SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


                                  FORM 10-KSBA


      ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
      SECURITIES EXCHANGE ACT OF 1934
      FOR THE FISCAL YEAR ENDED _______________

                                       OR

X     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
      SECURITIES EXCHANGE ACT OF 1934
      FOR THE TRANSITION PERIOD FROM JUNE 1, 2003 TO MARCH 31, 2004



                        COMMISSION FILE NUMBER: 000-31691


                                 ZIM CORPORATION
             (Exact name of Registrant as specified in our charter)

             CANADA                                      N/A
 (State or other jurisdiction of       (I.R.S. Employer Identification Number)
 incorporation or organization)

 20 COLONNADE ROAD, SUITE 200, OTTAWA, ONTARIO, CANADA              K2E 7M6
    (Address of Principal Executive Offices)                      (Zip Code)


         ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (613) 727-1397

        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:



                                                    NAME OF EACH EXCHANGE
      TITLE OF EACH CLASS                            ON WHICH REGISTERED
------------------------------                    ------------------------
 Common shares, no par value                    Over the Counter Bulletin Board

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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__

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. X

The registrant's revenues for our most recent fiscal year are $2,107,099.
Aggregate market value of voting stock held by non-affiliates: $10,210,918 based
on 26,870,836 shares at June 8, 2004 held by non-affiliates and the closing
price on the Over the Counter Bulletin Board on that date which was $0.38.

The number of common shares of the registrant outstanding as of June 8, 2004 is
55,266,004.


                                       1
<PAGE>



                                EXPLANATORY NOTE


This Amendment No. 1 to our Annual Report on Form 10-KSB for the Corporation's
transition period from June 1, 2003 to March 31, 2004 filed with the Commission
on June 18, 2004 is being filed solely to: (i) expand the management's
discussion and analysis or plan of operations section regarding revenue changes
and liquidity; (ii) revise risk factors relating to cash requirements; (iii)
revise the pro-forma note disclosure related to the granting of stock options;
(iv) revise Note 4 to the financial statements to expand the discussion of the
Corporation's significant accounting policies; and (v) correct the Commission
File Number on the cover page. No other change has been made to the
Corporation's original Annual Report on Form 10-KSB, and the information
contained therein has not been updated.




                                       2

<PAGE>



                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
PART I

<S>                                                                                                  <C>
Item 1.  Business.......................................................................................5
Item 2.  Properties....................................................................................11
Item 3.  Legal Proceedings.............................................................................11
Item 4.  Submission of Matters to a vote of Security Holders...........................................11

PART II

Item 5.  Market for Common Equity and Related Shareholder
         Matters and Small Business Issuer Purchases of Equity Securities..............................11
Item 6.  Management's Discussion and Analysis or Plan of Operation.....................................13
Item 7.  Financial Statements..........................................................................23
Item 8.  Changes in and Disagreements with Accountants on
         Accounting and Financial Disclosure...........................................................52
Item 8A. Controls and Procedures.......................................................................52

PART III

Item 9.  Directors and Executive Officers..............................................................53
Item 10. Executive Compensation........................................................................56
Item 11. Security Ownership of Certain Beneficial Owners and
         Management and Related Shareholder Matters....................................................59
Item 12. Certain Relationships and Related Transactions................................................60

PART IV

Item 13. Exhibits and Reports on Form 8-K..............................................................61
Item 14. Principal Accountant Fees and Services........................................................61

SIGNATURES.............................................................................................62

INDEX TO EXHIBITS......................................................................................63
</TABLE>




                                       3

<PAGE>

This Annual Report on Form 10-KSB contains forward-looking statements within the
meaning of Section 21D of the Securities Exchange Act of 1934 and Section 27A of
the Securities Act of 1933 regarding our business, financial condition, results
of operations and prospects. Words such as "expects," "anticipates," "intends,"
"plans," "believes," "seeks," "estimates" and similar expressions or variations
of such words are intended to identify forward-looking statements, but are not
deemed to represent an all-inclusive means of identifying forward-looking
statements.

All forward-looking statements are inherently subject to risks and uncertainties
and actual results may differ materially from the results discussed in or
anticipated by the forward-looking statements. All such statements are therefore
qualified in their entirety by reference to the factors specifically addressed
in the section entitled "Risk Factors" as well as those discussed elsewhere in
this Report. All forward-looking statements speak only as of the date of this
Report. We undertake no obligation to revise or update any forward-looking
statements in order to reflect any event or circumstance that may arise after
the date of this Annual Report on Form 10-KSB, other than as required by law.


                                       4

<PAGE>



PART I

ITEM 1. DESCRIPTION OF BUSINESS.

COMPANY OVERVIEW

ZIM Corporation ("ZIM") is a leading designer and developer of consumer and
enterprise applications for the global SMS (Short Message Service) channel, as
well as a developer and provider of the Zim Integrated Development Environment
software, which is used by companies in the design, development, and management
of information databases.

BUSINESS DEVELOPMENT

ZIM was formed under the laws of Canada on October 17, 2002 in order to purchase
ZIM Technologies International Inc. ("ZIM Technologies"), which was formed in
1997 to acquire the software technology now called the Zim Integrated
Development Environment (the "Zim IDE software"). On February 10, 2004, ZIM
purchased UK-based SMS service firms EPL Communications Limited and E-Promotions
Limited. ZIM is also the sole shareholder of ZIM Technologies do Brazil Ltda., a
company incorporated in Brazil that distributes the Zim IDE Software, and PCI
Merge, Inc., a Florida based holding company with no operations. Until March 31,
2004, ZIM was the sole shareholder of ZIM Technologies, a Canadian federal
corporation and the chief operating company of the ZIM group of companies. On
April 1, 2004, ZIM Corporation and ZIM Technologies amalgamated into ZIM
Corporation.

BUSINESS OF THE COMPANY

Historically, we have been known as a developer and provider of the Zim IDE
software. Zim IDE software is currently used by companies in the design,
development, and management of information databases and mission critical
applications. The technology for the Zim IDE software was developed at Bell
Northern Research in Ottawa, Ontario in the 1980s and acquired by ZIM in 1996.
The software is now licensed to thousands of customers through direct sales as
well as through an established network of VARs and distributors.

Beginning in 2001, we expanded our business strategy to include the design and
development of a line of mobile data software products. We design these mobile
data software products to take advantage of the existing wireless data network
infrastructure known as SMS. SMS, or text messaging as it is also known, enables
users to communicate person to person and application to person through cellular
handsets and other SMS-enabled devices. The use of SMS has already experienced a
significant increase throughout Europe and Asia and the market is now expanding
in North America.

Our goal is to be the leader in developing and delivering cutting edge consumer
and enterprise applications for the global SMS channel. We have developed both
consumer and business-oriented lines of mobile data software products to deliver
simple-to-use SMS based communication services for end users. These
communication services include features to increase the usefulness of SMS, such
as the ability to send text messages from web sites directly to mobile phones,
and the capability to connect office tools to mobile phones, including e-mail
messages, meeting requests, and follow-up reminders.

We intend to utilize our expertise in database management and software
engineering, and our knowledge of North American SMS networks to develop leading
SMS products and applications. We offer commercially proven two-way messaging
applications utilizing established SMS networks that may be used on the
approximately 1.4 billion mobile phones currently in use. Our flagship product,
ZIM SMS Office, provides low cost and secure wireless e-mail, calendar and other
functionality.


                                       5
<PAGE>



We believe that a number of significant factors will accelerate the growth of
the market for our applications. These factors include:

     o    SMS is a popular channel because it is low cost to the user, secure,
          always on, discreet, efficient, urgent and addictive.

     o    SMS delivers higher carrier margin compared to other data channels
          ($350/MB for data vs. $0.70/MB for voice).

     o    SMS via cellular phones has twice the reach of the Internet as there
          were approximately 600 million PCs in use worldwide in 2001, as
          compared to approximately 1.4 billion cellular phones.

The market indicates that SMS users will utilize SMS for a variety of business
and personal communication services. We expect that these value-added
communication services will help bridge the gap between personal computers and
business computer systems, on the one hand, and mobile devices, on the other
hand. This is expected to enable tasks that are familiar in the personal
computers or corporate systems environment to be extended to mobile devices.
These tasks may include group messaging, mobile chat, mobile marketing,
calendaring, collaborative work processes, business process communications and
desktop to mobile integration.

We further believe that there are multiple revenue opportunities to be made from
SMS. Direct payments are expected to include both consumer to operator, as well
as consumer to product and service provider. Indirect payments are expected to
come primarily from various revenue share agreements with wireless carriers.

In addition, we expect that our recent acquisition of EPL Communications Limited
and E-Promotions Limited (together referred to as "EPL") will facilitate our
growth strategy in three ways. First, EPL brings new technology capabilities to
ZIM including web-based customer self serve interfaces, as well as direct
connectivity into operator networks for SMS message delivery. Second, EPL has an
existing customer base of approximately 12,500 customers which ZIM plans to grow
through existing EPL products and complimentary ZIM product offerings. Third,
EPL has existing relationships with all four of the major wireless network
operators in the United Kingdom. It is our intention to utilize these existing
EPL relationships to offer ZIM's network operator portfolio into the United
Kingdom.


Similar to the UK business, we also act as a gateway or portal for North
American customers. These services, also known as aggregator services, allow
clients to send their messages to their end users through our connections to the
telephone carriers. The North American market is not as mature as the UK market,
and as a result, we do not have significant revenues from this in North America.
Management does expect significant growth in the North American aggregation
market as the popularity of SMS continues.

In addition, we have historically been assisting clients with their SMS
marketing campaigns, whereby a customer advertises an upcoming contest and
encourages parties to enter the contest through SMS. ZIM would assist the client
with tracking participation and setting up the services. In the short term we
will continue to further our exposure in the SMS market by participating in
these kinds of contracts, but we do not see this as a core part of our business
or growth.






                                       6
<PAGE>




                                OUR SMS PRODUCTS

ZIM SMS OFFICE
STANDARD EDITION RELEASED IN 2003; ENTERPRISE EDITION SLATED FOR RELEASE IN
2004.

ZIM SMS Office links two-way SMS text messaging and e-mail with the coordination
of Microsoft(R) ("Microsoft") Outlook and Microsoft Excel to create a mobile
office software tool. It is designed to extend and enhance a Microsoft Office
suite by providing Outlook functionality to SMS-enabled cellular phones through
one-way and two-way SMS text messaging capabilities. Users stay connected to the
Microsoft Outlook office environment by using a cellular phone to receive,
reply, forward and send e-mail messages, request "more" or "all" of e-mail
messages, and receive daily calendar items and reminders. Users can send SMS
text messages to their contacts from the desktop and receive the responses as
e-mail. Filters and preferences can also be set to enhance productivity. The
Enterprise edition of the product, which is a networked mobile solution for a
Microsoft Exchange Server environment, includes a variety of additional
capabilities such as contact look up and corporate calendar meeting invitations
on the phone.

ZIM SMS MAIL
RELEASED IN 2003.

ZIM SMS Mail is a two-way mobile e-mail extension software tool designed to
leverage SMS text messaging to keep cellular phone users connected to their
e-mail while on the go. ZIM SMS Mail is desktop software that links almost any
e-mail account to SMS-enabled cellular phones. When mail that meets the personal
filter criteria of the user arrives in the e-mail Inbox, it is automatically
pushed to the user's cellular phone using one-way and two-way SMS text messaging
through the SMS channel.

ZIM 2-WAY SMS PAGING
AVAILABLE SINCE 2003.

ZIM 2-Way SMS Paging is a pager replacement system that uses SMS on a cellular
phone to create a two-way communication network. Using a web-based
administrative interface and standard cellular phones, customers can easily and
quickly implement a modern and cost-effective two-way communication system for
employees currently using pagers as part of the enterprise communication
process. To ensure maximum reach and effectiveness, the product goes beyond SMS
and incorporates e-mail message sending options.

The product includes many features to ensure real and measurable results
including: web-based message posting through and administrative control panel,
easy to use contacts and group controls and escalation hierarchy, real-time
message delivery status reporting and record logs for audit trail and results
analysis.

ZIM SMS CHAT
RELEASED IN EARLY CALENDAR 2004.

ZIM SMS Chat is the next generation of `Instant Messaging' that expands on the
real time, two-way chat experience and allows users to send instant SMS text
messages from the computer directly to mobile users. Users can engage in live
two-way chats with friends and family even when they are on the go.


Featuring two-way, real-time functionality through SMS, computer users can
create a dialogue with mobile users and expand communication possibilities. ZIM
SMS Chat is a real-time, two-way SMS messaging application that can be installed
and working on a computer within minutes.





                                       7
<PAGE>


ZIM IDE SOFTWARE

As mentioned above, we have historically been a developer and provider of the
Zim IDE software, which is used by companies in the design, development, and
management of information databases. We now license the Zim IDE software
products to thousands of customers through direct sales, and through an
established network of VARs and distributors.

The Zim IDE software provides an integrated development environment for
Microsoft Windows and UNIX computer operating systems. An integrated development
environment is a set of programs run from a single user interface for use in the
creation and management of corporate databases.

The Zim IDE software was designed to handle complex data management in a more
efficient manner than the database technologies historically provided. The
distinctive characteristic of the Zim IDE software is the fact that our object
dictionary contains more than just a table of data. Instead, all relationships
and data information are concurrently stored in the object dictionary, making it
easier to manage and retrieve information. Furthermore, Zim IDE software uses
data sets rather than record-by-record access to manage information. This
technique further simplifies the management of data.

The Zim IDE software has been used to develop database applications that have
been deployed in a wide range of industries, including finance, marketing, human
resources, information and records management. Applications built with the Zim
IDE also fully access most other major databases such as Oracle and SQL Server.

COMPETITION AND COMPETITIVE STRATEGY

Many companies offer SMS text messaging applications to send one-way and two-way
messages from a desktop computer or website, however only a few of these
wireless product offerings actually allow for e-mails to be forwarded to a
cellular phone. Even fewer integrate with desktop computers in a business
environment and extend the functionality of the corporate office desktop to
cellular phones. Management is not aware of any other company that offers a
two-way SMS solution that allows for: seamless integration with both Outlook and
Excel; open delivery threads for ongoing message conversations; and sending
e-mail to SMS (and the reverse) without losing message integrity while
maintaining message history and two-way messaging directly via SMS without the
use of complicated replying codes.

ZIM does face competition from companies with technology that rely on expensive
devices and channel deliveries. Management views these as more complementary to
the ZIM SMS Office products as we are targeting the market that wants the
cheaper solution with most of the functionality. Examples of substitute products
that ZIM complements are the Research In Motion Blackberry products and Good
Link. Both of these products rely on the user purchasing expensive devices. In
addition, cellular phone manufacturers are now creating smart phones that have
limited capabilities access to desktop email.

EMPLOYEES

As at March 31, 2004, we had 52 full-time employees, with 37 employees in
selling, general and administrative and 15 employees in research and
development. We consider our relations with our employees to be excellent, and
none of our employees are covered by a collective bargaining agreement.

Of these employees, 44 are based in Ottawa, Canada, two are in London, England
and six are in Sao Paolo, Brazil.



                                       8
<PAGE>


RISK FACTORS

This Report on Form 10-KSB contains forward-looking statements. When considering
the forward-looking statements made in this Report, you should consider the
risks set forth directly below, and other cautionary statements throughout this
Report.

OUR LINE OF MOBILE DATA SOFTWARE MAY NOT GAIN MARKET ACCEPTANCE - ZIM MAY
THEREFORE NEVER BE PROFITABLE.

A failure by ZIM to generate future revenues from our applications, including
ZIM SMS Office, ZIM Chat, and ZIM SMS Mail would adversely affect our financial
condition. We believe that our future is dependent to a large extent on our
ability to achieve and sustain market acceptance for this proposed line of
software products for the mobile data industry. ZIM has expended substantial
time and resources since 2001 to develop this line of software products for the
mobile data industry, and, as such desires to recoup our investment. In
addition, we do not view our existing Zim IDE business as sufficient, in and of
itself, to maintain and sustain our operations going forward. The market
acceptance for these products is unproven. To date, ZIM has generated minimal
revenue from these products.

ZIM MAY EXPERIENCE DIFFICULTIES ACCURATELY FORECASTING OUR OPERATING RESULTS
THEREBY MAKING OUR BUSINESS OPERATIONS MORE DIFFICULT TO SUSTAIN.

Due to our limited operating history in the SMS market and the uncertainty
regarding the market acceptance for our new line of SMS products, ZIM may not be
able to accurately forecast our future operating results. If net sales from our
new line of SMS products fall materially short of estimated expenses, our
business operations will become more difficult to sustain since we will then
have to reduce our spending and/or raise additional capital over and above any
current capital raising plans. It may not be possible for ZIM to accomplish
either task in a timely manner, or at all, in which event ZIM would have to
curtail or suspend certain or all of our business operations. Any action to such
effect is likely to have a material adverse effect on our business
relationships, financial results, financial condition and prospects.

THE LOSS OF THE SERVICES OF ZIM'S DR. MICHAEL COWPLAND AND OTHER KEY PERSONNEL
COULD NEGATIVELY AFFECT OUR BUSINESS.

The loss of the services of Dr. Michael Cowpland and other key personnel could
affect our performance in a material and adverse way. ZIM currently depends
heavily on the services of Dr. Cowpland as well as his ability to, and past
practice of, funding our cash requirements from time to time. For example, Dr.
Cowpland, and a holding company owned by the spouse of Dr. Cowpland, have
provided financing of approximately $3.9 million to ZIM.

In December 2003, the Ontario Securities Commission ordered, among other things,
that Dr. Cowpland be prohibited from acting as a director for any reporting
issuer in the Province of Ontario, Canada until December 2005. Although ZIM is
not a reporting issuer in Ontario, Canada, and has no current plans to become a
reporting issuer in Ontario, Canada, this prohibition could materially affect
ZIM should it decide to seek a listing of our securities in Ontario, Canada
before December 2005.

