Zoom Telephonics, Inc. is distributing at no chargeThis prospectus relates to the possible resale, from time to time, by the holders of our common stock who own4,909,999 shares on June 14, 2013, which we referof Common Stock that were issued in a private placement transaction completed in September 25, 2015.  These holders are named in this prospectus and are referred to herein as the record date, subscription rights to purchase“selling security holders”.

We are not selling any shares of our common stock at a subscription price equal to $0.28 per share. The maximum amount of shares soldCommon Stock in this rights offering to all our shareholdersand, as a group is 6,973,704 shares.

The subscription rights are exercisable beginningselling security holders may sell Common Stock from time to time at prices established on the dateOTC Markets Group’s OTCQB, or as negotiated in private transactions, or as otherwise described under the heading “Plan of this prospectus and continuing until 5:00 p.m., New York City timeDistribution.” The Common Stock may be sold directly or through agents or broker-dealers acting as agents on August 9, 2013.behalf of the selling security holders. The subscription rightsselling security holders may engage brokers, dealers or agents who may receive commissions or discounts from the selling security holders. We will expire and will have no value if they are not exercised prior to this time. We may extendpay all the period for exercising subscription rights in our sole discretion. Any subscription rights not exercised by the expiration date will expire worthless without any paymentexpenses incident to the holders of those unexercised subscription rights. There is no minimum subscription amount required for consummation of this rights offering.

Our principal executive office is located at 207 South Street, Boston, MA 02111. Our telephone number at that address is (617) 423-1072. Our website is located at http://www.zoomtel.com.

 

 

 

Throughout this prospectus we make “forward-looking statements,” as that term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include the words “may,” “would,” “could,” “likely,” “estimate,” “intend,” “plan,” “continue,” “believe,” “expect” or “anticipate” and similar words as well as our acquisition, development and expansion plans, objectives or expectations and our liquidity projections. These forward-looking statements generally relate to our plans, objectives, prospects and expectations for future operations and results and are based upon what we consider to be reasonable future estimates. Although we believe that our plans, objectives, prospects and expectations reflected in, or suggested by, such forward-looking statements are reasonable at the present time, we may not achieve or we may modify them from time to time. Furthermore, there is no assurance that any positive trends suggested or referred to in such statements will continue. Any forward-looking statements made in this prospectus are made as of the date of this prospectus and we assume no obligation to update the forward-looking statements. You should read this prospectus thoroughly, including the factors described in the “Risk Factors” section of this prospectus for information regarding risk factors that could affect our results with the understanding that actual future results may be materially different from what we expect. You should understand that it is not possible to predict or identify all such risks and uncertainties. Consequently, you should not consider these risks and uncertainties to be a complete discussion of all potential risks and uncertainties associated with an investment in us or our securities. We will not update forward-looking statements even though our situation or plans may change in the future, unless applicable law requires us to do so.

 

Zoom Telephonics Inc. was incorporateddesigns, produces, markets, sells, and supports Internet access and other communications-related products including cable modems, cable modem / routers, mobile broadband modems, DSL modems, and dial-up modems. Our primary objective is to build upon our position as a New York corporationleading producer of Internet access devices sold through sales channels that include many of the largest US high-volume electronics retailers, and to take advantage of a number of trends in 1977communications including higher data rates, increasing use of wireless technology for transmission of data, and was reincorporated as a Delaware corporation on March 25, 1993. Zoom was formerly the operating subsidiaryincreasing use of Zoom Technologies, Inc. With Zoom Technologies, Inc., Zoom initially designed, produced,smartphones, tablets, and sold telephone products. Zoom grew its business primarily based on the sale of dial-upstreaming media.

Broadband modems, reaching peak sales of approximately $100 million in the late nineties. As computers began to include dial-up modems and as broadband modems began to compete with dial-up modems, Zoom’s sales shrank even though Zoom introduced broadband modems. One reason was the fact that broadband modems are typically supplied by the broadband service provider, whereas dial-upespecially cable modems, were not. Very recently Zoom’s year-over-year sales rosehighest revenue product category in the fourth quarter of 20112014 as well as through the third quarter of 2012 as Zoom broadened its2015.  In response to demand for faster connection speeds and increased modem functionality, we have invested and continue to invest resources to advance our broadband modem product line to include cable modems and routers, ADSL modems and routers, mobile broadband modems and routers, and Bluetooth and WiFi compatible wireless products. However, Zoom’s year-over-year sales were down in the fourth quarter of 2012 and the first quarter of 2013.line.

