UNITED
STATES




SECURITIESANDEXCHANGE
COMMISSION




Washington,D.C.20549




Form
10-KSB









[
      x]
            ANNUAL
      REPORT UNDER SECTION 13 OR 15(D) OF
THE




SECURITIES
EXCHANGE ACT OF 1934


FOR
THE FISCAL YEAR ENDED MARCH 31, 2008





OR




[ 
      ]
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE







FOR
THE TRANSITION PERIOD FROM _______________











Commission
File Number: 000-31691






ZIM
CORPORATION


(Name of Small Business Issuer in
its charter)




Canada
              (State
      or other jurisdiction of
              incorporation
      or organization)
            
            N/A
              (I.R.S.
      Employer Identification Number)150
      Isabella Street, Suite 150, Ottawa, Ontario, Canada
              (Address
      of Principal Executive Offices)
            
            K1S
      1V7
              (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:








Title
      of  ClassCommon
      shares, no par value




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  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.   □





Indicate
by check mark whether the registrant is a shell company (as defined in rule
12b-2 of the Exchange Act). Yes   □   No  x




The
registrant's revenues for our most recent fiscal year were
$2,068,065.  The aggregate market value of voting stock held by
non-affiliates is $162,980based on 27,163,250 shares
at June 20, 2008 held by non-affiliates.  The registrant does not have
any authorized or issued and outstanding non-voting stock.  The
closing price on the Over the Counter Bulletin Board on June 20, 2008 was
$0.006.





The
number of common shares of the registrant outstanding as of June 20, 2008 was
95,460,867.





TABLE
OF CONTENTS





PART
I





Item
      1.
            Description
      of Business
            4Item
      2.
            Description
      of Property
            13Item
      3.
            Legal
      Proceedings
            13Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            13PART
      IIItem
      5.
            Market
      for Common Equity, Related Shareholder Matters and Small Business Issuer
      Purchases of Equity SecuritiesItem
      6.
            Management's
      Discussion and Analysis or Plan of Operation
            14Item
      7.
            Financial
      Statements
            24Item
      8.
            Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
            51Item
      8A-T.
            Controls
      and Procedures
            51Item
      8B.
            Other
      Information
            53PART
      IIIItem
      9.
            Directors,
      Executive Officers, Promoters, Control Persons andCorporate
      Governance; Compliance with Section 16(a) ofthe
      Exchange Act
            53Item
      10.
            Executive
      Compensation
            55Item
      11.
            Security
      Ownership of Certain Beneficial Owners andManagement
      and Related Shareholder Matters
            60Item
      12.
            Certain
      Relationships and Related Transactions andDirector
      Independence
            63Item
      13.
            Exhibits
            63Item
      14.
            Principal
      Accountant Fees and Services
            63SIGNATURES
            
            64EXHIBIT
      INDEX
            
            65











This
Annual Report on Form 10-KSB contains forward-looking statements regarding our
business, financial condition, results of operations and prospects that are
based on our current expectations, estimates and projections. In addition, other
written or oral statements which constitute forward-looking statements may be
made by or on behalf of the registrant. 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 are
inherently subject to risks and uncertainties that are difficult to predict. As
a result, actual outcomes and results may differ materially from the outcomes
and 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 Annual Report on Form 10-KSB. 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. All forward-looking statements
speak only as of the date of this Annual Report on Form 10-KSB. We undertake no
obligation to revise or update publicly 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.








PART
I





ITEM
1. DESCRIPTION OF BUSINESS.








COMPANY
OVERVIEW





Overview





ZIM
Corporation is a provider of software products and services for the database,
mobile and internet protocol television (IPTV) markets. ZIM products and
services are used by enterprises in the design, development and management of
business, database and IPTV applications. ZIM also provides mobile content to
the consumer market.





We are a
corporation formed under the laws of Canada on October 17, 2002 with our primary
office in Ottawa, Canada. Our common stock is listed on the Over the Counter
Bulletin Board under the symbol “ZIMCF.”





IPTV





In the
second quarter of fiscal 2007, we began to explore opportunities and develop
relationships within the Internet TV space, as a step towards being able to
offer quality TV on cell phones.





Specifically
during the quarter ended September 30, 2006, we entered into a partnership with
PPLive of China, a peer to peer (P2P) Internet TV portal.  During the
quarter ended December 31, 2006, we began offering a P2P Internet TV site, www.zimtv.biz.
Through a user friendly interface on ZIMTV, consumers can watch free and/or pay
per view channels containing sports, movies, television, news, animation and
educational video content. During the process of building a customer base, we
have allowed customers free trial subscriptions for all content including the
premium channels.  As a result, we did not generate any revenue from
consumers for our IPTV offering.  We charge content providers a fee
for their channel. During fiscal 2007 we had approximately $7,400 in revenues
from channel sales for our IPTV.





During
fiscal year 2008 we conducted several trials of our live IPTV streaming service
with a key customer. It was determined that P2P did not provide acceptable
quality standards. As such we discontinued our partnership with PPLive and
switched to Windows Media and Flash-based technologies, which resulted in
superior results. The trials were paid for by the customer and resulted in
approximately $36,300 in revenues for the fiscal 2008 period. In addition we
continued to provide consumers free access to our ZIMTV content
portal.





While we
continue to pursue our IPTV business, there is no guarantee that we will be able
to successfully identify new opportunities in the industry or that we will be
able to generate ongoing revenue from ZIMTV.








MOBILE





Our
business strategy previously involved designing mobile data software products to
take advantage of the existing wireless data network infrastructure known as
Short Message Service (SMS). SMS, mobile messaging, 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
expertise we gained in the SMS infrastructure and network allowed us to expand
into the aggregation of SMS messages in 2004.  Aggregators transmit a
broad variety of messaging, content, and applications worldwide. ZIM continues
to provide a high-volume delivery infrastructure that is scalable with detailed
reporting available to our mobile content customers.


4





During
the year ended March 31, 2006, it became apparent that the SMS aggregation
market was becoming consolidated, which made it increasingly difficult for us to
compete.  We noticed a downward trend in sales of aggregation services
by the end of the third quarter of fiscal 2006 and decided to expand our product
and service offerings.  Effective April 1, 2006 we acquired Advanced
Internet Inc. (“AIS”) from Advanced Telecom Services.  AIS owns and
operates two internet mobile content sites known as www.ringingphone.com
and www.monstertones.com.  As
a mobile content provider, we sell ring tones and wallpaper (or pictures) for
cell phone users to download.  Consumers can order these services
through the web sites on a monthly subscription basis or per item
basis.





For
fiscal 2008 we increased our pricing model for our mobile content products. This
stabilized our mobile content revenues and resulted in higher gross margins for
fiscal 2008 in this business segment.





In the
second quarter of fiscal 2008 we sold our Canadian short message peer-to-peer
protocol (SMPP) Gateway and aggregation business as well as certain customer
contracts to SilverBirch Studios. We continue to offer aggregation services
outside of the Canadian market and in the Canadian market through an agreement
with SilverBirch.





Mobile
content continues to be a very competitive business and we do not foresee the
ability to increase this business in any significant way. The management of ZIM
will continue to investigate opportunities to maximize value for the company in
the mobile content space. However there are no guarantees that we will be
successful at identifying new opportunities.





SOFTWARE





Historically,
we were 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 customers through direct and
partner sales.





The Zim
IDE software provides an integrated development environment (IDE) for Microsoft
Windows, UNIX and Linux computer operating systems. An integrated development
environment is a set of programs that runs from a single user interface for use
in the creation of applications 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 by other vendors.
The distinctive characteristic of the Zim IDE software is its object dictionary
which 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, insurance, marketing,
human resources, information and records management. Applications built with the
Zim IDE will also fully access most other major databases such as Oracle and SQL
Server.





In fiscal
2008 we continued to support our existing customer base and users of the ZIM IDE
software. In addition we continued to allocate research and development
resources to improve the performance and features of the ZIM IDE
software.




5





COMPETITION





ZIM
operates primarily in three markets; mobile, IPTV and database software, as an
aggregator and a provider of mobile content and applications, enterprise
software and live TV streaming over IP. Our competitors include mobile
application providers, mobile application aggregators, entertainment and other
digital media companies, and the mobile operators themselves, as they also offer
mobile content directly to their end users. The database market is highly
diversified and includes both small and large competitors.





All these
markets are highly competitive and rapidly changing due to the respective
natures of these growing markets. We have many competitors in the IPTV and
mobile markets, including Joost, WIN PLC, MBlox and Mobile365 in aggregation and
Verisign, which owns Jamster and Monstermob in mobile content. In the database
market, our competitors include Oracle, Microsoft, SAP, MySQL and many others.
These competitors have certain competitive advantages over us, including but not
limited to:





·
            substantially
      greater financial and technical
resources;





·
            more
      extensive and well-developed marketing and sales
  networks;





·
            greater
      global brand recognition; and





·
            larger
      customer bases.





We
compete within the aggregation market primarily for volume of traffic and
strategic relationships. However, our volumes decreased substantially in 2008 as
a result of management’s previously disclosed decision to decrease our focus in
this area due to declining margins and the company’s inability to locate less
expensive routes for its traffic. Since the mobile content market is aimed at
consumers, rather than business customers, we compete in the mobile content
market for subscribers and for the quality of the content in our
offering.





Our
existing competitors may in the future achieve greater market acceptance and
gain additional market share. It is also possible that new competitors may
emerge and acquire significant market share. Please refer to the section of this
report entitled “Factors Affecting Our Operating Results, Business Prospects and
Market Price of Stock” for a more detailed discussion of the risks we face from
our competitors.





We
compete in the mobile aggregation and content environment based on our ability
to connect to international operators through a variety of strategic
relationships with other aggregators and mobile operators. We have developed
strategic relationships with a range of content and service partners in order to
serve our customers more effectively and to extend our services to an
international audience.  We compete in the mobile content space based
on existing brand recognition and our ability to offer new and intriguing
content. As mentioned above, the management of ZIM will continue to investigate
opportunities to maximize value for the company in the mobile content space.
However there are no guarantees that we will be successful at identifying new
opportunities.





CUSTOMERS





During
fiscal 2008, we had more than 240 revenue generating customers in at least 9
countries.  In addition we had in excess of 100 customers who utilized
ZIM IDE to run their enterprise applications. No single customer accounted for
over 10% of revenue for the years ended March 31, 2007 or March 31, 2008. In the
mobile content market ZIM serves thousands of customers on a monthly
basis.











6





TECHNOLOGY
INFRASTRUCTURE





We
believe that our technology is essential to successfully implement our strategy
of expanding and enhancing our products and services, expanding in the mobile
media market and maintaining the attractiveness and competitiveness of our
products and services.





Our
operating infrastructure is designed to serve and deliver tens of millions of
messages each week to hundreds of cell phone operators worldwide. Our
aggregation partners use a system that has a scalable and redundant
infrastructure located on servers at co-location hosting sites in Canada and the
USA. We believe that these hosting partners provide operating advantages,
including an enhanced ability to protect our systems from power loss, break-ins
and other potential external causes of service interruption. They provide
continuous customer service, multiple connections to the internet and a
continuous power supply to our systems. In addition, we conduct online
monitoring of all our systems for accessibility, load, system resources,
network-server intrusion and timeliness of content.





This
infrastructure allows us to be a high performance mobile gateway connecting
large internet communities to approximately two billion cell phones worldwide
through the various mobile operators.





Our
servers run on Linux and Windows platforms using Postgres and mySQL and
proprietary SMPP servers. SMPP is a short message peer-to-peer protocol for
exchanging SMS messages between SMS peer entities such as short message service
centers. It is used to allow third parties to submit messages, often in
bulk.  On July 16, 2007, ZIM Corporation signed an agreement with
SilverBirch Inc. to sell certain SMS assets. The assets included our
Canadian SMPP platform, which we sold for approximately $70,395.





Our
database system is an advanced entity-relationship database, which also operates
on Windows Unix and Linux platforms.





Through
the acquisition of AIS, we now own the platform for the mobile content
portals.  Using a third party’s hosting facilities, our portals can serve
hundreds of thousands of visitors monthly.  Our platform uses scalable web
server and SQL database server facilities to ensure adequate support to a large
number of subscribers and different types of contents.





Our
platform consists of two main components, the web server and the database
server.  The web server is the main customer interface providing all
necessary facilities for browsing, searching and purchasing mobile
contents.  It is hosted on a separate machine running Microsoft
Internet Information Service (IIS) offering Search Engine Optimized (SEO) pages
and content structure to ensure a high page ranking for our sites and ease of
customer search and navigation.





The
database server houses all the content structure and subscriber database.
 It is hosted on a fully redundant machine equipped with Redundant Array of
Independent Disks (RAIDs) running Microsoft SQL Server.  Our platform is
completely data-driven and optimized for search engines to ensure direct, easy
search and access to all content offered on our sites.





Our
platform incorporates its own billing facilities, has direct access to credit
card transactions, cheque clearing brokers, PayPal and various carriers for
premium SMS charging facilities.





RESEARCH
AND DEVELOPMENT





Our
research and development activities focus primarily in the areas of IDE
software, SMS messaging and ZIM TV.  Research and
development expenditures were $512,287 in 2008 and $382,146 in
2007.  Additional information about our research and development
expenditures may be found in Item 6. “Management’s Discussion and Analysis
or Plan of Operation—Results of Operations—Research and
Development.”


7





PATENTS
AND INTELLECTUAL PROPERTY PROTECTION





Intellectual
property does not represent a material part of our assets or business
strategy.  We do not rely on patents or copyrights and, to the extent
we maintain trade secrets, we rely on confidentiality agreements to protect them
from misappropriation.





GOVERNMENTAL
REGULATION





Because
of the increasing use of the internet and mobile devices, and the public’s
concern for privacy, U.S. and foreign governments have adopted, or may in the
future adopt, laws and regulations relating to the internet or use of mobile
devices, addressing issues such as user privacy, security, pricing, age
verification, content quality, copyrights and distribution
techniques.  We could become subject to new laws and regulations in
various countries that could limit our ability to market our products and to
distribute and/or collect user information.  These or other laws or
regulations that may be enacted in the future could have adverse effects on our
business, including higher regulatory compliance costs, limitations on our
ability to provide some services in some countries, and liabilities which might
be incurred through lawsuits or regulatory penalties.  We take steps
using industry standard tools such as firewall, VPN, encryption and antivirus to
protect the security and confidentiality of the information we collect and store
but there is no guarantee that third parties, partners or employees will not
gain unauthorized access despite our efforts or that we will not incur costs in
complying with our notification obligations under such
circumstances.





EMPLOYEES





As at
March 31, 2008, we had 18 full-time employees, with 8 employees in selling,
general and administration and 10 employees in technical areas including
technical support and 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, 16 are based in Ottawa, Canada; two are based in Sao Paolo,
Brazil.




FACTORS
AFFECTING OUR OPERATING RESULTS, BUSINESS PROSPECTS AND MARKET PRICE OF
STOCK





This
Annual 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, which may cause actual results to vary materially from
the outcomes discussed in the forward-looking statements.





RISKS
RELATED TO OUR BUSINESS





BECAUSE
THE REVENUE AND INCOME POTENTIAL OF OUR BUSINESS AND MARKETS ARE UNPROVEN, WE
CANNOT PREDICT WHETHER WE WILL MEET INTERNAL OR EXTERNAL EXPECTATIONS OF FUTURE
PERFORMANCE.





We
believe that our future success depends on our ability to significantly increase
revenue from our operations, of which we have a limited history. Accordingly,
our prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in an early stage of
development. These risks include our ability to:





·
            Offer
      competitive pricing for our
services;


·
            Offer
      new and innovative mobile content;


·
            Offer
      new and innovative IPTV content;


·
            Maintain
      our current relationships and develop new strategic relationships with
      content providers, mobile content designers and mobile
      operators;


·
            Attract
      and retain qualified employees;  8








·
            Upgrade
      our technology infrastructure to manage increased messaging demands and
      trends; and


·
            Maintain
      our current customer and user base of our IDE
  software.





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. If we are 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 report of the
independent registered public accounting firm on our audited consolidated
financial statements for the year ended March 31, 2008 includes 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 we will be
successful in raising additional funding as required.





THE LOSS
OF FINANCING FROM DR. MICHAEL COWPLAND WOULD HAVE A SIGNIFICANTLY ADVERSE IMPACT
ON OUR ABILITY TO CONTINUE IN BUSINESS.





We depend
on Dr. Cowpland’s ability to, and practice of, funding our cash requirements
from time to time. For example, since April 2002, Dr. Cowpland and a holding
company owned by his spouse have provided financing of approximately $6.9
million to us.  However, there can be no assurance that either of them
will continue to do so.  We have no alternative source of financing
reasonably available to us, so the loss of this financing would have a
significant adverse effect.





IF WE ARE
UNABLE TO OBTAIN ADDITIONAL FUNDS IN A TIMELY MANNER OR ON ACCEPTABLE TERMS, WE
MAY HAVE TO CURTAIL OR SUSPEND CERTAIN ASPECTS 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, 2008 of $299,943 along with cash generated
from operations will be sufficient to meet our present operating and capital
expenditures through fiscal 2009.  However, there is no guarantee that
unanticipated circumstances will not require additional liquidity.





Future
liquidity and cash requirements will depend on a wide range of factors;
including the level of success the Company has in executing its strategic plan
as well as its ability to maintain business in existing operations and to raise
additional financing. Accordingly, there can be no assurance that the Company
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 Registered Public
Accounting Firm's Report for the year ended March 31, 2008 indicated that there
was substantial doubt regarding the Company’s ability to continue as a going
concern.





ZIM
EXPECTS TO INCUR OPERATING LOSSES FOR THE NEXT SIX MONTHS, AT A MINIMUM. SUCH
LOSSES WILL DIRECTLY AFFECT OUR REQUIREMENTS FOR ADDITIONAL FUNDS AND ABILITY TO
CONTINUE AS A GOING CONCERN.





