**UNITED
      STATES**






**SECURITIES
      AND EXCHANGE 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, 2007**





**OR**





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





**SECURITIES
                EXCHANGE ACT OF 1934**





**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  Class**Common
                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
      $2,195,184.  The aggregate market value of voting stock held by
      non-affiliates is $1,011,565based on 25,289,119
      shares
      at June 8, 2007 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 8, 2007 was
      $0.04.





The
      number of common shares of the registrant outstanding as of June 8, 2007 was
      88,061,955.









**TABLE
      OF CONTENTS**





PART
                  IItem
                  1
              Description
                  of Business
              4Item
                  2
              Description
                  of Property
              12Item
                  3
              Legal
                  Proceedings
              12Item
                  4
              Submission
                  of Matters to a vote of Security Holders
              12PART
                  IIItem
                  5
              Market
                  for Common Equity and Related Shareholder Matters
              12Item
                  6
              Management's
                  Discussion and Analysis or Plan of Operation
              14Item
                  7
              Financial
                  Statements
              25Item
                  8
              Changes
                  in and Disagreements with Accountants on
                Accounting
                  and Financial Disclosure
              55Item
                  8A
              Controls
                  and Procedures
              55Item
                  8B
              Other
                  Information
              56PART
                  IIIItem
                  9
              Directors,
                  Executive Officers, Promoters and Control Persons;
                Compliance
                  with Section 16(a) of the Exchange Act
              56Item
                  10
              Executive
                  Compensation
              58Item
                  11
              Security
                  Ownership of Certain Beneficial Owners and
                Management
                  and Related Shareholder Matters
              62Item
                  12
              Certain
                  Relationships and Related Transactions
              65PART
                  IVItem
                  13
              Exhibits
              65Item
                  14
              Principal
                  Accountant Fees and Services
              66SIGNATURES
              67INDEX
                  TO EXHIBITS
              68







This
      Annual Report on Form 10-KSB contains forward-looking statements within the
      meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A
      of
      the Securities Act of 1933 regarding our business, financial condition, results
      of operations and prospects 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 (“ZIM”, “Our” or “We”) is a provider of internet TV programming
      (also referred to as IPTV), mobile messaging and data services.  We
      focus on applying technology to offer consumers entertainment through the
      Internet or through the mobile phone. We also have a database product known
      as
      Zim IDE that is used by companies in the management of information
      databases.





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. As we are in the process of
      building customers, we have allowed customers free trial subscriptions for
      the
      premium channels as well.  As a result we have not generated any
      revenue from consumers for our IPTV offering.  We charge content
      providers a fee for their channel. To date we have had approximately $7,400
      in
      revenues from channel sales for our IPTV.





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 sufficient revenue from either
      the PPLive relationship or ZIMTV.





**MOBILE**





Our
      business strategy previously involved designing mobile data software products
      to
      take advantage of the existing wireless data network infrastructure known as
      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 an
      operator-grade, high-volume delivery infrastructure that is scalable, with
      detailed reporting available to our mobile content customers. Our research
      and
      development expense related to our mobile business is described on page
      21.





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 and decided to expand our product and service
      offerings.  Effective April 1, 2006 we acquired Advanced Internet Inc.
      (“AIS”), from Advanced Telecom Services (“ATS”).  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 site or through their mobile phones on a monthly subscription basis
      or
      per-message basis.












As
      with
      aggregation services, the market for mobile content is growing increasingly
      competitive and we do not foresee our ability to grow our mobile content
      business.  Accordingly, our Board of Directors is reviewing the
      alternatives for maximizing value from this business.





**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
      sales.





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





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





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





**COMPETITION**





ZIM
      operates primarily in the mobile and IPTV industry, as an aggregator and a
      mobile content provider.  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.





All
      these
      industries are highly competitive and rapidly changing due to the nature of
      the
      growing market. We have many competitors in the industry, including Joost,
      WIN
      PLC, MBlox and Mobile365 in aggregation and Verisign, which owns Jamster and
      Monstermob in mobile content. These competitors may 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.  Since the mobile content market is aimed at
      consumer, 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 aggregation 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 the
      existing brand recognition and our ability to offer new and intriguing
      content.