On January 28, 2009, Zoom Technologies, Inc. entered intoCable modems provide a Share Exchange Agreement (the “Agreement”) with Tianjin Tong Guang Group Digital Communication Co., Ltd (“TCB Digital”), TCB Digital’s majority shareholder, Gold Lion Holding Limited (“Gold Lion”) and Lei Gu, a shareholder of Gold Lion. On May 12, 2009, the parties amended the Agreement to, among other actions, add Songtao Du, a shareholder of Gold Lion, as a partyhigh-bandwidth connection to the Agreement. On September 22, 2009, pursuantInternet through a cable-TV cable that connects to compatible equipment that is typically managed by the cable service provider. We began shipping cable modems during the year 2000. Our cable modem customers in the U.S., our largest market, are primarily retailers.  We have been selling cable modem products under the Zoom brand, and beginning in 2016 we will be offering cable modem products under the Motorola brand in the USA and Canada.

Our mobile broadband products provide or distribute a high-speed connection to the Agreement, Zoom Technologies acquired allInternet that uses a cellular phone service provider’s network.  Zoom’s product line includes mobile broadband modems, mobile broadband routers, and mobile broadband modem/router combinations.

Our Asymmetric Digital Subscriber Line modems, known as ADSL modems or DSL modems, provide a high-bandwidth connection to the outstanding sharesInternet through a telephone line that typically connects to compatible DSL equipment that is typically managed by the DSL service provider. Through the years Zoom® has shipped a broad line of Gold Lion. In addition, as partDSL modems. Zoom’s primary DSL product today includes a DSL modem and a wireless-N router.

Our dial-up modems connect personal computers and other devices to the local telephone line for transmission of data, fax, voice, and other information. Our dial-up modems enable personal computers and other devices to connect to other computers and networks, including the transaction, Zoom Technologies spun off its then-current business, which consistedInternet, at top data speeds up to 56,000 bits per second.  Zoom’s sales of its ownershipdial-up modems, our largest source of Zoom Telephonics, (the “Communications Business”)revenues from the mid-eighties through 2010, are expected to its stockholders, by distributingcontinue their decline due to their relatively slow data speed.  Dial-up modems accounted for 13% of Zoom’s sales in 2014 and transferring its assets11% in 2015.

Our common stock is traded inon the over-the-counter market withunder the symbol ZMTP.

 

 

We have never declared or paid cash dividends on our capital stock and do not plan to pay any cash dividends in the foreseeable future. Our current policy is to retain all of our earnings to finance future growth.

We maintain a number of equity compensation plans for employees, officers, directors and others whose efforts contribute to our success. The table below sets forth certain information as of our fiscal year ended December 31, 20122014 regarding the shares of our common stock available for grant or granted under stock option plans that (i) were approved by our stockholders, and (ii) were not approved by our stockholders.

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 our Quarterly Report on Form 10-Q for quarter ended September 30, 2015, filed with the SEC on November 13, 2015, in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on March 24, 2015 and in 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. Actual results could differ materially from those expressed or implied in the forward-looking statements.

 

 

Since 1983 our headquarters has been near South Station in downtown Boston. Zoom historically owned two adjacent buildings which connect on most floors,Boston at 201 and which house our entire Boston staff.207 South Street. In December 2006, wethe Company sold ourits owned headquarters buildings to a third party, with a two-year lease-back of approximately 25,000in Boston, Massachusetts and leased back 25,200 square feet offor two years expiring December 2008. In November 2008 the 62,000 square foot facility. Our net sale proceeds wereCompany signed a lease amendment for its headquarters’ offices in Boston in the existing building to approximately $7.7 million of which approximately $3.6 million was repaid to our mortgage holder, eliminating the mortgage debt from our balance sheet. On January 1, 2009 we reduced our leased Boston space from 25,000 square feet to 14,400 square feet for three years with an increase in rent per square foot, resulting in a savings in 2009 of $54,000.six month termination option starting July 1, 2010. In May 2010 we signed a second lease amendment extending the term of the lease to April 30, 2016 with a six month termination option starting December 1, 2011. In December 2011 we signed a third lease amendment reducing our leased space by 3,800to 10,600 square feet effective June 1, 2012, with an associateda corresponding decrease in lease expense.  This lease expires on April 30, 2016 unless we renew it.

 

For many years we derivedperformed most of the final assembly, test, packaging, warehousing and distribution at a majorityproduction and warehouse facility on Summer Street in Boston, Massachusetts, which had also engaged in firmware programming for some products. We moved most of our net salesSummer Street operations to a dedicated 35,575 square foot facility in Tijuana, Mexico in October 2006.  We moved these operations to a 10,800 square foot facility in Tijuana, Mexico in March 2009. In November 2014 we cancelled our existing lease and signed a one-year lease with five one-year renewal options thereafter for an adjacent 11,390 square foot facility.  In September 2015, Zoom extended the term of the lease from December 1, 2015 through November 30, 2018.  In September 2015, Zoom also signed a new lease for additional space in the retail after-market saleadjacent building, which will double our existing capacity.  The term of dial-up modems to customers seeking to add or upgrade a modem for their personal computers. In recent years the sizelease is from March 1, 2016 through November 30, 2018 with early access granted as of this market and our sales to this market have declined, as personal computer manufacturers have incorporated a modem as a built-in component in most consumer personal computers and as increasing numbers of consumers world-wide have switched to broadband Internet access. The consensus of communications industry analysts is that after-market sales of dial-up modems will probably continue to decline. There is also consensus among industry analysts that the installed base for broadband Internet connection devices, such as cable modems and DSL modems, will grow rapidly during the decade. In response to increased and forecasted worldwide demand for faster connection speeds and increased modem functionality, we have invested and continue to invest resources to advance our product line of broadband modems, both DSL modems and cable modems.