ZIM MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS OR
MAY BE ACCUSED OF INFRINGING INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.

If ZIM is not successful in adequately protecting our technology through patent,
trademark, copyright and other protections, our competitors could develop
competing products based on our intellectual property and thereby damage our
business and results of operations.

ZIM MAY NOT BE ABLE TO ADAPT QUICKLY ENOUGH TO TECHNOLOGICAL CHANGE AND CHANGING
CUSTOMER REQUIREMENTS, THEREBY LOSING SALES.


                                       9
<PAGE>


If we are unable to adapt to the rapid changes in technology and customer needs
that are inherent to the enterprise software industry, ZIM may lose sales and
fail to grow. In order to meet these rapid changes, we will have to effectively
integrate new wireless and data technologies, continue to develop our
technologies and technical expertise and respond to changing customer needs.

THERE IS SUBSTANTIAL DOUBT AS TO OUR ABILITY TO CONTINUE AS A GOING CONCERN.

Our ability to continue as a going concern is subject to substantial doubt given
our current financial condition and requirements for additional funding. If ZIM
is unable to continue as a going concern, investors in our common shares will
likely lose their entire investment. We have indicated in our financial
statements that there is substantial doubt about our ability to continue as a
going concern. In addition the auditors' report to our audited consolidated
financial statements for the ten month fiscal period ended March 31, 2004
included an explanatory paragraph which indicates that there is substantial
doubt about our ability to continue as a going concern. There can be no
assurance that ZIM will be successful in raising additional funding.

IF ZIM IS UNABLE TO OBTAIN ADDITIONAL FUNDS IN A TIMELY MANNER OR ON ACCEPTABLE
TERMS, ZIM MAY HAVE TO CURTAIL OR SUSPEND CERTAIN OF OUR BUSINESS OPERATIONS,
WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS RELATIONSHIPS,
FINANCIAL RESULTS, FINANCIAL CONDITION AND PROSPECTS.

If ZIM is unable to obtain additional funds in a timely manner or on acceptable
terms, we may have to curtail or suspend certain of our business operations
which could have a material adverse effect on our business relationships,
financial results, financial condition and prospects. We anticipate that our
cash at March 31, 2004 of approximately $800,000, along with cash generated from
operations, will be sufficient to meet our present operating and capital
expenditures for at least the next three months, but that we will require
substantially more funds at that time to continue and expand our business
operations.

ZIM EXPECTS TO INCUR OPERATING LOSSES FOR A MINIMUM OF THE NEXT TWELVE MONTHS.
SUCH LOSSES WILL DIRECTLY EFFECT OUR REQUIREMENTS FOR ADDITIONAL FUNDS AND
ABILITY TO CONTINUE AS A GOING CONCERN.

Our anticipated requirements for additional funds are based, in large part, upon
our expectation that we will incur operating losses for the next twelve months.
The extent to which these anticipated losses are actually incurred will directly
affect our need for additional capital and ability to continue as a going
concern. If the shortfall between the revenues generated by ZIM and our
operating expenses for the next twelve months is greater than the operating
losses which are already expected, our need to secure additional funds is likely
to increase accordingly and further adversely affect our ability to continue as
a going concern. Moreover, no assurance can be given that actual operating
losses will not exceed management's current expectations. These anticipated
operating losses are due in part to anticipated costs in the marketing of our
new line of mobile data software and related research and development
expenditures.

IF WE ARE UNABLE TO MANAGE THE INTEGRATION OF OUR ACQUIRED BUSINESSES, OUR
FINANCIAL CONDITION AND OPERATING RESULTS MAY BE ADVERSELY AFFECTED.

A failure to effectively manage the integration of our acquisition of EPL
Communications Limited and E-Promotions Limited, and any additional acquisitions
we may decide to make, may adversely affect our business and financial
condition. Any acquisition that we make will place significant demand on
management, technical and other resources.

REPORTS TO SECURITY HOLDERS

We file annual and quarterly reports with the Securities and Exchange Commission
("SEC"). In addition, we file additional reports for matters such as material
developments or changes within the Corporation, changes in beneficial ownership
of officers and directors, or significant shareholders. These filings are a
matter of public record and any person may read and copy any materials filed



                                       10
<PAGE>


with the SEC at the SEC's public reference room at 560 Fifth Street, N.W.,
Washington, D.C. 20549. The public may obtain information on the operation of
the public reference room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site that contains reports, proxy and other information
statements, and other information regarding issuers that file electronically at
http://www.sec.gov. Our internet web site can be found at www.zim.biz.

ITEM 2. DESCRIPTION OF PROPERTY.

Our principal office is located in Ottawa, Canada. ZIM leases an office suite of
approximately 12,600 square feet. The lease is currently scheduled to expire in
July, 2007.

ZIM has an additional office located in Sao Paolo, Brazil. ZIM leases an office
of approximately 1,000 square feet in this location. The lease is currently
scheduled to expire in April 2005.

Effective February 10, 2004, ZIM leases an office of approximately 1,000 square
feet in London, England. This lease is on a month-to-month basis.

We believe that our offices are adequate for our current operations.

ITEM 3. LEGAL PROCEEDINGS.

We are currently not a party to any litigation, and we are unaware of any
pending or threatened legal proceedings against the Corporation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of our security holders, through the
solicitation of proxies or otherwise, during the fiscal month ended March 31,
2004.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

"Bid" and "asked" offers for our common shares are listed on the NASDAQ
Over-the-Counter Bulletin Board ("OTCBB") published by the National Quotation
Bureau, Inc. Our common shares have traded on the OTCBB under the symbol "ZIMCF"
since October 16, 2003. The following table shows the high and low bid prices of
our common shares for the periods indicated as reported by the OTCBB. The OTCBB
quotations reflect inter-dealer prices, are without retail markup, markdown or
commission, and may not represent actual transactions.

PERIOD                                               HIGH              LOW
---------------------------------------------------------------------------

2004 Second Quarter                                 $1.00             $0.38
2004 Third Quarter                                  $0.98             $0.41
2004 Month of March                                 $0.75             $0.69
October 16, 2003 to June 8, 2004                    $1.00             $0.38

Our common shares are thinly traded and, accordingly, reported sale prices may
not be a true market-based valuation of our common shares. As of June 8, 2004
there were approximately 1,100 record holders of our common shares.

We have not paid any dividends on our common shares and we intend to retain all
earnings for use in our operations and to finance the development and the
expansion of our business. We do not anticipate paying any dividends on the
common shares in the foreseeable future. The payment of dividends is within the
discretion of our Board of Directors. Any future decision with respect to
dividends will depend on future earnings, future capital needs and our operating
and financial condition, among other factors.


                                       11
<PAGE>


RECENT SALES OF UNREGISTERED SECURITIES


On January 7, 2004, we issued 9,211,511 common shares in a private placement to
our CEO and majority shareholder Dr. Michael Cowpland and a holding company that
is owned by Dr. Cowpland's wife, upon the conversion of approximately $3.9
million of debt held by Dr. Cowpland and that holding company based on the
closing price of the Corporation's shares on the OTCBB on January 6, 2004.


On January 30, 2004, the Corporation issued 1,150,006 units in a non-brokered
private placement at $0.75 per unit. Each unit consists of one common share and
one warrant to purchase an additional common share at $0.75 per share through
July 30, 2004. The units were issued to unaffiliated persons, except that James
Stechyson, a member of our board of directors, purchased 50,000 of the units.

On February 10, 2004, we issued 4,000,000 common shares to unaffiliated persons
as partial consideration for all of the ordinary shares of each of EPL
Communications Ltd. and E-Promotions Ltd.

All of these issuances were made in reliance upon the exemption from the
registration requirements of the Securities Act of 1933, as amended, provided by
Section 4(2) of the Securities Act for transactions by an issuer not involving a
public offering.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

ZIM established the Employee Stock Option Plan ("ESOP") to promote the interests
of the Corporation and our shareholders by using investment interests in the
Corporation to attract, retain and motivate our directors, officers, employees
and other persons, to encourage and reward their contributions to the
performance of the Corporation, and to align their interests with the interests
of the Corporation's shareholders. The ESOP was approved by ZIM shareholders on
November 19, 2003.


Securities authorized for issuance under equity compensation plans at March 31,
2004 are as follows:

<TABLE>
<CAPTION>
----------------------------------------- ------------------------- ------------------------- -------------------------
Plan category                              Number of securities to          Weighted average      Number of securities
                                           be issued upon exercise         exercise price of   remaining available for
                                           of outstanding options,      outstanding options,           future issuance
                                               warrants and rights       warrants and rights
----------------------------------------- ------------------------- ------------------------- -------------------------
                                                               (a)                       (b)                       (c)
----------------------------------------- ------------------------- ------------------------- -------------------------
<S>                                       <C>                       <C>                       <C>
Equity compensation plans approved by                  20,835,071                     $0.75                 9,649,929
security holders
----------------------------------------- ------------------------- ------------------------- -------------------------
Equity compensation plans not approved                        NIL                       NIL                       NIL
by security holders
----------------------------------------- ------------------------- ------------------------- -------------------------
Total                                                  20,835,071                     $0.75                 9,649,929
----------------------------------------- ------------------------- ------------------------- -------------------------
</TABLE>


                                       12
<PAGE>


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.


INTRODUCTION


This Management's Discussion and Analysis or Plan of Operation contains
forward-looking statements that are based on current expectations, estimates and
projections about ZIM and the industries in which we operate. In addition, other
written or oral statements which constitute forward-looking statements may be
made by or on behalf of ZIM. Words such as "expects," "anticipates," "intends,"
"plans," "believes," "seeks," "estimates," or variations of such words and
similar expressions are intended to identify such forward-looking statements.
These statements are not guarantees of future performance and involve certain
risks, uncertainties and assumptions which are difficult to predict. Therefore,
actual outcomes and results may differ materially from what is expressed or
forecast in such forward-looking statements. ZIM undertakes no obligation to
update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise, other than as required by law.

Potential risks and uncertainties include, without limitation, the uncertainties
inherent in the development of new software products, ZIM's need for significant
additional funding, the uncertain market acceptance of our products, the
uncertainties inherent in managing the integration of our acquired businesses,
and rapid developments in technology, including developments by competitors. We
operate in a very competitive and rapidly changing environment. New risks can
arise and it is not possible for management to predict all such risks, nor can
it assess the impact of all such risks on our business or the extent to which
any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements. Given these
risks and uncertainties, investors should not place undue reliance on
forward-looking statements as a prediction of actual results.


EXECUTIVE SUMMARY

Beginning in 2001, we expanded our business strategy to include the design and
development of a line of mobile data software products based on SMS (Short
Messaging Service) technology. Commencing in February 2004, revenues from these
SMS applications have become a significant contributor to our total revenues.
Management expects that revenues from SMS applications will become the dominant
contributor for the up-coming fiscal year beginning on April 1, 2004.

The revenue sources from SMS applications are a result of the completion of a
suite of SMS products by ZIM as well as the acquisition of EPL which was
completed on February 10, 2004. For the period from February 10, 2004 to the end
of the fiscal period, March 31, 2004, revenues from EPL were approximately
$605,000. Management expects to see revenues continue at this level during the
fiscal year beginning on April 1, 2004.

In addition to the increased sales of SMS applications, the sales of Zim IDE
Software continued at the same levels as prior periods with an increase in
subsequent maintenance contracts. We do not expect to see significant increases
or decreases in this segment of our operations.

OVERVIEW

Historically we have been known as a developer and provider of the Zim
Integrated Development Environment, or the Zim IDE software. Zim IDE software is
currently used by companies in the design, development, and management of
information databases and mission critical applications. The technology for Zim
IDE software was developed at Bell Northern Research in Ottawa, Ontario in the
1980s and acquired by ZIM in 1996. The software is now licensed to thousands of
customers through direct sales as well as an established network of VARs and
distributors.




                                       13
<PAGE>


Beginning in 2001, we expanded our business strategy to include the design and
development of a line of mobile data software products. ZIM designs these mobile
data software products to take advantage of the existing wireless data network
infrastructure known as SMS. SMS, or text messaging as it is also known, enables
users to communicate person to person and application to person through cellular
handsets and other SMS-enabled devices. The use of SMS has already experienced a
significant increase throughout Europe and Asia and the market is now expanding
in North America.


Many companies offer SMS text messaging applications to send one-way and two-way
messages from a desktop computer or website; however only a few of these
wireless product offerings allow for e-mails to be forwarded to a cellular
phone. Even fewer integrate with desktop computers in a business environment
that extends the functionality of the corporate office desktop (e-mail,
calendars, and contacts) to cellular phones. Our technology offers a unique
two-way SMS solution that allows for: seamless integration with both Microsoft
Outlook and Microsoft Excel; open delivery threads for on-going message
conversations; sending e-mail to SMS (and the reverse) without losing message
integrity and maintaining message history; and two-way messaging directly via
SMS and without the use of complicated replying codes.


Our key products, ZIM SMS Office and ZIM Chat, are resold by telecommunication
carriers to their subscribers under the carrier's own brand. We have signed the
following contracts to distribute our applications:

     o    StarHub, an info-communications provider based in Singapore, launched
          StarHub SMSOffice (Standard Edition), a wireless e-mail tool developed
          by ZIM. This mobile office solution will use SMS text messaging to
          provide the functionality of advanced wireless handheld devices on any
          SMS-enabled mobile phone. StarHub is currently offering its subscriber
          base a one-month free trial of our application.

     o    Radius-ED, a Malaysia-based SMS gateway and solutions provider in the
          Asia-Pacific region, signed an agreement for distribution of our
          mobile office products featuring two-way SMS text messaging in the
          Asia-Pacific region. The products, including ZIM SMS Office and ZIM
          SMS Mail, offer wireless e-mail, providing the functionality of
          advanced wireless handheld devices on any mobile phone.

     o    Rogers AT&T Wireless, a Canadian telecommunications company, launched
          a new mobile chat application developed by ZIM that enables real time
          chats between computer users and Rogers AT&T Wireless customers. The
          product, labeled Rogers Desktop TXT, brings instant messaging to
          wireless phones by enabling users to communicate easily from a
          computer with mobile contacts in real time using two-way text
          messaging.

     o    Telcel, a Mexico-based company, selected three of our wireless
          products. Telcel is a wholly-owned subsidiary of America Movil. The
          products, to be called Telcel SMS Office (Standard and Enterprise) and
          Telcel SMS Mail, will offer wireless e-mail to Telcel's customers.
          Telcel is the world's fifth largest wireless carrier with
          approximately 46 million subscribers. We have currently completed the
          integration of the systems, including the product branding and testing
          of the applications.

In addition, we continue to have trials of our SMS technology with carriers in
the U.S., Australia, Hong Kong and Malaysia with a customer base of
approximately 55 million subscribers.

On February 10, 2004, ZIM completed the purchase of EPL in a combined share and
cash deal worth approximately $3.6 million. The acquisition allows ZIM to expand
into the global SMS market for premium, bulk, location-based and interactive
two-way SMS delivery.




                                       14
<PAGE>



Founded in 1999, EPL is an SMS provider in the UK with customers such as the
British Broadcasting Corporation ("BBC") and EMI Music. EPL's partners include
four of the world's largest SMS network operators: Vodafone, Orange, O2, and
T-Mobile. The main products of EPL include Premium SMS delivery with direct
mobile telephone bill charges, a Location Gateway for Location Based Services
(LBS) including traffic and weather, a high performance global inbound SMS
solution called Virtual Mobile that involves two-way SMS interaction of
applications and services and a Bulk SMS service for SMS campaigns that delivers
to a network of some 250 mobile operators worldwide.

RESULTS OF OPERATIONS FOR THE TEN MONTHS ENDED MARCH 31, 2004 COMPARED TO THE
TEN MONTHS ENDED MARCH 31, 2003 AND THE YEAR ENDED MAY 31, 2003

The following discussion includes information from the audited consolidated
statements of earnings for the ten months ended March 31, 2004, the unaudited
consolidated statements of earnings for the ten months ended March 31, 2003 and
the audited consolidated statements of earnings for the year ended May 31, 2003.
The information for the ten months ended March 31, 2004, in management's
opinion, has been prepared on a basis consistent with the audited consolidated
financial statements for the year ended May 31, 2003, with the exception of the
method of depreciating property and equipment from the straight line method to
the declining balance method, and includes all adjustments necessary for a fair
presentation of information presented. These operating results are not
necessarily indicative of results for any future period. You should not rely on
them to predict our future performance.

All financial information is prepared in accordance with generally accepted
accounting principles (GAAP) in the United States and is stated in US dollars.

REVENUES

We currently derive a significant portion of our revenue from product sales of
our Zim IDE software as well as the maintenance and consulting services related
to the software. Commencing in fiscal 2004, ZIM began to recognize revenues from
its SMS technology.

<TABLE>
<CAPTION>
                                 TEN MONTHS                         TEN MONTHS
                                ENDED MARCH    AS A % OF           ENDED MARCH     AS A % OF         YEAR ENDED MAY        AS A %
                                   31, 2004        TOTAL              31, 2003         TOTAL               31, 2003      OF TOTAL
                                   (AUDITED)    REVENUES            (UNAUDITED)     REVENUES              (AUDITED)      REVENUES
                      -----------------------------------------------------------------------------------------------------------
                                          $                                  $                                    $
REVENUE
<S>                              <C>            <C>                 <C>             <C>                  <C>            <C>
    Software                        536,123        25.4%               517,702         39.3%                705,734        42.2%
    Maintenance                     783,192        37.2%               680,387         51.7%                814,707        48.7%
    Consulting                       37,459         1.8%                54,289          4.1%                 62,081         3.7%
    SMS applications                750,325        35.6%                64,122          4.9%                 89,349         5.3%
                      -----------------------------------------------------------------------------------------------------------
Total revenue                     2,107,099       100.0%             1,316,500        100.0%              1,671,871       100.0%
                      -----------------------------------------------------------------------------------------------------------
</TABLE>


Total increase from prior year                      60%
SMS increase from prior year                      1070%
Other increase from prior year                       8%


Total revenues for the ten months ended March 31, 2004 were $2,107,099,
representing an increase of 60% from the same period in the prior year. Of this
increase, a significant amount is attributable to revenues in SMS applications.
In addition, there were slight increases in software sales and maintenance
revenue. Management expects revenues to continue to grow in the SMS market.