**CUSTOMERS**





As
      of
      March 31, 2007, we had over 340 customers in over 9 countries.  One
      customer, SIT Consulting Ltd, accounted for approximately 18% of our revenues
      for the year ended March 31, 2006.  No customers had over 10% of
      revenue for the year ended March 31, 2007.





**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. The system
      uses a scalable and redundant infrastructure located on servers at co-location
      hosting sites in Canada. 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 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 centres. It
      is
      used to allow third parties to submit messages, often in bulk.  Our
      database system is an advanced entity-relationship database, which also operates
      on Windows 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 separated 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 transaction, cheque clearing brokers, PayPal and various carriers for
      premium SMS charging facilities.





**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 or 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, 2007, we had 20 full-time employees, with 11 employees in selling,
      general and administration and 9 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, 17 are based in Ottawa, Canada; three are 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
      OUR 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; and


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





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





Our
      ability to continue as a going concern is subject to substantial doubt given
      our
      current financial condition and requirements for additional funding. If 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 to our audited consolidated financial statements for the year
      ended March 31, 2007 include 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 $6.8
      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 OF OUR BUSINESS OPERATIONS, WHICH COULD
      HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS RELATIONSHIPS, FINANCIAL RESULTS,
      FINANCIAL CONDITION AND PROSPECTS.





If
      we are
      unable to obtain additional funds in a timely manner or on acceptable terms,
      we
      may have to curtail or suspend certain of our business operations, which could
      have a material adverse effect on our business relationships, financial results,
      financial condition and prospects. We anticipate that our cash at March 31,
      2007
      of $441,637, along with cash generated from operations, will not be sufficient
      to meet our present operating and capital expenditures through to September
      30,
      2007.  We will require substantially more funds to continue and expand
      our business operations.





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










Our
      anticipated requirements for additional funds are based, in large part, upon
      our
      expectation that we will incur operating losses for the next twelve months.
      The
      extent to which these anticipated losses are actually incurred will directly
      affect our need for additional capital and ability to continue as a going
      concern. If the shortfall between the revenues generated 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 are due
      in
      part to anticipated costs in the attaining of content for our IPTV offering
      and
      our inability to increase the number of subscribers.





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.










WE
      MAY
      NOT HAVE ADEQUATE INTERNAL CONTROL PROCEDURES IN PLACE FOR MARCH 31,
      2008.





We
      may
      not have adequate internal control procedures in place for March 31, 2008,
      when
      we will be required to evaluate 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 evaluating our internal control
      systems in order to allow management to report on, and our registered
      independent public accounting firm to attest to, 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 still have material weaknesses in our internal controls at March 31, 2008,
      we
      might be subject to sanctions or investigation by regulatory authorities, such
      as the SEC. Any such action could adversely affect our financial results and
      the
      market price of our shares.  An additional risk factor is our material
      weaknesses in existence as at March 31, 2007.





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 2007, we focused on offering mobile
      content and IPTV. 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.





We
      will
      license content under arrangements that require us to pay usage or fixed monthly
      fees 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.





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 64%. 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 at Judiciary Plaza, 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.





**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,
      2007.





**PART
      II**








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





"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**
            
            **LOW**2006
                First quarter
            
            $0.22
            
            $0.152006
                Second quarter
            
            $0.18
            
            $0.122006
                Third quarter
            
            $0.16
            
            $0.062006
                Fourth quarter
            
            $0.11
            
            $0.062007
                First quarter
            
            $0.07
            
            $0.042007
                Second quarter
            
            $0.14
            
            $0.022007
                Third quarter
            
            $0.12
            
            $0.062007
                Fourth quarter
            
            $0.10
            
            $0.04










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 8,
      2007
      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.





**RECENT
      SALES OF UNREGISTERED SECURITIES**





There
      were no unregistered sales of securities for the quarter ended March 31,
      2007.









**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 within the meaning of Section 21E of the Securities
      Exchange Act of 1934 and Section 27A of the Securities Act of 1933 regarding
      our
      business, financial condition, results of operations and prospects 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, 2007 and
      2006.  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.





**OVERVIEW**





ZIM
      Corporation (“ZIM”, “Our” or “We”) is a provider of Internet TV, mobile
      messaging and data services.  We use our technology and expertise to
      offer consumers entertainment on the mobile phone and the Internet. We also
      have
      a database product known as Zim IDE that is used by companies in the management
      of information databases.