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

Generally our gross margin for a given product depends on a number of factors including the type of customer to whom we are selling. Gross margin for dial-up modems is typically significantly higher than gross margin for broadband modems. The gross margin for retailers tends to be higher than for some of our other customers; but the sales, support, returns, and overhead costs associated with retailers also tend to be higher. Zoom’s sales to certain countries are currently handled by a single master distributor for each country, who handles the support and marketing costs within the country. Gross margin for sales to these master distributors tends to be low, since lower pricing to these distributors helps them to cover the support and marketing costs for their country.

 

Over the past several years our net sales have declined. In response to declining sales volume, we have cut costs by reducing staffing and some overhead costs. Our total headcount was reduced from 3126 on March 31, 2012September 30, 2014 to 25 on September 30, on March 31, 2013.2015. As of May 3, 2013,October 28, 2015, Zoom had 3026 full-time and part-time employees.employees the increase coming from the hiring of Philip Frank, Board Director, as Chief Financial Officer. Of the 3026 included in our headcount on May 3, 2013, 7October 28, 2015, nine were engaged in research and development and quality control, 5control. Four were involved in manufacturing oversight,operations, which manages production, inventory, purchasing, assembly, packagingwarehousing, freight, invoicing, shipping, collections, and shipping, 12returns.  Seven were engaged in sales, marketing, technical support, and thecustomer support.  The remaining 7six performed executive, accounting, administrative, and management information systems and executive functions. Zoom has implemented cost cutting measures including reducing our headcount and reducing the number of days that certain employees work. As a result,  Zoom currently has 2719 full-time employees and 37 employees working less than 5 days per week, typically 4 days per week. Our dedicated manufacturing personnel in Tijuana, Mexico are employees of our Mexican manufacturing service provider and not included in our headcount.  On March 31, 2013,September 30, 2015, Zoom had one consultant in sales that was notand one consultant in information systems, neither of whom is included in our headcount.

Zoom’s cash balance on March 31, 2013September 30, 2015 was $195$2.52 million compared to $138 thousand down slightly fromon December 31, 2012.2014.  The company raised approximately $3.65 million net in Q3 2015 from a $3.42 million private placement in September and a $229 thousand rights offering in July.  Zoom’s $0.1 millioncash balance was also augmented by a $337 thousand decrease in net inventory. These increases were offset by a pay-down of the outstanding bank debt and $0.3 million loss in Q1 2012 were the main reasons for the decrease in cash. This was offset by Zoom’s $0.5 million decreaseof $841 thousand, a $150 thousand increase in net accounts receivable which increased cash. Zoom’s current ratio was 2.2 on March 31, 2013.

 

 

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.

 

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.

 

Significant management judgment is required in determining our provision for income taxes and any valuation allowances. We have recorded a 100% valuation allowance against our deferred income tax assets. It is management's estimate that, after considering all of 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 reduce the valuation allowance and recognize an equal income tax benefit which will increase net income in that period.

 

As of December 31, 20122014 the Company had federal net operating loss carry forwards of approximately $47,537,000$49,650,000 some or all of which should be available to offset future taxable income if it occurs. These net operating loss carry forwards are due to expire in varying amounts from 2018 to 2034. As of December 31, 2014 the Company had Massachusetts state net operating loss carry forwards of approximately $4,054,000 which are available to offset future taxable income. They are due to expire in varying amounts from 2018 to 2032. As of December 31, 2012, the Company had Massachusetts state net operating loss carry forwards of approximately $15,798,000 which are available to offset future taxable income. They are due to expire in varying amounts from 20132031 through 2017.

Geographically, our North American sales decreased,but continues to maintaincontinued their dominant share of our overall sales, going from 92.6%holding steady at 98% of our net sales in Q1 2012 to 91.3%the third quarter of 2015 and 98% in Q1 2013. Our second largest market, the UK, experienced an increase from 3.3%third quarter of 2014.  Sales outside North America remained at 2% of our net sales in Q1 2012both the third quarter of 2015 and the third quarter of 2014.

Generally Zoom’s lower sales outside North America reflect the fact that cable modems are sold successfully through retailers in the USA but not in most countries outside the USA, due primarily to 5.1%variations in Q1 2013.government rules.

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.