**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


**______________**




**FORM
      10-Q**


**______________**




(Mark
      One)




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




**For
      the quarterly period ended March 31, 2006**




or




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




**For
      the transition period from________ to ________**




**Commission
      File Number 0-18672**




**ZOOM
      TECHNOLOGIES, INC.**


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





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




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




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





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




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





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


Yeso
              No
                  x




The
      number of shares outstanding of the registrant’s Common Stock, $.01 Par Value,
      as of May 11, 2006, was 9,346,966 shares.





1




**ZOOM
      TECHNOLOGIES, INC. AND SUBSIDIARY**


**INDEX**




**Part
                I.**
            **Financial
                Information**
            **Page**Item
                1.
            Condensed
                Consolidated Balance Sheets as of March 31, 2006 and December 31,
                2005
                (unaudited)
            3Condensed
                Consolidated Statements of Operations for the three months ended
                March 31,
                2006 and 2005 (unaudited)
            4Condensed
                Consolidated Statements of Cash Flows for the three months ended
                March 31,
                2006 and 2005 (unaudited)
            5Notes
                to Condensed Consolidated Financial Statements
            6-9Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            9-15Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            15Item
                4.
            Controls
                and Procedures
            15-16**Part
                II.**
            **Other
                Information**Item
                IA
            Risk
                Factors
            16-22Item
                6.
            Exhibits
            22Signatures
            23Exhibit
                Index
            24Exhibits
            25-34





2




**PART
      I - FINANCIAL INFORMATION**





**ZOOM
      TECHNOLOGIES, INC.**


**Condensed
      Consolidated Balance Sheets**


**(unaudited)**


**March
                  31, 2006**
              
              **December
                  31, 2005**AssetsCurrent
                  assets:Cash
                  and cash equivalents
              
              $
              5,594,345
              
              $
              9,081,122Accounts
                  receivable, net of allowances of $1,150,386 at March 31, 2006 and
                  $1,294,637 at December 31, 2005
              
              
              2,615,276
              
              
              2,630,859Inventories
              
              
              4,623,826
              
              
              5,073,178Prepaid
                  expenses and other current assets
              
              
              476,756
              
              
              301,265Total
                  current assets
              
              
              13,310,203
              
              
              17,086,424Property,
                  plant and equipment, net
              
              
              2,571,821
              
              
              2,600,660Total
                  assets
              
              $
              15,882,024
              
              $
              19,687,084Liabilities
                  and Stockholders’ EquityCurrent
                  liabilities:Current
                  portion of long-term debt
              
              $
              132,221
              
              $
              4,889,928Accounts
                  payable
              
              
              1,571,556
              
              
              3,140,593Accrued
                  expenses
              
              
              1,074,365
              
              
              788,427Total
                  current liabilities
              
              
              2,778,142
              
              
              8,818,948Long-term
                  debt, less current portion
              
              
              3,542,782
              
              
              —Total
                  liabilities
              
              
              6,320,924
              
              
              8,818,948Stockholders’
                  equity:Common
                  stock, $0.01 par value. Authorized 25,000,000 shares; issued 9,355,366
                  shares at March 31, 2006 and 9,355,366 shares at December 31, 2005,
                  including shares held in treasury
              
              
              93,554
              
              
              93,554Additional
                  paid-in capital
              
              
              31,078,145
              
              
              31,015,977Accumulated
                  deficit
              
              
              (22,002,164
              )
              
              (20,627,318
              )Accumulated
                  other comprehensive income - currency translation adjustment
              
              
              398,887
              
              
              393,245Treasury
                  stock, (8,400 shares) at cost
              
              
              (7,322
              )
              
              (7,322
              )Total
                  stockholders’ equity
              
              
              9,561,100
              
              
              10,868,136Total
                  liabilities and stockholders’ equity
              
              $
              15,882,024
              
              $
              19,687,084




See
      accompanying notes.




3





**ZOOM
      TECHNOLOGIES, INC.**


**Condensed
      Consolidated Statements of Operations**


**(Unaudited)**




**Three
                Months Ended**
              **March
                31,****2006**
            
            **2005**Net
                sales
            
            $
            5,280,710
            
            $
            6,436,543Costs
                of goods sold
            
            
            4,314,953
            
            
            4,904354Gross
                profit
            
            
            965,757
            
            
            1,532,189Operating
                expenses:Selling
            
            
            903,944
            
            
            1,120,090General
                and administrative
            
            
            848,908
            
            
            822,456Research
                and development
            
            
            631,760
            
            
            749,298Total
                operating expenses
            
            
            2,384,612
            
            
            2,691,844Operating
                income (loss)
            
            
            (1,418,855
            )
            
            (1,159,655
            )Other
                income (expense):Interest
                income
            
            
            80,322
            
            
            46,981Interest
                (expense)
            
            
            (90,727
            )
            
            (65,783
            )Other,
                net
            
            
            54,414
            
            
            (126,094
            )Total
                other income (expense), net
            
            
            44,009
            
            
            (144,895
            )Income
                (loss) before income taxes
            
            
            (1,374,846
            )
            
            (1,304,551
            )Income
                taxes
            
            
            —
            
            
            —Netloss
            
            $
            (1,374,846
            )
            $
            (1,304,551
            )Basic
                and diluted loss per common share
            
            $
            (0.15
            )
            $
            (0.15
            )Weighted
                average common shares used to compute basic and diluted loss per
                common
                share
            
            
            9,346,966
            
            
            8,967,122





See
      accompanying notes.




4


**ZOOM
      TECHNOLOGIES, INC.**


**Condensed
      Consolidated Statements of Cash Flows**


**(Unaudited)**





**Three
                Months Ended**
              **March
                31,****2006**
            
            **2005****Operating
                activities**:Net
                income (loss)
            
            $
            (1,374,846
            )
            $
            (1,304,551
            )Adjustments
                to reconcile net income (loss) to net cash provided by (used in)
                operating
                activities:Depreciation
            
            
            52,025
            
            
            85,556Changes
                in operating assets and liabilities:Accounts
                receivable, net
            
            
            18,773
            
            
            635,475Inventories
            
            
            449,482
            
            
            (1,214,549
            )Prepaid
                expenses and other assets
            
            
            35,577
            
            
            227,113Accounts
                payable and accrued expenses
            
            
            (1,282,098
            )
            
            (294,538
            )Net
                cash provided by (used in) operating activities
            
            
            (2,101,087
            )
            
            (1,865,494
            )**Investing
                activities:**Additions
                to property, plant and equipment
            
            
            (23,107
            )
            
            (22,677
            )Net
                cash provided by (used in) investing activities
            
            
            (23,107
            )
            
            (22,677
            )**Financing
                activities:**Principal
                payments on long-term debt...
            
