CORRECTION OF ERROR FOR ACCOUNTING OF WARRANTS AS DERIVATIVE SECURITIES - Note 18

9 Months Ended

Sep. 30, 2013

Correction Of Error For Accounting Of Warrants As Derivative Securities - Note 18

CORRECTION OF ERROR FOR ACCOUNTING OF WARRANTS AS DERIVATIVE SECURITIES - Note 18

NOTE 18 - CORRECTION OF ERROR FOR ACCOUNTING OF WARRANTS AS DERIVATIVE SECURITIES

Zoom management discovered during the quarter ended September 30, 2012 that in accordance with ASC 815 (formerly EITF 07-5) the Company had incorrectly accounted for warrants issued in the years 2009 and 2010 as equity.  Series A, C, F, and related placement agent warrants contained anti-dilution provision that according to the above guidance required that these derivative securities be accounted for as liabilities and marked to market at each reporting period.  The Series G, and related placement agent warrants contained change of control provisions that required that the warrants be accounted for as liabilities because the securities were no longer indexed to the Company's stock; rather there were characteristics that required them to be accounted for as standalone securities that are considered liabilities to the Company. As a result the results of operations for the three and nine months ended September 30, 2012 have been restated as follows:

		Three Months Ended September 30, 2012
		As Previously				As Currently
		Reported		Adjustment		Reported
Other income (expenses)
Change in fair value of warrants	$	-	$	350,323	$	350,323
Net income attributable to Zoom Technologies, Inc.	$	419,939	$	350,323	$	770,262
Basic and diluted income per common share:
Basic	$	0.02	$	0.01	$	0.03
Diluted	$	0.02	$	0.01	$	0.03

		Nine Months Ended September 30, 2012
		As Previously				As Currently
		Reported		Adjustment		Reported
Other income (expenses)
Change in fair value of warrants	$	-	$	233,370	$	233,370
Net income attributable to Zoom Technologies, Inc.	$	1,061,824	$	233,370	$	1,295,194
Basic and diluted income per common share:
Basic	$	0.04	$	0.01	$	0.05
Diluted	$	0.04	$	0.01	$	0.05

The Company assessed the value of these warrants by using the binomial lattice model. When the Company valued the warrants it used the following assumptions as part of inputs into the valuation model: US treasury rate of 0.34% as a measure of the risk free rate of return. The Company also used the mean of the annualized standard deviation of the log normal returns of comparable companies in the same line of business as measure of volatility which was 44.42% at June 30, 2012. The Company controls whether dilution may occur, so it did not add additional assumptions regarding dilutive events into the future discrete outcomes found in the model. The warrants values were adjusted for the dilutive effect as ratio of the outstanding common stock at the time of measurement. In determining the probabilities of an up movement or down movement in the discrete outcomes, as well as the related magnitude of such up or down movements, the Company used a Cox-Ross-Rubenstein approach in applying the binomial lattice model.

These corrections will be made to applicable prior period financial information in future filings with the SEC including this filing.