MERGER AND ACQUISITIONS - Note 3

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements

MERGER AND ACQUISITIONS - Note 3

NOTE 3 — MERGER AND ACQUISITIONS

The Company acquired 100% equity in Silver Tech on May 31, 2010. As of May 31, 2010, the net assets of Silver Tech were $2,564,160. The purchase consideration was $10,960,000 which resulted in goodwill of $8,395,840.

Silver Tech's subsidiary Nollec Wireless primarily focuses on R&D for mobile phones, and hardware and software solutions for domestic Chinese and overseas customers. Its design team includes experienced engineers in the core technologies of wireless communication and mobile phone development. Nollec provides state of the art industrial, user inter-phase, mechanical and engineering designs and software and hardware integration. The acquisition of Nollec allows the Company to provide complete original design and manufactured solutions to its customers in order to maintain a competitive advantage in the mobile handset manufacturing market.

The Company acquired 100% ownership of CDE on January 4, 2011. As of January 4, 2011, the net assets of CDE were $(43,409). The purchase consideration was $1,818,000 which resulted in goodwill of $1,861,409. The Company acquired CDE to broaden and deepen its knowledge base towards software solutions for mobile handsets. CDE has designed games for iOS and Android platforms for several years. The accumulated knowledge and source codes can be useful to the Company in integrating and testing operating systems with the hardware that the Company produces.

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed from CDE as of the date of acquisition on January 4, 2011.

Cash	$	235,112
Other receivables	5,895
Prepaid expenses	3,259
Accounts receivable	8,413
Fixed assets	6,565
Goodwill	1,861,409
Short-term loan	(20,075)
Accounts payable	(990)
MPF payable	(1,758)
Due to related party	(277,774)
Accrued expenses	(2,056)
Purchase price	$	1,818,000

The financial statements of CDE have been consolidated with the Company as of January 4, 2011, the closing date of the acquisition. The Company has determined that the results of operations would not be materially different if the financial statements were consolidated from January 1, 2011 to December 31, 2011; therefore, no pro forma consolidated financial statements are provided.

The Company acquired 55% ownership of Portables on October 11, 2011. As of October 11, 2011, the net assets of Portables were $(9,290,241). The purchase consideration was $9,851,486 which resulted in goodwill of $ 27,005,953. The Company acquired Portables for two reasons; (a) to diversify its revenue sources, and (b) to gain access to the most mature mobile handset market in the world.

The following table summarizes the fair market values assigned to the assets acquired and liabilities assumed from Portables as of October 11, 2011.

Cash	$	81,048
Other receivables	4,054,550
Prepaid expenses	255,816
Accounts receivable	3,896,008
Inventory	1,045,478
Due from related parties	3,813,514
Fixed assets	2,216,272
Equipment deposit	103,602
Intangible assets	223,557
Goodwill	27,005,953
Short-term loan	(1,352,562)
Notes payable	(4,757,186)
Accounts payable	(10,717,533)
Accrued expenses	(2,749,780)
Due to related party	(2,818,775)
Other payables	(2,584,250)
Valuation of non-controlling interest		(7,864,226)
Purchase price	$	9,851,486

Our purchase price allocation is preliminary and will be finalized within one year from the date of acquisition of Portables.

The following unaudited pro forma consolidated results of operations for Zoom 2011 and 2010 presents the operations of Zoom and Portables as if the acquisition had occurred at January 1, 2011 and 2010, respectively. The pro forma results are not necessarily indicative of actual results that would have occurred had the acquisitions had been completed as of the beginning of the periods presented, nor are the necessarily indicative of future consolidated results.

		2011			2010
Net sales	$	373,241,645		$	374,386,324
Cost of goods sold		(337,647,208	)		(331,109,263	)
Gross profit		35,594,436			43,277,061
Total operating expenses		(25,890,980	)		(26,266,711	)
Income (loss) from operations		9,703,456			17,010,350
Total non-operating loss		(4,095,800	)		(2,161,603)
Income (loss) before income tax		5,607,656			14,848,747
Income tax expense		(2,307,570	)		(3,832,772	)
Net income (loss) before noncontrolling interest		3,300,086			11,015,975
Less: (income) loss attributable to noncontrolling interest		(238,556	)		61,044
Net income (loss) to Zoom	$	$3,061,529		$	11,077,019
Weighted average shares outstanding		23,864,043			16,431,519
Earnings (loss) per share	$	$0.13		$	0.67

The following table summarizes goodwill as of December 31, 2011 resulting from the acquisitions of Jiangsu Leimone, Silver Tech, CDE and Portables:

Jiangsu Leimone	$	103,057
Silver Tech	8,395,840
CDE	1,861,409
Portables	27,005,953
	37,126,605
Less: Impairment	(1,033,762)
Total goodwill	$	36,332,497

As of December 31, 2011, the Company recorded impairment of goodwill of $1,033,762 which included $103,057 from Jiangsu Leimone, and $930,705 from CDE. There was no impairment of goodwill for the year ended December 31, 2010. The Company has already moved all of its manufacturing assets from Jiangsu Leimone to TCB Digital. The Company also intends to re-brand the Leimone brand of products to Zoom in the future, accordingly, the Company has written off goodwill related to the acquisition of Jiangsu Leimone. The Company assessed the operating position of CDE because of its continued losses for 2011. While the Company believes that it will re-organize the CDE business and inject new projects into the subsidiary as result of its expertise in different operating systems for mobile handsets, the likelihood of immediate profits is limited; therefore, the Company wrote off a portion of the goodwill to reflect the carrying value based on probabilistic discounted future cash flows from new projects. The Company will closely monitor CDE's progress with these projects on a quarterly basis moving forward to determine if further impairment is necessary.