During
the next 6 months ZIM expects operating losses to be contained such that a
requirement for additional funds is not anticipated.  The extent to
which these anticipated losses are actually incurred in the magnitude expected
will directly affect our need for additional capital and ability to continue as
a going concern. If the shortfall between the revenues generated 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, we cannot assure that actual operating losses will not exceed
management's current expectations. These anticipated operating losses may arise
in part due to anticipated costs in obtaining of content for our IPTV offering,
and/or if we loose mobile content subscribers or database
customers.


9





WE HAVE
CONTRACTED WITH THIRD PARTIES TO PROVIDE MOBILE CONTENT FOR OUR ACQUIRED
INTERNET PORTALS AND WE MAY LOSE USERS AND REVENUE IF THESE ARRANGEMENTS ARE
TERMINATED.





We have
arrangements with a number of third parties to provide mobile content to our
subscriber base. Although no single third party service provider is critical to
our operations, if these parties fail to develop and maintain high-quality and
successful mobile content, or if a large number of our existing relationships
are terminated, we could lose customers and our content may become less
desirable.





WE 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 mobile content space and the IPTV space, we
may not be able to accurately forecast our future operating results. If our
gross margins from our operations 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 us to accomplish
either task in a timely manner, or at all, in which event we 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.





OUR
QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT
FLUCTUATIONS.





We may
experience significant fluctuations in our quarterly operating results due to a
variety of factors, many of which are outside of our control. Factors that may
cause our quarterly operating results to fluctuate include: our ability to
retain existing customers, attract new customers at a steady rate and maintain
user satisfaction; technical difficulties or system downtime; the amount and
timing of operating costs and capital expenditures relating to expansion of our
business, operations and infrastructure; and industry regulation. As a result of
these and other factors, you should not place undue reliance on
quarter-to-quarter comparisons of our operating results as indicators of likely
future performance.





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





If we are
unable to adapt to the rapid changes in technology and customer needs that are
inherent to the mobile and IPTV industry, we 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.





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





We
currently depend heavily on the services of Dr. Michael Cowpland.  The
loss of the services of Dr. Cowpland and other key personnel could affect our
performance in a material and adverse way.





OUR INTERNAL CONTROLS ARE NOT EFFECTIVE, WHICH MAY
RESULT IN REGULATORY SANCTIONS.





We did
not have effective internal control procedures in place at March 31, 2008, when
we evaluated our internal control over financial reporting under Section 404 of
the Sarbanes-Oxley Act of 2002.




Under the
supervision and with the participation of our management, we are implementing
remedies to the inadequate controls as detailed in Item 8A(T). These remedies
are expected to be in place in the 2009 fiscal year and we will then reevaluate
our internal control systems in order to allow management to report on our
internal controls, as of March 31, 2009 as required by Section 404 of the
Sarbanes-Oxley Act. Throughout this process, we will incur additional expenses
and use of management's time. If we do not remedy the material weaknesses in our
internal controls, we might be subject to sanctions by the SEC. Any such action
could adversely affect our financial results and the market price of our
shares.


10





OUR
STRATEGIC DIRECTION IS EVOLVING, WHICH COULD NEGATIVELY AFFECT OUR FUTURE
RESULTS.





Since
inception, our business model has evolved and is likely to continue to evolve as
we refine our offerings and market focus. Prior to 2004, we focused on
developing SMS products, in 2004 through to fiscal 2007 we focused on our SMS
aggregation services.  For fiscal 2008, we focused on offering mobile
content and IPTV and the development of new IDE software. We continue to
evaluate opportunities and alternative strategies in a rapidly evolving market.
We plan to leverage our intellectual capital, core technologies and other
business assets to focus on new strategic directions and attempt to maximize
shareholder value.





Changes
to our business may not prove successful in the short or long term and may
negatively impact our financial results.





WE
OPERATE IN NEW AND RAPIDLY EVOLVING MARKETS, AND OUR BUSINESS MODEL CONTINUES TO
EVOLVE, WHICH MAKES IT DIFFICULT TO EVALUATE OUR FUTURE PROSPECTS.





Our
potential for future profitability must be considered in the light of the risks,
uncertainties, and difficulties encountered by companies that are in new and
rapidly evolving markets and continuing to innovate with new and unproven
technologies or services, as well as undergoing significant change. Our IPTV is
in a new industry that has undergone rapid and dramatic changes in its short
history. In addition to the other risks we describe in this section, some of
these risks relate to our potential inability to attract and retain unique and
sought after content; to control expenditures and to respond quickly and
appropriately to industry developments, including rapid technological change;
changes in customer requirements; and new products introduced into our markets
by our competitors.  If we do not effectively address the risks we
face, we may not achieve profitability.





WE DEPEND
ON THIRD PARTIES FOR CONTENT, BOTH FOR OUR MOBILE CONTENT SITE AND OUR IPTV
SITE, AND THE LOSS OF ACCESS TO OR INCREASED COST OF THIS CONTENT COULD CAUSE US
TO REDUCE OUR PRODUCT OFFERINGS TO CUSTOMERS AND COULD NEGATIVELY IMPACT OUR
FINANCIAL RESULTS.





AIS has
the right to acquire content from numerous third-party content providers, and
our future success with AIS is highly dependent upon our ability to maintain
these relationships and enter into new relationships with other content
providers.





ZIM is in
the process of developing relationships with content providers for our IPTV
site, but we may not be able to develop sufficient
offerings to generate meaningful revenue from our IPTV
business.





We may
license content under various arrangements that could require us to pay usage or
fixed monthly fees or revenue sharing for the use of the content. In the future,
some of our content providers may not give us access to important content or may
increase the royalties, fees or percentages that they charge us for their
content, which could have a negative impact on our net earnings. If we fail to
enter into or maintain satisfactory arrangements with these content providers,
our ability to provide a variety of products and services to our customers could
be severely limited, thus harming our operating results.




IF WE ARE
UNABLE TO MANAGE THE INTEGRATION OF ANY ACQUIRED BUSINESSES, OUR FINANCIAL
CONDITION AND OPERATING RESULTS MAY BE ADVERSELY AFFECTED.
 
 A failure
to effectively manage the integration of any acquisitions we may make may
adversely affect our business and financial condition. Any acquisition that we
make will place significant demand on management, technical and other
resources.


11





WE HAVE
AFFILIATED SHAREHOLDERS WHO CAN SUBSTANTIALLY INFLUENCE THE OUTCOME OF ALL
MATTERS VOTED UPON BY OUR SHAREHOLDERS AND WHOSE INTERESTS MAY NOT BE ALIGNED
WITH YOURS.





The
beneficial ownership of the Chief Executive Officer and related parties is
approximately 63.9%. As a result, they are able to substantially influence all
matters requiring the approval of our shareholders, including the election of
directors and the approval of significant corporate transactions such as
acquisitions. This concentration of ownership could delay, defer or prevent a
change in control or otherwise impede a merger or other business combination
that the Board of Directors or other shareholders may view
favorably.








RISKS
RELATED TO THE INDUSTRIES IN WHICH WE OPERATE





INTENSE
COMPETITION IN THE MOBILE AND IPTV MARKET COULD PREVENT US FROM INCREASING
SUBSCRIPTIONS FOR OUR SERVICES OR CAUSE US TO LOSE MARKET SHARE.





Our
future business model depends on our ability to sell our content offering in an
extremely competitive and rapidly changing market. Our competitors may have
substantially greater financial, technical and marketing resources, larger
customer bases, longer operating histories, more developed infrastructures,
greater name recognition or more established relationships in the industry than
we have. Our competitors may be able to adopt more aggressive pricing policies,
develop and expand their service offerings more rapidly, adapt to new or
emerging technologies and changes in customer requirements more quickly, take
advantage of acquisitions and other opportunities more readily, achieve greater
economies of scale, and devote greater resources to the marketing and sale of
their services than we can. Because of these competitive factors and due to our
relatively small size and financial resources, we may be unable to compete
successfully.





CONSOLIDATION
IN THE INDUSTRIES IN WHICH WE OPERATE COULD LEAD TO INCREASED COMPETITION AND
LOSS OF CUSTOMERS.





The
mobile industry has experienced substantial consolidation.  We expect
this consolidation to continue. These acquisitions could adversely affect our
business and results of operations in a number of ways, including the
following:





·
            our
      distribution partners could acquire or be acquired by one of our
      competitors and terminate their relationship with
  us;


·
            our
      distribution partners could merge with each other, which could reduce our
      ability to negotiate favorable
terms;


·
            competitors
      could improve their competitive positions through strategic acquisitions;
      and


·
            companies
      from whom we acquire content could acquire or be acquired by one of our
      competitors and stop licensing content to us, or gain additional
      negotiating leverage in their relationships with
  us.





REPORTS
TO SECURITY HOLDERS





We file
annual and quarterly reports with the SEC. In addition, we file additional
reports for matters such as material developments or changes within the Company,
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 with the SEC at the SEC's Public
Reference Room, 100 F Street N.E., 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. In addition, our periodic reports and
Section 16 filings are accessible through our internet web site at
www.zim.biz.


12




ITEM
2. DESCRIPTION OF PROPERTY.





Our
principal office is located in Ottawa, Canada. ZIM leases an office suite of
approximately 3,300 square feet. The lease is currently scheduled to expire in
October, 2010.





We
believe that our existing facilities are adequate to meet our current
needs.








ITEM
3. LEGAL PROCEEDINGS.





We are
currently not party to any pending legal proceeding, nor is any of our property
the subject of any pending legal proceeding.








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 quarter ended March 31,
2008.





PART
II








ITEM
5. MARKET FOR COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND SMALL BUSINESS
ISSUER PURCHASES OF EQUITY SECURITIES.





"Bid" and
"asked" offers for our common shares are quoted on the Over-the-Counter Bulletin
Board ("OTCBB"). Our common shares have been quoted 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
            
            
            LOW2007
      First Quarter
            
            $
            0.07
            
            
            $
            0.042007
      Second Quarter
            
            $
            0.14
            
            
            $
            0.022007
      Third Quarter
            
            $
            0.12
            
            
            $
            0.062007
      Fourth Quarter
            
            $
            0.10
            
            
            $
            0.042008
      First Quarter
            
            $
            0.05
            
            
            $
            0.032008
      Second Quarter
            
            $
            0.06
            
            
            $
            0.032008
      Third Quarter
            
            $
            0.04
            
            
            $
            0.012008
      Fourth Quarter
            
            $
            0.03
            
            
            $
            0.01








Our
common shares are thinly traded and, accordingly, reported sale prices may not
represent a true market-based valuation of our common shares. As of June 20,
2008 there were approximately 1,000 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.


13


RECENT
SALES OF UNREGISTERED SECURITIES





On
December 4, 2007, we issued to Michael Cowpland, our Chief Executive Officer and
controlling shareholder, 7,398,912 units, each consisting of one common share
and one warrant to purchase a common share for $0.014. Mr. Cowpland acquired the
units through the conversion of debt and accumulated interest in the amount of
$103,585. The units were priced at $0.014 per unit, which represented the
closing market price of ZIM’s common stock on the OTCBB on December 3, 2007. The
warrants will expire on March 3, 2009. We issued
the units in reliance upon the exemption from the registration requirement of
the Securities Act of 1933 provided by Section 4(2) of the Securities Act. The
investor is an accredited investor who was afforded full opportunity to obtain
material information about the Company, and no general solicitation was
involved. In addition, the securities were sold in an "offshore transaction" as
defined in Regulation S, and in compliance with applicable exemptions under
Canadian securities laws.








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





This
Management's Discussion and Analysis or Plan of Operation contains
forward-looking statements regarding our business, financial condition, results
of operations and prospects that are based on our current expectations,
estimates and projections. In addition, other written or oral statements which
constitute forward-looking statements may be made by or on behalf of the
registrant. 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 are inherently subject
to risks and uncertainties that are difficult to predict. As a result, actual
outcomes and results may differ materially from the outcomes and 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 "Factors Affecting Our Operating
Results, Business Prospects and Market Price" as well as those discussed
elsewhere in this Annual Report on Form 10-KSB. 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. All forward-looking statements speak only as of the date of this
Annual Report on Form 10-KSB. We undertake no obligation to revise or update
publicly 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.





The
following discussion includes information from the audited consolidated
statements of operations for the years ended March 31, 2008 and
2007.  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 in the United States ("GAAP") and is stated in US
dollars.





14







OVERVIEW





ZIM
Corporation (“ZIM”, “Our” or “We”) is a provider of software products and
services for the database, mobile and internet protocol television (IPTV)
markets. ZIM’s products and services are used by enterprises in the design,
development and management of business, database and IPTV applications. ZIM also
provides mobile content to the consumer market.





Since
2004, we have focused on developing a business strategy to leverage the
consumers’ use of their cell phone and the consumers’ demand for innovative
content.  Originally we focused on SMS, or text messaging, expanding
into mobile content effective April 1, 2006, when we acquired two mobile content
internet sites, www.ringingphone.com
and www.monstertones.com.  Also
during the 2007 fiscal year, we expanded our offering to include video content
on the Internet – also referred to as IPTV.





OVERVIEW
OF 2008 OPERATING RESULTS





The
following is an overview of our operating results for the year ended March 31,
2008. A more detailed discussion of our operating results, comparing our
operating results for the years ended March 31, 2008 and 2007, is included under
the heading “Results of Operations for the Year Ended March 31, 2008 Compared to
the Year Ended March 31, 2007” of this “Management's Discussion and Analysis or
Plan of Operation”.





Revenues
for the year ended March 31, 2008 decreased to approximately $2.1 million from
approximately $2.2 million for the year ended March 31, 2007.  Revenue
from our mobile segment decreased from $1.1 million to $0.9
million.  The decrease is due to reduced aggregation traffic from our
customer base.  Revenue from our software segment has remained
unchanged at approximately $1.1 million for the years ended March 31, 2008 and
March 31, 2007.





Total
operating expenses for the year ended March 31, 2008 were approximately $2.6
million, a decrease of approximately $1.8 million from operating expenses of
$4.4 million for the year ended March 31, 2007. The decrease was attributable to
a decrease in costs of revenue relating to the decrease in revenues associated
with SMS aggregation, no further amortization of intangible assets related to
the acquisition of AIS (which were fully amortized in 2007) and reduced
operating costs. These decreases were offset to some extent by an increase in
research and development expenditures.





CHANGE
IN STRATEGIC DIRECTION





Due to
the decrease in revenues from SMS aggregation services, we started exploring new
opportunities both within the mobile industry and Internet TV.





In 2006, we began offering mobile content, but this is a
very competitive business and we do not foresee increasing this business
significantly.  In 2007, we expanded intoInternetTV.Fiscal 2008
showed an increase in revenue from IPTV over fiscal 2007. However, to date we
have not generated significant revenues within the IPTV space and have not been
able to grow the mobile content business.  As a result, management of
ZIM continues to explore alternative strategies and opportunities within both
these industries to leverage the existing technology, relationships and
expertise.  These may include joint ventures or sales of any or all of
our assets related to either of these industries.


15







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 judgments 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. Actual results could differ from our estimates, and such differences
could be material.  On an ongoing basis, management reviews our
accounting policies and how they are applied and disclosed in our consolidated
financial statements.





The
following supplemental information describes significant judgments and estimates
involved in our critical accounting policies, which are more fully described in
Note 2 to the consolidated financial statements included in this
Report.





JUDGMENTS
REGARDING TAX POSITIONS





In June
2006, FASB Interpretation 48, “Accounting for Uncertainty in Income Taxes”, was
issued, which clarifies the accounting for uncertainty in income taxes
recognized in an enterprise's financial statements in accordance with FASB
Statement No. 109, “Accounting for Income Taxes”. This Interpretation requires
that the Company recognize in its financial statements the impact of a tax
position if that position is more likely than not of not being sustained on an
audit, based on the technical merits of the position. Accordingly, management
may be required to make additional judgments regarding the accounting treatment
of tax positions.





The
Company adopted the provisions of this Interpretation on April 1,
2007.  No adjustment was required to the amount of the unrecognized
tax benefits.





VALUATION
ALLOWANCES





We must
make certain estimates and judgments in determining the 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
based on factors such as future profitability, 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.





REVENUE
RECOGNITION





Revenues
shown in the financial statements included with this report have been derived
mainly from mobile content sales, IPTV, SMS messaging services, SMS fee-based
services, and proprietary software products and licenses. The Company presents
revenues net of sales tax and other sales related taxes.




Mobile content
sales
 
 Mobile
content revenues are derived primarily from credit card purchases via the
internet or through premium messaging.  Revenue from mobile content,
ring tones or wallpapers, is recognized by delivery and acceptance of a download
to the end users. We recognize revenue when (a) there is persuasive evidence of
an arrangement; (b) the service has been provided to the customer; (c) the
amount of the fees to be paid by the customer is fixed and determinable; and (d)
the collection of the fees is reasonably assured.


16





IPTV
sales





IPTV
revenues are derived from contracts to provide channels and infrastructure
services.  Revenue is recognized by delivery and acceptance of
services to the end users. We recognize revenue when (a) there is persuasive
evidence of an arrangement; (b) the service has been provided to the customer;
(c) the amount of the fees to be paid by the customer is fixed and determinable;
and (d) the collection of the fees is reasonably assured.





Premium messaging and SMS
fee-based services





SMS
premium messaging services revenues are derived principally from providing
mobile content providers connections to mobile operators and allowing their end
users to expand on their SMS capabilities and other services. These services
include news and other content subscriptions. Revenues from SMS messaging
services are recognized based on fees received from the mobile operator, after
all payments to the mobile content providers. Such revenues are recognized by
ZIM in the period in which the service is performed, provided that no
significant Company obligations remain, the collection of the receivables is
reasonably assured and the amounts can be accurately estimated.