            
            (1,363,478
            )
            
            (51,591
            )Proceeds
                from exercise of stock options
            
            
            0
            
            
            104,737Net
                cash provided by (used in) financing activities
            
            
            (1,363,478
            )
            
            53,146Effect
                of exchange rate changes on cash
            
            
            895
            
            
            4,386Net
                change in cash
            
            
            (3,486,777
            )
            
            (1,830,639
            )Cash
                and cash equivalents at beginning of period
            
            
            9,081,122
            
            
            9,438,596Cash
                and cash equivalents at end of period
            
            $
            5,594,345
            
            $
            7,607,957**Supplemental
                disclosures of cash flow information:**Cash
                paid during the period for:Interest
            
            $
            90,727
            
            $
            65,783Income
                taxes
            
            $
            —
            
            $
            —





See
      accompanying notes. ****





5


**ZOOM
      TECHNOLOGIES, INC.**


**Notes
      to Condensed Consolidated Financial Statements**


**(Unaudited)**




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


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




The
      condensed consolidated financial statements of Zoom Technologies, Inc. (the
      "Company") presented herein have been prepared pursuant to the rules of the
      Securities and Exchange Commission for quarterly reports on Form 10-Q and do
      not
      include all of the information and disclosures required by accounting principles
      generally accepted in the United States of America. These statements should
      be
      read in conjunction with the audited consolidated financial statements and
      notes
      thereto for the year ended December 31, 2005 included in the Company's 2005
      Annual Report on Form 10-K.




The
      accompanying financial statements are unaudited. However, the condensed balance
      sheet as of December 31, 2005 was derived from audited financial statements.
      In
      the opinion of management, the accompanying financial statments include all
      adjustments (consisting of normal, recurring adjustments) necessary for a fair
      presentation of results for these interim periods.




The
      accompanying financial statements include the accounts and operations of the
      Company and include the accounts of its wholly-owned subsidiary, Zoom
      Telephonics, Inc. 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.


*(b)* *Stock-Based
            Compensation*


Effective
      January 1, 2006, the Company adopted SFAS No. 123 (R), “Accounting for Stock
      Based Compensation” using the modified-prospective method. Under this method,
      compensation cost is recognized for all share-based payments granted, modified
      or settled after January 1, 2006, as well as for any unvested awards that were
      granted prior thereto. Compensation cost for unvested awards granted prior
      to
      January 1, 2006 is recognized using the same estimate of the grant-date fair
      value and the same attribution method used to determine the pro forma
      disclosures under SFAS No. 123, “Accounting for Stock-Based Compensation.”
Compensation cost for awards granted after January 1, 2006 is based on the
      estimated fair value of the awards on their grant date and is generally
      recognized over the required service period. Prior to January 1, 2006, the
      Company accounted 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 was recognized in operations for these plans,
      since all options granted under them had an exercise price equal to the market
      value of the underlying common stock on the date of grant. The effect of
      adopting SFAS No. 123 (R) was to increase compensation cost and the reported
      net
      loss for the quarter ended March 31, 2006 by $62 thousand, or $0.01 per share
      -
      basic and diluted.




The
      unrecognized stock-based compensation cost related to non-vested stock awards
      as
      of March 31, 2006 was $160,186. Such amount will be recognized in operations
      over a weighted average period of 5 quarters.




The
      fair
      value of each option granted was estimated on the date of grant using the
      Black-Scholes option-pricing model. The fair value of options granted during
      the
      three months ended March 31, 2006 and 2005 was estimated using the following
      assumptions:




Three
                Months Ended March 312006
            2005Weighted-average
                expected stock-price volatility
            66.2%
            94.9%Weighted-average
                expected option life
            2
                years
            2
                yearsAverage
                risk-free interest rate
            4.29%
            3.16%Average
                dividend yield
            0
            0





6




Pro-forma
      information required under SFAS No. 123, *Accounting
      for Stock-Based Compensation* before
      the adoption of SFAS No.123(R) for the three months ended March 31, 2005
      follows:


Net
                  loss, as reported
              
              $
              (1,304,551
              )Stock-based
                  compensation expense based upon fair value method
              
              
              (89,566
              )Pro-form
                  net loss
              
              $
              (1,394,117
              )Net
                  loss per share:Basic
                  and diluted - as reported
              
              $
              (
                  0.15
              )Basic
                  and diluted - pro form
              
              $
              (
                  0.16
              )




(c)** *Recently
                Issued or Proposed Accounting Pronouncements*


*Inventory
      Costs*




In
      November 2004 the Financial Accounting Standards Board (FASB) issued SFAS 151,
      “Inventory Costs,” amending the guidance in Accounting Research Bulletin (ARB)
      43, Chapter 4, “Inventory Pricing” by clarifying the accounting for certain
      items. SFAS 151 clarifies that abnormal amounts of idle facility expense,
      freight, handling costs, and wasted materials (spoilage) should be recognized
      as
      current period charges, and requires the allocation of fixed production
      overheads to inventory based on the normal capacity of the production
      facilities. SFAS 151 is effective for inventory costs incurred during fiscal
      years beginning after June 15, 2005, however, earlier application was permitted.
      The Company adopted SFAS 151 and it did not have an impact on the Company’s
      Unaudited Condensed Consolidated Financial Statements.




*Share-Based
      Payments*




In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued FASB
      Statement No. 123(R), “Share Based Payment: an amendment of FASB Statements No.
      123 and 95” (“SFAS No. 123(R)”). FASB Statement 123(R) requires companies to
      recognize in the income statement, effective for annual periods beginning after
      June 15, 2005, the grant-date fair value of stock options and other equity-based
      compensation issued to employees, but expresses no preference for a type of
      valuation model. Effective January 1, 2006 the Company adopted SFAS 123(R)
      using
      the modified prospective application.




**(2)
      Liquidity**





On
      March
      31, 2006 the Company had working capital of $10.5 million, including $5.9
      million in cash  and
      cash
      equivalents.





On
      January 10, 2001 the Company obtained a mortgage for $6 million on the real
      estate property located at 201 and 207 South Street, Boston, Massachusetts.
      The
      loan was scheduled to be paid in full on January 10, 2006 and the final payment
      was deferred during negotiations for a new mortgage. On March 30, 2006 the
      Company paid the lender $1.2 million to reduce the then balance of $4.9 million,
      and refinanced the remaining $3.7 million with a new mortgage. Payments on
      the
      new mortgage are based on a 15 year amortization period with interest at 7.75%,
      adjusted along with the federal prime rate. The mortgage matures April 10,
      2007
      but may be extended at Zoom’s option to April 10, 2008 if Zoom makes the
      election to extend the loan and pays the lender an extension fee of $36,750
      by
      March 10, 2007 and prior to and following such election Zoom is not in default
      under the loan. As required by the lender the Company has deposited six months
      of principal and interest ($210,721 as of March 31, 2006) in a Certificate
      of
      Deposit held by the lender as a debt service reserve account The new mortgage
      contains certain customary financial and non-financial covenants including
      requirements to maintain tangible net worth of $7.0 million and to maintain
      cash
      and cash equivalents, free from any and all encumbrances, of not less than
      $1.0
      million. The Company was in compliance with these covenants as of March 31,
      2006.




