.

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

RISK FACTORS

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

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

     Our net sales  continue  to  decline  primarily  due to the  decline in the
dial-up modem market, decreases in average selling prices of dial-up modems, and
the trend toward faster connection speeds and broadband access products. Despite
numerous cost  reductions  over the last few years,  we have  continued to incur
significant net losses primarily due to our continuous decline in net sales from
dial-up modems.  We believe that the future of our business is largely dependent
on the  success of our  broadband  modems and other  products,  such as our VoIP
products and services which are expected to be released during 2004. Although we
believe that we have  sufficient  resources to fund our planned  operations over
the next year, if we fail to increase our net sales of our broadband  modems and
other products,  our longer-term  ability to stay in business and to achieve our
intended business objectives could be adversely effected.  Our continuing losses
could  also  adversely  affect our  ability  to fund the growth of our  business
should our strategies prove successful.

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 an
increase of our inventory  should growth occur.  We currently do not have a debt
facility  from  which  we can  borrow  and  may not be  able  to  obtain  one on
acceptable terms unless we have a change in  circumstances.  We currently have a
non-binding  proposal  from a lender for a one-year  $2 million  line of credit.
There can be no  assurance,  however,  that we will accept such proposal or that
the  parties  will  be able  to  agree  on a  definitive  agreement.  Additional
financing  may not be  available  to us on a timely basis if at all, or on terms
acceptable  to us. If we fail to obtain  acceptable  additional  financing  when
needed,  we may be required to further  reduce  planned  expenditures  or forego
business  opportunities,  which could reduce our net sales, increase our losses,
and harm our business.  Moreover,  additional  equity financing could dilute the
per  share  value  of our  common  stock  held by  current  shareholders,  while
additional   debt   financing   could  restrict  our  ability  to  make  capital
expenditures  or incur  additional  indebtedness,  all of which would impede our
ability to succeed.

OUR CUSTOMER BASE IS CONCENTRATED, AND THE RECENT LOSS OF A SIGNIFICANT CUSTOMER
WILL REDUCE REVENUES AND THE PROFIT CONTRIBUTION OF OUR DIAL-UP MODEM BUSINESS.

     Three customers accounted individually for more than 10% of total net sales
in the  second  quarter  and first  six  months of 2004,  and  collectively  for
approximately  44% of  total  net  sales  in the  second  quarter  of  2004  and
approximately 36% of total net sales in the first six months of 2004. One of the
three  customers  is  included  in  each  of our  geographic  categories:  Other
International, the UK, and the United States. Our fourth largest customer in the
first quarter of 2004,  Best Buy,  discontinued  the sales of our dial-up modems
around  June 2004.  This action was taken to reduce the amount of Best Buy shelf
space allocated to dial-up modems and to increase Best Buy's  house-brand  share
of their modem  category.  In the first quarter of 2004,  Best Buy accounted for
6.6% of our total net  sales.  In the second  quarter of 2004,  our net sales to
Best Buy were reduced to approximately $140,000, or 1.7% of total net sales, and
no  further  net  sales are  expected  at this  time.  The loss of Best Buy as a
customer  has  reduced  net sales and  negatively  impacted  our  dial-up  modem
business.  Sales  of our  ADSL  modems  are  concentrated  in a  relatively  few
customers  primarily in Turkey, the UK and other European  countries.  Our sales
could fluctuate  significantly due to, among other things,  approvals and delays
in the  deployment  by  service  providers  of ADSL and cable  service  in these
countries,  changes  in the  political  or  economic  conditions,  or the  loss,
reduction  of  business  or less  favorable  terms  for  any of our  significant
customers.  The loss,  reduction of business or less favorable terms of sale for
any  other  of our  significant  customers,  may  further  reduce  revenues  and
negatively impact our business.