We rely
on the billing statements from third party mobile operators to record revenues.
These statements are reviewed for consistency with internally generated reports.
Due to the time lag of receiving billing statements from third-party mobile
operators, revenues in any period may have to be estimated based on our internal
billing records and transmissions, adjusting for prior period confirmation rates
with mobile operators and prior period discrepancies between internally
estimated revenues and actual revenues confirmed by mobile operators. We apply
confirmation rates based on the average of the recent actual historical rates.
To date, there has been no significant adjustment to any estimates. However, our internal judgments may be incorrect in any
period, which may result in our recording materially incorrect
revenues.





Proprietary software
products and licenses sales





ZIM
records revenues from the perpetual license of the Company's software products
and the sale of related maintenance and consulting. The Company's standard
license agreement provides a license to use the Company's products based on the
number of licensed users. The Company 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.





The
Company 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 Company-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 Company allocates revenue to each
undelivered element based on its respective fair value determined by the price
charged when that element is sold separately. The Company 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.  STOCK-BASED
COMPENSATION
 
 ZIM
adopted the provisions of SFAS No. 123(R) effective April 1, 2006, using the
modified-prospective transition method, which requires measurement of
compensation cost for all stock-based awards at fair value on the date of grant
and recognition of compensation expense over the service period for awards
expected to vest. The fair value of stock options is determined using the Black
Scholes valuation model and requires judgment in establishing the volatility and
option forfeiture rates. These internal judgments
may be incorrect in any period, which may result in our recording materially
incorrect compensation expense.


17


RESULTS
OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 2008 COMPARED TO THE YEAR ENDED MARCH
31, 2007





REVENUES


Year
      ended March 31, 2008
            
            
            As
      a %
            
            
            Year
      ended March 31, 2007
            
            
            As
      a %$
            
            
            
            
            
            
            $Mobile
      content
            
            
            422,559
            
            
            
            20
            %
            
            
            494,809
            
            
            
            23
            %Bulk
      SMS
            
            
            96,290
            
            
            
            5
            %
            
            
            359,679
            
            
            
            16
            %Premium
      SMS
            
            
            279,741
            
            
            
            14
            %
            
            
            142,774
            
            
            
            7
            %Other
      SMS services and products
            
            
            85,679
            
            
            
            4
            %
            
            
            112,110
            
            
            
            5
            %Internet
      TV
            
            
            36,278
            
            
            
            2
            %
            
            
            7,368
            
            
            
            0
            %920,547
            
            
            
            45
            %
            
            
            1,116,740
            
            
            
            51
            %Software
            
            
            157,310
            
            
            
            8
            %
            
            
            152,093
            
            
            
            7
            %Maintenance
      and consulting
            
            
            990,208
            
            
            
            47
            %
            
            
            926,351
            
            
            
            42
            %1,147,518
            
            
            
            55
            %
            
            
            1,078,444
            
            
            
            49
            %2,068,065
            
            
            
            100
            %
            
            
            2,195,184
            
            
            
            100
            %





Total
revenues for the year ended March 31, 2008 were $2,068,065 as compared to
$2,195,184 for the year ended March 31, 2007.  The decrease in
revenues is due to the decrease in our sales of bulk and other SMS services and
products, a trend that we expect to continue in the 2009 fiscal year. In the
quarter ended December 31, 2007, the Company conducted a review of outstanding
payables and receivables and subsequently settled outstanding amounts with
vendors and customers in the Premium SMS market. As previously noted, revenues
from SMS messaging services are recognized on a net basis. All payments to the
mobile providers are recorded as cost of sales and are netted against the
related revenues. Previously recognized revenue and cost of sales have been
reversed and resulted in a net change in the revenue reported of $197,948. After
taking into account these settlements, Premium SMS revenues for the year ended
March 31, 2008 were $81,793. As a result, management is exploring strategic
alternatives to maximize shareholder value from these assets.





REVENUE
ANALYSIS BY SERVICE/PRODUCT OFFERING





MOBILE
CONTENT





On April
1, 2006 we acquired AIS and its two Internet portals offering mobile content. As
previously mentioned, consumers are able to download ring tones and wallpapers
directly from our Internet sites to their mobile phones.  Revenue from
the sale of mobile content for this fiscal year was $422,559 as compared to
$494,809 for fiscal year ended March 31, 2007. The decline was due to a highly
competitive and
saturated market resulting in a lower volume of downloads, partially offset by
our pricing increases for these products. 
 BULK
SMS
 
 Our bulk
SMS messaging revenue decreased from $359,679 for the year ended March 31, 2007
to $96,290 for the year ended March 31, 2008. The decrease in bulk revenue is
primarily a result of not offering a cost effective route for our customers. In
general, bulk messaging customers choose the aggregator that is offering the
lowest cost route.  Different aggregators are able to negotiate
different price points based on the traffic they are able to guarantee to the
mobile operators.  Due to the size of our competitors, and our
competitors’ ability to negotiate better terms, there can be no guarantee that
we will have routes that are the most cost effective in the
future.  As a result, we expect to see further decreases in our bulk
messaging revenue for fiscal 2009.


18


PREMIUM
SMS





Our
premium SMS messaging revenue increased from $142,774 for the year ended March
31, 2007 to $279,741 for
the fiscal year ended March 31, 2008. In the quarter ended December 31, 2007,
the Company conducted a review of outstanding payables and receivables and
subsequently settled outstanding amounts with vendors and customers. As
previously noted, revenues from SMS messaging services are recognized on a net
basis. All payments to the mobile providers are recorded as cost of sales and
are netted against the related revenues. Previously recognized revenue and cost
of sales have been reversed and resulted in a net change in the revenue reported
of $197,948. After taking into account these settlements, Premium SMS revenues
for the year ended March 31, 2008 were $81,793, a decrease of $60,981 when
compared with the same period last year.





Due to
the decreasing margins and competitive nature of our premium SMS revenues, we
are not focusing on expanding this area of the business. As a result, we expect
to see further decreases in our premium SMS messaging revenue for fiscal 2009.
As previously disclosed, we believe that the decrease in margins is attributable
to the competition in the SMS aggregation market and the dominance of a few key
mobile content providers.





OTHER
SMS SERVICES AND PRODUCTS





Our other
SMS services revenue decreased from $112,110 for the year ended March 31, 2007
to $85,679 for the fiscal year ended March 31, 2008, primarily as a result of
eliminating Location Based Services (LBS) service and our virtual mobile
service. All other products and services are continuing; however we do not
market these products and we do not consider them part of our core
business.





INTERNET
TV





During
the quarter ended December 31, 2006, we began offering a P2P Internet TV site,
www.zimtv.biz.
Through a user friendly interface on ZIMTV, consumers can watch free and/or
pay-per-view channels containing sports, movies, television, news, animation and
educational video content. In fiscal 2007 we were in the process of building
customers and we allowed customers free trial subscriptions for the premium
channels as well.





In fiscal
year 2008 we conducted several trials of our live IPTV streaming service with a
key customer. It was determined that P2P did not provide acceptable quality
standards. As such we discontinued our partnership with PPLive and switched to
Windows Media and Flash-based technologies, which resulted in superior results.
The trials were paid for by the customer and resulted in approximately $36,300
in revenues in the year ended March 31, 2008 as compared to $7,368 for the year
ended March 31, 2007. ZIM will continue to develop its IPTV line of
business.





SOFTWARE,
MAINTENANCE AND CONSULTING




We
generate revenues from the sale of our database product as well as the
subsequent maintenance and consulting fees. Software sales increased from
$152,093 for the year ended March 31, 2007 to $157,310 for the year ended March
31, 2008. This is principally due to the delivery and acceptance of two large
development projects in the quarter ending December 31, 2007.
 
 In
addition to the sale of the software, we are generating revenue from software
maintenance and consulting. Maintenance and consulting revenues increased
slightly from $926,351 for the year ended March 31, 2007, to $990,208 for the
year ended March 31, 2008. Most of the maintenance revenue was generated in
Brazil as this region represents the largest concentration of users of ZIM’s IDE
product.
 
 We will
continue to allocate the appropriate resources to the maintenance and
development of our database products while we continue to generate revenues from
this product line. Although we do not see immediate or significant growth in
this segment, we are still committed to serving our existing
customers.


19





EXPENSES





Operating
expenses





Year
      ended March 31, 2008
            
            
            Year
      ended March 31, 2007$
            
            
            
            $Cost
      of revenue
            
            
            384,166
            
            
            
            928,818Selling,
      general and administrative
            
            
            1,654,269
            
            
            
            2,156,049Research
      and development
            
            
            512,287
            
            
            
            382,146Amortization
      of intangible assets
            
            
            -
            
            
            
            972,2092,550,722
            
            
            
            4,439,222





Operating
expenses decreased from $4,439,222 for the year ended March 31, 2007 to
$2,550,722 for the year ended March 31, 2008. The
decrease was attributable to a decrease in costs of revenue relating to the
decrease in revenues associated with SMS aggregation, no further amortization of
intangible assets related to the acquisition of AIS (which were fully amortized
in 2007) and lower operating costs. These decreases were offset to some extent
by an increase in research and development expenditures.





COST
OF REVENUE





Included
in the cost of revenue are costs related to the Zim IDE sales and costs relating
to SMS revenues.





Year
      ended
            
            
            Year
      endedMarch
      31, 2008
            
            
            March
      31, 2007$
            
            
            
            $MobileRevenue
            
            920,547
            
            
            
            1,116,740Cost
      of revenue
            
            (232,185
            )
            
            
            (766,468
            )Gross
      margin
            
            688,362
            
            
            
            350,272Gross
      margin %
            
            75
            %
            
            
            31
            %SoftwareRevenue
            
            1,147,518
            
            
            
            1,078,444Cost
      of revenue
            
            (151,981
            )
            
            
            (162,350
            )


Gross
      margin
            
            995,537
            
            
            
            916,094Gross
      margin %
            
            87
            %
            
            
            85
            %





Gross
margins for the mobile segment increased from 31% to 75% for the year ended
March 31, 2008 compared to fiscal 2007. Increased margins in the mobile segment
are due to the one-time reversal of previously recognized revenue and cost of
sales resulting in a net change in the revenue reported of $197,948 in the
premium SMS market, increase in pricing structure and our ability to decrease
the cost of revenue.





Gross
margins for software, maintenance and consulting sales increased from 85% for
the year ended March 31, 2007 to 87% for the year ended March 31,
2008.  Included in the cost of revenue for software, maintenance and
consulting are salaries relating to supporting the Zim IDE software and costs
for the distribution of the software. The slight increase in gross margins in
our software segment relates to higher revenues while holding costs
stable.




20


SELLING, GENERAL AND
ADMINISTRATIVE




Selling,
general and administrative expenses for the year ended March 31, 2008 and the
year ended March 31, 2007 were $1,654,269 and $2,156,049 respectively. The
decrease is primarily attributable to reduced operating costs, reduced staff
base and reduced professional fees. The decrease also relates to our continued
focus on reducing costs.





Management
does expect to see some increased expenditures in fiscal 2009 as we improve our
internal control over financial reporting.





RESEARCH
AND DEVELOPMENT





Research
and development expenses increased from $382,146 for the year ended March 31,
2007 to $512,287 for the year ended March 31, 2008.  The increase in
research relates to the increase in staff and the increased activity to focus on
mobile content, ZIM IDE and IPTV.





AMORTIZATION
OF INTANGIBLE ASSETS





There was
no amortization of intangibles for the year ended March 31, 2008.





Amortization
of intangibles for the year ended March 31, 2007 was $972,209, representing the
intangible assets acquired in the acquisition of AIS.





GAIN
ON DISPOSITION OF ASSETS





On July
16, 2007, ZIM Corporation signed an agreement with SilverBirch Inc. to sell
certain mobile messaging assets. The assets included ZIM’s Canadian mobile
gateway technology, customer contracts and proprietary web to text
applications.   As consideration for the acquisition, SilverBirch
paid $70,395 in cash upon signing the agreement.  Additional
consideration was to include $93,860 in cash and 500,000 common shares of
SilverBirch, valued at approximately $86,292, based on the share price on the
date of the sale. The additional consideration was to  be received in
instalments as certain conditions of the purchase were completed, such as the
transfer of source codes and customer contracts.





The sale
consisted of four parts, each with a distinct value and payment
structure:





1.
            Short
      Message Peer to Peer Protocol (SMPP) Platform = approximately $70,395 due
      upon signing


2.
            Pitney
      Bowes Contract = approximately $52,562 due upon transfer of the
      contract


3.
            Rogers
      Contract = approximately $41,298 due upon transfer of the
      contract


4.
            Ontario
      Lottery and Gaming Corporation Contract (OLGC) = 500,000 common shares due
      upon transfer of the contract




During
2007 the Short Message Peer to Peer Protocol (SMPP) Platform and the Pitney
Bowes contract were transferred and the portion of the sale related to these
items has been recognized as a gain on sale of assets. Prior to transfer of the
Rogers contract, Rogers terminated its use of the desk top text services
provided under the contract with the result that the contract was not
transferred. A portion of the Rogers contract value, in the amount of $16,605,
was received and has been recognized, as non-refundable cash towards this
portion of the contract. The agreement provides that, in the event that the
remaining conditions are not met, the amounts paid and the assets transferred to
date, based on the conditions that have been met, will not be returned. The
amount of the Rogers contract that will not be realized is $24,693.





As of
March 31, 2008 OLGC informed ZIM and SilverBirch that it would not consent to
the transfer of their contract to SilverBirch. Consequently this contract
remains with ZIM until its completion and the 500,000 common shares of
SilverBirch will not be paid to ZIM.





There was
no comparative amount of gains on disposal of property and equipment for fiscal
2007.




21


INTEREST





For the
years ended March 31, 2008 and 2007, we incurred interest expense on the debt
held by our Chief Executive Officer and on our operating line of credit with the
Royal Bank of Canada.  Both debts incur interest at prime plus 1.75%
per annum.  Offsetting this interest expense was interest income
received from the Canadian tax authority on our investment tax credit returns
and interest income on our surplus cash held in Brazil.





INCOME
TAXES





Included
in income taxes are taxes paid on revenues earned in Brazil net of investment
tax credits on research and development expenditures in Canada. The decrease in
income taxes recoverable is due to research and development tax credits received
in the current fiscal year relating to prior years.





LIQUIDITY
AND CAPITAL RESOURCES





At March
31, 2008, we had cash of $299,943 and working capital of $478,352, as compared
to cash of $441,637 and working capital of $93,085 at March 31, 2007. The
Scientific Research and Development Credits received from the Canadian federal
government were assessed as filed. These were offset by a continued decline in
revenues generated from ZIM’s SMS services.





Cash
flows for the fiscal periods were as follows:





Year
      ended
              March
      31, 2008
            
            Year
      ended
              March
      31, 2007$
            
            $Cash
      flows provided by (used in) operating activities
            (315,458)
            
            198,143Cash
      flows provided by (used in) investing activities
            137,139
            
            (87,402)Cash
      flows provided by financing activities
            48,260
            
            48,560





Operations
consumed $315,458 of cash for the year ended March 31, 2008 as compared to
providing cash of $198,143 for the year ended March 31, 2007.  The
decrease in cash arose as a result of lower sales of approximately $130,000,
increased R&D spending of approximately $127,000 and the change in accounts
receivable being substantially lower in 2008 as compared to
2007.


We
received $137,139 and used $87,402 of cash in investing activities during the
years ended March 31, 2008 and 2007, respectively.  In fiscal 2008 we
received $137,139 in cash related to the sale of assets to
SilverBirch.





In
November 2007, we made a draw down under the credit facility provided by ZIM’s
Chief Executive Officer and controlling shareholder in the amount of $48,260.
Subsequently on December 4, 2007, ZIM’s Chief Executive Officer and controlling
shareholder acquired 7,398,912 units, consisting
of one common share and one warrant to purchase a common share for
$0.014, through the conversion of
the accumulated debt on the credit facility and accumulated interest (due to
shareholder) in the amount of $103,585.





Accounts
receivable decreased from $315,875, as at March 31, 2007 to $202,222 as at March
31, 2008. This change is a result of the decrease in revenues during the year
relating to SMS messaging traffic. In addition, in fiscal 2008 more of our
revenue was directly with the end user, who pays for the content at the time of
the transaction, and as a result, no receivable amount is established. The
decrease in accounts receivables is offset by the decrease in our accounts
payable.  The decrease in accounts payable relates to the reduction in
revenue share payments due to the content providers and the results of the
extensive management review of accounts payable that took place in the third
quarter of 2008.





Credit
terms for software, maintenance and consulting services have remained consistent
from prior periods at 30 days.




22




As at
March 31, 2008, approximately 83% of all related receivables are
current.  As at March 31, 2007, 43% of all receivables were
current.





ZIM will
need an estimated $600,000 in order to fund operating losses and other working
capital requirements for the next 12 months. At March 31, 2008, the Company had
access to a line of credit for approximately $486,450 from its Chief Executive
Officer and a working capital line from its principal banker for approximately
$48,645. In addition, there was a cash balance of $299,943 at March 31,
2008.  Management believes that these funds will be able to fund
existing operations for the next twelve months. However, there is no guarantee
that unanticipated circumstances will not require additional liquidity, and in
any event, these funds alone may not allow for any additional expenditures or
growth.





Future
liquidity and cash requirements will depend on a wide range of factors;
including the level of success we have in changing our strategic direction as
well as our ability to maintain business in existing operations and our ability
to raise additional financing. Accordingly, there can be no assurance that we
will be able to meet our working capital needs for any future period. As a
result of some of the items noted above, the Independent Registered Public
Accounting Firm's Report for the year ended March 31, 2008 indicated that there
was substantial doubt regarding our ability to continue as a going
concern.