On
      March
      16, 2005 the Company entered into a one year Loan and Security Agreement with
      Silicon Valley Bank that provides for a revolving line of credit of up to $2
      million. The revolving line of credit terminated, as scheduled, on March 15,
      2006. There were no borrowings under the line for the entire one year contract.
      The Company is currently negotiating a new one year line with Silicon Valley
      Bank. There can be no assurance as to the outcome of these
      negotiations.




The
      Company believes it should be able to sell its owned buildings on favorable
      terms for any required additional liquidity. If the Company were to sell the
      portion of its owned buildings that include the principal headquarters, it
      would
      expect to be able to lease back a portion of the sold property or otherwise
      find
      suitable space for its principal headquarters on satisfactory
      terms.




7




To
      conserve cash and manage liquidity during the past few years, the Company has
      implemented expense reductions, including the reduction of employee headcount
      and overhead costs. The employee headcount was 143 at March 31, 2005 and 124
      at
      March 31, 2006. The Company will continue to assess its cost structure as it
      relates to its revenues and cash position in 2006. The Company may make further
      cost reductions if the actions are deemed necessary.




Management
      believes the Company has sufficient resources to fund its normal operations
      through March 31, 2007. However, if the Company is unable to increase its
      revenues, reduce or otherwise adequately control its expenses, or raise capital,
      the Company's longer-term ability to continue as a going concern and achieve
      its
      intended business objectives could be adversely affected.




**(3)
      Earnings Per Share**




Outstanding
      options to purchase 1,241,200 and 984,200 shares of common stock at March 31,
      2006 and March 31, 2005 respectively, were antidilutive. As such, they were
      excluded from the computation of the loss per share.




**(4)
      Inventories**




Inventories
                consist of the following:
            
            **March
                31, 2006**
            
            **December
                31, 2005**Raw
                materials
            
            $
            2,050,161
            
            $
            2,333,949Work
                in process
            
            
            517,064
            
            
            648,034Finished
                goods
            
            
            2,056,602
            
            
            2,091,195Total
                Inventories
            
            $
            4,623,826
            
            $
            5,073,178




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




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




**Three
                Months Ended March 31**,**2006**
            
            **2005**Net
                income (loss)
            
            $
            (1,
                374,846
            )
            $
            (1,304,551
            )Foreign
                currency translation adjustment
            
            
            5,
                642
            
            
            (35,597
            )Comprehensive
                income (loss)
            
            $
            (1,
                369,204
            )
            $
            (1,340,148
            )




**(6)
      Long-Term Debt**




On
      January 10, 2001 the Company obtained a mortgage for $6 million on the real
      estate property located at 201 and 207 South Street, Boston, Massachusetts.
      The
      loan was scheduled to be paid in full on January 10, 2006 and the final payment
      was deferred during negotiations for a new mortgage. On March 30, 2006 the
      Company paid the lender $1.2 million to reduce the then balance of $4.9 million,
      and refinanced the remaining $3.7 million with a new mortgage. Payments on
      the
      new mortgage are based on a 15 year amortization period with interest at 7.75%,
      adjusted along with the federal prime rate. The mortgage matures April 10,
      2007
      but may be extended at Zoom’s option to April 10, 2008 if Zoom makes the
      election to extend the loan and pays the lender an extension fee of $36,750
      by
      March 10, 2007 and prior to and following such election Zoom is not in default
      under the loan. As required by the lender the Company has deposited six months
      of principal and interest ($210,721 as of March 31, 2006) in a Certificate
      of
      Deposit held by the lender as a debt service reserve account The new mortgage
      contains certain customary financial and non-financial covenants including
      requirements to maintain tangible net worth of $7.0 million and to maintain
      cash
      and cash equivalents, free from any and all encumbrances, of not less than
      $1.0
      million. The Company was in compliance of these covenants as of March 31, 2006.




****  **(7)
      Commitments**




During
      the three month period ended March 31, 2006, other than the renewal of the
      mortgage on the Company’s headquarters buildings discussed in Note 2 and Note 6
      above, there were no material changes to the Company’s commitments and
      contractual obligations compared to those disclosed in the Form 10-K for the
      year ended December 31, 2005.




8




**(8)
      Segment and Geographic Information**




The
      Company’s operations are classified as one reportable segment. The Company’s net
      sales for the three months ended March 31, 2006 and 2005, respectively, for
      North America and those outside North America were comprised as
      follows:




**Three
                Months**
            
            
            
            **Three
                Months****Ended**
            
            **%
                of**
            
            **Ended**
            
            **%
                of****March
                31, 2006**
            
            **Total**
            
            **March
                31, 2005**
            
            **Total**North
                America
            
            $
            2,
                952, 123
            
            56
            %
            $
            2,
                580, 145
            
            40
            %Outside
                North America-Turkey
            
            
            661,222
            
            13
            %
            
            1,
                521, 737
            
            24
            %Outside
                North America-UK
            
            
            906,
                366
            
            17
            %
            
            1,
                288, 356
            
            20
            %Outside
                North America-All Other
            
            
            760,999
            
            14
            %
            
            1,
                046, 305
            
            16
            %Total
            
            $
            5,280,710
            
            100
            %
            $
            6,
                436, 543
            
            100
            %




**(9)
      Customer Concentrations**




Relatively
      few customers have accounted for a substantial portion of the Company's net
      sales. In the first quarter of 2006, the Company's net sales to its top three
      customers accounted for 34% of its total net sales, with the Company's net
      sales
      to its Turkish distributor, accounting for 12% of total net sales. The remaining
      22% was split between two other companies, a North American distributor and
      a
      North American retailer, at 13% and 9%, respectively. In the first quarter
      of
      2005, the Company's net sales to its top three customers accounted for 42%
      of
      its total net sales, with the Company's sales to its Turkish distributor,
      accounting for 24% of total net sales. The remaining 18% was divided fairly
      equally between the other two customers, both with less than a 10% share. The
      Company's customers generally do not enter into long-term agreements obligating
      them to purchase the Company’s products. The Company may not continue to receive
      significant revenues from any of these or from other large customers. A
      reduction or delay in orders from any of the Company's significant customers,
      or
      a delay or default in payment by any significant customer could materially
      harm
      the Company's business and prospects. Because of the Company's significant
      customer concentration, its net sales and operating income could fluctuate
      significantly due to changes in political or economic conditions, or the loss,
      reduction of business, or less favorable terms for any of our significant
      customers.