Since
      2004, we have focused on developing a business strategy to leverage the
      consumer’s use of their cell phone and the consumer’s 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 this fiscal year, we
      expanded our offering to include content on the Internet – also referred to as
      IPTV.








**OVERVIEW
      OF 2007 OPERATING RESULTS**





The
      following is an overview of our operating results for the year ended March
      31,
      2007. A more detailed discussion of our operating results, comparing our
      operating results for the years ended March 31, 2007 and 2006, is included
      under
      the heading “Results of Operations for the Year Ended March 31, 2007 Compared to
      the Year Ended March 31, 2006” of this “Management's Discussion and Analysis or
      Plan of Operation”.










Revenues
      for the year ended March 31, 2007 decreased to $2.2 million from $3.6 million
      for the year ended March 31, 2006.  Revenue from our mobile segment
      decreased from $2.4 million to $1.1 million.  The decrease is due to
      reduced aggregation traffic from our customer base.  Revenue from our
      software segment has decreased from $1.2 million for the year ended March 31,
      2006 to $1.1 million for the year ended March 31, 2007.





Total
      operating expenses for the year ended March 31, 2007 were $4.4 million, a
      decrease of approximately $2.7 million from operating expenses of $7.1 million
      for the year ended March 31, 2006. The decrease was attributable to a decrease
      in costs of revenue relating to the decrease in revenues associated with SMS
      aggregation and operating costs.  Other differences include an
      impairment charge relating to the goodwill associated with the acquisition
      of
      EPL Communications and E-Promotions, in fiscal 2006, of approximately $2.1
      million, with no corresponding amount in fiscal 2007.





**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.





On
      April
      1, 2006, we acquired all of the outstanding capital stock of Advanced Internet,
      Inc. (“AIS”), from Advanced Telecom Services, Inc. (“ATS”), in exchange for
      10,000,000 common shares of ZIM valued at 650,000, a non-interest bearing note
      repayable over 12 months to April 1, 2007 with a principal amount of $250,000,
      secured by a charge over all of our current and after-acquired assets, and
      an
      option to purchase an additional 500,000 of our common shares with an exercise
      price of $0.071 valued at $13,656.  The total purchase price was
      $951,434 including acquisition costs of $37,778. The assets of AIS include
      two
      internet portals that are currently offering mobile content to the end
      user.





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.





**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.










**VALUATION
      ALLOWANCES**





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





**GOODWILL
      IMPAIRMENT**





Goodwill
      represents the excess of cost over the fair value of the net identifiable assets
      acquired in a business combination accounted for under the purchase method.
      Under Statement of Financial Accounting Standards No. 142, "Goodwill and Other
      Intangibles" ("FAS 142"), goodwill and other intangible assets with an
      indefinite useful life are tested for impairment at least annually. We perform
      an annual review in the fourth quarter of each year, or more frequently if
      indicators of potential impairment of recorded goodwill exist.





During
      the third quarter of fiscal 2006, it became apparent that our revenues for
      SMS
      aggregation would be decreased from the prior year and that both ZIM and the
      industry at large were experiencing negative trends.  As a result, we
      performed an evaluation of the goodwill associated with the EPL acquisition,
      which resulted in recording a non-cash impairment of approximately $2.1
      million.





**REVENUE
      RECOGNITION**





Revenues
      shown in the financial statements included with this Report have been derived
      mainly from mobile content sales, SMS messaging services, SMS fee-based
      services, and proprietary software products and licenses.





**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.





**Premium
      messaging**





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
      statements. 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 records of billings 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.








**STOCK-BASED
      COMPENSATION**





Through
      March 31, 2006, we accounted for stock-based compensation under the intrinsic
      method in accordance with Accounting Principles Board Opinion No. 25,
*Accounting for Stock Issued to Employees.*Under the intrinsic method,
      we did not record any compensation expense as stock options granted were priced
      at the fair market value of our stock at the date of grant.





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, 2007, the Company recognized compensation expense for
      employees of $301,829 and consultants of $12,125. For the year ended March
      31,
      2006, the Company recognized compensation expense for employees of $NIL and
      consultants of $254,017. Further information about our accounting for
      stock-based compensation, including the assumptions we used, is set forth in
      the
      Notes to our Financial Statements included in Item 7 of this Form
      10-KSB.  The Company does not have any non-vested awards as of March
      31, 2007.