                                       15
<PAGE>



Software sales have increased for the ten months ended March 31, 2004, as
compared to the ten months ended March 31, 2003, primarily as a result of
increased attention to sales opportunities for the Zim IDE software. As there
are limited new customers in ZIM's database pool, management does not expect to
see continued significant growth in this area.


As a result of the new software sales, maintenance revenue has also increased.
Management anticipates the maintenance revenue will fluctuate consistently with
software sales. Consulting revenues have decreased slightly in this fiscal
period, relative to the same period last year. This decrease is a reflection of
customers' diminishing need for consulting services as customer relationships
mature.



Revenues from SMS applications include sales of ZIM's SMS Gateway and Portal
services, SMS marketing campaigns, SMS Office and SMS Mail. Since the
acquisition of EPL on February 10, 2004, we have recognized approximately
$605,000 in revenue from UK-based activities. Of the remaining increase of
$81,203 from the prior period, approximately $40,000 has been earned from
customers that have switched from their pager technology to ZIM's two-way SMS
text message paging system. The balance of approximately $41,000 is generated
from various marketing campaigns from customers such as the Ottawa Lynx's, the
Ontario Lottery and Gaming Corporation, Staples, Inc. and the Canadian Football
League. Revenues from sales of SMS Office and SMS Mail were immaterial for the
ten months ended March 31, 2004.


<TABLE>
<CAPTION>
EXPENSES
                                                     TEN MONTHS ENDED   % CHANGE FROM      TEN MONTHS ENDED              YEAR ENDED
                                                       MARCH 31, 2004     PRIOR YEARS        MARCH 31, 2004            MAY 31, 2004
                                                            (AUDITED)                           (UNAUDITED)               (AUDITED)
                                                 --------------------- --------------- --------------------- -----------------------
                                                                    $                                     $                       $
<S>                                              <C>                   <C>             <C>                     <C>
OPERATING EXPENSES
Cost of SMS applications                                      582,628               -                     -                       -
Selling, general and administrative                         2,764,415             23%             2,255,505               2,654,390
Research and development                                      569,063             14%               501,096                 634,902
Amortization of intangibles                                    81,723            396%                16,469                  20,033
                                                 --------------------- --------------- --------------------- -----------------------
Total operating expenses                                    3,997,829             44%             2,773,070               3,309,325
                                                 ===================== =============== ===================== =======================

Interest expense                                               88,635            166%                33,291                  65,329
                                                 ===================== =============== ===================== =======================

Income taxes recoverable                                    (306,768)             63%             (187,983)               (242,980)
                                                 ===================== =============== ===================== =======================

Selling, general and administrative as a                          69%                                   81%                     80%
percent of total operating
expenses

Research and development as a                                     14%                                   18%                     19%
percent of total operating
expenses
</TABLE>


Operating expenses increased 44% from $2,773,070 to $3,997,829 in the ten-month
periods ending March 31, 2004 and 2003, respectively.

This increase, net of the cost of SMS applications, is a result of increased
expenditures in research and development and selling, general and administrative
expenditures as well as increased amortization relating to intangible assets
acquired in the transaction with EPL.

Overall, the allocation between selling, general and administrative expenses and
research and development is consistent between the periods, before cost of SMS
applications.



                                       16
<PAGE>



COST OF SMS APPLICATIONS

Included in the cost of SMS applications are fees paid to the wireless carriers
that support our UK operations and revenue share payments to premium SMS
customers. There were no expenses in prior periods as we acquired the UK
operations in February 2004.

SELLING, GENERAL AND ADMINISTRATIVE

The 23% increase in selling, general and administrative expenses for the fiscal
period ending March 31, 2004 is a result of increased activities relating to
operating a public company; including increased expenses relating to filings
with the SEC, corporate governance and professional fees. In addition, we
incurred selling, general and administrative expenses relating to the operations
in the UK.

RESEARCH AND DEVELOPMENT

Research and development increased in the fiscal period as we have been focusing
on the development of new SMS applications that were released during the period.
As a result of this focus, additional engineering and documentation staff were
hired and additional expenditures were incurred.

AMORTIZATION OF INTANGIBLE ASSETS

We acquired new intangible assets with the acquisition of EPL. Included in the
intangible assets are core technology and customer relationships. We have
estimated that the life of the core technology is five years and the customer
relationships are 18 months. As a result, effective February 10, 2004, we have
been recognizing increased amortization.

INTEREST EXPENSE


Interest expense for the ten months ended March 31, 2004 increased from the ten
months ended March 31, 2003 as a result of the debt held by our Chief Executive
Officer and a related party that was earning interest at 5% per annum. This debt
increased from prior periods and was converted into equity on January 7, 2004.


INCOME TAXES

Included in income taxes are taxes paid on revenues earned in Brazil as well as
investment tax credits (ITC) on research and development expenditures in Canada.
The ITCs for the ten months ended March 31, 2004 were approximately $350,000.
Included in this amount is approximately $55,000 received in fiscal 2004
relating to expenditures in fiscal 2003. In prior years ITCs were estimated at
approximately 75% of research expenditures. Based on actual ITCs received and
approved by Canadian tax authorities, management adjusted this estimate to 90%
for the fiscal period ended March 31, 2004. Going forward, we will continue to
estimate this amount at 90%.

As a result of the factors described above, the net loss for the ten months
ended March 31, 2003 was $1,301,878 as compared to $1,672,597 for the ten months
ended March 31, 2004.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2004, ZIM had cash of $870,520 and working capital of $568,219, as
compared to a working capital deficit of $2,033,568 at March 31, 2003 and
$2,307,566 at May 31, 2003. The improved financial position is a result of the
conversion of the debt held by related parties to equity as well as the exercise
of stock options pursuant to the Employee Stock Option Plan and a private
placement of common shares in January 2004.




                                       17
<PAGE>




Cash flows for the fiscal periods were as follows:

<TABLE>
<CAPTION>
                                                                   TEN MONTHS              TEN MONTHS            YEAR ENDED
                                                                  ENDED MARCH             ENDED MARCH               MAY 31,
                                                                     31, 2004                31, 2003                  2003
                                                                     (AUDITED)             (UNAUDITED)             (AUDITED)
                                                           -------------------    --------------------    ------------------
                                                                            $                       $                     $
<S>                                                        <C>                    <C>                    <C>
Cash flows used in operating activities                            (1,687,579)               (904,001)           (1,087,605)
Cash flows used in investing activities                              (402,648)                (10,716)              (27,034)
Cash flows from financing activities                                2,423,332                 815,953             1,151,747
                                                           -------------------    --------------------    ------------------
Increase (decrease) in cash before translation affects                333,105                 (98,764)               37,108
                                                           ===================    ====================    ==================
</TABLE>


ZIM used $1,687,579 in operating activities for the ten months ended March 31,
2004 as compared to $904,001 in the same period in 2003. The increase in cash
used in operations is attributed primarily to increase in the net loss for the
respective periods and the use of non-cash working capital. ZIM used $402,648 of
cash in its investing activities during the ten months ended March 31, 2004, as
compared to $10,716 for the same period in the previous year. Of this amount in
2004, $320,028 related to the purchase of EPL. The balance was used in the
purchase of fixed assets. ZIM increased its cash by $2,423,332 from its various
financing activities in the 2004 fiscal period, as compared to $815,953 in the
prior year.


Included in the cash used for operating activities is the change in accounts
receivable. Accounts receivable as at March 30, 2004 were $1,022,626 as compared
to $282,271 as at May 31, 2003. Of the increase of $740,355, approximately
$632,000 relates to sales in the UK, subsequent to the acquisition on February
10, 2004. The $632,000 relates to amounts receivable from telephone carriers.
Historically these amounts have been received within 50 days of each month end
with no collection issues. Approximately $47,000 relates to increased
receivables in Brazil, which is a result of a significant contract for software
purchases from Prefeitura Municipal De Cachoeiro De Itap. Receivables in Canada
are higher as at March 31, as compared to May 31, as a result of the timing of
the renewal of maintenance contracts. Specifically, approximately $76,000 was
outstanding from a major maintenance customer.

Credit terms for software, maintenance and consulting services have remained
consistent from prior periods at 30 days. Credit terms for SMS applications are
for 30 days unless specified otherwise. Currently, we are providing SMS
applications to various customers that cannot connect to wireless carriers
directly. These carriers work with aggregators to send our customers' content to
their end users. The end user pays for these messages directly to the carriers,
and the carriers pay us the fee that is due to both us and our customers. As a
result, we have significant receivable balances from each of the carriers that
we connect with. Each of the carriers in the UK have signed contracts with us
outlining the terms of the payments. ZIM pays the mobile network operators a fee
for each message sent and a percentage of revenues based on cash collections. As
mentioned above, carriers pay within approximately 50 days and have a strong
payment history. Approximately 75% of all related receivables are current and
17% are greater than 90 days. We review all accounts regularly for collection
and believe that the allowance is sufficient.

Historically, ZIM has received cash advances from our Chief Executive Officer
who is a significant shareholder and from a holding company that is owned by our
Chief Executive Officer's spouse. To date, ZIM has received approximately $3.9
million from Dr. Cowpland and the related holding company, of which $1.27
million was received during the ten-month period ended March 31, 2004. On
January 7, 2004, the Board of Directors of ZIM approved the conversion of
$3,960,950 debt owed to related parties, at the then-current market price of
$0.43, in return for 9,211,511 ZIM common shares.


Other sources of cash during the 2004 fiscal period were the issuance of shares
pursuant to the exercise of stock options by employees. We issued 728,300 common
shares upon exercise of options for the ten months ended March 31, 2004. Also,
on January 30, 2004, ZIM completed a non-brokered private placement of 1,150,006
units at $0.75 per unit, for total gross proceeds of $862,505 and net proceeds


                                       18
<PAGE>



of $819,587. Each unit consisted of one common share and one common share
purchase warrant. Each warrant may be exercised at any time prior to July 30,
2005 at an exercise price of $0.75. The warrant's original expiry of July 31,
2004 was extended by the Board of Directors due to the time involved with the
registration of the underlying shares.

ZIM will need an estimated $2,450,000 in additional financing in order to fund
its operating losses and other working capital requirements for the next 12
months. Subsequent to the year end, we received approximately $1,135,000 as a
result of a private placement. The financing in June and July 2004, was a
non-brokered private placement to non-U.S. accredited investors for units at
$0.38 per unit. Each unit consisted of one common share and two common share
purchase warrants. Each warrant may be exercised at any time prior to September
25, 2005 at an exercise price of $0.38 per share. A total of 3,014,766 units
were sold for gross proceeds of $1,145,611 and net proceeds of $1,143,136. Of
this amount 2,780,000 units were purchased by a related party. ZIM does not have
a bank credit facility or other working capital credit line under which ZIM may
borrow funds for the estimated additional financing of $2,450,000.

ZIM has not received any commitments from any third parties to provide
additional financing.


Future liquidity and cash requirements will depend on a wide range of factors
including the level of business in existing operations and ZIM's ability to
raise additional financing. Accordingly, there can be no assurance that ZIM will
be able to meet its working capital needs for any future period. As a result of
some of the items noted above, the Independent Auditors' Report for the
ten-month period ended March 31, 2004 indicated that there was substantial doubt
regarding our ability to continue as a going concern.


If ZIM is unable to obtain the necessary funds, we may have to curtail or
suspend certain of our business operations which could have a material adverse
effect on our business relationships, financial results, financial condition and
prospects.


The following is a summary of ZIM's contractual obligations for the periods
indicated that existed as of March 31, 2004 and is based on information
appearing in the Notes to the Consolidated Financial Statements:

Operating lease obligations                 $
                                 2005       167,609
                                 2006       145,820
                                 2007       135,240
                                 2008        56,677
                                            -------
                                            505,346
                                            =======

NEW ACCOUNTING PRONOUNCEMENTS

(i) SFAS NO. 150

In May 2003, the FASB issued Statement of Financial Accounting Standards No.150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" (SFAS 150). SFAS 150 establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances). SFAS 150 is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. We do not
expect the adoption of this statement to have a material impact on our financial
condition or results of operations.


                                       19
<PAGE>


(ii) SFAS NO. 149


In April 2003, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" (SFAS 149). SFAS 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under FASB
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS 149 is effective for contracts entered into or modified after
June 30, 2003 except for certain hedging relationships designated after June 30,
2003. Since ZIM does not currently transact in such instruments nor undertake
hedging transactions, the adoption of this statement did not have a material
impact on our financial condition or results of operations.


(iii) FINANCIAL INTERPRETATION NO. 46

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities", which requires the consolidation of and disclosures about variable
interest entities ("VIEs"). VIEs are entities for which control is achieved
through means other than voting rights. In December 2003, the FASB revised FIN
No. 46 to incorporate all decisions, including those in previously issued FASB
Staff Positions, into one Interpretation. The revised Interpretation supercedes
the original Interpretation. Generally, the requirements were effective
immediately for all VIEs in which an interest was acquired after January 31,
2003. For variable interests in special purpose entities in which an interest
was acquired before February 1, 2003, the requirements are effective at the end
of our fiscal 2004. Requirements for non-special purpose entities acquired
before February 1, 2003, are effective at the end of the first quarter of fiscal
2005. FIN No. 46 has not had, and is not expected to have, a significant impact
on our consolidated financial statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare our consolidated financial statements in accordance with accounting
principles generally accepted in the United States, which requires management to
make certain estimates and apply judgment that affect reported amounts of
assets, liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities. We base our estimates and judgments on
historical experience, current trends, and other factors that management
believes to be important at the time the consolidated financial statements are
prepared. On an ongoing basis, management reviews our accounting policies and
how they are applied and disclosed in our consolidated financial statements.
While management believes that the historical experience, current trends and
other factors considered support the preparation of our consolidated financial
statements in accordance with accounting principles generally accepted in the
United States, actual results could differ from our estimates, and such
differences could be material.


The following supplemental information on our critical accounting policies,
while fully described in Note 4 to the financial statements, contain significant
judgments and estimates as described below.


VALUATION ALLOWANCES

We must make certain estimates and judgments in determining income tax expense
for financial statement purposes. These estimates and judgments occur in the
calculation of certain tax assets and liabilities, which arise from differences
in the timing of recognition of revenue and expense for tax and financial
statement purposes. Judgments regarding realization of deferred tax assets and
the ultimate outcome of tax-related contingencies represent key items involved
in the determination of tax expense and related balance sheet accounts. We have
currently recorded a valuation allowance to reduce our deferred tax assets to
the amount that is more likely than not to be realized. Should we determine that
a reduction in the valuation allowance is appropriate, an adjustment to our
deferred tax assets would increase income in the period such determination was
made.



                                       20
<PAGE>


GOODWILL IMPAIRMENT

Goodwill represents the excess of cost over the fair value of the net
identifiable assets acquired in a business combination accounted for under the
purchase method. As a result of the adoption of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangibles" ("FAS 142"), that
was effective for the Corporation as of the beginning of fiscal year 2003,
goodwill and other intangible assets with an indefinite useful life are tested
for impairment at least annually.


We perform an annual review in the fourth quarter of each year, or more
frequently if indicators of potential impairment exist to determine if the
recorded goodwill is impaired. Our impairment process compares the fair value of
Zim Technologies do Brasil Ltda. and EPL to their respective carrying values,
including the goodwill related to these reporting units. We concluded that the
fair value of Zim Technnologies do Brasil Ltda. exceeded its carrying value at
March 31, 2004 and May 31, 2003 and that the fair value of EPL exceeded its
carrying value at March 31, 2004 and therefore no impairment charge was
required.


If actual operating results or cash flows are different than our estimates and
assumptions, we could be required to record impairment charges in future
periods.


REVENUE RECOGNITION

Revenues are mainly derived from mobile value-added services, fee-based
services, and proprietary software products and licenses.

Mobile value-added services revenues are derived principally from providing
mobile phone users with SMS capabilities and other services. These services
include news and other content subscriptions. Revenues from mobile value-added
services are charged on monthly or on per usage basis. Such revenues are
recognized in the period in which the service is performed, provided that no
significant obligations remain, collection of the receivables is reasonably
assured and the amounts can be accurately estimated.

We contract with third party mobile operators for billing and transmission
services related to the mobile value-added services transmitted to our users. We
record the gross amount we bill to our users for our mobile value-added services
as revenues and the fees charged or retained by the third party mobile operators
as cost of revenues. We considered EITF 99-19 in determining whether we should
recognize such revenues at gross or net of the revenue shared by mobile
operators for billing and transmission services. We believe that based on our
arrangement with third party mobile operators, as stipulated in our agreements
with them, the gross approach is appropriate as we are the primary obligor to
the user with respect to the mobile value-added services. To date, we rely on
the billing statements from third party mobile operators to record revenues.
These statements are agreed to internally generated statements.

Fee-based services allow our users to subscribe for services on our web sites
including SMS Mail and Chat. Revenues from these services are recognized in the
period in which the service is performed, provided that no significant company
obligations remain, collection of the receivables is reasonably assured and the
amounts can be accurately estimated.

Other services mainly include paging services and marketing campaigns. Revenues
are recognized in the period in which the service is performed, provided that no
significant company obligations remain, collection of the receivables is
reasonably assured and the amounts can be accurately estimated.

Revenues from the sale of software products are recognized primarily on the
delivery of software products to end users, resellers, distributors, retail
merchants and original equipment manufacturers ("OEM"). We deliver our software
products under software licenses. Revenues from sales of software products are
recognized when persuasive evidence of an arrangement exists, the price is fixed
or determinable, shipment is made and collectibility is reasonably assured. We
recognize revenues in accordance with Statement of Position ("SOP") 97-2,
"Software Revenue Recognition" as amended by SOP 98-4 and SOP 98-9.




