TWST: Can we start with a quick overview of Zoom and how you see the company at this point?

Mr. Manning: We are specialists at devices for Internet access. We have a broad product line that includes broadband modems, including DSL modems and cable modems, and dial-up modems. We also have related products, including voice over the Internet products that let you make voice calls using the Internet. And we are just introducing some wireless products that go along with one of our wireless DSL products.

TWST: Who is the customer?

Mr. Manning: We are selling to several different types of customers. For over 15 years we have been strong at selling to high-volume retailers, both in the United States and outside the United States, and we are still strong there. We sell to Staples, Fry's, Micro Center, CDW, and PC Connection in the USA. In the UK we sell to the Dixon Store Group, the largest retailer of computer products in the UK, to Computer Shop, and to Staples. In Turkey, one of our big markets, I'm told that we are sold by 4,500 computer products dealers. And we're sold by high-volume retailers in Spain, Switzerland, and other countries. So retailers are an important part of our customer base. Another big segment is the computer products distributor. In the United States that includes Ingram, Tech Data, and D&H. Outside the United States we have a number of strong distributors in many countries throughout the world. We also sell to service providers, particularly Internet Service Providers. If you looked at us three or four years ago, that wasn't a big part of our business; but that is becoming a significantly important part of our business, and it's a fast growth area for us. We also sell to a number of OEM accounts, including Hewlett-Packard and others, primarily in the US and Europe.

TWST: I know you've set your eye on the dial-up side. Is that business beginning to fade?

Mr. Manning: Absolutely. The bad news is that dial-up has been fading for some time, hurting our revenues and our profitability. The good news is that in the fourth quarter of 2004, for the first time our DSL modem sales were higher than our dial-up sales; and that remained true in 1Q05. In 1Q05 our dial-up business was down 44% in one year, but our DSL business was up 52%. The good news is that dial-up is now less important for us, so the expected ongoing decline of dial-up doesn't hurt us quite so badly.

TWST: And how big a piece of the business is dial-up still?

Mr. Manning: In 1Q05 dial-up was about 41% of our revenues, with DSL most of the rest and growing fast. So I think that DSL will take the lion's share of our modem business. Voice over IP is fairly new for us. We started shipping that in September of last year. VoIP still is not a significant part of our revenues, but we are very excited about some of the things we are doing in VoIP. We think we have a significant competitive advantage and that there are high prospects for growth.

TWST: What is your competitive edge there?

Mr. Manning: Most VoIP companies either focus on providing hardware or providing the service, but we do both. We believe that keeps us in control of the entire product, and lets us deliver the best product to our customers. We have done some things on the hardware side that are very innovative, including a technology called TelePorttm, which I will talk about in a minute. On the service side, we have also done things that are innovative. We have an unusually strong service offering for customers outside the United States, where we see the highest growth potential. We support multiple languages and multiple payment methods, including prepaid. We just introduced a wholesale VoIP service called VoIP ASAPtm so that a service provider can get into the VoIP business very quickly, in some cases less than a week, and at very low cost by using our VoIP capability and putting their label on it. The TelePort is interesting because the FCC recently issued an E911 decision stating that any VoIP service provider that is both sending and receiving phone calls, which is most service providers, had to let people dial 911 and reach their local emergency operator. It turns out that right now almost no VoIP service can do that. VoIP service providers are spending substantial money to try to do that through the Internet by transferring the call from the Internet to the traditional network, the public switched telephone network. Our TelePort is a completely different approach based on hardware we have designed into our VoIP products. You plug an ordinary phone into TelePort. If you dial 911, TelePort sends the call directly into the public switched telephone network to the local emergency operator, which of course works great. For other calls you can use the same phone to either place a VoIP call or a traditional call. When you want to place a VoIP call, you just dial # before dialing the phone number. We think TelePort is a great way to address the FCC's needs, and we will be meeting with the FCC to try to get their backing because we think we have a simple, cost-effective solution to this very important problem.