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




*The
      following discussion and analysis should be read in conjunction with the safe
      harbor statement and the risk factors contained in Item IA of Part II of this
      Quarterly Report on Form 10-Q set forth in our Annual Report on Form 10-K for
      the year ended December 31, 2005 and our other filings with the SEC. Readers
      should also be cautioned that results of any reported period are often not
      indicative of results for any future period.*




**Overview**




We
      derive
      our net sales primarily from sales of Internet related hardware products,
      principally broadband and dial-up modems and related products, to retailers,
      distributors, Internet Service Providers and Original Equipment Manufacturers.
      We sell our products through a direct sales force and through independent sales
      agents. Our employees are primarily located at our headquarters in Boston,
      Massachusetts, our support office in Boca Raton, Florida, and our sales office
      in the United Kingdom. We typically design our hardware products, though we
      do
      sometimes use another company’s design if it meets our requirements. Electronic
      assembly and testing of the Company’s products in accordance with our
      specifications is typically done in China. We perform most of the packaging
      and
      distribution effort at our production and warehouse facility in Boston,
      Massachusetts, which also engages in firmware programming and in testing. Our
      lease for our production and warehouse facility is scheduled to expire in August
      2006. In the event this lease is not further extended, we believe we will be
      able to find alternative space on satisfactory terms that is suitable and
      adequate for our production and warehousing operations.




Historically
      we derived a majority of our net sales from the retail after-market sale of
      dial-up modems to customers seeking to add or upgrade a modem for their personal
      computers. In recent years the size of this market and our sales to this market
      have declined, as personal computer manufacturers have incorporated a modem
      as a
      built-in component in most consumer personal computers and as increasing numbers
      of consumers world-wide have switched to broadband Internet access. As a result
      our sales of dial-up modems no longer constitute a majority of our sales. The
      general consensus of communications industry analysts is that after-market
      sales
      of dial-up modems will continue to decline. There is also consensus among
      industry analysts that the installed base for broadband Internet connection
      devices, such as cable modems and DSL modems, will grow rapidly during the
      decade. In response to increased and forecasted demand for faster connection
      speeds and increased modem functionality, we have invested and continue to
      invest resources to advance our product line of broadband modems, especially
      DSL
      modems.




9




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




Over
      the
      past several years our net sales have declined. In response to the declining
      sales volume, we have cut costs by reducing staffing and some overhead costs.
      On
      March 31, 2005 our total headcount of full-time employees, including temporary
      workers, was 143 which was reduced to 124 at March 31, 2006.




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




In
      the
      first quarter of 2006 our net sales were down 18.0% compared to the first
      quarter of 2005. The main reason for the decrease was the decline in dial-up
      modem and DSL modem sales. While we have generally experienced growth in our
      DSL
      modem sales, a significant portion of these sales is currently concentrated
      with
      a small number of customers, and this reduces the predictability of our results.
      In Turkey Zoom has had a relatively high share of the small but growing DSL
      market and in the future we expect difficulty in maintaining or growing our
      share in this market. We are also continuing our efforts to expand our DSL
      customer base and product line, and to enter new markets. Because of our
      significant customer concentration, however, our net sales and operating results
      have fluctuated and in the future could flucturate significantly due to changes
      in political or economic conditions or the loss, reduction of business, or
      less
      favorable terms for any of our significant customers.




Since
      1999 we had a minority interest in a privately held software company, InterMute,
      Inc. In June 2005 InterMute was acquired by Trend Micro Inc., a U.S. subsidiary
      of Trend Micro Japan. In connection with the acquisition, in June 2005, we
      received a payment of approximately $3.5 million in exchange for our investment.
      We recorded a non-operating gain of $3.5 million in our second quarter of 2005
      in connection with this sale. We may also receive up to $3.0 million in
      additional payments in 2006 if certain conditions and performance targets are
      met. We will not record gains from these additional payments, if any, until
      and
      unless they are fully earned.




Our
      cash
      and cash equivalents balance at March 31, 2006 was $5.6 million, down from
      $9.1
      million at December 31, 2005. This reduction of $3.5 million was due primarily
      to our $1.3 million net loss for the first quarter ended March 31, 2006, a
      $1.4
      million cash reduction from the refinancing of our mortgage loan which included
      a principal pay-down of $1.2 million and the deposit of $0.2 million in a debt
      reserve account, and a $1.3 million reduction in acounts payable and accrued
      expense partially offset by a $0.4 million reduction of inventory.




**Critical
      Accounting Policies and Estimates**




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




10




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




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





·
            computer
                peripherals retailers,




·
            computer
                product distributors,




·
            internet
                service providers, and




·
            original
                equipment manufacturers (OEMs)




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




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




Our
      2006
      VoIP service revenues were recorded as the end-user-customer consumed billable
      VoIP services. The end-user-customer became a service customer by electing
      to
      sign up for the Global Village billable service on the Internet. Zoom recorded
      revenue either as billable services were consumed or as a monthly flat-fee
      service was billed.




**Product
      Returns** .
      Products are returned by retail stores and distributors for inventory balancing,
      contractual stock rotation privileges, and warranty repair or replacements.
      We
      estimate the sales and cost value of expected future product returns of
      previously sold products. Our estimates for product returns are based on recent
      historical trends plus estimates for returns prompted by, among other things,
      new product introductions, announced stock rotations and announced customer
      store closings, etc. Management reviews historical returns, current economic
      trends, and changes in customer demand and acceptance of our products when
      estimating sales return allowances. The estimate for future returns is recorded
      as a reserve against accounts receivable, a reduction of net sales, and the
      corresponding change to inventory and cost of sales. The relationship of
      quarterly physical product returns to quarterly product sales remained
      relatively stable for many years, but has been declining from a high of 10.6%
      to
      a low of 5.4% in the past two years as retail sales as a percent of total sales
      have declined. Product returns as a percentage of total net sales were 6.9%
      for
      the full year 2005 and 7.1% in the first quarter of 2006.




**Price
      Protection Refunds** .
      We have
      a policy of offering price protection to certain of our retailer and distributor
      customers for some or all their inventory. Under the price protection policies,
      when we reduce our prices for a product, the customer receives a credit for
      the
      difference between the original purchase price and our reduced price for their
      unsold inventory of that product. Our estimates for price protection refunds
      are
      based on a detailed understanding and tracking by customer and by sales program.
      Estimated price protection refunds are recorded in the same period as the
      announcement of a pricing change. Information from customer inventory-on-hand
      reports or from direct communications with the customers is used to estimate
      the
      refund, which is recorded as a reduction of net sales and a reserve against
      accounts receivable. Reductions in our net sales due to price protection were
      $0.2 million in 2003, $0.1 million in 2004, and $0.2 million in 2005. In the
      first quarter of 2006, the reduction in our net sales due to price protection
      was $0.02 million




11




**Sales
      and Marketing Incentives.** Many
      of
      our retailer customers require sales and marketing support funding, usually
      set
      as a percentage of our sales in their stores. The incentives were reported
      as
      reductions in our net sales and were $1.5 million in 2003, $1.3 million in
      2004,
      and $1.1 million in 2005. In the first quarter of 2006, the reduction in our
      net
      sales due to sales and marketing incentives was $0.24 million compared to $0.27
      million in the first quarter of 2005 The decline in 2006 compared to 2005 was
      primarily due to lower retailer sales.