**INTERNAL
      CONTROLS AND CORPORATE GOVERNANCE**





Management
      is responsible for establishing and maintaining adequate internal control over
      financial reporting and for the timeliness and reliability of the information
      disclosed.  We have noted material weaknesses in our internal controls
      such as the adequacy of staffing and the review of supporting schedules,
      inadequate communication systems, inadequate segregation of duties, and a
      reliance of manual systems. Due to the size of our Company and the costs to
      remediate these issues, we still consider these concerns to be
      relevant.





We
      are
      continually addressing ways to implement improved internal controls over
      financial reporting.  During fiscal 2007, we directed our efforts
      towards hiring and training a controller for the finance
      team.  Although this resulted in significant improvements, the
      controller resigned by December 2006 and the position has not been
      refilled.  Further, the CFO of the Company resigned subsequent to the
      year end and is being replaced with the CEO until such time a suitable
      replacement can be found.










**RESULTS
      OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 2007 COMPARED TO THE YEAR ENDED
      MARCH
      31, 2006**





**REVENUES**





Year
                ended
              March
                31, 2007
            
            As
                a %
            
            Year
                ended
              March
                31, 2006
            
            As
                a %$
            
            
            
            $Mobile
                content
            494,809
            
            23%
            
            0
            
            0%Bulk
                SMS
            359,679
            
            16%
            
            1,259,892
            
            35%Premium
                SMS
            142,774
            
            7%
            
            922,785
            
            26%Other
                SMS services and products
            112,110
            
            5%
            
            173,921
            
            5%Internet
                TV
            7,368
            
            0%
            
            0
            
            0%1,116,740
            
            51%
            
            2,356,598
            
            66%Software
            152,093
            
            7%
            
            254,050
            
            7%Maintenance
                and consulting
            926,351
            
            42%
            
            984,667
            
            27%1,078,444
            
            49%
            
            1,238,717
            
            34%2,195,184
            
            100%
            
            3,595,315
            
            100%








Total
      revenues for the year ended March 31, 2007 were $2,195,184 as compared to
      $3,595,315 for the year ended March 31, 2006.  The decrease in
      revenues is due to the decrease in our sales of bulk and premium aggregation
      services together with other SMS services and products, a trend that we expect
      to continue in the 2008 fiscal year.  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 $494,809.  There
      is no comparable amount for the prior fiscal year.





**BULK
      MESSAGING**





Our
      bulk
      SMS messaging revenue decreased from $1,259,892 for the year ended March 31,
      2006 to $359,679 for the year ended March 31, 2007. 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 2008.










**PREMIUM
      MESSAGING**





Our
      premium SMS messaging revenue decreased from $922,785 for the year ended
      March
      31, 2006 to $142,774 for
      the fiscal year ended March 31, 2007. The decrease in revenue was anticipated
      due to the results experienced in fiscal 2006.  We have reduced the
      number of customers and territories that we service. We expect to see further
      decreases in our revenue from aggregation services.





**OTHER
      SMS SERVICES AND PRODUCTS**





Our
      other
      SMS services revenue decreased from $173,921 for the year ended March 31, 2006
      to $112,110 for the fiscal year ended March 31, 2007, primarily as a result
      of
      eliminating 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. As we are in the process of
      building customers, we have allowed customers free trial subscriptions for
      the
      premium channels as well.  As a result we have not generated any
      revenue from consumers for our IPTV offering.  We charge content
      providers a fee for their channel. To date we have had approximately $7,400
      in
      revenues from channel sales for our IPTV.








**SOFTWARE,
      MAINTENANCE AND CONSULTING**





We
      generate revenues from the sale of our database product as well as the
      subsequent maintenance and consulting fees. As anticipated, software sales
      decreased from $254,050 for the year ended March 31, 2006 to $152,093 for the
      year ended March 31, 2007. The decrease is a result of our customer base
      continuing to wait for the release of a new version of the
      software.******The market for database software has
      expanded substantially over the years and customers have migrated to other
      competitors that have larger market share. Management expects to see further
      deterioration of its customer base and as a result, further decreases in the
      sales of Zim IDE software.