TWST: What's been the response to the potential users for TelePort?

Mr. Manning: People really like TelePort. VoIP is a new area, though, so we are still not doing a lot of business. But I think with some of the new developments like the FCC decision and the wholesale VoIP service, we are positioned for some very nice sales in VoIP. We're also excited that a major Asian electronics manufacturer, Aztech, has recently chosen to bundle our Global Villagetm retail VoIP phone service with their first VoIP hardware products.

TWST: Who are you competing with?

Mr. Manning: It depends on the market segment. For dial-up modems, US Robotics and Creative are our biggest competitors. In the DSL area in the United States, our focus is the smaller service provider and the high-volume retailer, and we really haven't had much competition. It is interesting that we recently shipped DSL modems to all the Staples stores, and we already have them in Fry's and in Micro Center. The DSL companies you see in the United States are companies like Westell, which is very good at selling to Verizon, and Siemens, 2Wire, and Netopia at SBC. So each giant service provider has at most a few preferred DSL modem companies. We have not taken those companies on head-on. We have tried to identify new market segments, like the retailers and the smaller ISPs, and we have been successful with that approach. Outside the United States, it really depends on which country you are talking about, but generally we don't see the US companies that much. Siemens, Thompson, and Sagem are strong in Europe, and a number of Taiwanese companies are strong in many countries throughout the world. For VoIP hardware, our primary competitor is the Linksys division of Cisco. For VoIP service, the competitor varies by country. In the US the main VoIP service competitors are Vonage and AT&T.

TWST: With the DSL and VoIP modems, are most of those being provided by the carriers?

Mr. Manning: In the United States, you are absolutely right that most of the DSL modems are being provided by the carriers. That is not true in many other parts of the world. For instance, in Turkey, where we have about 30% market share of that fast growing DSL market, the carriers don't typically provide the product. The UK market is somewhere between the US and Turkey. In the United States, Verizon, for instance, typically provides a DSL modem, and they typically buy it from Westell.

TWST: But doesn't that somewhat limit the appeal of the market here?

Mr. Manning: We have to think of another way to do business in the USA. I think one encouraging thing is that we are seeing more action at retail, which is a strong area for us. We are also seeing some good action from the smaller ISPs. Yes, they are smaller, but when you put together all their DSL business, it is meaningful.

TWST: If we look out over the next two years, what is going to be the strategy at Zoom?

Mr. Manning: The strategy is, first of all, to continue growth with DSL. That's our highest growth area, and there are some developments there that we think make that a very exciting area for us. The other main focus is going to be on voice over IP, and we will continue to innovate on the hardware side and also on the service side. Those are the two main product focus areas, DSL and VoIP. Our country-specific strategy recognizes that the United States is still an important part of our market, since it is about 40% of our business. But we actually think a lot of the VoIP growth is more likely to come outside the United States, where phone calls are more expensive. So our product strategy will be to have strong voice over IP and DSL products for the world market.

TWST: In passing, you mentioned some exciting things in DSL. What is going on that's so intriguing?

Mr. Manning: First of all, a transition is about to happen to a much higher speed. Currently DSL's maximum speed is 8 million bits a second, 8 megabits a second. With the new 2/2+ DSL standard, you can get speeds up to 24 megabits a second. We are starting to deliver product speeds that give much faster Internet access and a lot greater potential for delivery of video. So you will also see from us more and more products that either include video or support video, to enable delivery of TV or movies through broadband. Another thing that we are doing in the DSL area is expanding into wireless DSL and adding related wireless products. We recently began shipping a wireless-G DSL 2/2+ modem, and we expect to be shipping three new wireless-G products by mid-August. We also have some new products coming in the VoIP area, including the wholesale VoIP service, a business-oriented VoIP product line, and also a low-cost VoIP product called an ATA.

TWST: Given all that, what should investors expect from the company in terms of growth over the next couple of years?