                                       21
<PAGE>


OUTLOOK

The market for SMS technology continues to grow exponentially throughout the
world. It is estimated by the Cellular Telecommunications & Internet Association
that the North American market is increasing its use of SMS messages at a rate
of 20% per month, while users in countries such as Finland already send an
average of 150 messages per month. ZIM believes that by 2008, we will have a
market penetration of approximately 0.2% or approximately 5 million users. For
each user, it is estimated that the fee will be approximately $1.50 per month.

ZIM expects to incur further losses from commercial operations as it continues
its business development of SMS applications.




                                       22
<PAGE>


ITEM 7. FINANCIAL STATEMENTS.

REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of ZIM Corporation

We have audited the accompanying consolidated balance sheets of ZIM Corporation
as of March 31, 2004 and May 31, 2003 and the related consolidated statements of
operations, shareholders' equity and cash flows for the ten months ended March
31, 2004 and the year ended May 31, 2003. These consolidated financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of ZIM Corporation as
of March 31, 2004 and May 31, 2003 and the results of its operations and its
cash flows for the ten months ended March 31, 2004 and the year ended May 31,
2003 in conformity with accounting principles generally accepted in the United
States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Corporation will continue as a going concern. As discussed in note 1 to
the consolidated financial statements, the Corporation incurred a net loss of
$1,672,597 and used approximately $1,688,000 of cash from operations, during the
ten months ended March 31, 2004. The Corporation also has generated negative
cash flows from operations during each of the last five years. These factors,
among others, as discussed in note 1 to the consolidated financial statements,
raise substantial doubt about the Corporation's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

/s/ Raymond Chabot Grant Thornton
Raymond Chabot Grant Thornton General Partnership

Ottawa, Canada
June 2, 2004




                                       23
<PAGE>



ZIM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in US dollars)

<TABLE>
<CAPTION>
                                                                Ten months ended          Ten months ended             Year ended
                                                                  March 31, 2004            March 31, 2003           May 31, 2003
                                                               ------------------     ---------------------     ------------------
                                                                       (Audited)               (Unaudited)              (Audited)
                                                                               $                         $                      $
<S>                                                           <C>                       <C>                    <C>
REVENUE
      Software                                                           536,123                   517,702                705,734
      Maintenance                                                        783,192                   680,387                814,707
      Consulting                                                          37,459                    54,289                 62,081
      SMS applications                                                   750,325                    64,122                 89,349

                                                               ------------------     ---------------------     ------------------
Total revenue                                                          2,107,099                 1,316,500              1,671,871
                                                               ------------------     ---------------------     ------------------

OPERATING EXPENSES
Cost of SMS applications                                                 582,628
Selling, general and administrative                                    2,764,415                 2,255,505              2,654,390
Research and development                                                 569,063                   501,096                634,902
Amortization of intangible assets                                         81,723                    16,469                 20,033

                                                               ------------------     ---------------------     ------------------
Total operating expenses                                               3,997,829                 2,773,070              3,309,325
                                                               ------------------     ---------------------     ------------------

Operating loss before income taxes and interest                      (1,890,730)               (1,456,570)            (1,637,454)
Interest (Note 13)                                                        88,635                    33,291                 65,329
                                                               ------------------     ---------------------     ------------------
Operating loss before income taxes                                   (1,979,365)               (1,489,861)            (1,702,783)
Income taxes recoverable (Note 14)                                     (306,768)                 (187,983)              (242,980)
                                                               ------------------     ---------------------     ------------------

Net loss                                                             (1,672,597)               (1,301,878)            (1,459,803)
                                                               ==================     =====================     ==================

Basic and diluted loss per share                                          (0.04)                    (0.04)                 (0.04)
                                                               ==================     =====================     ==================

Weighted average number of shares outstanding                         43,714,904                33,184,977             33,186,158
                                                               ==================     =====================     ==================

</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.


                                       24
<PAGE>


ZIM CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Expressed in US dollars)


<TABLE>
<CAPTION>


                                     Number of       Number of              Additional                   Accumulated
                                 common shares  special shares                 paid in                         other         Total
                                    issued and      issued and      Share      capital    Accumulated  comprehensive  shareholders'
                                   outstanding     outstanding    capital    (Note 11)        deficit           loss        equity
----------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>          <C>          <C>          <C>            <C>               <C>           <C>
                                                                        $            $              $              $             $
Balance as at May 31, 2002           33,183,921      5,163,500  7,615,358    1,396,201     (9,117,173)        45,943       (59,671)

Shares issued through the exercise
 of options (Note 11)                     8,333                     5,464                                                    5,464
Modification of outstanding stock
 options                                                                        27,144                                      27,144
Options issued for contingent
 consideration                                                                 117,614                                     117,614
Comprehensive loss
     Net loss                                                                              (1,459,803)
     Cumulative translation
     adjustment                                                                                             (166,166)
     Total comprehensive loss                                                                                           (1,625,969)
                                  -------------   ------------  ---------   ----------    ------------     ----------   -----------
Balance as at May 31, 2003           33,192,254      5,163,500  7,620,822    1,540,959    (10,576,976)      (120,223)   (1,535,418)
                                  -------------   ------------  ---------   ----------    ------------     ----------   -----------

Effect of reverse take-over
 transaction                          1,734,455                                                                                 --

Conversion of special shares
 into common shares                   5,163,500     (5,163,500)

Shares issued through the
 exercise of options (Note 11)          728,300                   348,411                                                  348,411

Shares issued upon
conversion of debt (Note 11)          9,211,511                 3,960,950                                                3,960,950

Shares issued through a
private placement,
net of costs (Note 11)                1,150,006                   819,587                                                  819,587

Shares issued upon a
business acquisition (Note 3
and 11)                               4,000,000                 3,280,000                                                3,280,000

Comprehensive loss                                                                                                              --
     Net loss                                                                              (1,672,597)
     Cumulative translation
     adjustment                                                                                             (190,905)   (1,863,502)

Total comprehensive loss
                                  -------------   ------------  ---------   ----------    ------------     ----------   -----------
Balance as at March 31, 2004         55,180,026            -   16,029,770    1,540,959    (12,249,573)      (311,128)    5,010,028
                                  =============   ============ ==========   ==========    ============     ==========   ===========

</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.



                                       25
<PAGE>


ZIM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Ten months ended March 31, 2004
(Expressed in US dollars)

<TABLE>
<CAPTION>
                                                                   Ten months ended       Ten months ended             Year ended
                                                                     March 31, 2004         March 31, 2003           May 31, 2003
                                                                 -------------------     ------------------     ------------------
                                                                          (Audited)            (Unaudited)              (Audited)
                                                                                  $                      $                      $
<S>                                                              <C>                     <C>                    <C>
OPERATING ACTIVITIES
Net loss                                                                (1,672,597)            (1,301,878)            (1,459,803)
Items not involving cash:
      Depreciation of property and equipment                                139,716                166,036                190,976
      Amortization of intangible assets                                      81,723                 16,469                 20,033
      Compensation expense                                                                          27,144                 27,144
      Changes in operating working capital:
      (Increase) decrease in accounts receivable                          (713,340)                180,275               (75,564)
      (Increase) decrease in investment tax credits receivable            (202,141)              (215,628)                144,037
      (Increase) decrease in prepaid expenses                              (35,531)                (2,792)                 10,956
      Increase (decrease) in accounts payable                               371,579               (24,831)               (19,256)
      Increase in accrued liabilities                                       295,207                161,042                132,898
      Increase (decrease) in deferred revenue                                47,805                 90,162               (59,026)
                                                                 -------------------     ------------------     ------------------
Cash flows used in operating activities                                 (1,687,579)              (904,001)            (1,087,605)
                                                                 -------------------     ------------------     ------------------
INVESTING ACTIVITIES
Purchase of property and equipment                                         (82,620)               (10,716)               (29,965)
Business acquisitions                                                     (320,028)
Proceeds from disposal of property and equipment                                                                            2,931
                                                                 -------------------     ------------------     ------------------
Cash flows used in investing activities                                   (402,648)               (10,716)               (27,034)
                                                                 -------------------     ------------------     ------------------
FINANCING ACTIVITIES
Repayment of capital lease obligations                                     (12,696)               (30,481)               (34,045)
Proceeds from the exercise of options                                       348,411                  5,464                  5,464
Proceeds from shares issued through a private placement                     819,587
Net proceeds from related parties                                         1,268,030                840,970              1,180,328
                                                                 -------------------     ------------------     ------------------
Cash flows provided by financing activities                               2,423,332                815,953              1,151,747
                                                                 -------------------     ------------------     ------------------
Effect of changes in exchange rates on cash                                (23,611)                 72,796                 55,025
                                                                 -------------------     ------------------     ------------------
INCREASE (DECREASE) IN CASH                                                 309,494               (25,968)                 92,133
Cash, beginning of period                                                   561,026                468,893                468,893
                                                                 -------------------     ------------------     ------------------
Cash, end of period                                                         870,520                442,925                561,026
                                                                 ===================     ==================     ==================
SUPPLEMENTAL CASH FLOW DISCLOSURE
      Interest paid                                                             501                  4,418                  6,251
                                                                 ===================     ==================     ==================
      Income taxes paid                                                      41,130                      -                  4,147
                                                                 ===================     ==================     ==================
      Income taxes received                                                 140,277                 97,991                 99,339
                                                                 ===================     ==================     ==================
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.




                                       26
<PAGE>



ZIM CORPORATION
CONSOLIDATED BALANCE SHEETS
(Expressed in US dollars)
<TABLE>
<CAPTION>
                                                                                                MARCH 31                  MAY 31
                                                                                                    2004                    2003
                                                                                     --------------------    --------------------
                                                                                                (Audited)               (Audited)
                                                                                                       $                       $
<S>                                                                                  <C>                     <C>
ASSETS
Current assets
      Cash                                                                                       870,520                 561,026
      Accounts receivable, net (Note 5)                                                        1,022,626                 282,271
      Investment tax credits receivable                                                          350,780                 138,434
      Prepaid expenses                                                                            60,430                  23,157
                                                                                     --------------------    --------------------
                                                                                               2,304,356               1,004,888
Property and equipment, net (Note 6)                                                             601,523                 280,566
Intangible assets, net (Note 7)                                                                1,442,666                  22,872
Goodwill (Note 3)                                                                              2,397,620                 468,710
                                                                                     --------------------    --------------------
                                                                                               6,746,165               1,777,036
                                                                                     ====================    ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
      Accounts payable                                                                           491,053                 107,143
      Accrued liabilities (Note 8)                                                               876,007                 550,695
      Deferred revenue                                                                           369,077                 303,593
      Current portion of capital lease obligations (Note 9)                                            -                  12,696
      Due to related parties (Note 10)                                                                 -               2,338,327
                                                                                     --------------------    --------------------
                                                                                               1,736,137               3,312,454
                                                                                     --------------------    --------------------
Commitments and contingencies (Note 17)

Shareholders' equity (Note 11):
Preferred shares, no par value, non-cumulative                                                         -                       -
      dividend at a rate to be determined by the Board of Directors redeemable for
      CDN $1 per share.  Authorized unlimited shares; issued and outstanding NIL
      shares at March 31, 2004 and May 31, 2003.
Special shares, no par value, non-voting,
      participating, convertible into common shares on a one-for-one basis at
      any time at the option of the holder and automatically on the earlier of
      (i) the fifth day following the date of issuance of a receipt for a final
      prospectus qualifying the common shares issuable upon conversion of the
      special shares; (ii) June 1, 2004. Authorized unlimited shares; issued and
      outstanding NIL shares at March 31, 2004 and 5,163,500 at May 31, 2003.
      All special shares
      were converted into common shares on June 1, 2003.                                               -               3,350,532
Common shares, no par value.
      authorized unlimited shares issued and outstanding 55,180,026 shares as at
      March 31, 2004 and 33,192,254 shares as at May 31, 2003.                                16,029,770               4,270,290
Additional paid-in capital                                                                     1,540,959               1,540,959
Accumulated deficit                                                                         (12,249,573)            (10,576,976)
Accumulated other comprehensive loss                                                           (311,128)               (120,223)
                                                                                     --------------------    --------------------
                                                                                               5,010,028             (1,535,418)
                                                                                     --------------------    --------------------
                                                                                               6,746,165               1,777,036
                                                                                     ====================    ====================
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

On behalf of the Board:
/s/ James Stechyson                     /s/ Michael Cowpland
--------------------------              --------------------------
James Stechyson, Chairman               Michael Cowpland, CEO



                                       27
<PAGE>



ZIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004
(EXPRESSED IN US DOLLARS)

1 - NATURE OF OPERATIONS AND LIQUIDITY

ZIM Corporation (the "Corporation" or "ZIM") was incorporated under the Canada
Business Corporations Act on October 17, 2002. The Corporation has built upon
its core database technology to create an innovative solution to provide
wireless data services and systems that enable people to engage in remote or
mobile decision-making based on real-time interactive data communications and
transactions.

On June 1, 2003, ZIM Corporation completed a merger of Private Capital
Investors, Inc., a Florida corporation ("Private Capital"), with and into PCI
Merge, Inc. ("PCI Merge"), a Florida corporation and a wholly-owned subsidiary
of ZIM Corporation, with PCI Merge as the surviving entity. On June 1, 2003, ZIM
Corporation also completed the amalgamation of ZIM Technologies International
Inc. ("ZIM Technologies") with PCI-ZTI Canada, Inc. ("PCI-ZTI"), a corporation
governed by the Canada Business Corporations Act and a wholly-owned subsidiary
of ZIM Corporation. As a result of the amalgamation, a new entity named ZIM
Technologies International Inc. was formed. PCI Merge and ZIM Technologies
became wholly-owned subsidiaries of ZIM Corporation.

In these transactions, each outstanding share of common shares of Private
Capital and ZIM Technologies was converted into a share of ZIM Corporation. As a
result of these shares exchanges, the shareholders of ZIM Technologies and
Private Capital controlled ZIM Corporation at the date of the transaction. As a
result, the transaction is accounted for as a reverse take over in ZIM
Corporation's consolidated financial statements. This reverse acquisition is
treated as a capital transaction in substance since this transaction was
accomplished through the use of a non-operating enterprise. No goodwill or
intangible assets are recorded following this transaction. ZIM Corporation
succeeded Private Capital's SEC registration under the SEC Act of 1934 as the
reporting corporation. This transaction had no financial impact on the
Corporation's consolidated financial statements except for the expenses incurred
to undergo these transactions.

The Corporation has incurred a net loss of $1,672,597 during the ten months
ended March 31, 2004. In addition, the Corporation generated negative cash flows
from operations of $1,687,579 for the ten months ended March 31, 2004 and has
generated negative cash flows from operations during the last five years.

The Corporation's management team has focused the direction of the Corporation
from a mature database and application development technology player to a
provider of interactive mobile messaging for enterprise applications. To
establish the interactive mobile messaging, the Corporation needs substantial
funds for marketing and subsequent development.

All of the factors above raise substantial doubt about the Corporation's ability
to continue as a going concern. Management's plans to address these issues
include continuing to raise capital through the placement of equity, obtaining
additional advances from related parties and, if necessary, renegotiating the
repayment terms of accounts payable and accrued liabilities. The Corporation's
ability to continue as a going concern is subject to management's ability to
successfully implement the above plans. Failure to implement these plans could
have a material adverse effect on the Corporation's position and/or results of
operations and may necessitate a reduction in operating activities. The
consolidated financial statements do not include adjustments that may be
required if the assets are not realized and the liabilities settled in the
normal course of operations.





                                       28
<PAGE>



ZIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004
(EXPRESSED IN US DOLLARS)

In the longer term, the Corporation has to generate the level of sales which
would result in cash self sufficiency and it may need to continue to raise
capital by selling additional equity or by obtaining credit facilities. The
Corporation's future capital requirements will depend on many factors,
including, but not limited to, the market acceptance of its software, the level
of its promotional activities and advertising required to support its software.
No assurance can be given that any such additional funding will be available or
that, if available, it can be obtained on terms favorable to the Corporation.

2 - BASIS OF PRESENTATION

These consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States ("US GAAP")
applied on a consistent basis, except for the change in depreciation of property
and equipment, as noted in note 4.

3 - BUSINESS ACQUISITIONS

ACQUISITION OF EPL

Effective February 10, 2004, ZIM acquired all of the issued and outstanding
common shares of EPL Communications Limited and E-Promotions Limited (together
referred to as "EPL"). EPL is a provider of wireless messaging solutions and is
part of ZIM's international growth strategy. The acquisition has been accounted
for using the purchase method of accounting and accordingly, the purchase price
has been allocated to the identifiable assets acquired and liabilities assumed
using estimates of their fair value. The results of operations are included in
the consolidated financial statements beginning on the acquisition date. The
total purchase price of $3,606,247 included cash of $250,000, acquisition costs
of $76,247 and $3,280,000 in common shares. 4,000,000 common shares were issued,
of which 400,000 are held in escrow. These shares were valued at $0.82 based on
the market price on February 10, 2004.