In
      addition to the sale of the software, we are generating revenue from software
      maintenance and consulting. Maintenance revenues decreased from $984,667 for
      the
      year ended March 31, 2006, to $926,351 for the year ended March 31, 2007. Due
      to
      ZIM’s past presence in Brazil, approximately $754,000 of the maintenance revenue
      was generated in Brazil.





We
      will
      continue to put 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 growth in this segment, we are still committed
      to
      serving our existing customers.










**EXPENSES**





**Operating
      expenses**





**Year
                ended**
              **March
                31, 2007**
            
            **Year
                ended**
              **March
                31, 2006**$
            
            $Cost
                of revenue
            928,818
            
            1,975,641Selling,
                general and administrative
            2,156,049
            
            2,475,299Research
                and development
            382,146
            
            505,327Amortization
                of intangible assets
            972,209
            
            2,984Impairment
                of goodwill
            -
            
            2,133,197Loss
                on disposal of property and equipment
            -
            
            10,9294,439,222
            
            7,103,377





Operating
      expenses decreased from $7,103,377 for the year ended March 31, 2006 to
      $4,439,922 for the year ended March 31, 2007.





**COST
      OF REVENUE**





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




**Year
                ended**
            
            **Year
                ended****March
                31, 2007**
            
            **March
                31, 2006**$
            
            $**Mobile**Revenue
            1,116,740
            
            2,356,598Cost
                of revenue
            (766,468)
            
            (1,770,338)Gross
                margin
            350,272
            
            586,26031%
            
            25%**Software**Revenue
            1,078,444
            
            1,238,717Cost
                of revenue
            (162,350)
            
            (205,303)Gross
                margin
            916,094
            
            1,033,41485%
            
            83%








Gross
      margins for mobile segment increased from 25% to 31% for the year ended March
      31, 2007 compared to fiscal 2006. The increase in margins is due to the change
      in the mix of mobile revenues.  For the current fiscal year, we
      introduced the sale of ring tones and wallpapers (mobile content), which have
      a
      higher margin than the mix of revenues in the prior year.





Gross
      margins for software, maintenance and consulting sales increased from 83% for
      the year ended March 31, 2006 to 85% for the year ended March 31,
      2007.  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.









**SELLING,
      GENERAL AND ADMINISTRATIVE**





Selling,
      general and administrative expenses for the year ended March 31, 2007 and the
      year ended March 31, 2006 were $2,156,049 and $2,475,299 respectively. The
      decrease is primarily attributable to reduced occupancy costs, reduced staff
      base and reduced professional fees.





Management
      does expect to see some increased expenditures in fiscal 2008 as we prepare
      for
      compliance with Section 404 of Sarbanes-Oxley.





**RESEARCH
      AND DEVELOPMENT**





Research
      and development expenses decreased from $505,327 for the year ended March 31,
      2006 to $382,146 for the year ended March 31, 2007.  The decrease in
      research relates to the reduction in staff and the change in focus to mobile
      content.  The technology for the mobile content platform was purchased
      and did not require significant research and development
      expenditures.





**AMORTIZATION
      OF INTANGIBLE ASSETS**





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





Amortization
      of intangibles for the year ended March 31, 2006 was $2,984, representing the
      balance of the unamortized portion of the customer list acquired in the Brazil
      acquisition.





**IMPAIRMENT
      CHARGES**





We
      recorded non-cash impairment charge in fiscal 2006 relating to long-lived assets
      in the UK reporting unit.





The
      annual evaluation of the goodwill associated with our UK reporting unit was
      usually performed during the fourth quarter of each year. However due to
      negative trends in this reporting unit, we performed the impairment test in
      the
      third quarter.  We noted that revenues had decreased from the prior
      year and that we had been unable to generate significant new
      customers.  The goodwill associated with the reporting unit had been
      supported by our expectations that the related projected cash flows would
      grow.  With the decrease in revenues, the recorded book value of this
      reporting unit exceeded its fair value, as determined by discounted cash flows,
      resulting in a non-cash impairment charge of $2,133,197.





**LOSS
      ON DISPOSAL OF PROPERTY AND EQUIPMENT**





During
      the year ended March 31, 2006, we incurred a loss of $10,929 relating to the
      disposal of property and equipment.  There is no comparative amount
      for fiscal 2007.