**Consumer
      Mail-In and In-Store Rebates.** Our
      estimates for consumer mail-in and in-store rebates are based on a detailed
      understanding and tracking by customer and sales program, supported by actual
      rebate claims processed by the rebate redemption centers plus an accrual for
      an
      estimated lag in processing at the redemption centers. The estimate for mail-in
      and in-store rebates is recorded as a reserve against accounts receivable and
      a
      reduction of net sales in the same period that the rebate obligation was
      triggered. Reductions in our net sales due to the consumer rebates were $2.1
      million in 2003, $1.4 million in 2004, and $0.8 million in 2005. In the first
      quarter of 2006, the reduction in our net sales due to consumer rebates was
      $0.33 million compared to $0.28 million in the first quarter of 2005. The
      decline in 2006 compared to 2005 was primarily due to lower retailer
      sales.




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




**Accounts
      Receivable Valuation** .
      We
      establish accounts receivable valuation allowances equal to the above-discussed
      net sales adjustments for estimates of product returns, price protection
      refunds, and consumer rebates. These allowances are reduced as actual credits
      are issued to the customer's accounts. Our bad-debt write-offs were not
      significant in either the first quarter of 2005 or 2006.




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




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




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




On
      December 31, 2005 we had federal net operating loss carryforwards of
      approximately $31,854,000. These federal net operating losses are available
      to
      offset future taxable income, and are due to expire in years ranging from
      2018 to 2025. On December 31, 2005 we had state net operating loss carryforwards
      of approximately $22,253,000. These state net operating losses are available
      to
      offset future taxable income, and are primarily due to expire in years ranging
      from 2006 to 2010. ****




12




**Valuation
      of Investment in Affiliates.** Since
      1999 we had a minority interest in a privately held software company, InterMute,
      Inc., which we had been accounting for under the equity method of accounting.
      We
      made our original investment in 1999, at the time of Intermute’s formation, and
      subsequently made additional investments. Under the equity method of accounting,
      our investment was increased or decreased, not below zero, based upon our
      proportionate share of the net earnings or losses of InterMute. As a result
      of
      the losses incurred by InterMute subsequent to our investments, our investment
      balance was reduced to zero during 2002. We discontinued applying the equity
      method when the investment was reduced to zero and did not provide for
      additional losses, as we did not guarantee obligations of the investee and
      was
      not committed to provide further financial support. ****




In
      June
      2005 InterMute was acquired by Trend Micro Inc., a U.S. subsidiary of Trend
      Micro Japan. In connection with the acquisition of InterMute in June 2005,
      we
      received a payment of approximately $3.5 million, also in June 2005, in exchange
      for its investment. We recorded a non-operating, after-tax gain of $3.5 million
      in its second quarter ended June 30, 2005. We may also receive up to $3.0
      million in additional payments in 2006 if certain conditions and performance
      targets are met. The recording of gains from these additional payments will
      not
      be made until and unless they are fully earned.




**Results
      of Operations**




**Summary** .
      Net
      sales were $5.3 million for our first quarter ended March 31, 2006, down 18.0%
      from $6.4 million in the first quarter of 2005. We had a net loss of $1.4
      million for the first quarter of 2006, compared to a net loss of $1.3 million
      in
      the first quarter of 2005. Loss per diluted share was $0.15 for the first
      quarter of both 2006 and 2005.




**Net
      Sales** .
      Our net
      sales for the first quarter of 2006 decreased 18.0% from the first quarter
      of
      2005, primarily due to a 23% decrease in dial-up modem sales and a 22% decrease
      in DSL modem sales Dial-up modem net sales declined to $2.0 million in the
      first
      quarter of 2006 compared to $2.7 million in the first quarter of 2005, primarily
      due to the continued decline of the dial-up modem after-market. DSL modem net
      sales decreased from $3.4 million in the first quarter of 2005 to $2.7 million
      in the first quarter of 2006 as a result of decreased DSL sales to our Turkish
      distributor and the impact of the mid-2005 business failure of Granville, Ltd.,
      a former large DSL customer in the United Kingdom. Excluding these two accounts,
      our DSL modem sales increased 46% from the first quarter of 2005 to the first
      quarter of 2006. The decline in sales in the first quarter of 2006 to our
      Turkish distributor was the result of a number of factors, including the
      completion of a DSL promotion by Turkish Telecom and the decline of our DSL
      market share in Turkey. DSL modem net sales in the first quarter of 2006
      accounted for more than half of our total net sales for the third straight
      quarter. Our strongest product growth in the first quarter of 2006 compared
      to
      the first quarter of 2005, was an 83% growth in wireless products, both
      wireless-G and Bluetooth.




Our
      net
      sales in North America were $3.0 million in the first quarter of 2006, an
      increase from $2.6 million in the first quarter of 2005. Our net sales in Turkey
      were $0.7 million in the first quarter of 2006, a decrease from $1.5 million
      in
      the first quarter of 2005. Our net sales in the U.K. were $0.9 million in the
      first quarter of 2006, a decline from $1.3 million in the first quarter of
      2005.
      The decline in net sales in the U.K. was more than accounted for by the mid-2005
      business failure of Granville, Ltd. Our net sales outside North America other
      than Turkey and the U.K. were $0.8 million in the first quarter of 2006, a
      decrease from $1.1 million in the first quarter of 2005.




In
      the
      first quarter ended March 31, 2006 three customers accounted for 34% of total
      net sales. Because of our significant customer concentration, our net sales
      and
      operating income has fluctuated and could in the future fluctuate significantly
      due to changes in political or economic conditions or the loss, reduction of
      business, or less favorable terms for any of our significant
      customers.




**Gross
      Profit.** Our
      total
      gross profit was $1.0 million in the first quarter of 2006, a decline from
      $1.5
      million in the first quarter of 2005. Our gross margin percent of net sales
      decreased to 18.3% in the first quarter of 2006 from 23.8% in the first quarter
      of 2005. Gross margins were lower primarily because of lower absorption of
      manufacturing overhead due to lower sales and the continuing product sales
      shift
      away from dial-up modems, our highest margin product category.




**Operating
      Expense.** Our
      operating expense decreased by $0.3 million to $2.4 million or 46.2% of net
      sales in the first quarter of 2006 from $2.7 million or 41.8% of net sales
      in
      the first quarter of 2005. The decrease of $0.2 million was primarily due to
      lower personnel costs.