The aggregate purchase price for these acquisitions has been allocated to the
assets acquired and liabilities assumed based upon their estimated fair values
at the date of acquisition as follows:

                                                               $

Assets acquired:
Cash                                                       6,219
Accounts receivable                                      501,222
Software and equipment                                   361,406
Goodwill                                               1,881,355
Intangibles                                            1,480,000
                                                 ----------------
                                                       4,230,202

Current liabilities assumed                              623,955
                                                 ----------------
Total Purchase Price                                   3,606,247
                                                 ================







                                       29
<PAGE>



ZIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004
(EXPRESSED IN US DOLLARS)


SUPPLEMENTAL PRO FORMA INFORMATION

Had the acquisition of EPL occurred on June 1, 2002, the pro forma combined
revenue and net loss of the Corporation would have been as follows:


<TABLE>
<CAPTION>
                                                    TEN MONTHS             TEN MONTHS             YEAR ENDED
                                                   ENDED MARCH            ENDED MARCH                MAY 31,
                                                      31, 2004                31,2003                   2003
                                                    (Unaudited)            (Unaudited)            (Unaudited)
                                          -------------------------------------------------------------------
                                                             $                      $                      $
<S>                                       <C>                    <C>                    <C>
Revenue                                              3,268,546              3,087,906              3,838,087
                                          =====================  =====================   ====================

Net loss                                            (1,606,788)            (1,650,312)            (2,141,140)
                                          =====================  =====================   ====================

Basic and fully diluted net loss per share               (0.03)                 (0.04)                 (0.06)
                                          =====================  =====================   ====================
</TABLE>


CONTINGENT CONSIDERATION

Effective August 1, 2001, the Corporation acquired 100% of the issued and
outstanding common shares of its South American distributor, ZTI do Brasil Ltda.
Upon acquisition, ZTI do Brasil Ltda.'s name was changed to ZIM Technologies do
Brasil Ltda.

Consideration in the amount of $130,890 was payable to the previous shareholders
of Zim Technologies do Brasil Ltda. in the event the Corporation was not a
reporting issuer in Ontario with its common shares listed on any North American
stock exchange on or before December 31, 2002. During December 2002, the
Corporation entered into an agreement to settle the contingency through the
issuance of 300,000 stock options as well as employment contracts for two years
for one shareholder and one year for the other. The options were granted
December 23, 2002, subject to approval by the Board of Directors, with an
exercise price of approximately $0.82, a contractual life of three years and
immediate vesting. On June 10, 2003, the Board of Directors approved the grant
of options. Goodwill has been increased by $117,614 to reflect the settlement of
the contingency through the granting of employment contracts and the issuance of
options.

4 - SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

These consolidated financial statements include the accounts of the Corporation
and its subsidiaries, all of which are wholly owned. The results of operations
for acquisitions are included in these consolidated financial statements from
the date of acquisition. Inter-company transactions and balances are eliminated
upon consolidation.






                                       30
<PAGE>



ZIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004
(EXPRESSED IN US DOLLARS)


USE OF ESTIMATES

The preparation of financial statements in accordance with US GAAP requires
management to make estimates and assumptions that affect the amounts recorded in
the financial statements and the notes to the financial statements. These
estimates are based on management's best knowledge of current events and actions
that the Corporation may undertake in the future. Actual results may differ from
those estimates.

COMPREHENSIVE INCOME

Comprehensive income includes net income and other comprehensive income ("OCI").
OCI refers to changes in net assets from transactions and other events and
circumstances other than transactions with shareholders. These changes are
recorded directly as a separate component of shareholders' equity and excluded
from net income. The only comprehensive income item for the Corporation relates
to foreign currency translation adjustments relating to the translation of the
financial statements into the reporting currency.

ACCOUNTS RECEIVABLE

Accounts receivable are recorded at the invoiced amount net of an allowance for
doubtful accounts. The Corporation determines its allowance for doubtful
accounts by considering a number of factors, including the age of the
receivable, the financial stability of the customer, discussions that may have
occurred with the customer and management's judgment as to the overall
collectibility of the receivable from that customer. In addition, the
Corporation may establish an allowance for all the receivables for which no
specific allowances are deemed necessary. This general allowance for doubtful
accounts is based on a percentage of the total accounts receivable with
different percentages used based on the different ages of the receivables. The
percentages used are based on the Corporation's historical experience and
management's current judgment regarding the state of the economy. The
Corporation writes off accounts receivable when they become uncollectible, and
payments subsequently received on such receivables are credited to the allowance
for doubtful accounts in the period of recovery.

REVENUE RECOGNITION


The Corporation derives revenue from two sources: enterprise software and Short
Message Service (SMS) Applications. Enterprise software involves providing
enterprise software for designing, developing and manipulating database systems
and applications. SMS involves providing SMS applications and services.


ENTERPRISE SOFTWARE REVENUE RECOGNITION

ZIM records revenues from the perpetual license of the Corporation's software
products and the sale of related maintenance and consulting. The Corporation's
standard license agreement provides a license to use the Corporation's products
based on the number of licensed users. The Corporation may license its software
in multiple element arrangements if the customer purchases any combination of
maintenance, consulting or training services in conjunction with the license.



                                       31
<PAGE>


ZIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004
(EXPRESSED IN US DOLLARS)


The Corporation recognizes revenue pursuant to the requirements of the American
Institute of Certified Public Accountants (AICPA) Statement of Position (SOP
97-2) "Software Revenue Recognition", as amended by SOP 98-9 "Software Revenue
Recognition with Respect to Certain Transactions." Revenue is recognized using
the residual method when Corporation-specific objective evidence of fair value
exists for all of the undelivered elements in the arrangement, but does not
exist for one or more delivered elements. The Corporation allocates revenue to
each undelivered element based on its respective fair value determined by the
price charged when that element is sold separately. The Corporation defers
revenue for the undelivered elements and recognizes the residual amount of the
arrangement fee, if any, when the basic criteria in SOP 97-2 have been met.

Under SOP 97-2, revenue is recognized when the following four criteria have been
met:

-    Persuasive evidence of an arrangement exists;
-    Delivery has occurred;
-    The fee is fixed and determinable; and
-    Collectibility is probable.

The Corporation records revenue as earned as evidenced by contracts or invoices
for its services at prices established by contract, price list and/or fee
schedule less applicable discounts. If at the outset of an arrangement the
Corporation determines that the arrangement fee is not fixed or determinable,
revenue is deferred until the arrangement fee becomes due. If at the outset of
an arrangement the Corporation determines that the collectibility is not
probable, revenue is deferred until payment is received.

Collectibility is assessed based on the collection history of the client,
current economic trends, customer concentrations and customer credit worthiness.
Delivery of the software has occurred once the customer has accepted the product
or has been provided with permanent keys to the file transfer protocol ("FTP")
site. If an arrangement allows for customer acceptance of the software or
services, the Corporation defers revenue recognition until the earlier of
customer acceptance or when the acceptance right lapses.

Maintenance revenues are recognized equally over the term of the maintenance
contract.

Consulting revenue, which represents services provided on a per diem basis to
customers, is recognized as the services are performed as there are no customer
acceptance provisions involved in these types of arrangements.


In general, credit terms of 30 days are extended to customers.







                                       32
<PAGE>



ZIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004
(EXPRESSED IN US DOLLARS)


SHORT MESSAGE SERVICE REVENUE RECOGNITION


Revenues from SMS Applications are derived principally from providing
aggregation services whereby ZIM sends messages from its customers through
mobile operators to end users on their cell phones. In this situation, the
Corporation contracts with its customers that can not connect directly to the
mobile operators and with the third party mobile operators directly for the
transmission of the messages. Fees are charged on a monthly or per message
basis. Revenues and cost of revenues are recognized in the month in which the
service is performed, provided no significant ZIM obligations remain. We rely on
a number of mobile network operators in the UK to deliver our services.
Generally, (i) within 15 to 30 days after the end of each month, ZIM receives a
statement from each of the operators confirming the amount of charges billed to
that operator's mobile phone users and (ii) within 30 to 60 days after
delivering a monthly statement to each operator remits the fees, net of its
service fees, for the month to ZIM. ZIM records the fee charged by third party
mobile phone operators as cost of revenues. Revenues are recorded on a gross
basis as the Corporation is the primary obligor in the arrangement, which is
evidenced by a number of factors including;


     o    the platform is designed and developed by the Corporation,
     o    the mobile operators that ZIM contracts with to deliver these services
          to the end customers are not involved in the design or development of
          the services that are provided by ZIM,
     o    the end customer purchases the content, access or value added services
          that ZIM provides,
     o    the end customer receives identical services from ZIM regardless of
          which third party mobile operator is used to deliver the message,
     o    customers contract directly with ZIM to determine the terms of the
          service that will be provided, and
     o    ZIM is responsible for fulfillment of the contract and accepts all the
          risk related to the content provided to the end customers and has
          latitude in establishing prices.


RESEARCH AND DEVELOPMENT EXPENSES

Costs related to research, design and development of software products are
charged to research and development expense as incurred. Software development
costs are capitalized beginning when a product's technological feasibility has
been established, which generally occurs upon completion of a working model, and
ending when a product is available for general release to customers. All
subsequent costs are expensed as incurred. To date, completing a working model
of the Corporation's products and the general release of the products has
substantially coincided. As a result, the Corporation has not capitalized any
software development costs since such costs have not been significant.



                                       33
<PAGE>


ZIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004
(EXPRESSED IN US DOLLARS)

ADVERTISING

Advertising costs are expensed as incurred. Advertising costs amounted to
$24,556 for the ten month period ended March 31, 2004 ($12,464 (unaudited) in
2003, $14,536 for the year ended May 31, 2003).

INVESTMENT TAX CREDITS

Investment tax credits are accounted for using the cost reduction approach
whereby they are recorded as a reduction of the related capital cost of the
asset acquired when there is reasonable assurance that they will be realized.

GOVERNMENT ASSISTANCE

Government assistance is recorded as a reduction of the related expense or the
cost of the assets acquired. Government assistance is recorded in the accounts
when reasonable assurance exists that the Corporation has complied with the
terms and conditions of the approved grant program.

TRANSLATION OF FOREIGN CURRENCIES

The Corporation's reporting currency is the US dollar and the functional
currency is the Canadian dollar.

Assets and liabilities of the Corporation's subsidiaries, recorded in functional
currencies other than Canadian dollars, are translated into Canadian dollars at
the rate of exchange in effect at the balance sheet date. Revenues, expenses and
cash flow amounts are translated at the weighted average exchange rates for the
period. The resulting translation adjustments are included in comprehensive
income in shareholders' equity.

The accounts of the Corporation's subsidiaries that are recorded in the
Corporation's functional currency, the Canadian dollar, translate their foreign
currency transactions as follows: gains or losses from foreign currency
transactions such as those resulting from the settlement of receivables or
payables denominated in foreign currency are included in the statement of
operations of the current period.

The translation of the Corporation's financial statements from the functional
currency to its reporting currency is performed as follows: All assets and
liabilities are translated into US dollars at the rate of exchange in effect at
the balance sheet date. Revenues, expenses and cash flow amounts are translated
at the weighted average exchange rates for the period. The resulting translation
adjustments are included in comprehensive income in shareholders' equity.

INCOME TAXES

Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry-forwards. When necessary, a valuation allowance is
recorded to reduce tax assets to an amount for which realization is more likely
than not. The effect of changes in tax rates is recognized in the period in
which the rate change occurs.



                                       34
<PAGE>



ZIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004
(EXPRESSED IN US DOLLARS)

EARNINGS PER SHARE

Basic earnings per share are computed by dividing net earnings available to
common shareholders by the weighted average number of common shares outstanding
during the reporting period. Diluted earnings per share are calculated giving
effect to the potential dilution that could occur if securities or other
contracts to issue common shares were exercised or converted to such shares at
the later of the beginning of the period or the issuance date. The
"if-converted" method is used to determine the dilutive effect of common shares.
The treasury stock method is used to determine the dilutive effect of warrants.
The treasury stock method assumes that proceeds received from the exercise of
in-the-money share purchase warrants are used to repurchase common shares at the
average market price during the period.

STOCK OPTION PLAN

The Corporation has a stock option plan, which is described in note 12. No
compensation expense is recognized for this plan when stock options are issued
to directors and employees of the Corporation. Any consideration paid by the
eligible participants on exercise of stock options is credited to share capital.
If stock options are repurchased from eligible participants, the excess of the
consideration paid over the carrying amount of the stock option cancelled is
charged to shareholders' equity. Since the Corporation does not account for
options granted to participants using the fair value method, it discloses pro
forma information related to net income and earnings per share figures, which
are calculated as if the entity applied the fair value method of accounting to
stock options granted to participants.

Stock option grants are accounted for in accordance with the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25), and related interpretations including Financial Accounting
Standards Board Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation." As such, compensation expense is recorded on the
date of grant only if the current market price of the underlying stock exceeded
the exercise price or in connection with the modification to outstanding awards
and/or changes in grantee status. No employee stock option compensation expense
is reflected in our results of operations, as all options granted under those
plans had an exercise price equal to the market value of the underlying common
shares on the date of grant.

Compensation expense related to stock options granted to non-employees is
accounted for under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123) which requires entities to
recognize an expense based on the fair value of the related awards. We are not
required, and we currently do not intend to transition to a fair value method of
accounting for stock-based employee compensation. The following table
illustrates the effect on net loss and basic and diluted net loss per share as
if we had applied the fair value recognition provisions of SFAS 123 to
stock-based employee compensation.



                                       35
<PAGE>



ZIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004
(EXPRESSED IN US DOLLARS)


<TABLE>
<CAPTION>
                                                                       Ten months
                                                                      ended March       Ten months ended      Year ended May 31,
                                                                         31, 2004         March 31, 2003                    2003
                                                                  ----------------    -------------------    --------------------
                                                                        (Audited)            (Unaudited)               (Audited)
                                                                                $                      $                      $

<S>                                                              <C>                  <C>                    <C>
Net loss, as reported                                                 (1,672,597)            (1,301,878)             (1,459,803)
                                                                  ================    ===================    ====================

Net loss, pro forma                                                   (6,107,742)            (1,475,036)             (1,667,592)
                                                                  ================    ===================    ====================

Net loss, pro forma per share                                              (0.14)                 (0.04)                  (0.05)
                                                                  ================    ===================    ====================
</TABLE>






                                       36
<PAGE>



ZIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004
(EXPRESSED IN US DOLLARS)


The fair value of the options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:

<TABLE>
<CAPTION>

                                                TEN MONTHS           TEN MONTHS             YEAR
                                               ENDED MARCH      ENDED MARCH 31,            ENDED
                                                  31, 2004                 2003     MAY 31, 2003
                                            ---------------    -----------------    -------------
<S>                                          <C>                  <C>              <C>
       Risk-free interest rates                      1.54%                3.48%            3.48%
       Expected volatility                             80%                  79%              79%
       Dividend yield                                    0                    0                0
       Expected life of options (years)                1.5                  1.5              1.5

</TABLE>


PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation is provided over the
estimated useful lives of the underlying assets using the following methods and
rates:

Computer equipment                              40%      Declining balance
Software                                        40%      Declining balance
Technology platform                             33%      Declining balance
Office furniture and equipment                  40%      Declining balance
Voice communications equipment               1 year          Straight line
Automobile                                  5 years          Straight line
Leasehold improvements                      5 years          Straight line
Office furniture and equipment under
capital leases                           5-10 years          Straight line


Effective June 1, 2003, the Corporation changed its method of depreciating
property and equipment from the straight-line method to the declining balance
method. The Corporation's management believes this method is preferable because
it provides a better matching of costs with related revenues. The adoption of
the declining balance method did not have a material effect on the financial
statements of the prior periods therefore they have not been restated to apply
the new method retroactively.

LEASES

Leases are classified as either capital or operating in nature. Capital leases
are those which substantially transfer the benefits and risks of ownership to
the Corporation. Assets acquired under capital leases are amortized at the same
rates as those described for property and equipment. Obligations recorded under
capital leases are reduced by the principal portion of lease payments. The
imputed interest portion of lease payments is charged to expense. Operating
leases are expensed as incurred.






                                       37
<PAGE>



ZIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004
(EXPRESSED IN US DOLLARS)


INTANGIBLE ASSETS

Intangible assets that are determined to have finite lives will continue to be
amortized on the straight-line method over their estimated useful lives.
Customer lists relating to ZIM Technologies do Brasil Ltda. are amortized over
their estimated rate of customer attrition which has been assumed to be 40% in
the first year, 50% of the then residual in the second and third years, and 100%
of the remaining balance in the fourth year. Customer relationships relating to
E-Promotions Limited and EPL Communications (together referred to as "EPL") are
being amortized on a straight-line basis over 18 months and the core technology
relating to EPL is amortized on a straight-line basis over five years.

GOODWILL

Goodwill represents the excess of the purchase price over the fair value of the
net identifiable assets acquired in a business combination accounted for under
the purchase method. As a result of the adoption of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangibles" ("FAS 142"), that
was effective for the Company as of the beginning of fiscal year 2003, goodwill
and other intangible assets with an indefinite useful life are not amortized but
evaluated for impairment annually.

We perform an annual review in the fourth quarter of each year, or more
frequently if indicators of potential impairment exist to determine if the
recorded goodwill is impaired. Our impairment process compares the fair value of
ZTI do Brasil Ltda. and EPL to their respective carrying values, including the
goodwill related to these reporting units. We concluded that the fair value of
ZTI do Brasil Ltda. exceeded its carrying value at March 31, 2004 and May 31,
2003 and that the fair value of EPL exceeded its carrying value at March 31,
2004 and therefore no impairment charge was required.

If actual operating results or cash flows are different than our estimates and
assumptions, we could be required to record impairment charges in future
periods.

LONG-LIVED ASSETS

Long-lived assets and certain identifiable intangible assets are reviewed for
impairment annually at each year-end and whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to undiscounted future net cash
flows expected to be generated by the asset. If impairment is determined to
exist, the assets are reported at the lower of carrying value or net recoverable
amount. Any impairment charges would be recorded in the consolidated statement
of operations.