If our
expenses surpass the funds available or if we require additional expenditures to
grow the business, we may be unable to obtain the necessary funds and we may
have to curtail or suspend some or all of our business operations, which would
likely have a material adverse effect on our business relationships, financial
results, financial condition and prospects, as well as on the ability of
shareholders to recover their investment.





The
Company has the following lease commitments relating to facilities:





$2009
            
            
            75,8632010
            
            
            72,2862011
            
            
            42,1672012
            
            
            -190,316





Off-Balance
Sheet Arrangements





The
Company has no off balance sheet arrangements as of March 31, 2008.




RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS





The
Company does not anticipate that the adoption of any recently issued accounting
pronouncements will have a significant impact on its consolidated financial
position, statement of operations or cash flows.






23











ITEM
7. FINANCIAL STATEMENTS.








REPORT
OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Board
of Directors and Shareholders of ZIM Corporation





We have
audited the accompanying consolidated balance sheets of ZIM Corporation and
subsidiaries as of March 31, 2008 and 2007 and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
two years in the period ended March 31, 2008. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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 financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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 and
subsidiaries as of March 31, 2008 and 2007 and the results of its operations and
its cash flows for each of the two years in the period ended March 31, 2008 in
conformity with accounting principles generally accepted in the United States of
America.





The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has an accumulated deficit
of $21,455,824 and generated negative cash flows from operations o f
$315,458, during the year ended March 31, 2008. The Company also has generated
negative cash flows from operations during four of the previous five years.
These factors, among others, as discussed in Note 1 to the consolidated
financial statements, raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.





/s/
Raymond Chabot Grant Thornton LLP


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


Raymond
Chabot Grant Thornton LLP





Ottawa,
Canada


June 24,
2008











24





ZIM
      CorporationConsolidated
      Statements of Operations(Expressed
      in US dollars)Year
      ended
              March
      31, 2008
            
            
            
            
            
            Year
      ended
              March
      31, 2007$
            
            
            
            
            
            
            
            $RevenueMobile
            
            
            920,547
            
            
            
            
            
            
            
            1,116,740Software
            
            
            1,147,518
            
            
            
            
            
            
            
            1,078,444Total
      revenue
            
            
            2,068,065
            
            
            
            
            
            
            
            2,195,184Operating
      expensesCost
      of revenue
            
            
            384,166
            
            
            
            
            
            
            
            928,818Selling,
      general and administrative
            
            
            1,654,269
            
            
            
            
            
            
            
            2,156,049Research
      and development
            
            
            512,287
            
            
            
            
            
            
            
            382,146Amortization
      of intangible assets
            
            
            -
            
            
            
            
            
            
            
            972,209Total
      operating expenses
            
            
            2,550,722
            
            
            
            
            
            
            
            4,439,222Loss
      from operations
            
            
            (482,657
            )
            
            
            
            
            
            
            (2,244,038
            )Other
      income:Gain
      on disposition of assets
            
            
            134,267
            
            
            
            
            
            
            
            -Interest
      income (expense), net
            
            
            (1,174
            )
            
            
            
            
            
            
            5,296Total
      other income
            
            
            133,093
            
            
            
            
            
            
            
            5,296Loss
      before income taxes
            
            
            (349,564
            )
            
            
            
            
            
            
            (2,238,742
            )Income
      tax benefit
            
            
            432,100
            
            
            
            
            
            
            
            302,555Net
      income (loss)
            
            
            82,536
            
            
            
            
            
            
            
            (1,936,187
            )Basic
      and diluted income (loss) per share
            
            
            0.001
            
            
            
            
            
            
            
            (0.023
            )Weighted
      average number of shares outstanding
            
            
            90,326,103
            
            
            
            
            
            
            
            83,376,475The
      accompanying notes are an integral part of these consolidated financial
      statements.





25





ZIM
      CorporationConsolidated
      Statements of Shareholders' Equity(Expressed
      in US dollars)Number
      of
              common
              shares
      issued
              and
              outstanding
            Common
              shares
            Additional
              paid-in-
              capital
            Accumulated
              deficit
            Accumulated
              other
              comprehensive
              income
            Total
              shareholders'
              equity$
            $
            $
            $
            $Balance
      as at March 31, 2006
            59,561,569
            17,658,435
            2,129,398
            (19,602,173)
            271,360
            457,020Shares
      issued through the exercise of options
            135,000
            4,800
            
            
            
            4,800Shares
      issued through private placements
            18,365,386
            734,615
            
            
            
            734,615Shares
      issued through private placement for a business
acquisition
            10,000,000
            650,000
            
            
            
            650,000Stock
      options granted
            
            
            326,154
            
            
            326,154Comprehensive
      lossNet
      loss
            
            
            
            (1,936,187)Cumulative
      translation adjustment
            
            
            
            
            32,527Total
      comprehensive loss
            
            
            
            
            
            (1,903,660)Balance
      as at March 31, 2007
            88,061,955
            19,047,850
            2,455,552
            (21,538,360)
            303,887
            268,929Shares
      issued on debt conversion
            7,398,912
            63,939
            
            
            
            63,939Stock
      options granted
            
            
            132,822
            
            
            132,822Warrants
      issued on debt conversion
            
            
            36,991
            
            
            36,991Comprehensive
      incomeNet
      income
            
            
            
            82,536Cumulative
      translation adjustment
            
            
            
            
            10,001Total
      comprehensive income
            
            
            
            
            
            92,537Balance
      as at March 31, 2008
            95,460,867
            19,111,789
            2,625,365
            (21,455,824)
            313,888
            595,218The
      accompanying notes are an integral part of the consolidated financial
      statements.





26





ZIM
      CorporationConsolidated
      Statements of Cash Flows(Expressed
      in US dollars)Year
      ended March 31, 2008
            
            
            Year
      ended March 31, 2007$
            
            
            
            $OPERATING
      ACTIVITIESNet
      income (loss)
            
            
            82,536
            
            
            
            (1,936,187
            )Items
      not involving cash:Depreciation
      of property and equipment
            
            
            87,107
            
            
            
            100,242Amortization
      of intangible assets
            
            
            -
            
            
            
            972,209Gain
      on sale of assets
            
            
            (134,267
            )
            
            
            -Interest
      accrued
            
            
            -
            
            
            
            563Stock-based
      compensation
            
            
            132,822
            
            
            
            313,954Write
      off of accounts receivable
            
            
            21,461
            
            
            
            -Write
      off of accounts payable
            
            
            (273,788
            )
            
            
            -Changes
      in operating working capital, net of effect from
    acquisition:Decrease
      in accounts receivable
            
            
            92,192
            
            
            
            1,014,805Decrease
      (increase) in investment tax credits receivable
            
            
            (279,260
            )
            
            
            266,643Increase
      in prepaid expenses
            
            
            (1,855
            )
            
            
            (3,680
            )Decrease
      in accounts payable
            
            
            17,736
            
            
            
            (327,339
            )Increase
      (decrease) in accrued liabilities
            
            
            8,757
            
            
            
            (218,233
            )Increase
      (decrease) in deferred revenue
            
            
            (68,899
            )
            
            
            15,166Cash
      flows provided by (used in) operating activities
            
            
            (315,458
            )
            
            
            198,143INVESTING
      ACTIVITIESPurchase
      of property and equipment
            
            
            
            
            
            
            (49,624
            )Proceeds
      on sale of assets
            
            
            137,139
            
            
            
            -Business
      acquisition, net of cash received
            
            
            -
            
            
            
            (37,778
            )Cash
      flows provided by (used in) investing activities
            
            
            137,139
            
            
            
            (87,402
            )FINANCING
      ACTIVITIESProceeds
      from the exercise of options
            
            
            -
            
            
            
            4,800Repayment
      of note payable
            
            
            -
            
            
            
            (250,000
            )Proceeds
      from shares issued through a private placement
            
            
            -
            
            
            
            280,422Payments
      to bank indebtedness
            
            
            -
            
            
            
            (29,967
            )Proceeds
      from loan from related party
            
            
            48,260
            
            
            
            43,305Cash
      flows provided by financing activities
            
            
            48,260
            
            
            
            48,560Effect
      of changes in exchange rates on cash
            
            
            (11,635
            )
            
            
            45,301Increase
      (decrease) in cash
            
            
            (141,694
            )
            
            
            204,602Cash,
      beginning of year
            
            
            441,637
            
            
            
            237,035Cash,
      end of year
            
            
            299,943
            
            
            
            441,637Supplemental
      cash flow disclosureInterest
      paid
            
            
            8,924
            
            
            
            8,721Income
      taxes paid
            
            
            -
            
            
            
            77,968Income
      taxes received
            
            
            204,847
            
            
            
            247,918The
      accompanying notes are an integral part of these consolidated financial
      statements.


Non-Cash
Financing Activities:


In
connection with the Company’s April 1st, 2006
acquisition of Advanced Internet Inc., the Company issued 10 million common
shares, valued at $650,000, 500,000 stock options valued at $13,656 and issued a
$250,000 note payable.    In conjunction with the private
placement on June 30, 2006, the Company’s Chief Executive Officer and majority
shareholder converted debt of $435,757 and cumulative interest of $18,437 into
equity. On December 4, 2007, the Company’s Chief Executive Officer and majority
shareholder converted debt of $99,980 and cumulative interest of $3,605 into
equity.


27




ZIM
      CorporationConsolidated
      Balance Sheets(Expressed
      in US dollars)March
      31,
            
            
            March
      31,2008
            
            
            2007$
            
            
            
            $ASSETSCurrent
      assetsCash
            
            
            299,943
            
            
            
            441,637Accounts
      receivable, net
            
            
            202,222
            
            
            
            315,875Investment
      tax credits receivable
            
            
            428,772
            
            
            
            149,512Prepaid
      expenses
            
            
            65,475
            
            
            
            63,620996,412
            
            
            
            970,644Property
      and equipment, net
            
            
            162,738
            
            
            
            230,2911,159,150
            
            
            
            1,200,935LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilitiesLine
      of credit
            
            
            -
            
            
            
            -Accounts
      payable
            
            
            40,906
            
            
            
            296,958Accrued
      liabilities
            
            
            204,372
            
            
            
            195,615Deferred
      revenue
            
            
            272,782
            
            
            
            341,681Due
      to a shareholder
            
            
            -
            
            
            
            43,305518,060
            
            
            
            877,559Deferred
      rent
            
            
            45,872
            
            
            
            54,447Commitments
      and contingenciesShareholders'
      equity:Preferred
      shares, no par value, non-cumulativedividend
      at a rate to be determined by the Board of Directors redeemable for CDN $1
      per share.  Unlimited authorized shares; issued and outstanding
      NIL shares at March 31, 2008 and 2007.
            
            
            -
            
            
            
            -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; or (ii) June 1, 2004. Unlimited authorized shares; issued and
      outstanding NIL shares at March 31, 2008 and 2007.
            
            
            -
            
            
            
            -Common
      shares, no par value,Unlimited
      authorized shares; 95,460,867 shares issued and outstanding as at March
      31, 2008 and 88,061,955 shares as at March 31, 2007.
            
            
            19,111,789
            
            
            
            19,047,850Additional
      paid-in capital
            
            
            2,625,365
            
            
            
            2,455,552Accumulated
      deficit
            
            
            (21,455,824
            )
            
            
            (21,538,360
            )Accumulated
      other comprehensive income
            
            
            313,888
            
            
            
            303,887595,218
            
            
            
            268,9291,159,150
            
            
            
            1,200,935The
      accompanying notes are an integral part of these consolidated financial
      statements.


28


ZIM
CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(EXPRESSED
IN US DOLLARS)





1
- NATURE OF OPERATIONS AND LIQUIDITY





COMPANY
OVERVIEW





ZIM
Corporation (“ZIM”, or the Company) is a provider of software products and
services for the database, mobile and internet protocol television (IPTV)
markets. ZIM products and services are used by enterprises in the design,
development and management of business, database and IPTV applications. ZIM also
provides mobile content to the consumer market.





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
(together referred to as "EPL"). During the year ended March 31, 2006, EPL was
dissolved and all operations were transferred to ZIM Corporation in Canada. 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. On April
1, 2006, ZIM purchased a US-based mobile content company called Advanced
Internet Inc. (“AIS”).





BUSINESS
OF THE COMPANY





ZIM
started operations as a developer and provider of database software known as Zim
IDE software.  Zim IDE software is used by companies in the design,
development, and management of information databases and mission critical
applications.  The Company continues to provide this software to its
client base.





Beginning
in 2002, the Company expanded its business strategy to include opportunities
associated with mobile products.  Prior to fiscal 2007, the Company
focused on developing products and services for the wireless data network
infrastructure known as SMS or text messaging.  Although SMS will
continue to provide a minimal amount of revenue within the mobile segment of
operations, the Company shifted its corporate focus to include offering mobile
content directly to end users.  With the acquisition of AIS, the
Company commenced offering mobile content directly to end users.





In 2008
ZIM continued to develop and sell enterprise database software, SMS messaging
and mobile content to end users. ZIM has also added the ZIM TV service and in
partnership with the International Table Tennis Federation (ITTF) provided
development and hosting services for IPTV to ITTF end users. ZIM continued to
develop its IPTV line of business.








29


ZIM
CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(EXPRESSED
IN US DOLLARS)








LIQUIDITY
AND GOING CONCERN





ZIM will
need an estimated $600,000 in order to fund anticipated operating losses and
other working capital requirements for the next 12 months. At March 31, 2008,
the Company had access to a line of credit for approximately $486,450 from its
Chief Executive Officer and a working capital line from its principal banker for
approximately $48,645. In addition, there was a cash balance of $299,943 at
March 31, 2008.  Management believes that these funds will be able to
fund existing operations for the next twelve months. However, there is no
guarantee that unanticipated circumstances will not require additional
liquidity, and in any event, these funds alone may not allow for any additional
expenditures or growth.





Future
liquidity and cash requirements will depend on a wide range of factors;
including the level of success the Company has in executing their strategic plan
as well as their ability to maintain business in existing operations and their
ability to raise additional financing. Accordingly, there can be no assurance
that ZIM will be able to meet their working capital needs for any future period. In
addition, the Company has an accumulated deficit of $21,455,824 and generated
negative cash flows from operations of $315,458 during the year ended March 31,
2008.  The Company also has generated negative cash flows from operations
during four of the previous five years.





If ZIM’s
expenses surpass the funds available or if ZIM requires additional expenditures
to grow the business, the Company may be unable to obtain the necessary funds
and ZIM may have to curtail or suspend some or all of their business operations,
which would likely have a material adverse effect on their business
relationships, financial results, financial condition and prospects, as well as
on the ability of shareholders to recover their investment.





The
consolidated financial statements have been prepared on the basis of the going
concern assumption, meaning the Company will be able to realize its assets and
discharge its liabilities in the normal course of operations.  The
carrying amounts of assets, liabilities, revenues and expenses presented in the
consolidated financial statements and the balance sheet classification have not
been adjusted as would be required if the going concern assumption were not
appropriate.





Off-Balance
Sheet Arrangements





The
Company has no off-balance sheet arrangements as of March 31, 2008.








2
- SIGNIFICANT ACCOUNTING POLICIES





BASIS
OF PRESENTATION





These
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States ("US GAAP")
applied on a consistent basis.





PRINCIPLES
OF CONSOLIDATION





These
consolidated financial statements include the accounts of the Company 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


ZIM
CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(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.  Estimates have been made by management in several areas,
including, but not limited to, the realizability of accounts receivable, the
valuation allowance associated with deferred income tax assets, investment tax
credits, expected useful life of property and equipment and intangible assets,
and the fair value calculation with respect to the stock options. These
estimates are based on management's best knowledge of current events and actions
that the Company may undertake in the future. Actual results may differ from
those estimates.





COMPREHENSIVE
INCOME (LOSS)





Comprehensive
income (loss) includes net loss and other comprehensive income (loss) ("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 Company relates to
foreign currency translation adjustments relating to the translation of the
financial statements from their functional currency into the reporting
currency.





ALLOWANCE
FOR DOUBTFUL ACCOUNTS





Accounts
receivable are recorded at the invoiced amount net of an allowance for doubtful
accounts. The Company 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. The Company 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
Company derives revenue from two sources: mobile services and applications and
enterprise software, including maintenance and consulting services. Mobile
services involve providing SMS and other content applications and services.
Enterprise software involves providing enterprise software for designing,
developing and manipulating database systems and applications. The Company
presents revenues net of sales tax and other related taxes.





MOBILE
REVENUE RECOGNITION





Revenues
from the Company’s mobile segment are derived principally from providing
aggregation services and from our mobile content portals.










31





ZIM
CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(EXPRESSED
IN US DOLLARS)





Aggregation
services.Aggregation services occur when ZIM sends messages
from its customers through mobile operators to end users on their cell phones.
In this situation, the Company contracts with its customers that cannot connect
directly to the mobile operators and with the third party mobile operators or
other aggregators directly for the transmission of the messages. Net revenues
are recognized in the month in which the service is performed, provided no
significant ZIM obligations remain. ZIM relies on a number of mobile network
operators and other aggregators globally to deliver our services. Generally, (i)
within 15 to 45 days after the end of each month, ZIM receives a statement from
each of the operators or aggregators confirming the amount of charges billed to
that operator's mobile phone users and (ii) within 30 to 90 days after
delivering a monthly statement, each operator or aggregator remits the fees for
the month to ZIM. ZIM arranges to pay the mobile content provider a set amount
per message under a revenue sharing arrangement.  ZIM nets this
revenue share fee against the revenue it receives from the mobile operators in
accordance with EITF 99-19.





Revenues
are recorded on a net basis as the mobile content provider is the primary
obligor in the transaction as they manage and market the content, which ZIM then
distribute.  ZIM’s role within the transaction is limited to providing
transportation and a billing mechanism for the mobile content
provider.