**Selling
      Expense.** Selling
      expense decreased $0.2 million to $0.9 million or 17.1% of net sales in the
      first quarter of 2006 from $1.1million or 17.4% of net sales in the first
      quarter of 2005. Selling expense was lower primarily because of lower personnel
      and related costs resulting from employee headcount reductions and lower product
      delivery expense.




13




**General
      and Administrative Expense.** General
      and administrative expense was $0.8 million or 16.1% of net sales in the first
      quarter of 2006 and $0.8 million or 12.8% of net sales in the first quarter
      of
      2005. General and administrative expense decreases included lower personnel
      and
      personnel related costs.




**Research
      and Development Expense.** Research
      and development expense decreased $0.1 million to $0.6 million or 12.0% of
      net
      sales in the first quarter of 2006 from $0.7 million or 11.6% of net sales
      in
      the first quarter of 2005. Research and development costs decreased primarily
      as
      a result of lower personnel costs and product testing fees. Development and
      support continues on all of our major product lines with particular emphasis
      on
      VoIP products and service, DSL products, and wireless products.




**Other
      Income (Expense).** Other
      income (expense), net was net income of $0.04 million in the first quarter
      of
      2006, primarily from interest and rental income, compared to a net expense
      of
      $.01 million in the first quarter of 2005. primarily due to higher realized
      foreign exchange losses.




**Income
      Tax Expense (Benefit).** We
      did
      not record any tax expense in the first quarter of 2006 or the first quarter
      of
      2005. The net deferred tax asset balance at March 31, 2006 was zero. This
      accounting treatment is described in further detail under the caption **Critical
      Accounting Policies and Estimates** above.





**Liquidity
      and Capital Resources**




On
      March
      31, 2006 we had working capital of $10.5 million, including $5.6 million in
      cash
      and cash equivalents. In the first three months of 2006, operating activities
      used $2.1 million in cash. Our net loss in the first three months of 2006 was
      $1.4 million. Uses of cash from operations included a decrease of accounts
      payable and accrued expense of $1.3 million. Sources of cash from operations
      included a decrease of inventory of $0.5 million.




In
      the
      first three months of 2006 net cash used in financing activities was $1.4
      million, due primarily to the refinancing of our mortgage on our headquarters
      buildings. Our original mortgage was a 5-year balloon mortgage that was
      scheduled to be due and payable on January 10, 2006. The balloon payment was
      deferred until Maerch 30, 2006 when a mortgage amendment was agreed and signed.
      On that date, we paid the lender $1.2 million to reduce the then balance of
      $4.9
      million, and refinanced the remaining $3.7 million with a new mortgage. Payments
      on the new mortgage are based on a 15 year amortization period with interest
      at
      7.75%, adjusted along with the federal prime rate. The mortgage matures April
      10, 2007 but may be extended at Zoom’s option to April 10, 2008 if Zoom makes
      the election to extend and pays the lender an extension fee of $36,750 by March
      10, 2007 and prior to and following such election Zoom is not in default under
      the loan. As required by the lender we deposited six months of principal and
      interest ($210,721 as of March 31, 2006) in a Certificate of Deposit held by
      the
      lender as a debt service reserve account. The new mortgage contains certain
      customary ,inancial and non-financial covenants, including the requirement
      to
      maintain a tangible net worth of $7.0 million and an amount of cash and cash
      equivalents, free from any and all encumbrances, in an amount of not less than
      $1.0 million. We were in compliance with those covenants as of March 31, 2006.
      We believe we should be able to sell our owned buildings on favorable terms
      if
      we require any additional liquidity. If we were to sell the portion of our
      owned
      buildings that include the principal headquarters, we expect we will be able
      to
      lease back a portion of the sold property or otherwise find suitable space
      for
      our principal headquarters on satisfactory terms.




On
      March
      15, 2005 our one year revolving line of credit with Silicon Valley Bank
      terminated. There were no borrowings under the line for the entire one year
      contract. Accordingly, we do not currently have a line of credit from which
      we
      can borrow. We are in discussions with Silicon Valley Bank for a new one year
      line of credit. There can be no assurance as to the outcome of these
      discussions.




In
      June
      2005 InterMute, Inc., a software company in which we have a minority interest,
      was acquired by Trend Micro Inc., a U.S. subsidiary of Trend Micro Japan. In
      connection with the acquisition, in June 2005, we received a payment of
      approximately $3.5 million in exchange for our investment. We recorded a
      non-operating gain of $3.5 million in our second quarter of 2005 in connection
      with this sale. We may also receive up to $3.0 million in additional payments
      in
      2006 if certain conditions and performance targets are met.




To
      conserve cash and manage our liquidity, we continue to implement cost cutting
      initiatives including the reduction of employee headcount and overhead costs.
      The employee headcount was 143 at March 31, 2005 and was reduced to 124 at
      March
      31, 2006. We plan to continue to assess our cost structure as it relates to
      our
      revenues and cash position in 2006, and we may make further reductions if the
      actions are deemed necessary.




Management
      believes we have sufficient resources to fund our normal operations over the
      next 12 months, through March 31, 2007. However, if we are unable to increase
      our revenues, reduce or otherwise adequately control our expenses, or raise
      capital, our longer-term ability to continue as a going concern and achieve
      our
      intended business objectives could be adversely affected. See the safe harbor
      statement contained herein and the "Risk Factors" under Item IA of Part II
      of
      this Quarterly Report on Form 10-Q below, Zoom’s Annual Report on Form 10-K for
      the year ended December 31, 2005 and Zoom’s other filings with the SEC, for
      further information with respect to events and uncertainties that could harm
      our
      business, operating results, and financial condition.




14




**Commitments**





During
      the three months ended March 31, 2006, 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, 2005 except that, as described above,
      we
      paid our mortgage lender $1.2 million to reduce the then balance of $4.8
      million, and refinanced the remaining balance of our mortgage loan with a new
      $3.7 million mortgage with a 15 year amortization for one year and a Maturity
      Date of April 10, 2007.