Mr. Manning: We don't usually predict that. Because of the decline of dial-up, our revenues have been declining. Now that dial-up is a smaller part of our revenues, we at least have the potential to start to see some reasonable revenue increases.

TWST: So things hopefully will turn around at this point?

Mr. Manning: I think there is a good chance they will.

TWST: What will it take for you to get back to profitability?

Mr. Manning: Obviously, there are two main ways you can do that. One, cut cost, and two, increase revenues. We have actually done quite a bit of cost cutting. We can identify other expected cost cuts that can potentially save us over $0.5 million a year. That alone is not going to get us to profitability. So it is key that we grow our revenues. The way to grow revenues is to grow our DSL and VoIP business. In doing that, most of the growth can come from existing customers and countries, but we are also targeting new customers and countries. Two examples are Germany and Italy. We haven't done much business in Germany or Italy, but we are putting more focus on these countries and we have good prospects there.

TWST: Do you have the team in place to get you into these new markets?

Mr. Manning: Generally we do, and we have been successful in some European countries for a long time. But we also keep building the team. For instance, we just hired somebody who is an expert at going after European service providers with our wholesale VoIP offering. So we have a good team already, but we will continue to try to grow the sales team to address these new opportunities.

TWST: What has the rather pronounced falloff in the old dial-up business done to the culture at Zoom?

Mr. Manning: I think our culture is still good. It's probably surprising, given that our headcount has come down a lot. But we have a well-run company, and we have a lot of people here who know the company very well and work together very well. We are excited about our potential and some of the things we are doing. We are all very motivated toward getting back to profitability, and it is a very achievable goal. We work together to reach that goal.

TWST: Do you have the financial resources to get you through?

Mr. Manning: We really do. On our March 31, 2005 balance sheet, we had a current ratio that was a little over 2:1. And in June we made a huge profit when InterMute was sold to Trend Micro. We were a co-founder and about a 25% owner of InterMute, and we received $3.5 million in cash plus up to another $3 million depending on the performance of InterMute for Trend Micro. So that's made our balance sheet even stronger. Our balance sheet also shows our headquarters buildings near South Station in Boston with a value of $2.3 million, and we think that the conservative valuation of those buildings is $9 million. So our balance sheet is strong if you look at it as presented; but if you adjust it for the InterMute cash and also the buildings, it's even stronger. This means that we are well positioned to finance growth.

TWST: Are investors paying any attention to what's going on?

Mr. Manning: We are not seeing nearly as much interest as we would like to be seeing. Probably one reason is just that we are a microcap company. Another reason is that we need to prove that we can make money. Certainly in years past we have done that, but lately we've been losing money due to the falloff of the dial-up business. So there are definitely people who are interested, but who want to see us prove that we can make money. And we want to see us do that too. We also want to prove that we can be successful in VoIP, which should be a large high- growth market.

TWST: So you are in sort of a show-me position at this point. If you were talking to potential investors, what are the two or three reasons you would give them to take a look at the company at this stage?

Mr. Manning: One thing we haven't talked about is that we have very strong brands. The Zoom brand and also our Hayes and Global Village brands are strong brands. It's interesting to see these Chinese acquisitions recently and how China is reaching out for stronger brands. So I think we have a good asset there. Associated with those brands are very strong marketing channels, namely the retailer, computer products distributor, service provider, and OEM channels. We also have strong products, in terms of breadth of coverage of Internet access with our DSL modems, cable modems, and dial-up modems, and also with voice over IP. The voice over IP market is still in its infancy. When it becomes a much bigger market, there are only a few companies that are really well positioned, and I think we are one of those companies.

TWST: Thank you. (TJM)

FRANK B. MANNING Chairman, President & CEO Zoom Technologies, Inc. 207 South Street Boston, MA 02111 (617) 423-1072 (617) 423-3923 ' FAX www.zoom.com

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