Mobile content
portals.On April 1, 2006 ZIM acquired two internet portals offering
mobile content (see Note 5).  Consumers are able to download ring
tones and wallpapers directly from the internet sites to their mobile
phones.  The majority of consumers choose to pay for the content with
their credit card with the balance of consumers paying through the use of a
premium message.  If they use a premium message to pay for their
content, the charge is paid on their cell phone bill.





Revenues
from all sales are recorded on a gross basis as ZIM manages and markets the
content ZIM distributed. Revenue on mobile content is recognized at the point of
sale, when the customer purchases content from the websites.





ENTERPRISE
SOFTWARE REVENUE RECOGNITION





ZIM
records revenues from the perpetual license of the Company's software products
and the sale of related maintenance and consulting. The Company's standard
license agreement provides a license to use the Company's products based on the
number of licensed users. The Company 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.





The
Company 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 Company-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 Company allocates revenue to each
undelivered element based on its respective fair value determined by the price
charged when that element is sold separately. The Company 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.


32


ZIM
CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(EXPRESSED
IN US DOLLARS)





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





Ø
            persuasive
      evidence of an arrangement exists;


Ø
            delivery
      has occurred;


Ø
            the
      fee is fixed and determinable; and


Ø
            collectibility
      is probable.





The
Company 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 Company 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 Company
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
Company defers revenue recognition until the earlier of customer acceptance or
when the acceptance right lapses.





MAINTENANCE
AND CONSULTING REVENUE RECOGNITION





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.





RESEARCH
AND DEVELOPMENT EXPENSES





Costs
related to research, design and development of products and applications 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 Company's products and the general release of the products has
substantially coincided. The Company has not capitalized any software
development costs since such costs have not been significant.





ADVERTISING





Advertising
costs are expensed as incurred. Advertising costs amounted to $8,586 for the
year ended March 31, 2008 ($26,120 for the year ended March 31,
2007).





INVESTMENT
TAX CREDITS





The
Company qualifies for scientific research and development
expenditures.  Refundable investment tax credits are recorded as a
reduction of income tax expense when it is more likely than not that the credits
will be realized.  Other non-refundable investment tax credits not
utilized in the current year can be used to offset income taxes in future
years.


33


ZIM
CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(EXPRESSED
IN US DOLLARS)





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 Company has complied with the terms and
conditions of the approved grant program.





TRANSLATION
OF FOREIGN CURRENCIES





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





The
translation of the Company'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. Equity transactions are translated at the exchange rate in effect at
the date of the transaction. 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 Company's subsidiaries are translated into the Company's
functional currency, 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 translated at the weighted average
exchange rates for the period and are included in the statement of operations of
the current period. For the year ended March 31, 2007 and 2008, the Company
recognized a foreign exchange gain of $22,307 and a foreign exchange loss of
$7,285 respectively in the accompanying consolidated statements of
operations.





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 the 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.





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. This method is used to
determine the dilutive effect of common shares. The treasury stock method is
used to determine the dilutive effect of warrants and stock options. The
treasury stock method assumes that proceeds received from the exercise of
in-the-money share purchase warrants and stock options are used to repurchase
common shares at the average market price during the period.


34


ZIM
CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(EXPRESSED
IN US DOLLARS)





STOCK
OPTIONS





ZIM
adopted the provisions of SFAS No. 123(R) effective April 1, 2006, using the
modified-prospective transition method, which requires measurement of
compensation cost for all stock-based awards at fair value on the date of grant
and recognition of compensation expense over the service period for awards
expected to vest.





For the
year ended March 31, 2008, the Company recognized compensation expense for
employees of $110,331 and consultants of $22,491. For the year ended March 31,
2007, the Company recognized compensation expense for employees of $301,829 and
consultants of $12,125.





All
options granted vested on the day of the grant resulting in the Company not
having any non-vested awards as of March 31, 2008.





The fair
value of stock options is determined using the Black Scholes valuation
model.  The expected dividend yield is based on historical dividend
payouts, the expected volatility is based on historical volatilities of company
stock for a period approximating the expected life; the risk-free rate is based
on the U.S. Treasury yield curve in effect at the time of grant for periods
corresponding with the expected life of the option; and the expected life
represents the period of time the options are expected to be outstanding and is
based on historical trends.  The weighted average assumptions used in
the computations are as follows:





Year
      ended
              March
      31, 2008
            
            
            Year
      ended
              March
      31, 2007Risk-free
      interest rates
            
            
            3.19
            %
            
            
            5.00
            %Expected
      volatility
            
            
            80
            %
            
            
            80
            %Dividend
      yield
            
            
            -
            
            
            
            -Expected
      life of options (years)
            
            
            2.0
            
            
            
            2.0








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
      balanceSoftware
              40%
              Declining
      balanceOffice
      furniture and equipment
              40%
              Declining
      balanceVoice
      communications equipment
              20%
              Declining
      balanceLeasehold
      improvements
              5
      years
              Straight
      line over thelesser
      of 5 years orthe
      term of theunderlying
      lease










35





ZIM
CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(EXPRESSED
IN US DOLLARS)





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
Company. 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.





LONG-LIVED
ASSETS





Long-lived
assets are tested for impairment when evidence of a decline in value exists and
are adjusted to estimated fair value if the asset is
impaired.  Financial Accounting Standards Board Statement of Financial
Accounting Standards No.144, “Accounting for the Impairment or Disposal of
Long-Lived Assets” (“FAS 144”) requires that, whenever events and circumstances
indicate that the Company may not be able to recover the net book value of its
productive assets, the FAS 144 requires that assets deemed impaired be written
down to their estimated fair value through a charge to earnings.  FAS
144 states that fair values may be estimated using discounted cash flow analysis
or quoted market prices, together with other available
information.  Under the provisions of FAS 144, the Company reviewed
its long-lived assets for impairment to determine if there were events or
changes in circumstances that would indicate that the carrying amount of the
assets may not be recoverable through future cash flows. In fiscal 2007, and
2008 the impairment test performed indicated that no impairment of assets was
justified.





INTANGIBLE
ASSETS





Intangible
assets that are determined to have finite lives are amortized on the
straight-line method over their estimated useful lives.





On April
1, 2006, ZIM acquired intangible assets in connection with the acquisition of
AIS.  Given the nature of the intangible assets acquired, ZIM applied
both the cost approach and the income approach to the valuation of the
assets.  The customer list was valued using the income
approach.  The projected income was based upon the most likely future
revenue generated by the existing customer base, as estimated by
management.  The core technology and the corporate relationships were
valued using the cost approach.  The fair value of these assets was
determined by measuring the current cost to purchase or reproduce the
asset.  All the intangible assets acquired were fully amortized at
March 31, 2007.





In July
2001, the Financial Accounting Standards Board issued SFAS No. 142, Goodwill and
Other Intangible Assets. The Company adopted SFAS No. 142. SFAS No. 142 requires
intangible assets, that do not have a finite life, to be subject to an
assessment of impairment on an annual basis, or more frequently if circumstances
indicate that a possible impairment has occurred. The assessment of impairment
involves a two-step process prescribed in SFAS No. 142, whereby an initial
assessment for potential impairment is performed, followed by a measurement of
the amount of impairment, if any. The Company performs an impairment test on
intangible assets each year to determine if possible impairment has
occurred.  However, as at March 31, 2007 and March 31, 2008 all
intangible assets were fully amortized therefore no impairment tests were
performed.

















36





ZIM
CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(EXPRESSED
IN US DOLLARS)





OTHER





No
remuneration has been recorded in these financial statements for the services of
the Chief Executive Officer. The CEO is also a Director and the controlling
shareholder.





3
- ACCOUNTING FOR UNCERTAIN TAX POSITIONS





In June
2006, FASB Interpretation 48, “Accounting for Uncertainty in Income Taxes”, was
issued, which clarifies the accounting for uncertainty in income taxes
recognized in an enterprise's financial statements in accordance with FASB
Statement No. 109, “Accounting for Income Taxes”. This Interpretation requires
that the Company recognize in its financial statements the impact of a tax
position if that position is more likely than not of not being sustained on an
audit, based on the technical merits of the position.





The
Company adopted the provisions of this Interpretation on April 1,
2007.  No adjustment was required to the amount of the unrecognized
tax benefits.





The
Company and its subsidiaries file income tax returns in Canadian, Brazil and
U.S. federal jurisdictions, and various provincial jurisdictions.  The
Company’s federal income tax returns are generally subject to examination for a
period of three years after filing of the respective return in the U.S. and four
years in Canada and five years in Brazil.





The
Company recognizes any interest accrued related to unrecognized tax benefits in
interest and penalties in income tax expense in the Consolidated Statement of
Operations.





4
- GAIN ON DISPOSITION OF ASSETS







On July
16, 2007, ZIM Corporation signed an agreement to sell ZIM's Canadian mobile
gateway technology, proprietary web to text applications and related customer
contracts.  Total consideration received was $137,139 and the net book
value of assets given up was $2,872.  A gain of $134,267 was recognized as
the conditions of the agreement have been settled.







5
- ACQUISITION OF ADVANCED INTERNET INC.





Effective
April 1, 2006, ZIM acquired all of the issued and outstanding common shares of
Advanced Internet Inc. (“AIS”). AIS owns and operates two Internet mobile
content sites and was part of ZIM’s move into offering mobile content. 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 of AIS are included in the consolidated financial
statements beginning on the acquisition date. The total purchase price of
$951,434 included a note payable of $250,000, acquisition costs of $37,778,
500,000 stock options with a value of $13,656 and 10,000,000 common shares
valued at $650,000.  The non-interest bearing note payable had a
one-year term, with payments each month of $20,833, and was paid in the one-year
term.  The basis for the determination of the fair value of the common
stock of $0.065 was the average daily closing price of the Company's common
stock on the four days prior to and following the acquisition announcement date
of April 1, 2006. 1,000,000 of the 10,000,000 common shares were held in escrow
for one year and have been released.  The stock options were valued
using the Black-Scholes method, expiring on March 31, 2009 with an option price
of $0.071, volatility of 80%, an expected option life of 2 years, expected
dividend yield of $NIL and a risk free interest rate of 3.50%.


37








ZIM
CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(EXPRESSED
IN US DOLLARS)





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:





$
            
            
            Useful
              lives (in
              months)Working
      capital
            
            
            10,000
            
            
            
            N/ACore
      technology
            
            
            712,488
            
            
            
            12Customer
      list
            
            
            67,449
            
            
            
            5Corporate
      relationships
            
            
            161,497
            
            
            
            12951,434


The
weighted average amortization period was 11 months for the intangible
assets.





Given the
nature of the intangible assets acquired, ZIM applied both the cost approach and
the income approach to the valuation of the assets.  The customer list
was valued using the income approach.  The projected income was based
upon the most likely future revenue generated by the existing customer base, as
estimated by management.  The core technology and the corporate
relationships were valued using the cost approach.  The fair value of
these assets was determined by measuring the current cost to purchase or
reproduce the asset.





6
- ACCOUNTS RECEIVABLE





March
      31, 2008
            
            
            March
      31, 2007$
            
            
            
            
            $Trade
      accounts receivable
            
            
            200,199
            
            
            
            
            287,555Unbilled
      trade accounts receivable
            
            
            11,003
            
            
            
            
            25,401Allowance
      for doubtful accounts
            
            
            (13,459
            )
            
            
            
            (9,319
            )Other
            
            
            4,479
            
            
            
            
            12,238202,222
            
            
            
            
            315,875








7
- PROPERTY AND EQUIPMENT





March
      31, 2008
            
            Cost
            
            
            Accumulated
      depreciation
            
            
            Net
      book value$
            
            
            
            $
            
            
            
            $Computer
      equipment
            
            
            1,010,130
            
            
            
            955,210
            
            
            
            54,920Software
            
            
            92,385
            
            
            
            82,644
            
            
            
            9,741Office
      furniture and equipment
            
            
            210,442
            
            
            
            194,906
            
            
            
            15,536Voice
      communications equipment
            
            
            5,695
            
            
            
            2,301
            
            
            
            3,394Leasehold
      improvements
            
            
            154,169
            
            
            
            75,022
            
            
            
            79,1471,472,821
            
            
            
            1,310,083
            
            
            
            162,738





38





ZIM
      CORPORATION
              NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS
              (EXPRESSED
      IN US DOLLARS)
              
              March
      31, 2007
            
            Cost
            
            
            Accumulated
      depreciation
            
            
            Net
      book value$
            
            
            
            $
            
            
            
            $Computer
      equipment
            
            
            902,243
            
            
            
            820,272
            
            
            
            81,971Software
            
            
            87,977
            
            
            
            62,838
            
            
            
            25,139Office
      furniture and equipment
            
            
            186,764
            
            
            
            164,727
            
            
            
            22,037Voice
      communications equipment
            
            
            5,157
            
            
            
            1,272
            
            
            
            3,885Leasehold
      improvements
            
            
            136,859
            
            
            
            39,600
            
            
            
            97,2591,319,000
            
            
            
            1,088,709
            
            
            
            230,291





Impairment
tests performed by the Company as at March 31, 2007 and as at March 31, 2008
showed that no assets were impaired.





8
- INTANGIBLE ASSETS








As of
March 31, 2007 all intangible assets had been fully amortized





March
      31, 2007
            
            Cost
            
            
            Accumulated
      amortization
            
            
            Net
      book value$
            
            
            
            $
            
            
            
            $Customer
      list
            
            
            68,355
            
            
            
            (68,355
            )
            
            
            -Core
      technology
            
            
            722,053
            
            
            
            (722,053
            )
            
            
            -Customer
      relationships
            
            
            163,664
            
            
            
            (163,664
            )
            
            
            -954,072
            
            
            
            (954,072
            )
            
            
            -





9
– LINE OF CREDIT





During
fiscal 2007, the working capital line of credit was reduced to approximately
$43,000. The $43,000, (equivalent to $50,000 Canadian, the Company’s functional
currency) revolving credit facility is secured by the Company’s assets and
amounts drawn bear interest at the prime rate, as published by the Royal Bank of
Canada, plus 1.75%.  As at March 31, 2007, ZIM was in violation of
certain covenants associated with the line of credit.  Specifically,
ZIM had not maintained a net worth of at least $250,000.





During
fiscal 2008, this working capital line of credit was maintained at approximately
$48,645 (equivalent to $50,000 Canadian, the company’s functional currency). The
amount increased relative to the previous year due to the foreign exchange
effect of the strengthening Canadian dollar relative to the US dollar. The
$48,645 revolving credit facility is secured by the Company’s assets and amounts
drawn bear
interest at the prime rate, as published by the Royal Bank of Canada, plus
1.75%.  As at March 31, 2008, ZIM was not in violation of any
covenants associated with the line of credit.


39





ZIM
CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(EXPRESSED
IN US DOLLARS)





10
- ACCRUED LIABILITIES





March
      31, 2008
            
            
            March
      31, 2007$
            
            
            
            $Employee
      related accruals
            
            
            37,930
            
            
            
            52,376Professional
      fees
            
            
            82,806
            
            
            
            75,594Withholding
      tax accrual
            
            
            2,499
            
            
            
            16,019Trade
            
            
            81,137
            
            
            
            51,057Interest
            
            
            -
            
            
            
            569204,372
            
            
            
            195,615








11
- RELATED PARTY TRANSACTIONS





On June
30, 2006, ZIM’s Chief Executive Officer and controlling shareholder participated
in a private placement of common shares in which he purchased 18,024,591 units,
each consisting of one common share and one warrant to purchase common shares
for $0.04, through a cash investment of approximately $267,000 with the balance
satisfied through the conversion of debt (due to shareholder) in the amount of
$454,193. In addition, the brother of the Chief Executive Officer purchased
90,795 units. The units were priced at $0.04 per unit, which represents the
closing market price on the OTCBB on June 29, 2006. The warrants expired on
September 30, 2007.





On
December 4, 2007, ZIM’s Chief Executive Officer and controlling shareholder
acquired 7,398,912 units, each consisting of one common share and one warrant to
purchase common shares for $0.014 through the conversion of debt and accumulated
interest (due to shareholder) in the amount of $103,585. The debt was the
accumulation of the funds loaned to the company by the Chief Executive Officer
as part of the ongoing credit facility. Refer to Note 12.





DUE
TO A SHAREHOLDER





On August
11, 2005, ZIM entered into a loan agreement with its Chief Executive Officer to
make credit facility available to the Company. The credit facility is an
unsecured revolving facility in the amount of approximately $486,450 (equivalent
to $500,000 Canadian, the company’s functional currency). All advances bear
interest at the Royal Bank of Canada prime rate plus 1.75% and are repayable on
demand.





As at
March 31, 2007, the balance due to the Chief Executive Officer under this credit
facility was $43,305.  As at March 31, 2008, the balance due to the
Chief Executive Officer under this credit facility was $NIL.





12
- SHAREHOLDERS' EQUITY





The
Company issued 135,000 common shares for proceeds of $4,800 in the year ended
March 31, 2007 pursuant to the exercise of stock options by employees and
non-employees.





The
Company did not issue any common shares during the year ended March 31, 2008
pursuant to the exercise of stock options by employees.


40








ZIM
CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(EXPRESSED
IN US DOLLARS)





On June
30, 2006, the Company completed a non-brokered private placement of 18,365,386
units at market value of $0.04 per unit, for total gross proceeds of $734,615,
consisting of cash of $280,422 and through the conversion of debt of $454,193.
18,024,591 of the units were purchased by the Company’s Chief Executive Officer
and controlling shareholder. Each unit consists of one common share and one
common share purchase warrant.  Each warrant may have been exercised
at $0.04 at any time prior to September 30, 2007. These warrants have now
expired.