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




*Some
      of the statements contained in this report are forward-looking statements within
      the meaning of Section 27A of the Securities Act of 1933 and Section 21E of
      the
      Securities Exchange Act of 1934. These statements involve known and unknown
      risks, uncertainties and other factors which may cause our or our industry's
      actual results, performance or achievements to be materially different from
      any
      future results, performance or achievements expressed or implied by the
      forward-looking statements. Forward-looking statements include, but are not
      limited to statements regarding: Zoom's plans, expectations and intentions,
      including statements relating to Zoom's prospects and plans relating to sales
      of
      and markets for its products; Zoom’s ability to find suitable alternative space
      for its production and warehousing operations; Zoom's ability to sell its owned
      buildings for additional liquidity; Zoom’s sufficiency of capital resources ;
      and Zoom's financial condition or results of operations.*




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





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




We
      own
      financial instruments that are sensitive to market risks as part of our
      investment portfolio. The investment portfolio is used to preserve our capital
      until it is required to fund operations, including our research and development
      activities. None of these market-risk sensitive instruments are held for trading
      purposes. We do not own derivative financial instruments in our investment
      portfolio. The investment portfolio contains instruments that are subject to
      the
      risk of a decline in interest rates. Investment Rate Risk - Our investment
      portfolio consists entirely of money market funds, which are subject to interest
      rate risk. Due to the short duration and conservative nature of these
      instruments, we do not believe that it has a material exposure to interest
      rate
      risk. The 15-year amortization mortgage of our headquarters building is a
      variable rate loan with the interest rate adjusted annually. A 1% point change
      in the interest rate would result in a decrease or increase of approximately
      $37, 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.




15




As
      of
      March 31, 2006 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
      1A.** **RISK
      FACTORS**





Other
      than with respect to the risk factors below, there have been no material changes
      from the risk factors disclosed in the “Risk Factors” section of our Annual
      Report on Form 10-K for the year ended December 31, 2005. The first two
      risk factors below were disclosed on the Form 10-K and have been updated as
      of
      March 31, 2006.





**Our
      liquidity may be significantly impaired if we fail to comply with covenants
      contained in our mortgage or we repay our mortgage with current sources of
      cash
      and are not able to refinance all or a significant portion of our mortgage
      or
      otherwise sell our owned buildings for adequate
      consideration.**




On
      March
      30, 2006 we paid our mortgage lender $1.2 million to reduce the then balance
      of
      $4.8 million of our previous mortgage, and refinanced the remaining $3.7 million
      with a new mortgage. Payments on the new mortgage are based on a 15 year
      amortization period with interest at 7.75%, adjusted along with the federal
      prime rate The mortgage matures April 10, 2007 but may be extended at our option
      to April 10, 2008 if we make the election to extend the loan and pay the lender
      an extension fee of $36,750 by March 10, 2007 and that prior to and following
      such election we are not in default under the loan. The new mortgage contains
      certain customary financial and non-financial covenants, including the
      requirement to maintain a minimum tangible net worth of $7.0 million and to
      maintain cash and cash equivalents, free from any and all encumbrances, of
      not
      less than $1.0 million. If we default on the mortgage loan due to the failure
      to
      comply with either of these covenants or the other terms of the mortgage, we
      may
      be unable to extend the maturity date and we may be required to repay the
      mortgage. If we repaid the mortgage with our current sources of cash without
      refinancing or obtaining additional cash resources, our business would be
      harmed. We believe that we should be able to sell our owned buildings on
      favorable terms if we require additional liquidity. If we were to sell the
      portion of our owned buildings that includes our principal headquarters, we
      believe we would be able to lease back a portion of the sold property or
      otherwise find suitable space for our principal headquarters on satisfactory
      terms. Our liquidity could be significantly impaired if we are not otherwise
      able to sell our owned buildings for adequate consideration.





**To
      stay in business we may require future additional funding which we may be unable
      to obtain on favorable terms, if at all.**





In
      addition to obtaining funds to refinance or repay our mortgage, over the next
      twelve months we may require additional financing for our operations either
      to
      fund losses beyond those we anticipate or to fund growth in our inventory and
      accounts receivable. Our revolving credit facility expired on March 15, 2006
      and
      we currently have no line of credit from which we can borrow. We are currently
      in discussions for a new one-year line of credit. 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
      business may be harmed if we are unable to extend the lease for our production
      and warehousing facility in Boston, Massachusetts or otherwise find alternative
      space for these operations.**




Our
      lease
      for a 77,428 square foot manufacturing and warehousing facility at 645 Summer
      Street, Boston, MA. is scheduled to expire in August 2006. In the event this
      lease is not further extended, we will need to find alternative space for these
      operations. We cannot assure that we would be able to extend our existing lease
      or that we will be able to find suitable and adequate alternative space for
      our
      manufacturing and warehousing operations on satisfactory terms, if at all.
      If we
      are unable to extend our existing lease or find substitute space on satisfactory
      terms our business may be harmed. Moreover, our business could be disrupted
      if
      we were not able to efficiently and effectively transfer our manufacturing
      and
      warehouse operations to a new facility.




16




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





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





**Our
      reliance on a limited number of customers for a large portion of our revenues
      could materially harm our business and prospects.**





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





**Our
      operations outside North America are subject to a number of risks inherent
      in
      activities outside North America.**




Our
      sales
      outside of North America represent a significant portion of our sales. Sales
      outside of North America were approximately 55% of our net sales in 2005. In
      the
      first quarter of 2006, sales outside North America were 44% of our net sales.
      Currently our operations are significantly dependent on our operations outside
      North America, particularly sales of our DSL modems, and may be materially
      and
      adversely affected by many factors including:






·
            regulatory
                and communications requirements and policy changes outside North
                America;




·
            favoritism
                toward local suppliers;




·
            delays
                in the rollout of broadband services by cable and DSL service providers;




·
            local
                language and technical support requirements;




·
            difficulties
                in inventory management, accounts receivable collection and the management
                of distributors or representatives;




·
            difficulties
                in staffing and managing foreign operations;




·
            political
                and economic changes and disruptions;




·
            governmental
                currency controls;




·
            shipping
                costs;




·
            currency
                exchange rate fluctuations; and




·
            tariff
                regulations




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




**We
      believe that our future success will depend in large part on our ability to
      more
      successfully penetrate the broadband modem markets, which have been challenging
      markets, with significant barriers to entry.**




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




17




·
            the
                current limited retail market for broadband modems;




·
            the
                relatively small number of cable, telecommunications and Internet
                service
                provider customers that make up a substantial part of the market
                for
                broadband modems;




·
            the
                significant bargaining power of these large volume purchasers;




·
            the
                time consuming, expensive, uncertain and varied approval process
                of the
                various cable service providers; and




·
            the
                strong relationships with cable service providers enjoyed by incumbent
                cable equipment providers like Motorola and Scientific
                Atlanta.





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




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




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




·
            identify
                and respond to emerging technological trends and industry standards
                in the
                market;




·
            develop
                and maintain competitive products that meet changing customer demands;




·
            enhance
                our products by adding innovative features that differentiate our
                products
                from those of our competitors;




·
            bring
                products to market on a timely basis;




·
            introduce
                products that have competitive prices;




·
            manage
                our product transitions, inventory levels and manufacturing processes
                efficiently;




·
            respond
                effectively to new technological changes or new product announcements
                by
                others; and




·
            meet
                changing industry standards.




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




**We
      have been selling our VoIP service for a limited period and there is no
      guarantee that this service will gain broad market
      acceptance.**




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




18




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




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




·
            delays
                in the development of our products;




·
            numerous
                product returns; and




·
            other
                losses to us or to our customers or end
                users.