**INTEREST**





For
      the
      years ended March 31, 2007 and 2006, 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 for our tax refund relating to prior
      years 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 increase
      in
      income taxes recoverable is due to amounts received in the current fiscal year
      relating to prior years.









**LIQUIDITY
      AND CAPITAL RESOURCES**





At
      March
      31, 2007, we had cash of $441,637 and working capital of $93,105, as compared
      to
      cash, net of bank indebtedness, of $207,068 and working capital of $241,536
      at
      March 31, 2006. This deterioration of financial position is principally a result
      of the decrease in revenues generated from our SMS services.





Cash
      flows for the fiscal periods were as follows:





**Year
                ended**
              **March
                31, 2007**
            
            **Year
                ended**
              **March
                31, 2006**$
            
            $Cash
                flows provided (used) in operating activities
            198,143
            
            (944,523)Cash
                flows used in investing activities
            (89,023)
            
            (111,278)Cash
                flows provided by financing activities
            48,560
            
            456,934











Operations
      provided $198,143 for the year ended March 31, 2007 as compared to using cash
      of
      $944,523 for the year ended March 31, 2006.  The increase in cash is
      because we received funds relating to investment tax credits in the first half
      of fiscal 2007 that related to prior years.





We
      used
      $89,023 and $111,278 of cash in investing activities during the years ended
      March 31, 2007 and 2006 respectively.  These amounts were used for
      purchasing miscellaneous office equipment and furniture and for the acquisition
      of AIS in this fiscal year.  We used $39,399 to acquire
      AIS.  Included in this amount are legal and miscellaneous
      fees.  The balance of the AIS acquisition was funded through a one
      year note payable for $250,000, 10 million common shares priced at $0.065,
      and
      500,000 stock options valued at $13,747.  At March 31, 2007, this note
      was paid in full.





In
      fiscal
      2007, we increased cash from financing activities by $48,560 as a result of
      $4,800 from stock option exercises, $43,305 from the line of credit from the
      Chief Executive Officer and a private placement in June 2006. On June 30, 2006,
      the Company completed a non-brokered private placement of 18,365,386 units
      at
      $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.  Each unit
      consists of one common share and one common share purchase
      warrant.  Each warrant may be exercised at any time prior to September
      30, 2007. Of these units, 18,024,591 were purchased by the Company’s Chief
      Executive Officer.





In
      fiscal
      2006, we increased cash by $456,934 as a result of $7,429 from stock option
      exercises, $419,538 from the line of credit from the Chief Executive Officer
      and
      $29,967 from a line of credit with the Royal Bank of Canada.  We
      issued 43,700 common shares upon exercise of options.





Accounts
      receivable decreased from $1,301,647, as at March 31, 2006 to $315,875 as at
      March 31, 2007. This change is a result of the decrease in revenues during
      the
      year relating to SMS messaging traffic. In addition, in fiscal 2007 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.  With our new
      mobile content offering, we own the rights to the content and as a result,
      we do
      not have a revenue share structure.





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





As
      at
      March 31, 2007, approximately 43% of all related receivables are
      current.  As at March 31, 2006, 42% of all receivables were
      current.










ZIM
      will
      need an estimated $1,800,000 in financing in order to fund operating losses
      and
      other working capital requirements for the next 12 months. The Company has
      access to a line of credit for approximately $385,000 from its Chief Executive
      Officer and a working capital line from its principal banker for approximately
      $43,000. In addition, there was a cash balance of $441,637 at March 31,
      2007.  Management does not believe that these funds will be able to
      fund existing operations for the next six months, and there is no guarantee
      that
      unanticipated circumstances will not require additional liquidity, and in any
      event, these funds alone will not allow for any additional expenditures or
      growth.  ZIM has sought additional third party financing but has not
      received any commitments from any party to provide additional
      financing.





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, 2007 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:





$2008
            62,9872009
            62,7792010
            59,5942011
            34,7632012
            -220,123





**Off-Balance
      Sheet Arrangements**





The
      Company has no off balance sheet arrangements as of March 31, 2007.





**NEW
      ACCOUNTING PRONOUNCEMENTS**





**FASB
      Interpretation 48**





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 prescribes
      a recognition threshold and measurement attribute for the financial statement
      recognition and measurement of a tax position taken or expected to be taken
      in a
      tax return. This Interpretation also provides guidance on de−recognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure, and transition.