On
December 4, 2007, ZIM’s Chief Executive Officer and controlling shareholder
acquired 7,398,912 units through the conversion of debt and accumulated interest
(due to shareholder) in the amount of $103,585. The units were priced at $0.014
per unit, which represented the closing market price of ZIM’s common stock on
the OTCBB on December 3, 2007, with each unit consisting of one common share and
one warrant to purchase common shares for $0.014 per share. The warrants will
expire on March 3, 2009. The warrants have been valued using the same
Black-Scholes methodology as the Company’s stock options and have been valued at
$36,991. This amount has been accounted for as additional paid in capital with
the remaining amount of $66,594 being allocated to common shares.





ADDITIONAL
PAID IN CAPITAL





During the year ended March 31, 2008
the Company issued options to employees and non-employees, and as a result,
additional paid in capital has been increased by $132,822. In addition, $36,991
of additional paid in capital was recognized for the warrants issued on the
December 4th, 2007 debt conversion. During the year
ended March 31, 2007, the Company issued options to non-employees, in
consideration for advisory services, and as a result, additional paid in capital
has been increased by $326,154. The increase in additional paid in capital is
the value associated with the vesting of options, which is recorded as
compensation expenses in the statement of operations.








13
- STOCK OPTIONS





Under
ZIM’s Employee Stock Option Plan, the Company may grant options to its officers,
directors and employees for up to 27,200,000 common shares. As at March 31,
2008, 23,717,089 (March 31, 2007, 21,243,743) options were outstanding under the
Employee Stock Option Plan. In addition, 6,010,000 (March 31, 2007, 6,010,000)
options were issued in prior periods outside of ZIM’s Employee Stock Option
Plan.  Stock options are granted with an exercise price equal to the
common share’s 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. All options granted in 2008 vested on the day of
the grant.





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





March
      31, 2008
            
            
            March
      31, 2007Number
      of
              options
              outstanding
            
            
            Weighted
              average
              exercise
      price
            
            
            Number
      of
              options
              outstanding
            
            
            Weighted
              average
              exercise
      price$
            
            
            
            
            
            
            
            $Options
      outstanding, beginning of year
            
            
            27,253,743
            
            
            
            0.200
            
            
            
            27,984,371
            
            
            
            0.540Granted
            
            
            10,780,028
            
            
            
            0.028
            
            
            
            13,194,561
            
            
            
            0.055Exercised
            
            
            -
            
            
            
            -
            
            
            
            (135,000
            )
            
            
            0.036


Expired
            
            
            (8,306,682
            )
            
            
            0.417
            
            
            
            (13,790,189
            )
            
            
            0.752Options
      outstanding, end of year
            
            
            29,727,089
            
            
            
            0.069
            
            
            
            27,253,743
            
            
            
            0.200




41




ZIM
CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(EXPRESSED
IN US DOLLARS)





The
following table represents a summary of the options outstanding as at March 31,
2008:





Options
      outstanding and excercisableRange
      of
              exercise
      prices
            
            
            Number
              outstanding
      at
              March
      31, 2008
            
            
            Weighted
      average
              remaining
              contractual
      life
            
            
            Weighted
              average
              exercise
      price$
            
            
            
            
            
            
            Years
            
            
            
            $0.010-0.024
            
            
            
            6,956,469
            
            
            
            2.82
            
            
            
            0.0200.032-0.047
            
            
            
            4,011,902
            
            
            
            1.79
            
            
            
            0.0400.050-0.067
            
            
            
            10,327,344
            
            
            
            1.66
            
            
            
            0.0520.071-0.080
            
            
            
            2,271,374
            
            
            
            1.58
            
            
            
            0.0770.091-0.200
            
            
            
            6,160,000
            
            
            
            0.40
            
            
            
            0.16829,727,089
            
            
            
            1.68
            
            
            
            0.069








EMPLOYEE
AND NON-EMPLOYEE OPTIONS





During
the year ended March 31, 2008, 8,195,183 (March 31, 2007, 12,244,561) options
were granted to employees.





During
the year ended March 31, 2008, 2,584,845 (March 31, 2007, 950,000) options were
granted to non-employees.





No
options were granted with exercise prices below the market price on the
respective grant dates during the year ended March 31, 2008 or March 31,
2007.





During
the years ended March 31, 2008 and March 31, 2007 certain employees were
terminated and are no longer providing any services to ZIM. Under their
termination agreements, their option grants were modified and the options were
retained and extended to their original term. The options are accounted for in
accordance with FASB statement No. 123 (R), Share-Based Payment. A modification
of the terms of the Stock-based compensation award should be accounted for based
on a comparison of the fair value of the modified option at the date it is
granted and the value at that date of the old option that is
repurchased.





The
compensation expense recorded due to the modification of terminated employees’
options in the years ended March 31, 2008 and March 31, 2007 was $NIL.





42










ZIM
CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(EXPRESSED
IN US DOLLARS)





WARRANTS





As at
March 31, 2008,8,548,918 (March 31, 2007,
19,515,392) warrants were outstanding. 1,150,006 of the warrants outstanding
were issued to investors in January 2004 as part of private
placements.  On December 4, 2007 the Company issued 7,398,912 warrants
as part of a debt conversion (see Note 11). Of the 8,548,918 warrants
outstanding as of March 31, 2008, 1,150,006 expire on May 30, 2008 and 7,398,912
will expire on March 3, 2009. No warrants were exercised in fiscal
2008.





14-
INTEREST





Year
      ended
              March
      31, 2008
            
            
            Year
      ended
              March
      31, 2007$
            
            
            
            $Interest
      expense
            
            
            8,924
            
            
            
            15,569Interest
      income
            
            
            (7,750
            )
            
            
            (20,865
            )Total
            
            
            1,174
            
            
            
            (5,296
            )





15
- 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:





Year
      ended March 31, 2008
            
            
            Year
      ended March 31, 2007$
            
            
            
            $Tax
      Rate, comprised of a federal rate of 12.59% and a provincial rate of
      5.5%
            
            
            18.09
            %
            
            
            18.62
            %Expected
      Canadian Income Tax Recovery
            
            
            (63,236
            )
            
            
            (416,854
            )Change
      in valuation allowance for originating temporary differences and losses
      available for carry forward
            
            
            (781,786
            )
            
            
            136,146Losses
      expired during the year
            
            
            585,933
            
            
            
            146,186Permanent
      differences
            
            
            96,127
            
            
            
            71,283Effect
      of change in rates
            
            
            177,694
            
            
            
            52,875Difference
      between Canadian and foreign tax rates
            
            
            (14,732
            )
            
            
            10,364Refundable
      tax credits
            
            
            (432,100
            )
            
            
            (302,555
            )(432,100
            )
            
            
            (302,555
            )





43







ZIM
CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(EXPRESSED
IN US DOLLARS)





The
change in valuation allowance for originating temporary differences and losses
available for carry forward, is calculated using an effective tax rate of
16.50%, based on the application of the Small Business Deduction. 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 recoveries of $432,100 and $302,555 for the years ended March 31, 2008 and
2007 respectively relate to refundable income tax credits
receivable.





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:








March
      31, 2008
            
            
            March
      31, 2007$
            
            
            
            $Temporary
      differencesLosses
      available for carry forward
            
            
            1,184,576
            
            
            
            1,931,026Property
      and equipment - differences in net book value and unamortized capital
      cost
            
            
            131,154
            
            
            
            130693Intangible
      assets - differences in net book value and tax basis
            
            
            283,456
            
            
            
            319,877Unused
      scientific research and experimental development amounts
      deductible
            
            
            535,048
            
            
            
            644,483Gross
      deferred tax asset
            
            
            2,134,234
            
            
            
            3,026,079Valuation
      allowance
            
            
            (2,134,234
            )
            
            
            (3,026,079
            )Net
      deferred tax asset
            
            
            -
            
            
            
            -








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




Federal
            
            
            Provincial$
            
            
            
            $2009
            
            
            1,859,153
            
            
            
            1,859,1532010
            
            
            717,329
            
            
            
            717,3292014
            
            
            1,507,909
            
            
            
            1,507,9092015
            
            
            1,597,243
            
            
            
            1,597,2432026
            
            
            978,964
            
            
            
            978,964thereafter
            
            
            518,651
            
            
            
            518,6517,179,249
            
            
            
            7,179,249




As at
March 31, 2008, the Company had accumulated unclaimed federal and provincial
scientific research and experimental development deductions of approximately
$3,085,965 and $4,158,934 respectively ($2,513,615 and $3,541,041 in 2007). This
amount can be carried forward indefinitely to reduce income taxes payable in
future years.


44





ZIM
CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(EXPRESSED
IN US DOLLARS)





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





$2009
            
            
            7,1712010
            
            
            -2011
            
            
            17,6112012
            
            
            354,0822013
            
            
            2,215Thereafter
            
            
            10,857391,936





For the
year ended March 31, 2008, the Company recorded an amount of $261,597 of
investment tax credits ($188,444 for the year ended March 31,
2007).





16
- INCOME (LOSS) PER SHARE





For the
purposes of the income (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 warrants, the effect on the loss
per share would negligible.





The
following securities are considered "in the money" and could potentially dilute
basic loss per share in the future but have not been included in diluted loss
per share because their effect was negligible:





March
      31, 2008
            
            
            March
      31, 2007Stock
      options
            
            
            -
            
            
            
            510,843Warrants
            
            
            -
            
            
            
            -





Total
options outstanding at March 31, 2008 and 2007 were 29,727,089 and 27,253,743 respectively. Total
warrants outstanding at March 31, 2008 and 2007 were 8,548,918 and 19,515,392respectively.





17
- FINANCIAL RISKS





FOREIGN
EXCHANGE RISK





The
Company operates internationally, giving rise to significant exposure to market
risks from changes in foreign exchange rates. The company is exposed to exchange
risk due to the following financial instruments denominated in foreign
currencies.





Cash
includes the following amounts in their source currency:





March
      31, 2008
            March
      31, 2007


Canadian
      dollars
            
            
            67,532
            
            
            
            25,235US
      dollars
            
            
            48,383
            
            
            
            95,138Brazilian
      reals
            
            
            297,311
            
            
            
            551,389British
      pounds
            
            
            4,569
            
            
            
            9,326Euros
            
            
            4,198
            
            
            
            18,255








45


ZIM
CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(EXPRESSED
IN US DOLLARS)





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





March
      31,
              2008
            
            
            March
      31,
              2007Canadian
      dollars
            
            
            51,702
            
            
            
            60,744US
      dollars
            
            
            33,092
            
            
            
            39,843Brazilian
      reals
            
            
            139,328
            
            
            
            288,057British
      pounds
            
            
            14,689
            
            
            
            8,401Euros
            
            
            7,387
            
            
            
            37,414





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





March
      31,
              2008
            
            
            March
      31,
              2007Canadian
      dollars
            
            
            7,114
            
            
            
            92,264US
      dollars
            
            
            5,298
            
            
            
            29,427Brazilian
      reals
            
            
            23,210
            
            
            
            23,594British
      pounds
            
            
            –
            
            
            
            42,496Euros
            
            
            10,469
            
            
            
            68,859





Accrued
liabilities include the following accruals in their source
currency:





March
      31,
              2008
            
            
            March
      31,
              2007Canadian
      dollars
            
            
            181,261
            
            
            
            146,885US
      dollars
            
            
            10,013
            
            
            
            20,876Brazilian
      reals
            
            
            31,812
            
            
            
            26,127British
      pounds
            
            
            238
            
            
            
            1,727





The
company does not enter into any derivative financial instruments to partially
cover the foreign exchange risk.





CREDIT
RISK





The
Company 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,
              2008
            
            
            March
      31,
              2007Canada
            
            
            25
            %
            
            
            18
            %North
      America, excluding Canada
            
            
            29
            %
            
            
            13
            %South
      America
            
            
            39
            %
            
            
            47
            %Great
      Britain
            
            
            1
            %
            
            
            5
            %Europe,
      excluding Great Britain
            
            
            6
            %
            
            
            17
            %100
            %
            
            
            100
            %




46




ZIM
CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(EXPRESSED
IN US DOLLARS)





FAIR
VALUE





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





18
– COMMITMENTS AND CONTINGENCIES





OPERATING
LEASE COMMITMENTS





The
Company has the following lease commitments relating to facilities:





$2009
            
            
            75,8632010
            
            
            72,2862011
            
            
            42,1672012
            
            
            -2013
            
            
            -190,316








For the
year ended March 31, 2008, facilities expense was $123,786 ($119,891 for the
year ended March 31, 2007).





OTHER





The
Company 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.





19.  SEGMENT
REPORTING





Management
has determined that the Company operates in two reportable segments: mobile
applications and enterprise software. Mobile applications involve providing SMS
and other content applications and services for mobile devices and Internet TV.
Enterprise software involves providing enterprise software for designing,
developing and manipulating database systems and applications.





The
Company considers all revenues and expenses to be of an operating nature and
accordingly, allocates them to the segments.  Costs specific to a
segment are charged directly to the segment.  Company office expenses
are allocated to either of the segments based on gross
revenues.  Significant assets of the Company include working capital
and property and equipment.  The accounting policies of the reportable
segments are the same as those described in the summary of the significant
accounting policies.





47




ZIM
CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(EXPRESSED
IN US DOLLARS)




The
following table sets forth external revenues, cost of revenues, operating
expenses and other amounts attributable to these product
lines:





Year
      ended March 31, 2008
            
            Mobile
            
            
            Software
            
            
            Total$
            
            
            
            $
            
            
            
            $Revenue
            
            
            920,547
            
            
            
            1,147,518
            
            
            
            2,068,065Cost
      of revenue
            
            
            (232,185
            )
            
            
            (151,981
            )
            
            
            (384,166
            )Gross
      margin
            
            
            688,362
            
            
            
            995,537
            
            
            
            1,683,899Allocation
      of operating expenses
            
            
            964,387
            
            
            
            1,202,169
            
            
            
            2,166,556Gain
      on disposition of assets
            
            
            (134,267
            )
            
            
            -
            
            
            
            (134,267
            )Allocation
      of interest income, net
            
            
            528
            
            
            
            646
            
            
            
            1,174Income
      tax benefit
            
            
            (192,338
            )
            
            
            (239,762
            )
            
            
            (432,100
            )638,310
            
            
            
            963,053
            
            
            
            1,601,363Net
      income
            
            
            50,052
            
            
            
            32,484
            
            
            
            82,536





Year
      ended March 31, 2007
            
            Mobile
            
            
            Software
            
            
            Total$
            
            
            
            $
            
            
            
            $Revenue
            
            
            1,116,740
            
            
            
            1,078,444
            
            
            
            2,195,184Cost
      of revenue
            
            
            (766,468
            )
            
            
            (162,350
            )
            
            
            (928,818
            )Gross
      margin
            
            
            350,272
            
            
            
            916,094
            
            
            
            1,266,366Allocation
      of operating expenses
            
            
            1,291,237
            
            
            
            1,246,958
            
            
            
            2,538,195Amortization
      of intangible assets
            
            
            972,209
            
            
            
            -
            
            
            
            972,209Allocation
      of interest income (expense), net
            
            
            (2,694
            )
            
            
            (2,602
            )
            
            
            (5,296
            )Income
      tax benefit
            
            
            (172,179
            )
            
            
            (130,376
            )
            
            
            (302,555
            )2,088,573
            
            
            
            1,113,980
            
            
            
            3,202,553Net
      loss
            
            
            (1,738,301
            )
            
            
            (197,886
            )
            
            
            (1,936,187
            )





No
customers generated over 10% of revenue for the years ended March 31, 2008 and
March 31, 2007.





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





TOTAL
      ASSETS
            
            March
      31, 2008
            
            
            March
      31, 2007$
            
            
            
            $Mobile
            
            
            515,966
            
            
            
            610,943Software
            
            
            643,184
            
            
            
            589,992


Total
      assets
            
            
            1,159,150
            
            
            
            1,200,935

















48







ZIM
CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(EXPRESSED
IN US DOLLARS)





March
      31, 2008
            
            
            March
      31, 2007$
            
            
            
            $Long-lived
      assetsCanada
            
            
            154,903
            
            
            
            221,601Brazil
            
            
            7,835
            
            
            
            8,690Total
      long-lived assets
            
            
            162,738
            
            
            
            230,291





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:








Total
      Revenue
            
            Year
      ended
              March
      31, 2008
            
            
            Year
      ended
              March
      31, 2007$
            
            
            
            $United
      States
            
            
            637,665
            
            
            
            315,130United
      Kingdom
            
            
            138,536
            
            
            
            184,070Europe
            
            
            60,599
            
            
            
            312,646Brazil
            
            
            977,240
            
            
            
            1,109,234Canada
            
            
            232,951
            
            
            
            260,926Other
            
            
            21,074
            
            
            
            13,178Total
      revenue
            
            
            2,068,065
            
            
            
            2,195,184




Management
evaluates each segment’s performance based upon revenues and margins
achieved.





20
- RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS





SFAS
141





In
December 2007, the FASB issued a revision to Statement of Financial Accounting
Standards No. 141 (“SFAS 141”), “Business Combinations,” The revision broadens
the scope of the original Statement 141 to include all transactions and other
events in which one entity obtains control over one or more other businesses.
The revision calls for the use of one method, the acquisition method, to account
for all such transactions. ZIM will adopt and utilize the methods stipulated in
revised SFAS 141 for all future transactions of this nature.


SFAS
157





In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157 (“SFAS


157”),
“Fair Value Measurements,” which defines fair value, establishes guidelines for
measuring fair value and expands disclosures regarding fair value measurements.
SFAS 157 does not require any new fair value measurements but rather eliminates
inconsistencies in guidance found in various prior accounting pronouncements.
SFAS 157 is effective for fiscal years beginning after November 15, 2007 and
will be adopted on April 1st
2008.