5 - ACCOUNTS RECEIVABLE


                                        MARCH 31, 2004       MAY 31, 2003
                                  --------------------- ------------------
                                                     $                  $
Trade accounts receivable                    1,043,122            287,962
Allowance for doubtful accounts               (34,268)           (31,251)
Other (Note 10)                                 13,772             25,560
                                  --------------------- ------------------
                                             1,022,626            282,271
                                  ===================== ==================




                                       38
<PAGE>



ZIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004
(EXPRESSED IN US DOLLARS)


6 - PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>

                                                                         ACCUMULATED
MARCH 31, 2004                                             COST         DEPRECIATION      NET BOOK VALUE
                                             ------------------- -------------------- -------------------
                                                              $                    $                   $

<S>                                           <C>                  <C>                 <C>
Computer equipment                                      803,758              610,682             193,076
Software                                                 50,034               40,428               9,606
Technology platform                                     647,055              331,763             315,292
Office furniture and equipment                          198,323              119,156              79,167
Voice communications equipment                           20,560               20,560                   0
Leasehold improvements                                  111,350              106,968               4,382

                                             ------------------- -------------------- -------------------
                                                      1,831,080            1,229,557             601,523
                                             =================== ==================== ===================


<CAPTION>
                                                                            ACCUMULATED
MAY 31, 2003                                                 COST          DEPRECIATION   NET BOOK VALUE
                                               ------------------- --------------------- ----------------
                                                                $                     $                $

<S>                                           <C>                  <C>                 <C>
Computer equipment                                        616,885               461,908          154,977
Software                                                   44,367                32,599           11,768
Office furniture and equipment                            120,740                68,736           52,004
Voice communications equipment                             19,664                16,711            2,953
Automobiles                                                 6,996                 2,702            4,294
Leasehold improvements                                    106,306                86,550           19,756
Office furniture and equipment
under capital leases                                      136,478               101,664           34,814
                                               ------------------- --------------------- ----------------
                                                        1,051,436               770,870          280,566
                                               =================== ===================== ================
</TABLE>





                                       39
<PAGE>



ZIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004
(EXPRESSED IN US DOLLARS)


7 - INTANGIBLE ASSETS
<TABLE>
<CAPTION>
                                                                   ACCUMULATED
MARCH 31, 2004                                   COST             AMORTIZATION       NET BOOK VALUE
                                 --------------------- ------------------------ --------------------
                                                    $                        $                    $

<S>                              <C>                  <C>                      <C>
Customer list                                  72,143                   58,631               13,512
Core technology                               994,122                   26,724              967,398
Customer relationships                        507,206                   45,450              461,756

                                 --------------------- ------------------------ --------------------
                                            1,573,471                  130,805            1,442,666
                                 ===================== ======================== ====================
</TABLE>


<TABLE>
<CAPTION>
MAY 31, 2003                                 COST   ACCUMULATED AMORTIZATION      NET BOOK VALUE
                            ---------------------- -------------------------- -------------------
                                                $                          $                   $

<S>                        <C>                    <C>                        <C>
Customer list                              69,001                     46,129              22,872
                            ====================== ========================== ===================
</TABLE>


Aggregate amortization expense for each of the next five years is estimated to
be:
                                                $
                        2005              540,027
                        2006              320,681
                        2007              196,000
                        2008              196,000
                        2009              169,656


8 - ACCRUED LIABILITIES

<TABLE>
<CAPTION>
                                                                   MARCH 31               MAY 31,
                                                                       2004                  2003
                                                    ------------------------ ---------------------
                                                                          $                     $

<S>                                                   <C>                     <C>
Employee related accruals                                           102,594               106,302
Professional fees                                                   199,991                81,583
Severance                                                                 -                 5,746
Interest                                                                  -                81,734
Withholding tax accrual                                              76,260                73,073
Printing expense                                                          -               165,031

Trade                                                               431,534                     -
Other                                                                65,628                37,226
                                                    ------------------------ ---------------------
                                                                    876,007               550,695
                                                    ======================== =====================

</TABLE>







                                       40
<PAGE>



ZIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004
(EXPRESSED IN US DOLLARS)


9 - CAPITAL LEASE OBLIGATIONS

The obligations under capital leases of $NIL (2003 - $12,696), subject to
interest at varying rates between 13% and 17% matured in 2004. Interest included
in minimum lease payments amount to $NIL (2003 - $410).

10 - RELATED PARTY TRANSACTIONS

DUE FROM RELATED PARTIES

Included in other accounts receivable at March 31, 2004 is $NIL ($18,168 at May
31, 2003) due from the Corporation's chief executive officer and majority
shareholder.

DUE TO RELATED PARTIES

In April 2002, the Corporation's chief executive officer and majority
shareholder, loaned approximately $630,000 to ZIM. The loan had an interest rate
of 5% per annum and was repaid on January 7, 2004, through the conversion of the
debt into equity.

Commencing in May 2002, 160879 Canada, Inc., a corporation owned by the spouse
of the Corporation's chief executive officer and majority shareholder, loaned
approximately $2.7 million to ZIM. These loans had an interest rate of 5% per
annum and were repaid on January 7, 2004, through the conversion of debt into
common shares of ZIM.

On January 7, 2004, the Board of Directors approved the conversion of the
$630,000 debt held by the Corporation's chief executive officer and majority
shareholder and the $2.7 million debt held by 160879 Canada Inc. to common
shares based on the last closing price of our common shares on the
Over-the-Counter Bulletin Board. The total amount due, with interest, was
$3,960,950. The share price used in the conversion was $0.43, resulting in
9,211,511 common shares being issued to the Corporation's chief executive
officer and majority shareholder and to 160879 Canada Inc.

11 - SHAREHOLDERS' EQUITY

Transactions for the periods include the following:

The Corporation issued 728,300 common shares in the ten months ended March 31,
2004 pursuant to the exercise of stock options by employees. In the year ended
May 31, 2003 8,333 common shares were issued pursuant to the exercise of stock
options by an employee.

On January 7, 2004, the Board of Directors of ZIM approved the conversion of all
amounts due to related parties, in return for 9,211,511 common shares of the
Corporation (see note 10).

On January 30, 2004, the Corporation completed a non-brokered private placement
of 1,150,006 units at $0.75 per unit, for total gross proceeds of $862,505 and
net proceeds of $819,587. Each unit consists of one common share and one common
share purchase warrant. Each warrant may be exercised at any time prior to
January 31, 2005. The units were issued to unaffiliated persons, except that
James Stechyson, a member of our Board of Directors, purchased 50,000 of the
units.





                                       41
<PAGE>



ZIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004
(EXPRESSED IN US DOLLARS)


In connection with the acquisition of EPL, the Corporation issued 4,000,000
common shares to the shareholders of EPL.

ADDITIONAL PAID IN CAPITAL

During the year ended May 31, 2003, the Corporation issued options in settlement
of a contingency, and as a result, additional paid in capital has been increased
by $117,614 (note 3).

The fair value was estimated using the Black-Scholes option pricing model with
the following assumptions:

Dividend yield                                            Nil
Expected volatility                                       104%
Risk-free interest rate                                   3.18%
Expected life                                             2.00 years

During the year ended May 31, 2003, the Corporation modified certain stock
options granted to employees to allow them to retain the original award upon a
change in status from employee to non-employee. As a result, the Corporation
recorded a non-cash compensation expense of $27,144, which represents the fair
value of the stock options at the date of change in status.

Dividend yield                                            Nil
Expected volatility                                       81%
Risk-free interest rate                                   3.48%
Expected life                                             1.58 year


12 - STOCK OPTIONS

Under the Corporation's Stock Option Plan, the Corporation may grant options to
its officers, directors and employees for up to 22,200,000 common shares. As at
March 31, 2004, 12,550,071 options were outstanding under the Stock Option Plan.
In addition, 8,285,000 options were issued in prior periods outside of the
Corporation's stock option plan. Stock options are granted with an exercise
price equal to the common shares' fair market value at the date of grant.
Options are granted periodically and both the maximum term of an option and the
vesting period are set at the Board's discretion.


Early in 2004, the Board of Directors reviewed directors' compensation. It was
noted that, historically, the members of the Board were issued options but that,
because of the Corporation's on-going need to comply with securities regulations
and the time it took to establish a market for the underlying shares, there have
been limited opportunities for members of the board to exercise their options
within the lifetime of the options. As a result, on February 5, 2004, the Board
extended the life of 6,110,000 options to February 2007 without changing the
exercise price. No compensation expense was recognized as the exercise price
approximated the market price.





                                       42
<PAGE>



ZIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004
(EXPRESSED IN US DOLLARS)


A summary of the status of the stock options is as follows:

<TABLE>
<CAPTION>
                                                         MARCH 31, 2004                           MAY 31, 2003
                                                                       WEIGHTED             NUMBER OF          WEIGHTED
                                              NUMBER OF OPTIONS         AVERAGE               OPTIONS           AVERAGE
                                                    OUTSTANDING  EXERCISE PRICE           OUTSTANDING    EXERCISE PRICE
                                           --------------------- ---------------    ------------------ -----------------
                                                                              $                                       $

<S>                                         <C>                   <C>             <C>                     <C>
Options outstanding, beginning of period             14,863,332            0.76            15,306,665              0.76
Granted                                               7,395,539            0.69                     -                 -
Exercised                                             (728,300)            0.46               (8,333)              0.76
Forfeited                                             (695,500)            0.76             (435,000)              0.76
                                           --------------------- ---------------    ------------------ -----------------
Options outstanding, end of period                   20,835,071            0.75            14,863,332              0.76
                                           ===================== ===============    ================== =================

</TABLE>

The following table represents a summary of the options outstanding as at March
31, 2004:

<TABLE>
<CAPTION>
                                             OPTIONS OUTSTANDING                           OPTIONS EXERCISABLE
                                                     WEIGHTED
                                     NUMBER           AVERAGE        WEIGHTED                  NUMBER          WEIGHTED
                             OUTSTANDING AT         REMAINING         AVERAGE          EXERCISABLE AT           AVERAGE
RANGE OF EXERCISE PRICES     MARCH 31, 2004  CONTRACTUAL LIFE  EXERCISE PRICE          MARCH 31, 2004    EXERCISE PRICE
------------------------- ------------------ ----------------- ---------------     ------------------- -----------------
                       $                                Years               $                                         $

<S>         <C>           <C>                  <C>              <C>                <C>                 <C>
               0.38-0.50          2,193,507              2.34            0.39               2,193,507              0.39
               0.70-0.76         12,238,550              0.96            0.76              12,238,550              0.76
               0.84-0.85          6,403,014              2.23            0.84               6,403,014              0.84

                          ------------------ ----------------- ---------------     ------------------- -----------------
                                 20,835,071              1.88            0.75              20,835,071              0.75
                          ================== ================= ===============     =================== =================
</TABLE>


13 - INTEREST
<TABLE>
<CAPTION>
                                                           TEN MONTHS ENDED   TEN MONTHS ENDED   YEAR ENDED MAY 31,
                                                             MARCH 31, 2004     MARCH 31, 2003                 2003
                                                          ------------------ ------------------ --------------------
                                                                  (Audited)        (Unaudited)            (Audited)
                                                                          $                  $                    $
<S>                                                       <C>                <C>                  <C>
         Interest expense                                            90,883             49,140               81,591
         Interest income                                            (2,248)           (15,849)             (16,262)

                                                          ------------------ ------------------ --------------------
         Total                                                       88,635             33,291               65,329
                                                          ================== ================== ====================
</TABLE>



                                       43
<PAGE>



ZIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004
(EXPRESSED IN US DOLLARS)

14 - INCOME TAXES

Income tax expense varies from the amount that would be computed by applying the
basic federal and provincial income tax rates to loss before taxes, as follows:


<TABLE>
<CAPTION>
                                                        TEN MONTHS ENDED        TEN MONTHS ENDED        YEAR ENDED MAY
                                                          MARCH 31, 2004          MARCH 31, 2003              31, 2003
                                                       ------------------    --------------------     -----------------
                                                           (Audited)             (Unaudited)             (Audited)
                                                                       $                       $                     $
<S>                                                     <C>                     <C>                   <C>
Tax rate                                                          36.47%                  37.79%                37.79%
Expected Canadian Income Tax Recovery                          (721,874)               (541,715)             (643,481)
Change in valuation allowance for originating
temporary differences and loss carry forwards                    713,058                 534,837               622,709
Difference between Canadian and foreign tax rates                 11,679                   2,510                14,426

Non-deductible stock option benefits                                   -                       -                10,493
Other                                                             32,787                   4,368
Refundable income tax credits                                  (342,418)               (187,983)             (247,127)
                                                       ------------------    --------------------     -----------------
                                                               (306,768)               (187,983)             (242,980)
                                                       ==================    ====================     =================
</TABLE>


The change in valuation allowance for originating temporary differences and loss
carry forwards is calculated in the reconciliation above using the rate shown in
the table. The rate at which such amounts may be realized as disclosed as part
of a deferred tax asset and related valuation allowance takes into account the
enacted tax rate decreases over the expected period of realization.

Income tax recovery of $306,768 for the ten months ended March 31, 2004 and
$242,980 for the year ended May 31, 2003 relates to refundable income tax
credits receivable, partially offset by income taxes paid by the Corporation's
Brazilian subsidiary.

Deferred income taxes reflect the impact of temporary differences between
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws. The tax effects of temporary differences that
gave rise to significant portions of the deferred tax asset and deferred tax
liability are as follows:






                                       44
<PAGE>



ZIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004
(EXPRESSED IN US DOLLARS)


<TABLE>
<CAPTION>
                                                               MARCH 31, 2004         MAY 31, 2003
                                                                            $                    $
<S>                                                        <C>                  <C>
Temporary differences

Loss carry forwards                                                 2,466,926            1,244,482
Property and equipment - differences in net book value
and unamortized capital cost                                          137,716               45,303
Intangible assets - differences in net book value and
tax basis                                                           (266,179)

Other                                                                (24,928)              122,050
                                                           -------------------   ------------------
Gross deferred tax asset                                            2,313,535            1,411,835

Valuation allowance                                                 2,313,535            1,411,835
                                                           -------------------   ------------------

Net deferred tax asset                                                      -                    -
                                                           ===================   ==================
</TABLE>


The Corporation has federal and provincial non-capital losses available to
reduce taxable income in Canada which expire in the following years:

                             FEDERAL             PROVINCIAL
                  -------------------     ------------------
                                   $                      $
            2005             808,460                845,209
            2006             327,918                370,280
            2007             335,112                335,112
            2008           2,163,150              2,077,243
            2009           1,499,767              1,499,767
            2010             618,993                633,743
            2011           1,073,324              1,073,324
                  -------------------     ------------------
                           6,826,724              6,834,678
                  ===================     ==================

As at March 31, 2004, the Corporation had accumulated unclaimed federal and
provincial scientific research and experimental development deductions of
approximately $1,960,952 and $2,465,965 respectively ($1,500,000 and $1,850,000
in 2003). This amount can be carried forward indefinitely to reduce income taxes
payable in future years.

The Corporation has federal scientific research and experimental development
credits available to reduce income taxes in Canada which expire in the following
years:

                            $
                --------------
          2010         13,786
          2011        270,129
          2012          1,734
                --------------
                      285,649
                ==============


                                       45
<PAGE>


ZIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004
(EXPRESSED IN US DOLLARS)

For the ten months ended March 31, 2004, the Corporation recorded an amount of
$342,418 and $247,127 for the year ended May 31, 2003 of investment tax credits.

15 - LOSS PER SHARE

For the purposes of the loss per share computation, the weighted average number
of common shares outstanding has been used. Had the treasury stock method been
applied to the unexercised share options and the special shares been converted,
the effect on the loss per share would be anti-dilutive.

The following securities could potentially dilute basic earnings per share in
the future but have not been included in diluted earnings per share because
their effect was anti-dilutive:

<TABLE>
<CAPTION>
                                 MARCH 31, 2004        MARCH 31, 2003       MAY 31, 2003
                           --------------------- --------------------- ------------------

<S>                                   <C>                  <C>                <C>
        Stock options                 2,118,000            14,800,000         14,800,000
        Special shares                        -             5,163,500          5,163,500

</TABLE>

16 - FINANCIAL INSTRUMENTS

RISK MANAGEMENT ACTIVITIES

The Corporation operates internationally, giving rise to significant exposure to
market risks from changes in foreign exchange rates.

FOREIGN EXCHANGE RISK MANAGEMENT

Accounts receivable include the following amounts receivable in their source
currency:

                         MARCH 31, 2004         MAY 31, 2003
                     ----------------------------------------

Canadian dollars              150,838               16,416
US dollars                     79,040              121,646
Brazilan reals                571,049              441,806
British pounds                345,013                    -







                                       46
<PAGE>



ZIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004
(EXPRESSED IN US DOLLARS)

Accounts payable include the following amounts payable in their source currency:

                                 MARCH 31, 2004           MAY 31, 2004
                      -------------------------- ----------------------


Canadian dollars                        138,754                113,827
US dollars                                3,979                  4,934
Brazilian reals                          40,783                 56,573
British pounds                          183,358                      -



CONCENTRATION OF CREDIT RISK

The Corporation is exposed to credit-related losses in the event of
non-performance by counterparties to financial instruments. Credit exposure is
minimized by dealing with only creditworthy counterparties in accordance with
established credit approval policies.

Concentrations of credit risk in accounts receivable are indicated below by the
percentage of the total balance receivable from customers in the specified
geographic area:

                                                 MARCH 31,           MAY 31,
                                                      2004              2003
                                            --------------- -----------------

Canada                                                 11%               19%
North and South America, excluding Canada              23%               59%
Great Britain                                          62%                0%
Europe, excluding Great Britain                         3%               19%
Other                                                   1%                3%
                                            --------------- -----------------
                                                      100%              100%
                                            =============== =================


Revenue from one customer of ZIM's SMS division, Vodafone, represents
approximately $233,790 of the Corporation's consolidated revenues. Accounts
receivable from Vodafone at March 31, 2004 were $169,768 (nil in 2003).

FAIR VALUE

The carrying values of cash, accounts receivable, investment tax credits
receivable, accounts payable and accrued liabilities approximate their fair
value due to the relatively short periods to maturity of the instruments.

The fair value of the due to related parties could not be determined since it is
practically impossible to find a financial instrument on the market having
substantially the same economic characteristics.