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

     The dial-up  modem  industry has been  characterized  by declining  average
selling  prices and a declining  retail market.  The decline in average  selling
prices is due to a number of  factors,  including  technological  change,  lower
component costs,  and competition.  The decline in the size of the retail market
for dial-up  modems is primarily due to the inclusion of dial-up  modems in most
new PCs, and alternatives to dial-up modems  including  broadband  modems.  Less
advantageous  terms of sales,  decreasing  average  selling  prices and  reduced
demand for our dial-up  modems  have  resulted  and may in the future  result in
decreased net sales for dial-up modems, which has been our primary source of net
sales. If we fail to replace  declining revenue from the sales of dial-up modems
with the  sales of our other  products,  including  our  broadband  modems,  our
business and results of operation will be harmed.

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 ADSL  modem,  VoIP,  and  cable  modem  markets.  These  markets  have  been
challenging, with significant barriers to entry that have adversely affected our
sales to these markets.  Although some ADSL and cable modems are sold at retail,
in most countries the high volume  purchases 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
typically  also have  extensive and varied  approval  processes for modems to be
approved for use on their  network.  These  approvals  can be expensive and time
consuming.   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 in most countries;
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 service providers enjoyed by incumbent some
     equipment providers.

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

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

     Our international  sales continue to represent an increasingly  significant
portion of our sales.  International  sales have increased from 38% of net sales
in 2001 to  approximately  52% of our net sales in the  second  quarter of 2004.
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    political and economic changes and disruptions;
o    pricing of Internet and voice services;
o    bundling of discounted or free equipment with services;
o    favoritism toward local suppliers;
o    delays in the  rollout  of  broadband  services  by cable and ADSL  service
     providers;
o    local language and technical support requirements;
o    difficulties in inventory  management,  accounts receivable  collection and
     the management of distributors or representatives;
o    difficulties in staffing and managing foreign operations;
o    governmental currency controls;
o    shipping costs;
o    currency exchange rate fluctuations; and
o    tariff regulations.

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

OUR  EXISTING  INDEBTEDNESS  COULD  MAKE  IT  MORE  DIFFICULT  FOR US TO  OBTAIN
ADDITIONAL FINANCING, WHICH COULD 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.  As of
June 30, 2004, our outstanding  indebtedness was $5.2 million. This mortgage has
a balloon  payment due in January  2006.  This real estate was appraised on July
24, 2002 at $9.3  million,  and  generally  the real estate market in Boston has
appreciated since then. 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  FAILURE  TO MEET  CHANGING  CUSTOMER  REQUIREMENTS  AND  EMERGING  INDUSTRY
STANDARDS WOULD ADVERSELY IMPACT OUR ABILITY TO SELL OUR PRODUCTS.

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

OUR 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 of credits given 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.  If the amount of credits
we give to our customers  increases by a material amount,  our operating results
could be adversely affected.

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

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

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

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

OUR FAILURE TO  EFFECTIVELY  MANAGE OUR INVENTORY  LEVELS COULD  MATERIALLY  AND
ADVERSELY AFFECT OUR LIQUIDITY AND HARM OUR BUSINESS.

     In the past, we built up our inventory for our broadband access products in
response to shortages of components for these products at the time. 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.  Although  we have  since  been able to reduce  our
inventory  levels of  broadband  products  as a result of  sales,  raw  material
returns to suppliers,  and the write-down of value of some of our 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 manufacture  our products.  We use these
third party  manufacturers  to help ensure low costs,  rapid market  entry,  and
reliability.  Any  manufacturing  disruption could impair our ability to fulfill
orders, and failure to fulfill orders would adversely affect our sales. Although
we currently use four contract  manufacturers for the bulk of our purchases,  in
some cases a given product is only provided by one of these companies.  The loss
of the  services  of  any of our  significant  third  party  manufacturers  or a
material  adverse  change in the  business of or our  relationships  with any of
these manufacturers could harm our business. Since third parties manufacture our
products and we expect this to continue in the future,  our success will depend,
in part,  on the  ability of third  parties to  manufacture  our  products  cost
effectively and in sufficient quantities to meet our customer demand.