49


ZIM
CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(EXPRESSED
IN US DOLLARS)







FSP FAS
157-b applies to nonfinancial assets and nonfinancial liabilities, except for
items that are recognized or disclosed at fair value in an entity’s financial
statements on a recurring basis (at least annually). As per FSP FAS 157-b the
effective date has been deferred to be effective for fiscal years beginning
after November 15, 2008, and interim periods within those fiscal years, for
items within the scope of the FSP.




The
Company does not anticipate that the adoption of SFAS 157 will have a
significant impact on its consolidated financial position, statement of
operations or cash flows.





SFAS
159





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”).  SFAS 159
permits companies the option, at specified election dates, to measure financial
assets and liabilities at their current fair value, with the corresponding
changes in fair value from period to period recognized in the income
statement.  Additionally, SFAS 159 establishes presentation and
disclosure requirements designed to facilitate comparisons between companies
that choose different measurement attributes for similar assets and
liabilities.  Statement 159 is effective as of the beginning of the
first fiscal year that begins after November 15, 2007. We are currently
evaluating the effect that the adoption of SFAS 159 on April 1, 2008 will have
on our consolidated financial position and results of operations.





21
– SUBSEQUENT EVENTS





Subsequent
to the end of fiscal 2008 the compensation for consulting services provided to
us by John Chapman, our Chief Financial Officer, through CHAPMAN CFO Resources
Inc. was amended to compensation for services in the amount of $750.00 Canadian
per diem and stock options in the amount of $375 per diem divided by the share
price at closing the day prior to the option grant. Options are granted on a
monthly basis from the employee stock option plan.





Subsequent
to the end of fiscal 2008, 1,150,006 warrants expired on May 30, 2008, without
being exercised.






50


ITEM 8.CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.





Not
applicable.





ITEM
8A(T).  CONTROLS AND PROCEDURES.





Disclosure
Controls and Procedures





We are
required to maintain disclosure controls and procedures that are designed to
ensure that information that we are required to disclose in the reports we file
under the Exchange Act is 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 our management, including our
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 ours are
designed to do.





Our
management, under the supervision and with the participation of the Company’s
Chief Executive Officer and Chief Financial Officer carried out an evaluation of
the effectiveness of the design and operation of our disclosure controls and
procedures as of March 31, 2008.  Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were not effective due to the material
weaknesses in our internal control over financial reporting described below
related to our financial reporting processes and information technology security
protocols. This annual report does not include an attestation report of our
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by our registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the company to provide only management's report
in this annual report.





Management’s Annual Report on Internal Control over
Financial Reporting





Management is responsible for establishing and
maintaining internal control over financial reporting, as such term is defined
in Exchange Act Rule 13a-15(f). Our management, under the supervision and with
the participation of our Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of our internal control over financial reporting as
of March 31, 2008.





Based on its evaluation under the framework in Internal
Control—Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), our management concluded that
our internal control over financial reporting was not effective as of March 31,
2008, due to the existence of significant deficiencies constituting a material
weakness, as described in greater detailbelow.A material weakness is a deficiency, or a
combination of deficiencies, in internal control over financial reporting such
that there is a reasonable possibility that a material misstatement in our
financial statements will not be prevented or detected on a timely
basis.





Our principal deficiency was inadequate
staffing and supervision that could lead to the untimely identification and
resolution of accounting and disclosure matters. Other significant deficiencies
that contributed to the material weakness were:





·
            Inadequate
      communication and coordination between finance and the rest of the
      organization;





·
            Inadequate
      segregation of duties and cross
training;





·
            Continued
      reliance on manual systems to account for revenue and expenses;
      and




51


·
            Weaknesses
      in third party billing systems for the Ringingphone.com and
      Monstertones.com databases with respect to the relationship between
      recurring payment processing and account
      updates.







Plan for Remediation of Material Weaknesses





Weare taking steps
to make the necessary improvements to remedy these deficiencies.The Companyhave
implemented certain remedial measures and are in the process of designing and
implementing additional measures to remedy the material
weakness.   These include the following:





1.
            Our inadequate staffing and supervision is being
      addressed by reduction of workload through process optimization and
      documentation.





2.
            The
      inadequate communication and coordination between finance and the rest of
      the organization is being addressed through formal bi-weekly meetings of
      senior management to review financial and operational issues as well as
      review ongoing finance activities such as accounts receivable, accounts
      payable and cash management. A formal monthly meeting of the senior
      management team is also held to review monthly financial performance
      compared to budgets and operational
plans.





3.
            The
      inadequate segregation of duties and cross training is being addressed in
      conjunction with the training and integration of a new Comptroller who was hired in December 2007. We have
      developed detailed descriptions of
      duties and will be cross training functions in the upcoming
year.





4.
            With respect to our reliance on manual systems to account
      for revenue and expenses, in fiscal
      2009, ZIM will eliminate many of
      the manual systems bymigrating to a
      new enterprise accounting system.  As such, our dependency on tools such as Excel and
      reviews by managers and other finance team members will
      decrease.  In order to avoid errors, all manual calculations are
      cross-referenced to contracts and subsequent amendments for
      accuracy.  We have developed a contract review policy that
      involves senior level sales personnel and the Chief Financial
      Officer.





5.
            To mitigate the weaknesses in third party billing
      systems for the Ringingphone.com and Monstertones.com
      databases,Wehave
      arranged to receive notice when customers cancel through one of the
      third party billing services.  This notification is forwarded to
      Technical Support to ensure that the account was properly
      cancelled.  We are reactive to these matters as they occur, but
      due to lack of resources We are limited in our ability to be
      proactive.





ZIM
intend to continue to improve our internal controls; however, our small size and
financial resources continue to prevent us from being able to employ sufficient
resources to enable us to have adequate segregation of duties within our
internal control system.  Management is required to apply its judgment
in evaluating the cost-benefit relationship of possible controls and
procedures.





Changes
in Internal Control Over Financial Reporting





The
following changes, which we believe are reasonably likely to materially affect,
internal control over financial reporting identified in connection with our CEO
and CFO’s evaluation at March 31, 2008 occurred during the fourth fiscal
quarter. Formal bi-weekly meetings of senior management to review financial and
operational issues as well as review ongoing finance activities such as accounts
receivable, accounts payable and cash management were implemented in the fourth
quarter of 2008. Formal monthly meetings of the senior management team to review
monthly financial performance compared to budgets and operational plans were
also instituted.


52











ITEM
8B. OTHER INFORMATION.





On June
13th, 2008
the compensation for consulting services provided to us by John Chapman, our
Chief Financial Officer, through CHAPMAN CFO Resources Inc. was amended,
effective May 1st, 2008,
to compensation for services in the amount of $750.00 Canadian per diem and
stock options in the amount of $375 per diem divided by the share price at
closing the day prior to the option grant. Options are granted on a monthly
basis from the employee stock option plan.








PART
III





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





The
following sets forth information concerning our executive 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 ZIMDr.
      Michael Cowpland
            65
            President,
      Chief Executive Officer, and DirectorRoberto
      Campagna
            30
            Vice
      President SalesPhil
      Scavo
            31
            Vice
      President Business DevelopmentJohn
      Chapman
            44
            Chief
      Financial Officer / ConsultantSteven
      Houck
            38
            DirectorJames
      Stechyson
            43
            DirectorDonald
      Gibbs
            62
            Director





Michael
Cowpland has served as President Director and Chief Executive Officer since
February 2001 and as Chief Financial Officer from March 2007 to November 2007.
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).





Roberto
Campagna, Vice President Sales since August 2002 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.





Phil
Scavo was promoted to Vice President, Entity Sales in 2003, responsible for
worldwide sales and channel development for ZIM Integrated Development
Environment (IDE) and database products. In 2004, this role was expanded to Vice
President, Business Development to encompass the development of global
opportunities for ZIM's SMS products and services as well as the integration of
key strategic acquisitions added to the mobile business. Prior to being
promoted in 2003, Phil was a Sales Manager for ZIM. Phil began his career in the
financial industry at MD Management, a large investment management firm,
specializing in equities. Phil earned a Bachelor of Commerce (Business
Administration) degree at the University of Ottawa and is a licensed trader in
the financial industry.


53





John
Chapman has served as Chief Financial Officer since November 2007 and has
provided consulting services to the company since July 2007. Mr. Chapman
provides virtual CFO consulting services to various companies. From 2003 to 2005
Mr. Chapman held the positions of Director of Finance and Program Management
Office at Amdocs Canadian Managed Services. From 1988 to 2003 Mr. Chapman held
various positions at Bell Canada and BCE companies in the areas of Finance,
Human Resources and Engineering. He received a Bachelor of Technology
(Mechanical Engineering) from Ryerson Polytechnical Institute in 1988 and a
Masters in Business Administration from the University of Ottawa in 1999. Mr.
Chapman is a member of, and holds professional designations, with the
Association of Professional Engineers of Ontario and the Institute of Certified
Management Consultants of Ontario.





Steven
Houck has served as a Director since April 2001. Currently, Mr. Houck is the
Vice President of World Wide Channel Sales at Vmware, a developer of software for the virtualization
market.  Prior to working at Vmware Steve was Vice President of
World Wide SMB Sales at EMC Corporation, a
developer and provider of information infrastructure technology and
solutions.  During 2004 and 2005, Mr. Houck worked as a consultant for
various start up companies. From 1995 to early 2004, Mr. Houck held
various positions with Corel Corporation including Executive Vice President of World
Wide Sales. 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 attended Florida State University and Florida
Atlantic University.





James
Stechyson has served as a Director and Chairman of ZIM since June 1, 2003. He
also served as a Director of ZIM Technologies beginning in January 1998 and was
appointed into the position of Chairman in May 2001.  From September
2002 until 2003, Mr. Stechyson served as the President of ClearOne
Communications Canada.  From 1990 to September 2002 he was the Founder
and President of OM Video, Inc., a major hardware sales and systems integrator
of professional video and presentation technology based in Ottawa, Canada. OM
Video was acquired by ClearOne Communications in 2002.





Donald R
Gibbs has been a Director of ZIM since July 2003. He also serves as the Chairman
of ZIM's Audit Committee. Mr. Gibbs is a consultant. From April 2007, to June
2008, Mr. Gibbs was the Chief Executive Officer of Tarquin Inc.  Since
July of 2004, Mr. Gibbs has been the Chairman and Chief Executive Officer of
Process Photonics Inc.  From June 2001 to April 2004, Mr. Gibbs was
the President and Chief Executive Officer of Original Solutions
Inc.  He is also 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. ZIM 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 such
candidates are presented to the Board in a timely manner.





The Audit
Committee's functions include evaluating, and recommending to the Board the
engagement of the independent registered public accounting firm, reviewing the
results of their audit findings, and monitoring on a periodic basis our internal
controls over financial reporting. The Audit Committee has a formally approved
written charter. At fiscal year-end, the Audit Committee consisted of Donald
Gibbs (Chairman)
and Jim Stechyson. Mr. Gibbs is the Audit Committee’s “audit committee financial
expert,” and he is “independent” under the listing criteria applicable to
NASDAQ-listed companies.  The Audit Committee held four meetings
during the fiscal year ended March 31, 2008.


54





The
Compensation Committee’s functions include evaluating compensation for
directors, officers, employees of and consultants to the Company, and making
recommendations to the Board regarding such compensation matters.  The
Compensation Committee has a formally approved written charter. The Compensation
Committee currently consists of Jim Stechyson and Steven Houck.  The
Compensation Committee did not hold a meeting during the fiscal year ended March
31, 2008.





SECTION
16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE





Section
16(a) of the Securities Exchange Act of 1934 requires our directors, certain
officers and persons holding 10% or more of our common shares to file reports
regarding their ownership and regarding their acquisitions and dispositions of
our common stock with the SEC. Such persons are required by SEC regulations to
furnish the Registrant with copies of all Section 16(a) forms they
file.





To our knowledge, based solely on our review of copies
of reports furnished to us and written representations that no other reports
were required, during fiscal 2008, our directors, officers, and 10% stockholders
complied with all Section 16(a) filing requirements, exceptthat Michael
Cowpland filed a Form 4 on October 17, 2007 for a transaction that occurred on
September 20, 2007 and a Form 4 on October 17, 2007 for a transaction that
occurred on October 1, 2007.





CODE
OF ETHICS FOR SENIOR FINANCIAL OFFICERS





Our Board
of Directors has adopted a Code of Ethics that applies to our Chief Executive
Officer and 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 without charge by writing to: Investor
Relations c/o 150 Isabella Street, Suite 150, Ottawa, Ontario K1S 1V7 or by
visiting our web-site at www.zim.biz.








ITEM
10. EXECUTIVE COMPENSATION





Compensation
Discussion and Analysis




Philosophy




We design
all of our compensation programs to retain and as necessary attract key
employees who are motivated to achieve growth in technology. Our program has
been kept simple due to the size of our staff and our lack of performance
measurements.  Our programs are designed to reward performance based
on team and individual performances. Due to the size of our organization, our
executive compensation programs impact all employees because these programs help
establish expectations for our general approach to rewards. The Company
encourages our business leaders to work together to create a high performance
environment that is reinforced by constant attention to individual’s goals and
expectations.




We
believe that the performance of the executives in managing our company should be
considered in light of general economic and specific company, industry and
competitive conditions. We believe that our compensation programs for our
executives should reflect our success as a management team and in attaining an
increased value for shareholders. We also believe that individual performance
should be evaluated annually and considered in compensation
decisions.




55











Overview of
Compensation and Process




Elements
of compensation for our executives include: salary and stock option grants and
health, disability and life insurance. Our Compensation Committee consists of
Messrs. Stechyson and Houck. It generally meets as required to review any
changes to the compensation plans for the next year. In fiscal 2008, there were
no changes to the plan, no bonuses and no changes to the salary levels for
executives, and as a result, there were no Compensation Committee
meetings.





Due to
the size of the organization, the Compensation Committee is aware of all the
elements of each executive’s total compensation over each of the past three
years, as well as a comparison to the compensation of other executive officers
in an appropriate market comparison group. Typically, our Chief Executive
Officer recommends compensation changes with respect to the executive officers
who report to him. The Chief Executive Officer has no salary so there have been
no compensation recommendations to the compensation committee with respect to
him. All option grants to the executives in the organization are approved by the
board of directors at the time of grant. The Compensation Committee has the
authority to accept or adjust any recommendations.





We choose
to pay each element of compensation in order to attract and retain the necessary
executive talent, reward annual performance and provide incentive for their
balanced focus on long-term strategic goals as well as short-term performance.
The amount of each element of compensation is determined by or under the
direction of the compensation committee, which uses the following factors to
determine the amount of salary and other benefits to pay each
executive:




·
            performance
      in the previous year;


·
            difficulty
      of achieving desired results in the coming
year;


·
            value
      of their unique skills and capabilities to performance of the
      Company;


·
            performance
      of their general management
  responsibilities; and


·
            contribution
      as a member of the management team.




These
elements fit into our overall compensation objectives by helping to secure the
future potential of our operations, facilitating our entry into new markets,
providing proper compliance and regulatory guidance, and helping to create a
cohesive team.




Our
policy for allocating between long-term and currently paid compensation is to
ensure adequate base compensation to attract and retain personnel, while
providing stock option incentives to maximize long-term value for our
Company.




Base Salary and
Bonus




It is the
goal of the Compensation Committee to establish salary compensation for our
executive officers based on our comparable peer companies. We believe that this
gives us the opportunity to attract and retain appropriate managerial employees
both at the senior executive level and below.




Due to
the performance of the company and our available working capital, there were no
changes to the management incentive plan for fiscal 2008.  For the
fiscal year ended March 31, 2008, ZIM retained the management team by offering
stock options and through the personal commitment of the team.  In
April 2007, the Chief Financial Officer resigned and was replaced in November
2007. There are no assurances that ZIM will be able to retain the remaining
team.





Equity
Incentives


A
significant goal of our compensation is to afford our executives (and employees)
an opportunity to participate in our performance through stock option grants.
The Compensation Committee considers factors such as the ability for the Company
to attract, motivate and retain qualified individuals and to align their success
with that of the Company’s Shareholders through the achievement of strategic
corporate objectives and creation of shareholder value. The level of equity
incentives paid to an individual is based on the individual’s overall
experience, responsibility, performance and base salary. Factors also considered
are the equity incentives offered for similar positions in the high tech
industry and other labor markets in which the Company competes for employees.
The Compensation Committee compares remuneration for executive officers of the
Company to the remuneration for similar executives in relevant labor
markets.





56


Perquisites




We limit
the perquisites that we make available to our executive officers. Our executives
are not entitled to any benefits that are not otherwise available to all of our
employees.




Post-Employment
Compensation




We do not
provide pension arrangements or post-retirement health coverage for our
executives or employees. Our executive officers are eligible to participate in
our registered retirement savings plan.





Summary
Compensation Table





The table
below provides detailed information on the compensation of the Chief Executive
Officer, the Vice President of Sales and the Vice President of Business
Development for services rendered for the fiscal year ended March 31,
2008.  No other executive officer or employee received compensation in
excess of $100,000 for the fiscal year ended March 31, 2008.











Name
      and principal position
            
            Year
            
            
            Salary
      /
              Consulting
              Payments
      ($)
            
            
            Option
      Awards
              ($)(1)
            
            
            Total
      ($)Michael
      Cowpland, President and Chief Executive Officer
            
            
            2007
              2008
            
            
            
            -
              -
            
            
            
            204,633
              16,188
            
            
            
            204,633
              16,188Roberto
      Campagna, Vice President, Sales
            
            
            2007
              2008
            
            
            
            105,391
              115,824
            
            
            
            11,737
              5,735
            
            
            
            117,128
              121,559Phil
      Scavo, Vice President Business Development
            
            
            2007
              2008
            
            
            
            102,098
              115,824
            
            
            
            13,492
              5,416
            
            
            
            115,590
              121,240








(1)
            Represents
      the compensation expense incurred by the Company for the year ended March
      31, 2008 relating to outstanding stock options held by the named executive
      officers (“NEOs”), determined in accordance with FAS 123(R) using the
      assumptions described under “Stock Option Plans” in Note 2 to the
      Company’s Financial Statements included in this Form 10-KSB, provided that
      no forfeitures of awards have been assumed for the
      NEOs.  Vesting dates for the options included in this column are
      given in the following table.