The following methods and assumptions were used to estimate the fair value of
capital lease obligations: At the present value of contractual future payments,
capital lease obligations were discounted at the current market rates of
interest available to the Corporation for the same or similar debt instruments.

The fair value of capital lease obligations for 2003 approximates the carrying
value.



                                       47
<PAGE>


ZIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004
(EXPRESSED IN US DOLLARS)


17 - COMMITMENTS AND CONTINGENCIES OPERATING LEASE COMMITMENTS

The Corporation has the following lease commitments relating to facilities and
equipment:

                                                       $
                     2005                        167,609
                     2006                        145,820
                     2007                        135,240
                     2008                         56,677
                                                 -------
                                                 505,346
                                                 =======

For the ten months ended March 31, 2004, rent expense was $171,360 ($139,180
(unaudited) for the ten months ended March 31, 2003 and $187,005 for the year
ended May 31, 2003).

GOVERNMENT ASSISTANCE

During the year ended May 31, 2002, the Corporation received $78,412 from the
Canadian International Development Agency for the purpose of undertaking a
viability study of acquiring Zim Technologies do Brasil Ltda. The amount has
been recorded in the consolidated statement of earnings as a reduction in
selling, general and administrative expenses. The amount is repayable, based on
1% of Zim Technologies do Brasil Ltda.'s revenues from July 23, 2001 to May 31,
2005 to a maximum of $78,413, if revenues realized by Zim Technologies do Brasil
Ltda. exceed $3,646,973 cumulatively.

OTHER

The Corporation is committed to pay an arm's length third party $75,000 upon the
listing of ZIM Corporation's common shares on a national securities exchange
selected by ZIM Corporation's board of directors.

Zim Technologies do Brasil Ltda. may be subject to the Contribution of
Intervention on Economic Domain tax on values remitted abroad. However, the
Corporation's management intends to contest this assessment if issued.
Consequently, no provision has been accounted for in that respect. If an
assessment is issued and the Corporation is unsuccessful at contesting the
assessment, the resulting settlement would not have a material impact on the
consolidated financial statements of the Corporation.



                                       48
<PAGE>


ZIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004
(EXPRESSED IN US DOLLARS)


18 - SEGMENT REPORTING

Management has determined that the Corporation operates in two reportable
segments: enterprise software and Short Message Service (SMS). Enterprise
software involves providing enterprise software for designing, developing and
manipulating database systems and applications. SMS involves providing SMS
applications and services.

The following table sets forth external revenues attributable to these product
lines: The following table sets forth segment assets used by each product line

                   TEN MONTHS ENDED       TEN MONTHS ENDED       YEAR ENDED
                     MARCH 31, 2004         MARCH 31, 2003     MAY 31, 2003
                          (Audited)            (Unaudited)        (Audited)
                --------------------  ---------------------  ---------------
                                  $                      $                $
Revenue
   SMS                      750,325                 64,122           89,349
   Software               1,356,774              1,252,378        1,582,522
                --------------------  ---------------------  ---------------
Total revenue             2,107,099              1,316,500        1,671,871
                ====================  =====================  ===============




The following sets forth segment assets used by each product line:

                                  MARCH 31, 2004           MAY 31, 2003
                            ---------------------    -------------------
                                               $                      $
Segment assets
   SMS                                 5,705,354
   Software                            1,040,811              1,777,036
                            ---------------------    -------------------
Total segment assets                   6,746,165              1,777,036
                            =====================    ===================



The following table sets forth external revenues and long-lived assets
attributable to geographic areas. External revenues are based on the location of
the customer:



                                       49
<PAGE>


ZIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004
(EXPRESSED IN US DOLLARS)

<TABLE>
<CAPTION>

                               TEN MONTHS ENDED           TEN MONTHS ENDED
                                 MARCH 31, 2004             MARCH 31, 2003        YEAR ENDED MAY 31, 2003
                                      (Audited)                (Unaudited)                      (Audited)
                          ----------------------     ----------------------     --------------------------
                                              $                          $                              $
<S>                       <C>                        <C>                        <C>
REVENUES
Canada                                  251,301                    220,307                        283,279
Brazil                                  915,585                    648,442                        812,020
United States                           192,999                    229,204                        249,814
United Kingdom                          605,215                          -                              -
Australia                                 8,976                     48,438                         50,520
Europe                                  133,015                    164,702                        270,543

Other                                         8                      5,407                          5,695
                          ----------------------     ----------------------     --------------------------
Total revenue                         2,107,099                  1,316,500                      1,671,871
                          ======================     ======================     ==========================

LONG-LIVED ASSETS
   Canada                               244,784                                                   261,177
   Brazil                               513,933                                                   510,971
   United Kingdom                     3,683,092                                                         -
                          ----------------------                                --------------------------
Total long-lived assets               4,441,809                                                   772,148
                          ======================                                ==========================

</TABLE>

19 - COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform to the
presentation adopted in the current year.

20 - SUBSEQUENT EVENTS

On April 1, 2004 ZIM Corporation and one of its wholly owned subsidiaries, ZIM
Technologies International Inc. amalgamated into ZIM Corporation. The current
presentation fully consolidates this subsidiary therefore there will be no
impact on the consolidated financial statements, as a result of this
amalgamation.

21 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

(i) SFAS NO. 150

In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" (SFAS 150). SFAS 150 establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances). SFAS 150 is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. We do not
expect the adoption of this statement to have a material impact on our financial
condition or results of operations.




                                       50
<PAGE>


ZIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004
(EXPRESSED IN US DOLLARS)


(ii) SFAS NO. 149

In April 2003, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" (SFAS 149). SFAS 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under FASB
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS 149 is effective for contracts entered into or modified after
June 30, 2003, except for certain hedging relationships designated after June
30, 2003. Since ZIM does not currently transact in such instruments nor
undertake hedging transactions, the adoption of this statement did not have a
material impact on our financial condition or results of operations.

(iii) SFAS NO. 148

In December 2002, the FASB issued Statement No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123." The Statement is effective for fiscal years ended after December 15, 2002.
SFAS No. 148 requires new disclosures about the effect of stock-based employee
compensation on reported results. The Statement requires that effects be
disclosed more prominently by specifying the form, content and location of those
disclosures. SFAS No. 148 permits several ways of transitioning to the Fair
Value method of accounting for stock-based compensation, however the Statement
does not require that companies discontinue the intrinsic value method of
accounting for stock-based compensation. The Corporation will continue to use
the intrinsic value method of accounting for stock-based compensation and has
adopted the disclosure requirements of the Statement.

(iv) FINANCIAL INTERPRETATION NO. 46

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities", which requires the consolidation of and disclosures about variable
interest entities ("VIEs"). VIEs are entities for which control is achieved
through means other than voting rights. In December 2003, the FASB revised FIN
No. 46 to incorporate all decisions, including those in previously issued FASB
Staff Positions, into one Interpretation. The revised Interpretation supercedes
the original Interpretation. Generally, the requirements were effective
immediately for all VIEs in which an interest was acquired after January 31,
2003. For variable interests in special purpose entities in which an interest
was acquired before February 1, 2003, the requirements are effective at the end
of our fiscal 2004. Requirements for non-special purpose entities acquired
before February 1, 2003, are effective at the end of the first quarter of fiscal
2005. FIN No. 46 has not had, and is not expected to have, a significant impact
on our consolidated financial statements.






                                       51
<PAGE>


ITEM 8A. CONTROLS AND PROCEDURES.

The Corporation maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in its SEC reports are
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 the Corporation's management, including its 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 the Corporation's are designed
to do, and management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.

In connection with the audit of the Corporation's consolidated financial
statements for the ten months ended March 31, 2004, the Corporation's
independent registered public accounting firm advised the Audit Committee and
management of certain significant internal control deficiencies that they
considered to be, in the aggregate, a material weakness. These consist of,
inadequate staffing and supervision leading to the untimely identification and
resolution of certain accounting and disclosure matters and failure to perform
timely and effective reviews. The independent registered public accounting firm
indicated that they considered these deficiencies to be reportable conditions as
that term is defined under standards established by the American Institute of
Certified Public Accountants. A material weakness is a significant deficiency in
one or more of the internal control components that alone or in the aggregate
precludes our internal controls from reducing to an appropriately low level of
risk that material misstatements in our financial statements will not be
prevented or detected on a timely basis. The Corporation considered these
matters in connection with the period-end closing of accounts and preparation or
related consolidated financial statements and determined that no prior period
financial statements were materially affected by such matters.

The size of the Corporation has prevented us from being able to employ
sufficient resources to enable us to have adequate segregation of duties within
our internal control system. Also during the 2004 fiscal period, we became aware
of the need to perform additional review procedures on internally generated
documents that result in adjusting journal entries and disclosures. To address
these deficiencies, we hired a Controller effective March 15, 2004 and we will
continue to monitor and assess the costs and benefits of additional staffing in
the finance department. We have also taken the following actions with regard to
our internal controls, which include, among other things:

     o    Adopting a Code of Ethics applicable to the CEO and Senior Financial
          Officers;
     o    Adopting a Code of Business Ethics for all employees;
     o    Recognizing and communicating to managers and employees the duties and
          responsibilities of the Audit Committee, as well as appointing a
          financial expert to the Audit Committee and developing an Audit
          Committee Charter;
     o    Restructuring the finance department with an emphasis on
          accountability;
     o    Increasing supervisory and management review procedures during the
          month-end closing process;
     o    Developing an electronic system for all customer transactions, with an
          emphasis on controls and authority;
     o    Developing and implementing an operational plan and budget for fiscal
          2005, including regular management meetings and updates; and
     o    Revising the approval and signing authorities for the Corporation.





                                       52
<PAGE>


In response to the observations made, the Corporation will (i) expand the scope
of the review of the financial statements on a monthly basis and (ii) will
implement certain enhancements to its internal controls and procedures, during
fiscal 2005 which it believes will address the matters raised above.


As required by the SEC rules, we have evaluated the effectiveness of the design
and operation of the Corporation's disclosure controls and procedures as of the
end of the period covered by this Annual Report. This evaluation was performed
under the supervision and with the participation of the Company's management,
including the Chief Executive Officer and Chief Financial Officer. Based upon
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Corporation's controls and procedures were not effective, for
the reasons noted above.


PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.

The following sets forth information concerning our officers and directors,
including their ages, present principal occupations, other business experience
during the last five years, memberships on committees of the board of directors
and directorships in other publicly held companies.

NAME                    AGE     POSITION WITH ZIM


Dr. Michael Cowpland    61      President, Chief Executive Officer and Director
Tony Davidson           44      Chief Technology Officer
Jennifer North          39      Chief Financial Officer
William Parisi          46      Vice President Business Development
Roberto Campagna        26      Vice President Mobile Sales
Debbie Weinstein        44      Secretary
Steven Houck            34      Director
Charles Saikaley        45      Director
James Stechyson         39      Director
Donald Gibbs            58      Director



Michael Cowpland has served as President and Chief Executive Officer since
February 2001. In 1973, Dr. Cowpland co-founded Mitel Corporation (formerly
NYSE:MTL) and was the company's Chief Executive Officer for 10 years. During Dr.
Cowpland's tenure as CEO, Mitel's sales reached $300 million before it was
acquired by British Telecom in 1984. After the acquisition of Mitel, Dr.
Cowpland founded Corel Corporation (formerly NASDAQ:CORL), a company that
evolved into one of the world's leading providers of office productivity
software. Corel was widely recognized for its WordPerfect Office Suite, and its
PC graphics application, Corel Draw. Dr. Cowpland served as President of Corel
from 1995 to January 2001. Dr. Cowpland began his career in 1964 at Bell
Northern Research. Dr. Cowpland received a Bachelor of Science and Engineering
from the Imperial College (London), a Masters of Engineering from Carleton
University and Ph.D. in Engineering from Carleton University (Ottawa, Canada).





                                       53
<PAGE>



Tony Davidson has served as the Vice-President of Engineering and Chief
Technology Officer since March 2002 and April 2002, respectively. He started his
career in the field of medical research. In 1991, Mr. Davidson joined Corel
Corporation where he participated in the development of a wide range of
commercial products covering a variety of genres including medical and
entertainment products to digital stock photography and CDROM mastering
software. This eventually led to his heading up Corel's Multimedia Division in
the role of Executive Director. In 1996, Mr. Davidson joined Vorton Technologies
as Executive Vice President and Chief Technology Officer. He left Vorton in June
2001 to join ZIM. In his role as VP Engineering at ZIM, he is responsible for
the technical direction of all new and current ZIM products. Mr. Davidson is a
graduate of Applied Arts and Technology Program of St. Lawrence College in
Kingston, Canada, and has over twenty years of experience developing software
and applications using both low and high level languages.

Jennifer North has been the Chief Financial Officer since June 2003. Prior to
joining ZIM Corporation, Ms. North worked as a financial consultant assisting
high growth technology companies to develop corporate and financial strategies.
From 1996 to 2001, Ms. North was the Corporate Controller of World Heart
Corporation, a Canadian public company trading on both NASDAQ and the Toronto
Stock Exchange. She obtained her chartered accountant designation in 1989.


William Parisi has over 20 years of senior management experience in advanced
telecommunication services. Before joining ZIM he held the position of Vice
President Marketing and Business Development for Zinilin Inc., and a number of
senior management roles within the BCE family, including Assistant Vice
President of Emerging Services. Mr. Parisi has served as Vice President
responsible for Business Development since joining ZIM in April of 2001. His
academic background includes Bachelors and Masters Degrees in Engineering and
Marketing obtained through studies at the University of Southern California,
Concordia University of Montreal, and the Chinese University of Hong Kong. Mr.
Parisi terminated his employment with ZIM on September 17, 2004.


Roberto Campagna is responsible for enhancing our relationships with top
wireless operator networks and extending our network of wireless-focused
partners and suppliers. Mr. Campagna brings a wealth of software industry
knowledge to his position, having previously worked in similar roles, lastly at
Corel Corporation. During his four years at Corel he held increasingly more
senior positions with the international sales organization, most recently
serving as Regional Director of Latin America. In this capacity, Mr. Campagna
was responsible for driving Corel's enterprise, retail and OEM sales and
services strategies for the Latin America region, in addition to promoting
policies and programs designed specifically for the company's largest enterprise
customers. Mr. Campagna speaks four languages and he holds a Bachelor in
International Business and Trade.

Debbie Weinstein has been Secretary of the Corporation since January 2004.
Ms.Weinstein is a co-founding partner of LaBarge Weinstein LLP, a business law
firm. Ms. Weinstein's practice encompasses the representation of emerging growth
companies, established public and private technology businesses, venture capital
funds and investment bankers. She has represented issuers and underwriters in
numerous Canadian and U.S. public offerings and has substantial experience in
venture capital, financing transactions and mergers and acquisitions. Ms.
Weinstein is a 1983 graduate of Osgoode Hall Law School and was called to the
Bar of Ontario in 1985. Prior to co-founding LaBarge Weinstein LLP, Ms.
Weinstein was a partner of Blake Cassels & Graydon in Ottawa, Canada from 1991
to 1997 and was, prior to her departure, administrative partner of that office
and on the firm's national partnership committee.

Steven Houck has served as a director since April 2001. From 1995 to early 2004,
Mr. Houck held various positions with Corel Corporation. Prior to his service to
Corel, he founded Worldview Technologies, a company specializing in multimedia
design and authoring and served as its CEO until 1995. He received a Bachelors
Degree in Business Administration from Florida Atlantic University.





                                       54
<PAGE>




Charles Saikaley has served as a director of ZIM since June 1, 2003 and
previously was a director of ZIM Technologies since May 2001. Since 1990, Mr.
Saikaley has been a partner in the law firm of Lang Michener based in Ottawa,
Canada. He practices in the area of real estate, providing advice in all aspects
of the purchase and sale of residential and commercial real estate as well as
commercial leases, commercial mortgages and business arrangements. He is a
member of the firm's business law, franchise law and real estate law groups. He
is a member of the Canadian Bar Association and the Law Society of Upper Canada.
Mr. Saikaley received a Bachelor of Business Administration from the University
of Ottawa (1979) and a Bachelor of Laws from the University of Ottawa in 1982.

James Stechyson has served as a director and Chairman of ZIM since June 1, 2003.
He also served as a director of ZIM Technologies since January 1998 and was
appointed into the position of chairman in May 2001. From 1990 to September 2003
he was the President of OM Video, Inc., a major hardware sales and systems
integrator of professional video and presentation technology based in Ottawa,
Canada. He is a charter member of the Innovators Alliance of Ontario, a
government sponsored organization for the Chief Executive Officers of leading
growth firms. He is also the recipient of the Ottawa Carleton Board of Trade
Young Entrepreneur of the Year Award.


Donald R Gibbs has been a director of ZIM since July 2003. He also serves as the
Chairman of ZIM's Audit Committee. Since July of 2004, Mr. Gibbs has been the
principal of his own consulting company, Donald R Gibbs and Associates which
provides financial and management assistance to start-up corporations.. Since
1970, Mr. Gibbs has held senior financial and executive positions in Mitel
Corporation, Cognos Inc., Gandalf Systems Corporation, Positron Fiber Systems
Inc., Gorilla Capital Inc., VIPswitch Inc. and Original Solutions Inc. Mr. Gibbs
received his Bachelor of Commerce degree from the University of Ottawa and holds
a professional designation as a Certified Management Accountant.



COMMITTEES OF THE BOARD OF DIRECTORS

We have an Audit Committee and a Compensation Committee. We do not have a
Nominating Committee. In the absence of such a committee, the Board as a whole
considers individuals to recommend to the Board for inclusion among management's
nominees and considers corporate governance issues. The Board will consider
director candidates recommended by shareholders if the name and qualifications
of candidates are timely presented to the Board.