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




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




Due
      to
      rapid technological change and changing markets we are required to manage our
      inventory levels carefully to both meet customer expectations regarding delivery
      times and to limit our excess inventory exposure. In the event we fail to
      effectively manage our inventory our liquidity may be adversely affected and
      we
      may face increased risk of inventory obsolescence, a decline in market value
      of
      the inventory, or losses from theft, fire, or other casualty.




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




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




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




·
            reduced
                management and control of component purchases;




·
            reduced
                control over delivery schedules, quality assurance and manufacturing
                yields;




·
            lack
                of adequate capacity during periods of excess demand;




·
            limited
                warranties on products supplied to us;




·
            potential
                increases in prices;




·
            interruption
                of supplies from assemblers as a result of a fire, natural calamity,
                strike or other significant event; and




·
            misappropriation
                of our intellectual property.





**We
      may be unable to produce sufficient quantities of our products because we obtain
      key components from, and depend on, sole or limited source
      suppliers.**




We
      obtain
      certain key parts, components, and equipment from sole or limited sources of
      supply. For example, we purchase most of our dial-up and broadband modem
      chipsets from Conexant Systems, Agere Systems, and Analog Devices. Integrated
      circuit product areas covered by at least one of these companies include dial-up
      modems, DSL modems, cable modems, networking, routers, and gateways. In the
      past
      we have experienced delays in receiving shipments of modem chipsets from our
      sole source suppliers. We may  experience
      similar delays in the future. In addition, some products may have other
      components that are available from only one source. We believe the market for
      chipsets is currently experiencing shortages and there are increased lead times
      for some chipsets. If we are unable to obtain a sufficient supply of components
      from our current sources, we would experience difficulties in obtaining
      alternative sources or in altering product designs to use alternative
      components. Resulting delays or reductions in product shipments could damage
      relationships with our customers and our customers could decide to purchase
      products from our competitors. Inability to meet our customers’ demand or a
      decision by one or more of our customers to purchase products from our
      competitors could harm our operating results.




19




**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:




·
            using
                a standard telephone line and appropriate service for dial-up modems;




·
            ISDN
                modems, or DSL modems, possibly in combination;




·
            using
                a cable modem with a cable TV line and cable modem service;




·
            using
                a router and some type of modem to service the computers connected
                to a
                local area network; or




·
            other
                approaches, including wireless links to the
                Internet.




Although
      we currently sell products that include these technologies, 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 existing regulations or adoption of new regulations affecting the Internet
      could increase the cost of our products or otherwise affect our ability to
      offer
      our products and services over the Internet.**




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




**New
      regulations to reduce the use of hazardous materials in products scheduled
      to be
      implemented in 2006 could increase our manufacturing costs and harm our
      business.**




The
      European Union and the US have announced plans to reduce the use of hazardous
      materials, such  as
      lead,
      in electronic equipment. The implementation of these new requirements, currently
      scheduled to begin in Europe in 2006 and the US in 2007, would require us and
      other electronics companies to change or discontinue many products. We believe
      that our transition process to comply with these new requirements is difficult,
      and will typically increase our product costs by from zero to $.50 per unit,
      depending on the product. In addition, we may incur additional costs involved
      with the disposal of inventory or with returned products that do not meet the
      new requirements, which could further harm our business.




**Changes
      in current or future laws or governmental regulations and industry standards
      that negatively impact our products, services and technologies could harm our
      business.**




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




20




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





**Future
      legislation or regulation of Internet telephony could restrict our VoIP
      business, prevent us from offering service, or increase our cost of doing
      business.**




VoIP
      services currently have different regulations from traditional telephony in
      most
      countries including the US. Regulatory bodies including the FCC and regulators
      in various states and countries may impose surcharges, taxes or new regulations
      upon providers of Internet telephony. These surcharges could include access
      charges payable to local exchange carriers to carry and terminate traffic,
      contributions to the Universal Service Fund (USF) or other charges. The
      imposition of any such additional fees, charges, taxes and regulations on IP
      communications services could materially increase our costs and may limit or
      eliminate our competitive pricing. Regulations requiring compliance with the
      Communications Assistance for Law Enforcement Act (CALEA) or provision of the
      same type of 911 services as required for traditional telecommunications
      providers could also place a significant financial burden on us depending on
      the
      technical changes required to accommodate the requirements. In May 2005 the
      FCC
      issued an order requiring interconnected VoIP providers to deliver 911 calls
      to
      the customer’s local emergency operator as a standard feature of the service. We
      believe our VoIP products are capable of meeting the FCC requirements. In the
      event our VoIP products do not meet the FCC requirements, we may need to modify
      our products, which could increase our costs.




In
      many
      countries outside the US in which we operate or our services are sold, we cannot
      be certain that we will be able to comply with existing or future requirements,
      or that we will be able to continue to be in compliance with any such
      requirements. Our failure to comply with these requirements could materially
      adversely affect our ability to continue to offer our VoIP services in these
      jurisdictions.




**Fluctuations
      in the foreign currency exchange rates in relation to the U.S. Dollar could
      have
      a material adverse effect on our operating results.**




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




**Our
      future success will depend on the continued services of our executive officers
      and key product development personnel.**




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




**We
      may have difficulty protecting our intellectual property.**




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




21




**We
      could infringe the intellectual property rights of others.**




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




**ITEM
      6.   EXHIBITS**




Exhibit
                No.
            
            Exhibit Description10.13
            
            Loan Modification Agreement dated March
              30,
              2006, by and between Zoom Telephonics, Inc. and Wainright Bank and
              Trust
              Company. **10.14
            
            Amendment
                to Security Documents dated March 30, 2006, by and among Zoom Telephonics,
                Inc. and Wainright Bank & Trust Company. **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.****
            
            Filed
              herewith




22




**ZOOM
      TECHNOLOGIES, INC. AND SUBSIDIARY**




**SIGNATURES**




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











**ZOOM
                TECHNOLOGIES, INC.**
              **(Registrant)****Date:
                May 12, 2006**
            **By:
                /s/ Frank B. Manning****Frank
                B. Manning, President****Date:
                May 12, 2006**
            **By:
                /s/ Robert Crist****Robert
                Crist, Vice President of Finance and Chief Financial Officer (Principal
                Financial and Accounting
                Officer)**




23




**EXHIBIT
      INDEX**




Exhibit
                  No.
              
              Exhibit Description10.13
              
              Loan Modification Agreement dated
                March 30,
                2006, by and between Zoom Telephonics, Inc. and Wainright Bank and
                Trust
                Company. **10.14
              
              Amendment
                  to Security Documents dated March 30, 2006, by and among Zoom Telephonics,
                  Inc. and Wainright Bank & Trust Company. **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.****
              
              Filed
                herewith
  24