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

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    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.  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.  The market for
some  components,   including  memory  components,   has  recently   experienced
shortages, increased lead times, and higher prices. 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 OBTAIN NEW CHIPSET PURCHASE PROGRAMS WITH CHIPSET SUPPLIERS COULD
REDUCE OUR GROSS PROFIT.

     Our primary dial-up modem chipset purchase agreement,  which includes price
and other concessions for meeting minimum purchase  requirements or commitments,
is expected to expire in 2004. If we are unable to replace this  agreement  with
an equally  favorable  chipset  purchase  agreement,  our  chipset  costs  could
increase significantly and our gross profit could be adversely affected.

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

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

     We may be unable  to  compete  successfully.  A number  of  companies  have
developed,  or are  expected to develop,  products  that compete or will compete
with our products.  Furthermore,  many of our current and potential  competitors
have  significantly  greater  resources than we do. Intense  competition,  rapid
technological  change  and  evolving  industry  standards  could  result in less
favorable  selling terms to our customers,  decrease  demand for our products or
make our products obsolete.

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 U.S.
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.  as a  result  of
government  certifications and other certifications.  We may face further delays
if  we  are  unable  to  comply   with   governmental   regulations   and  other
certifications.  Delays  caused by the time it takes to comply  with  regulatory
requirements   and  other   certifications   may  result  in   cancellations  or
postponements of product orders or purchases by our customers,  which would harm
our business

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. If we pursue any such
transaction,  we cannot assure that we would be able to  successfully  negotiate
the terms of such  transaction,  finance such  transaction,  or  integrate  such
business, products or technologies into our existing business and products.

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.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

     Investment Rate Risk - Our investment  portfolio consists entirely of money
market funds, which are subject to interest rate risk. Due to the short duration
and conservative  nature of these  instruments,  we do not believe that it has a
material   exposure  to  interest  rate  risk.  The  20  year  mortgage  of  our
headquarters  building is a variable  rate loan with the interest  rate adjusted
annually.  A 1% change in the  interest  rate  would  result  in a  decrease  or
increase of approximately $53,000 of interest expense per year.

Item 4. CONTROLS AND PROCEDURES

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

     As of June 30, 2004 we carried out an evaluation, under the supervision and
with the participation of our management,  including our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
our  disclosure  controls  and  procedures,  as defined in Rules  13a-15(e)  and
15d-15(e) under the Securities Exchange Act of 1934. Based upon that evaluation,
our Chief  Executive  Officer and Chief  Financial  Officer  concluded  that our
disclosure  controls  and  procedures  are  effective  in enabling us to record,
process,  summarize  and  report  information  required  to be  included  in our
periodic SEC filings within the required time period.

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

PART II - OTHER INFORMATION

Item 4. Zoom Technologies,  Inc. held its Annual Meeting of Stockholders on June
18, 2004. At the meeting, the stockholders approved the re-election of the Board
of Directors of Zoom Technologies, Inc.

                             Election of Directors:
                            -----------------------
    Nominee                  For               Against              Abstain
-----------------         ---------         -------------        -------------
Frank B. Manning          8,051,730               0                 32,892
Peter R. Kramer           8,082,831               0                 31,791
Bernard Furman            8,049,443               0                 35,179
J. Ronald Woods           8,051,631               0                 32,991
L. Lamont Gordon          8,049,348               0                 35,274

<PAGE>

Item 6.  Exhibits and reports on Form 8-K

(a)  Exhibits

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

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

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

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

(b) Form 8-K

     On April 30,  2004,  the  Company  furnished  a Current  Report on Form 8-K
relating to its financial  information  for the quarter ended March 31, 2004, as
presented in a press release dated April 30, 2004.


<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: August 13, 2004     By:  /s/ Frank B. Manning
                               ------------------------------------------
                               Frank B. Manning, President


Date: August 13, 2004     By:  /s/ Robert Crist
                               -------------------------------------------
                               Robert Crist, Vice President of Finance and
                               Chief Financial Officer (Principal Financial
                               and Accounting Officer)

<PAGE>

                                  EXHIBIT INDEX

    Exhibit No.     Description

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

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

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

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