57




Outstanding
Equity Awards At Fiscal Year-End





Name
            
            Number of Securities Underlying Unexercised
      Options
              (#)
              Exercisable
            
            Option
      Awards
              Number of
              Securities
              Underlying
              Unexercised
              Options
              (#)
              Unexercisable
            
            Option
              Exercise
              Price ($)
            
            Option
              Expiration
              DateMichael
      Cowpland, President and Chief Executive Officer
            
            
            120,000
            
            Nil
            
            
            0.200
            
            29-Apr-08100,000
            
            Nil
            
            
            0.140
            
            7-Nov-08100,000
            
            Nil
            
            
            0.090
            
            8-Dec-081,400,000
            
            Nil
            
            
            0.050
            
            12-Jun-09133,340
            
            Nil
            
            
            0.035
            
            9-Jul-0962,503
            
            Nil
            
            
            0.024
            
            7-Aug-096,667
            
            Nil
            
            
            0.070
            
            8-Oct-09726,702
            
            Nil
            
            
            0.080
            
            7-Nov-09100,005
            
            Nil
            
            
            0.075
            
            17-Dec-095,710,000
            
            Nil
            
            
            0.050
            
            7-Feb-10406,650
            
            Nil
            
            
            0.050
            
            7-Feb-1047,500
            
            Nil
            
            
            0.040
            
            08-Apr-1095,000
            
            Nil
            
            
            0.040
            
            07-Jun-10326,683
            
            Nil
            
            
            0.050
            
            19-Sep-1066,667
            
            Nil
            
            
            0.050
            
            30-Sep-1010,000
            
            Nil
            
            
            0.011
            
            08-Dec-10263,333
            
            Nil
            
            
            0.015
            
            30-Dec-10


200,000
            
            Nil
            
            
            0.020
            
            17-Feb-11130,000
            
            Nil
            
            
            0.020
            
            17-Feb-11  58




Roberto
      Campagna, Vice President, Sales
            
            
            100,000
            
            Nil
            
            
            0.140
            
            7-Nov-08100,000
            
            Nil
            
            
            0.090
            
            8-Dec-08200,000
            
            Nil
            
            
            0.050
            
            12-Jun-0940,000
            
            Nil
            
            
            0.080
            
            7-Nov-0996,611
            
            Nil
            
            
            0.088
            
            1-Jan-10100,000
            
            Nil
            
            
            0.040
            
            4-Mar-1025,000
            
            Nil
            
            
            0.040
            
            08-Apr-10100,000
            
            Nil
            
            
            0.040
            
            10-Apr-1050,000
            
            Nil
            
            
            0.040
            
            06-Jun-1065,000
            
            Nil
            
            
            0.020
            
            17-Feb-11250,000
            
            
            
            
            0.020
            
            17-Feb-11Phil
      Scavo, Vice President Business Development
            
            
            100,000
            
            Nil
            
            
            0.140
            
            7-Nov-08100,000
            
            Nil
            
            
            0.090
            
            8-Dec-08200,000
            
            Nil
            
            
            0.050
            
            12-Jun-0940,000
            
            Nil
            
            
            0.080
            
            7-Nov-0970,000
            
            Nil
            
            
            0.080
            
            25-Dec-09114,722
            
            Nil
            
            
            0.090
            
            1-Jan-1025,000
            
            Nil
            
            
            0.040
            
            28-Feb-1095,000
            
            Nil
            
            
            0.040
            
            08-Apr-1050,000
            
            Nil
            
            
            0.040
            
            07-Jun-1065,000
            
            Nil
            
            
            0.020
            
            17-Feb-11250,000
            
            Nil
            
            
            0.020
            
            17-Feb-11





All
options above vested immediately upon option grant.  All options
granted three years prior to the expiry date.














59





COMPENSATION
OF DIRECTORS





Non-employee
members of the Board of Directors 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
common shares at fair market value at date of the option grant.  In
addition, non-employee members of the Board of Directors are eligible to receive
option grants as determined by the Board of Directors.





The
following table shows compensation of our non-employee directors for the fiscal
year ended March 31, 2008.





Name
            
            Option
      Awards ($)(1)
            
            
            Total
      ($)Steven
      Houck
            
            
            1,692
            
            
            
            1,692James
      Stechyson
            
            
            69,099
            
            
            
            69,099Donald
      Gibbs
            
            
            1,692
            
            
            
            1,692





(1)
              Represents
      the compensation expense incurred by the Company for the year ended March
      31, 2008 relating to outstanding stock options held by the directors,
      determined in accordance with FAS 123(R) using the assumptions described
      under “Stock Option Plans” in Note 2 to the Company’s Financial Statements
      included in this Form 10-KSB, provided that no forfeitures of awards have
      been assumed for the directors.


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





The
following table sets forth, as of June 20, 2008, the number and percentage of
our outstanding common shares which are beneficially owned, directly or
indirectly, by:





-
            each
      person who is known to us as 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 June 20, 2008. Unless
otherwise indicated, the persons listed are deemed to have sole voting and
investment power over the shares beneficially owned.





Common
      sharesName
            Address
            Title
            Number
            
            Percentage


Michael
      Cowpland
            234
      Perley Court, Ottawa, Ontario
            President
      and CEO
            72,176,446
            (1)
            63.9%Advanced
      Telecom Services
            996
      Bold Eagle School Road,
              Suite
      1105, Wayne PA
            N/A
            10,500,000
            (2)
            9.9%James
      Stechyson
            5597
      Goddard Street
              Manotick,
      Ontario
            Director
            7,940,000
            (3)
            7.7%




60


John
      Chapman
            30
      Holitzner Way
              Ottawa,
      Ontario
            Chief
      Financial Officer
            2,998,595
            (4)
            3.0%Roberto
      Campagna
            1977
      Sharon Avenue
              Ottawa,
      Ontario
            Vice
      President of Sales
            1,126,611
            (5)
            1.2%Phil
      Scavo
            1140
      Stanton Road
              Ottawa,
      Ontario
            Vice
      President of Business Development
            1,109,722
            (6)
            1.1%Steven
      Houck
            1717
      SW 17th Street
              Fort
      Lauderdale FL
              33312 
      USA
            Director
            510,000
            (7)
            0.5%Donald
      Gibbs
            5
      Reaney Court
              Kanata,
      Ontario
            Director
            510,000
            (8)
            0.5%





All
directors and executive officers as a group (7 persons) hold 86,371,374 common
shares, which totals 67.9% of ownership.





Applicable
percentage of ownership is based upon 95,460,867 shares of common stock
outstanding as of June 20, 2008, together with applicable options for such
shareholder. Shares of common stock subject to options currently exercisable or
exercisable within 60 days of June 20, 2008 are deemed outstanding for the
purpose of computing the percentage ownership of the person holding such
options, but are not deemed outstanding for computing the percentage of any
other person.





1.
            The
      beneficial ownership of Michael Cowpland consists of 41,357,468 common
      shares owned directly by Dr. Cowpland and 10,005,050 common shares under
      options which are currently exercisable or are exercisable within 60 days
      of June 20, 2008.  In addition Dr. Cowpland’s ownership includes
      302,493 common shares owned by his son and 102,493 common shares issuable
      upon exercise of warrants that are currently exercisable or are
      exercisable within 60 days of June 20, 2008, and 4,216,235 common shares
      owned by Dr. Cowpland's spouse and 8,793,795 common shares owned by a
      company controlled by Dr. Cowpland's spouse. Dr. Cowpland disclaims
      beneficial ownership of the shares held by his wife, his son and the
      company controlled by his wife.





2.
            The
      beneficial ownership of Advanced Telecom Services Inc. consists of
      10,000,000 common shares owned directly and 500,000 common shares which it
      has a right to acquire under stock options that are currently exercisable
      or are exercisable within 60 days of June 20, 2008.




3.
            The
      beneficial ownership of James Stechyson consists of 450,000 common shares
      owned directly, 7,490,000 common shares which he has a right to acquire
      under stock options that are currently exercisable or are exercisable
      within 60 days of June 20, 2008.




4.
            The
      beneficial ownership of John Chapman consists of 2,998,595 common shares
      which he has a right to acquire under stock options that are currently
      exercisable or are exercisable within 60 days of June 20, 2008. The
      options assigned to Mr. Chapman are held by CHAPMAN CFO Resources Inc. in
      which Mr. Chapman is the controlling
  shareholder.





5.
            The
      beneficial ownership of Roberto Campagna consists of 1,126,611 common
      shares which he has a right to acquire under stock options that are
      currently exercisable or are exercisable within 60 days of June 20,
      2008.





6.
            The
      beneficial ownership of Phil Scavo consists of 1,109,722 common shares
      which he has a right to acquire under stock options that are currently
      exercisable or are exercisable within 60 days of June 20,
      2008.





61


7.
            The
      beneficial ownership of Steven Houck consists of 510,000 common shares
      which he has a right to acquire under stock options that are currently
      exercisable or are exercisable within 60 days of June 20,
      2008.





8.
            The
      beneficial ownership of Donald Gibbs consists of 510,000 common shares
      which he has a right to acquire under stock options that are currently
      exercisable or are exercisable within 60 days of June 20,
      2008.








SECURITIES
AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS





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





Securities
authorized for issuance under equity compensation plans at March 31, 2008 are as
follows:





Plan
      category
            
            Number
      of
              securities
      to be
              issued
      upon
              exercise
      of
              outstanding
              options,
      warrants
              and
      rights
            
            
            Weighted
              average
      exercise
              priceof
              outstanding
              options,
      warrants
              and
      rights
            
            
            Number
      of securities
              remaining
      available for
              future
      issuance under
              equity
      compensation
              plans,
      excluding the
              securities
      reflected in
              column
      (a)(a)
            
            
            (b)
            
            
            (c)Equitycompensationplansapprovedby
      securityholders
            
            
            23,717,089
            (1)
            
            
            0.073
            
            
            
            3,482,911


Equitycompensationplans
      notapproved
      bysecurity
      holders
            
            
            6,010,000
            (2)
            
            
            0.050
            
            
            NILTotal
            
            
            29,729,089
            
            
            
            0.069
            
            
            
            2,270,911








(1)
            Represents
      ZIM common shares issuable upon the exercise of options outstanding under
      ZIM's Employee Stock Option Plan.





(2)
            Represents
      ZIM common shares issuable upon the exercise of options outstanding and
      issued outside of ZIM's Employee Stock Option Plan to officers, directors
      and advisory Board members. During the period from October 13, 2000 to
      June 25, 2001, ZIM issued an aggregate of 8,285,000 options outside of the
      Employee Stock Option Plan. Of these options, 145,000 were exercised in
      the ten months ended March 31, 2004 and 2,030,000 options were cancelled
      in the fiscal periods ended March 31, 2005 and 2004. All the options
      expired on February 5, 2007.  6,010,000 were regranted with an
      expiry date of February 4, 2010.





62


ITEM
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.





On August
11, 2005, we entered into a loan agreement with our Chief Executive Officer to
make a credit facility available to us. The credit facility is an unsecured
revolving facility in the amount of approximately $486,450. All advances shall
bear interest at the Royal Bank of Canada prime rate plus 1.75% and are
repayable on demand.





As atJune 20,
2008the outstanding balance due under the
credit facility, including principal and interest, was $NIL. During fiscal 2008,
the largest aggregate balance under the facility was $99,980.  In
fiscal 2008, we paid the CEO $99,980 in principal and $3,605 in interest on
advanceswereceived under the facility by issuing7,398,912 units, each consisting of one common share and
one warrant to purchase a common share for $0.014, through the
conversion of debt and accumulated interest in the amount of $103,585. The units
were priced at $0.014 per unit, which represented the closing market price of
ZIM’s common stock on the OTCBB on December 3, 2007. The warrants will expire on
March 3, 2009.





The Board
of Directors has determined that all directors who served on the Board during
fiscal 2008, other than Dr. Michael Cowpland, are or were
independent.  For this purpose, the Board uses the definition of
“independent” in the listing criteria applicable to NASDAQ-listed
companies.  The Board has further determined that the members of the
Audit Committee also meet the additional independence requirements of the
Securities and Exchange Commission.





ITEM
13. EXHIBITS.





The
exhibits filed herewith are listed in the Exhibit Index immediately preceding
such exhibits.  The Exhibit Index is incorporated herein by
reference.





ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.





During
the most recent two periods, we incurred audit, audit-related, tax and other
fees with our Independent Registered Public Accounting Firm, Raymond Chabot
Grant Thornton LLP, as follows:





Year
      ended
              March
      31, 2008
            
            
            Year
      ended
              March
      31, 2007$
            
            
            $Audit
      fees
            
            
            131,515
            
            
            
            111,124Audit
      related fees
            
            
            -
            
            
            
            19,063Tax
      fees
            
            
            9,742
            
            
            
            6,838All
      other fees
            
            
            -
            
            
            
            -Total
            
            
            141,257
            
            
            
            137,025




Audit
Committee's Policy of Pre-Approval of Audit and Permissible Non-Audit
Services






The Audit
Committee's policy is to pre-approve all audit and permissible non-audit
services provided by the Independent Registered Public Accounting Firm. These
services may include audit services, audit-related services, tax services and
other services. Pre-approval is detailed as to the particular service or
category of services and is generally subject to a specific budget. The
Independent Registered Public Accounting Firm and management are required to
periodically report to the Audit Committee regarding the extent of services
provided by the independent registered public accounting firm in accordance with
this pre-approval and the fees for the services performed to date.




63


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    June
24, 2008





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.





Name
            Title
            Date/s/
      Michael Cowpland
              Michael
      Cowpland
            President,
      Chief Executive Officer,
              and
      Director
            June
      24, 2008/s/
      Steven Houck
              Steven
      Houck
            Director
            June
      24, 2008/s/
      James Stechyson
              James
      Stechyson
            Chairman
      and Director
            June
      24, 2008/s/Donald
      Gibbs
              Donald
      Gibbs
            Director
            June
      24, 2008/s/John
      Chapman
              John
      Chapman
            Chief
      Financial Officer
            June
      24, 2008














64


EXHIBIT
INDEX





Exhibit                      EXHIBIT


Number





3.1
            Articles
      of Incorporation of the Registrant (Incorporated by reference to the
      Registrant's Registration Statement on Form S-4 filed on November 1, 2002
      (No. 333-100920))3.2
            By-Laws
      of the Registrant (Incorporated by reference to the Registrant's
      Registration Statement on Form S-4 filed on November 1, 2002 (No.
      333-100920))10.10†
            Employee
      Stock Option Plan, as amended September 22, 2005 (Incorporated by
      reference to Appendix A to the Registrant’s Proxy Statement filed August
      19, 2005)10.11†
            Form
      of Stock Option Agreement under Employee Stock Option Plan (Incorporated
      by reference to Exhibit 10.11 to the Registrant’s Annual Report on Form
      10-KSB filed June 28, 2006)10.12†
            Form
      of Non-Qualified Stock Option Agreement between the Registrant and each of
      Michael Cowpland, James Stechyson, Steve Houck and Charles Saikaley,
      dated, 2001  (Incorporated by reference to Exhibit 10.12 to the
      Registrant’s Annual Report on Form 10-KSB filed June 28,
    2006)10.13
            ZIM
      SMS Gateway Agreement with SIT Consulting, dated October 27, 2004
      (Incorporated by reference to Exhibit 10.13 to the Registrant’s Annual
      Report on Form 10-KSB filed June 28, 2006)10.14
            Secured
      Senior Promissory Note dated March 31, 2006 between ZIM Corporation and
      Advanced Telecom Services, Inc. (Incorporated by reference to Exhibit 10.2
      to the Registrant’s Current Report on Form 8-K filed April 4,
      2006)10.15
            Loan
      Agreement dated August 11, 2005 between ZIM Corporation and Dr. Michael
      Cowpland (Incorporated by reference to Exhibit 10.11 to the Registrant’s
      Current Report on Form 8-K filed August 11, 2005)10.16
            Surrender and Conversion Agreement by and between
      Michael Cowpland and ZIM Corporation dated December 4, 2007 (Incorporated
      by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form
      10-QSB for the quarter ended December 31, 2007).10.17†
            Consulting Agreement by and between Chapman CFO
      Resources Inc. and ZIM Corporation dated July 20, 2007 (Incorporated by
      reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form
      10-QSB for the quarter ended December 31, 2007).10.18
            Stock Purchase Agreement dated March 28, 2006 by
      and among ZIM Corporation, Advanced Telecom Services, Inc. and AdvancedInternet, Inc. (Incorporated by reference to Exhibit 10.1
      to the Registrant’s Current Report on Form 8-K filed March 28,
      2006)21.1
            List
      of subsidiaries of the Registrant (*)23.1
            Consent
      of Raymond Chabot Grant Thornton LLP, an independent registered public
      accounting firm (*)31.1
            Certification
      by the Chief Executive Officer, Michael Cowpland, pursuant to Exchange Act
      Rules 13(a)-14(a) and 15d-14(a) (*)31.2
            Certification
      by the Chief Financial Officer, John Chapman, pursuant to Exchange Act
      Rules 13(a)-14(a) and 15d-14(a) (*)32.1
            Certification
      by the Chief Executive Officer, Michael Cowpland, pursuant to U.S.C.
      Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
      of 2002 (*)32.2
            Certification
      by the Chief Financial Officer, John Chapman, pursuant to U.S.C. Section
      1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
      (*)(*)
            Filed
      herewith.†
            Management
      contract or compensatory plan or
arrangement.