The Audit Committee's functions include evaluating, and recommending to the
Board the engagement of, ZIM's independent auditors, reviewing the results of
their audit findings, and monitoring on a periodic basis the internal controls
of ZIM. The Audit Committee has a formally approved written charter. The Audit
Committee currently consists of Donald Gibbs as the Chair, and designated
financial expert, Jim Stechyson and Charles Saikaley. The Audit Committee held
three meetings during the fiscal period.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Based upon a review of our records, we are not aware of any of our officers or
directors that failed to timely file one or more reports disclosing beneficial
ownership of our securities as required under Section 16(a) of the Securities
Exchange Act of 1934, as amended, during the ten-month fiscal period ended March
31, 2004.





                                       55
<PAGE>




CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS

We have a Code of Ethics that applies to our Chief Executive Officer, our Chief
Financial Officer, as well as to other senior management and senior financial
staff of ZIM, and complies with the requirements imposed by the Sarbanes-Oxley
Act of 2002 and the rules issued thereunder for codes of ethics applicable to
such officers. Our Board has reviewed and will continue to evaluate its role and
responsibilities with respect to the new legislative and other requirements of
the Securities and Exchange Commission. Interested persons can obtain a copy of
our Code of Ethics by writing to: Investor Relations c/o 20 Colonnade Road,
Ottawa, Ontario K2E 7M6 or by visiting our web-site at www.zim.biz.

ITEM 10. EXECUTIVE COMPENSATION.

The table below provides detailed information on the compensation of the Chief
Executive Officer for services rendered for the fiscal period ended March 31,
2004 and the fiscal years ended on May 31, 2003 and May 31, 2002. No executive
officer or employee received compensation in excess of $100,000 for the fiscal
period ended on March 31, 2004 or the fiscal years ended on May 31, 2003 and
2002.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                                 SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------------------------------------------------------
                                                                          Long Term Compensation
--------------------------------------------------------------------------------------------------------------------------------
                                   Annual Compensation                       Awards                Payouts
--------------------------------------------------------------------------------------------------------------------------------
        (a)          (b)     (c)     (d)           (e)              (f)               (g)            (h)            (i)
--------------------------------------------------------------------------------------------------------------------------------
                                                                 Restricted       Securities
     Name and                                 Other Annual         Stock          Underlying         LTIP        All Other
     Principal              Salary  Bonus     Compensation        Award(s)       Options/SARs       Payouts     Compensation
     Position      Year      ($)     ($)           ($)              ($)               (#)             ($)            ($)
--------------------------------------------------------------------------------------------------------------------------------
<S>                 <C>    <C>      <C>       <C>                <C>             <C>                <C>          <C>
 Michael Cowpland,  2004      -       -             -                -             2,497,789           -              -
   President and
  Chief Executive   2003      -       -             -                -                     -           -              -
      Officer       2002      -       -             -                -             1,208,332           -              -
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>







                                       56
<PAGE>



<TABLE>
<CAPTION>

                                                     % OF TOTAL
                                                        OPTIONS
                                                     GRANTED TO
                                    SECURITIES     EMPLOYEES IN                 EXERCISE PRICE       MARKET VALUE       EXPIRATION
NAME              FISCAL YEAR     UNDER OPTION   FINANCIAL YEAR               ($/COMMON SHARE)   ($/COMMON SHARE)             DATE
---------------- ------------- ---------------- ---------------  ---------- ------------------ ------------------ ----------------

<S>              <C>           <C>              <C>               <C>          <C>                <C>              <C>
Michael
Cowpland                 2004        2,497,789              34%   1,441,072               0.82           0.82            09-Jun-06
                                                                    133,340               0.82           0.82            08-Jul-06
                                                                     62,503               0.82           0.82            07-Aug-06
                                                                      6,667               0.82           0.82            07-Oct-06
                                                                    706,702               0.38           0.38            23-Nov-06
                                                                    100,005               0.48           0.48            17-Dec-06
                                                                     47,500               0.75           0.75            15-Jan-07

                         2003              NIL                            -                  -                  -                -

                         2002        1,208,332              30%     100,000               0.76           0.76            04-Feb-07
                                                                    135,000               0.76           0.76            04-Feb-07
                                                                     76,650               0.76           0.76            04-Feb-07
                                                                    133,350               0.82           0.82            17-Sep-04
                                                                    193,333               0.82           0.82            20-Sep-04
                                                                     66,667               0.82           0.82            01-Oct-04
                                                                     33,333               0.82           0.82            07-Nov-04
                                                                     33,333               0.82           0.82            07-Nov-04
                                                                     10,000               0.82           0.82            09-Dec-04
                                                                    263,333               0.82           0.82            01-Jan-05
                                                                     43,333               0.82           0.82            19-Feb-05
                                                                    120,000               0.82           0.82            01-May-05


</TABLE>


OPTIONS GRANTED OR EXERCISED DURING FISCAL 2004, 2003 AND 2002

The following table sets forth information regarding options granted to the
Chief Executive Officer during the fiscal period ending March 31, 2004 and the
fiscal years ended May 31, 2003 and 2002.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                         SHARES     VALUE ON                NUMBER OF SECURITIES           VALUE OF UNEXERCISED IN-
                                       ACQUIRED     REALIZED              UNDERLYING UNEXERCISED             THE-MONEY OPTION AT FY
NAME                                 /EXERCISED          ($)           OPTIONS AT PERIOD END (#)                        END ($) (1)
                                                                EXERCISABLE        UNEXERCISABLE    EXERCISABLE       UNEXERCISABLE
------------------------------------------------------------------------------------------------------------------------------------

<S>                         <C>           <C>         <C>      <C>                          <C>             <C>                <C>
Michael Cowpland            2004           NIL          NIL      2,497,789                     -              -                   -
                            2003           NIL          NIL              -                     -              -                   -
                            2002           NIL          NIL      1,208,332                     -              -                   -

</TABLE>

(1) The dollar value of each exercisable and unexercisable option was calculated
by multiplying the number of common shares underlying the option by the
difference between the exercise price of the option and the market price of the
Corporation's common shares as quoted on the OTCBB on September 29, 2004
($0.29).



                                       57
<PAGE>


COMPENSATION OF DIRECTORS

ZIM's directors who are not also employees are reimbursed for reasonable travel
expenses related to attendance at Board meetings. No other fees are paid for
attendance at meetings of the Board or their Committees. Each director is also
awarded for his first year of service as a director, 200,000 stock options to
purchase ZIM's common shares at fair market value at date of the option grant.

During the ten-month fiscal period ended March 31, 2004, each of the Board
members received the following option grants:


 DATE OF GRANT         EXPIRY DATE            PRICE           NUMBER OF OPTIONS
--------------- ------------------- ---------------- ---------------------------
                                                  $
     24-Nov-03           23-Nov-06             0.38              20,000.00
     16-Jan-04           15-Jan-07             0.75              10,000.00
     07-Apr-04           06-Apr-07             0.69              10,000.00


REPORT ON REPRICING OF OPTIONS/SARS


Early in 2004, the Board of Directors reviewed directors' compensation. It was
noted that, historically, the members of the Board were issued options but that,
because of the Corporation's on-going need to comply with securities regulations
and the time it took to establish a market for the underlying shares, there have
been limited opportunities for members of the Board to exercise their options
within the lifetime of the options. As a result, on February 5, 2004, the Board
extended the life of 6,110,000 options to February 2007 without adjusting the
exercise price.





                                       58
<PAGE>


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS

The following table sets forth, as of June 8, 2004, the number and percentage of
our outstanding common shares which are beneficially owned, directly or
indirectly, by:

-    each person who is the beneficial owner of 5% or more of our outstanding
     common shares;
-    each director and executive officer of ZIM Corporation; and
-    all directors and executive officers of ZIM Corporation as a group.

In accordance with the Rules and Regulations of the United States Securities and
Exchange Commission, beneficial ownership includes shares over which the
indicated person has sole or shared voting or investment power and shares which
he or she has the right to acquire within 60 days of March 31, 2004. Unless
otherwise indicated, the persons listed are deemed to have sole voting and
investment power over the shares beneficially owned.


<TABLE>
<CAPTION>
                                                                                           Common shares
Name                        Title                                                    Number              Percentage
--------------------------- ----------------------------------------------- ---------------- ------- ---------------

<S>                         <C>                                              <C>             <C>      <C>
Michael Cowpland            President and CEO                                    37,806,282   (1)               58%
Denise Batson               N/A                                                   5,550,000   (2)                9%
Tony Davidson               Chief Technology Officer                                450,000   (3)                1%
Jennifer North              Chief Financial Officer                                 362,500   (4)                1%
Bill Parisi                 Vice President of Business Development                  332,500   (5)                1%
Roberto Campagna            Vice President of Retail Sales                          320,000   (6)                1%
Debbie Weinstein            Secretary                                               100,000   (7)                0%
Steven Houck                Director                                                240,000   (8)                0%
James Stechyson             Director                                                720,000   (9)                1%
Charles Saikaley            Director                                                240,000   (10)               0%
Donald Gibbs                Director                                                240,000   (11)               0%

All executive officers and officers as a group (10 persons)
                                                                                 40,811,282                     74%
</TABLE>


1.   The beneficial ownership of Michael Cowpland consists of 18,645,320 common
     shares owned directly by Dr. Cowpland, 9,558,621 common shares which Dr.
     Cowpland has the right to acquire under outstanding stock options,
     1,000,000 common shares owned by Dr. Cowpland's spouse, 8,299,848 common
     shares owned by a company controlled by Dr. Cowpland's spouse, and 302,493
     common shares owned by the minor children of Dr. Cowpland and his spouse.
     Dr. Cowpland disclaims beneficial ownership of the shares held by his wife
     and the company controlled by his wife and the shares held by his minor
     children.


2.   The beneficial ownership of Denise Batson consists of 5,255,000 common
     shares owned directly and 295,000 common shares which she has a right to
     acquire under presently exercisable stock options.

3.   The beneficial ownership of Tony Davidson consists of 450,000 common shares
     which he has a right to acquire under presently exercisable stock options.

4.   The beneficial ownership of Jennifer North consists of 362,500 common
     shares which she has a right to acquire under presently exercisable stock
     options.


                                       59
<PAGE>



5.   The beneficial ownership of William Parisi consists of 332,500 common
     shares which he has a right to acquire under presently exercisable stock
     options. Mr. Parisi's final day of employment with ZIM was September 17,
     2004.


6.   The beneficial ownership of Roberto Campagna consists of 320,000 common
     shares which he has a right to acquire under presently exercisable stock
     options.

7.   The beneficial ownership of Debbie Weinstein consists of 100,000 common
     shares which she has a right to acquire under presently exercisable stock
     options.

8.   The beneficial ownership of Steven Houck consists of 240,000 common shares
     which he has a right to acquire under presently exercisable stock options.

9.   The beneficial ownership of James Stechyson consists of 450,000 common
     shares owned directly, 220,000 common shares which he has a right to
     acquire under presently exercisable stock options, and 50,000 shares
     issuable upon exercise of presently exercisable warrants.

10.  The beneficial ownership of Charles Saikaley consists of 240,000 common
     shares which he has a right to acquire under presently exercisable stock
     options.

11.  The beneficial ownership of Donald Gibbs consists of 240,000 common shares
     which he has a right to acquire under presently exercisable stock options.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

In January 2002, Dr. Michael Cowpland, and other members of Dr. Cowpland's
family, purchased 1,000,000 special shares of ZIM Technologies for a price of
approximately $687,500. All special shares were converted into common shares on
June 1, 2003.

In April 2002, Dr. Michael Cowpland loaned approximately $630,000 to ZIM
Technologies. The loan had an interest rate of 5% per annum and was repaid on
January 7, 2004, through the conversion of the debt into equity.

Commencing in May 2002, 160879 Canada, Inc., a corporation owned by the spouse
of Dr. Michael Cowpland, loaned funds in Canadian Dollars to ZIM Technologies.
These loans had an interest rate of 5% per annum and were repaid on January 7,
2004, through the conversion of debt into common shares of ZIM. Advances,
translated to US dollars at the historical rates, all with interest at a rate of
5% per annum and repayable on demand, were, as follows:

                    31-May-02                           $260,000
                    29-Aug-02                            257,000
                    5-Nov-02                             193,000
                    28-Nov-02                            127,000
                    25-Feb-03                            268,000
                    28-May-03                            361,000
                    8-Aug-03                             287,000
                    8-Oct-03                             300,000
                    24-Nov-03                            303,000
                    7-Jan-04                             388,000

ZIM received approximately $2.7 million in total funds from 160879 Canada Inc.

On January 7, 2004, the Board of Directors approved the conversion of the debt
held by Dr. Cowpland by 160879 Canada Inc. to common shares based on the last
closing price of our common shares on the Over-the-Counter Bulletin Board. The
total amount due in Canadian dollars, translated at the US exchange rate on
January 7, 2004, with interest, was $3,960,950. The share price used in the
conversion was $0.43, resulting in 9,211,511 common shares being issued to Dr.
Cowpland and to 160879 Canada Inc.


                                       60
<PAGE>


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits

See attached list of exhibits on page 59.

(b) Reports on Form 8-K

     No Current Reports on Form 8-K were filed during the period March 1, 2004
to March 31, 2004.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

During the most recent two periods, we incurred audit, audit related, tax and
other fees with our principal auditors, Raymond Chabot Grant Thornton General
Partnership, as follows:


                               TEN MONTHS ENDED                 YEAR ENDED
                                MARCH  31, 2004               MAY 31, 2003
                                              $                          $
Audit fees                              138,232                     92,777
Audit related fees                       22,416                     35,741
Tax fees                                 33,624                      5,738
Other fees                               11,208                     14,788
                      -------------------------- --------------------------
Total fees                              205,480                    149,044
                      ========================== ==========================





                                       61
<PAGE>



SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


ZIM Corporation
(Registrant)

By /s/ Michael Cowpland
------------------------------------
Michael Cowpland (President and CEO)



Date    October 7, 2004


In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.


<TABLE>
<CAPTION>
-------------------------------------- -------------------------------------------- -------------------------------------
NAME                                   TITLE                                        DATE
-------------------------------------- -------------------------------------------- -------------------------------------

<S>                                   <C>                                          <C>
/s/ Michael Cowpland                   President, Chief Executive Officer and       October 7, 2004
Michael Cowpland                       Director
-------------------------------------- -------------------------------------------- -------------------------------------

/s/ Jennifer North                     Chief Financial and Principal Accounting     October 7, 2004
Jennifer North                         Officer
-------------------------------------- -------------------------------------------- -------------------------------------

/s/ Steven Houck
Steven Houck                           Director                                     October 7, 2004
-------------------------------------- -------------------------------------------- -------------------------------------

/s/ Charles Saikaley
Charles Saikaley                       Director                                     October 7, 2004
-------------------------------------- -------------------------------------------- -------------------------------------

/s/ James Stechyson
James Stechyson                        Chairman and Director                        October 7, 2004
-------------------------------------- -------------------------------------------- -------------------------------------

/s/Donald Gibbs
Donald Gibbs                           Director                                     October 7, 2004
-------------------------------------- -------------------------------------------- -------------------------------------
</TABLE>







                                       62
<PAGE>




EXHIBIT INDEX

EXHIBIT           EXHIBIT
NUMBER

2.1       Reincorporation Merger Agreement (1)


2.2       Amended and Restated Acquisition Agreement dated as of May 29, 2002 by
          and among Private Capital Investors, Inc. and ZIM Technologies
          International, Inc.(1)


2.3       Form of Amalgamation Agreement by and among ZIM Corporation, PCI-ZTI
          Canada, Inc. and ZIM Technologies International, Inc.(1)

3.1       Articles of Incorporation of the Registrant (1)

3.2       By-Laws of the Registrant (1)

4.1       The Registrant's 2003 Stock Option Plan (2)

4.2       Form of Warrant Agreement (3)

10.1      Employment agreement between ZIM Technologies International, Inc. and
          Tony Davidson dated April 30, 2001(4)

10.3      Employment agreement between ZIM Technologies International, Inc. and
          Jennifer North dated May 27, 2003(5)

10.4      ZIM Technologies International, Inc. International Distribution
          Agreement dated November 22, 2000(1)

10.7      ZIM Technologies International, Inc. International Distribution
          Agreement dated January 1, 2002(1)

21.1      List of subsidiaries of the Registrant (3)

31.1      Certification by the President and Chief Executive Officer, Dr.
          Michael Cowpland, pursuant to U.S.C. Section 1350, as adopted pursuant
          to Section 302 of the Sarbanes-Oxley Act of 2002(6)

31.2      Certification by the Chief Financial Officer, Ms. Jennifer North,
          pursuant to U.S.C. Section 1350, as adopted pursuant to Section 302 of
          the Sarbanes-Oxley Act of 2002(6)

32.1      Certification by the President and Chief Executive Officer, Dr.
          Michael Cowpland, pursuant to U.S.C. Section 1350, as adopted pursuant
          to Section 906 of the Sarbanes-Oxley Act of 2002(6)

32.2      Certification by the Chief Financial Officer, Jennifer North, pursuant
          to U.S.C. Section 1350, as adopted pursuant to Section 906 of the
          Sarbanes-Oxley Act of 2002(6)

         ----------------------------------

          (1)       Incorporated by reference to the Registrant's Registration
                    Statement on Form S-4 filed with the United States
                    Securities and Exchange Commission (the "Commission") on
                    October 31, 2002 (333-100920) (the "Form S-4")

          (2)       Incorporated by reference to the Definitive Form 14A filed
                    with the Commission on October 27, 2003

          (3)       Incorporated by reference to the Registrant's Registration
                    Statement on Form SB-2 filed with the Commission on April
                    22, 2004 (333-114736) (the "2004 Form SB-2")

          (4)       Incorporated by reference to Amendment No. 5 to the Form S-4
                    filed with the Commission on April 11, 2003

          (5)       Incorporated by reference to the Registrant's Registration
                    Statement on Form SB-2 filed with the Commission on June 24,
                    2003 (333-106412) (the "2003 Form SB-2")

          (6)       Filed herewith.



                                       63