This
      Interpretation is effective for fiscal years beginning after December 15, 2006,
      and earlier application of the provisions of this Interpretation is encouraged
      if the enterprise has not yet issued financial statements, including interim
      financial statements, in the period this Interpretation is adopted. The Company
      has not yet determined the impact of FASB Interpretation 48 on its financial
      statements.





**SFAS
      No. 156**





In
      March
      2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
      Instruments – an Amendment of SFAS No. 140” (“SFAS 156”). This Statement amends
      SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and
      Extinguishments of Liabilities”*,* with respect to the accounting for
      separately recognized servicing assets and servicing liabilities. This Statement
      is effective for fiscal years beginning after September 15, 2006. The Company
      does not expect the adoption of SFAS 156 will have a material impact on its
      consolidated financial position, results of operations or cash
      flows.





**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.
      Earlier adoption is permitted, provided the company has not yet issued financial
      statements, including for interim periods, for that fiscal year. The Company
      does not expect the adoption of SFAS 157 will have a material impact on its
      consolidated financial position, results of operations or cash
      flows.





**SAB
      108**




In
      September 2006, the Securities and Exchange Commission issued Staff Accounting
      Bulletin No. 108, Considering the Effects of Prior Year Misstatements when
      Quantifying Misstatements in Current Year Financial Statements ("SAB 108").
      SAB
      108 provides interpretive guidance on how the effects of prior-year uncorrected
      misstatements should be considered when quantifying misstatements in the current
      year financial statements. SAB 108 requires registrants to quantify
      misstatements using both an income statement ("rollover") and balance sheet
      ("iron curtain") approach and evaluate whether either approach results in a
      misstatement that, when all relevant quantitative and qualitative factors are
      considered, is material. If prior year errors that had been previously
      considered immaterial now are considered material based on either approach,
      no
      restatement is required so long as management properly applied its previous
      approach and all relevant facts and circumstances were considered. If prior
      years are not restated, the cumulative effect adjustment is recorded in opening
      accumulated earnings as of the beginning of the fiscal year of adoption. SAB
      108
      is effective for fiscal years ending after November 15, 2006.  The Company
      has determined that there will be no impact to the financial statements upon
      the
      adoption of this bulletin.









**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, 2007 and 2006 and the related consolidated
      statements of operations, shareholders' equity and cash flows for each of the
      two years in the period ended March 31, 2007. 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, 2007 and 2006 and the results of their operations
      and their cash flows for each of the two years in the period ended March 31,
      2007 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 incurred a net loss of $1,936,187
      and provided $198,143 of cash from operations, during the year ended March
      31,
      2007. The Company also has generated negative cash flows from operations during
      each 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. Management's plans in
      regard to these matters are also described in Note 1. The consolidated financial
      statements do not include any adjustments that might result from the outcome
      of
      this uncertainty.





/s/
      Raymond Chabot Grant Thornton LLP


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


Raymond
      Chabot Grant Thornton LLP





Ottawa,
      Canada


June
      21,
      2007










**ZIM
                Corporation****Consolidated
                Statements of Operations**(Expressed
                in US dollars)Year
                ended
              March
                31, 2007
            
            Year
                ended
              March
                31, 2006$
            
            $**Revenue**Mobile
            
            1,116,740
            
            2,356,598Software
            
            1,078,444
            
            1,238,717Total
                revenue
            
            2,195,184
            
            3,595,315**Operating
                expenses**Cost
                of revenue
            
            928,818
            
            1,975,641Selling,
                general and administrative
            
            2,156,049
            
            2,475,299Research
                and development
            
            382,146
            
            505,327Amortization
                of intangible assets
            
            972,209
            
            2,984Impairment
                of goodwill
            
            –
            
            2,133,197Loss
                on disposal of property and equipment
            
            –
            
            10,929Total
                operating expenses
            
            4,439,222
            
            7,103,377Loss
                from operations
            
            (2,244,038)
            
            (3,508,062)Other
                income:Interest
                income, net
            
            5,296
            
            5,510Loss
                before income taxes
            
            (2,238,742)
            
            (3,502,552)Income
                tax benefit
            
            302,555
            
            114,059Net
                loss
            
            (1,936,187)
            
            (3,388,493)Basic
                and diluted loss per share
            
            (0.023)
            
            (0.057)Weighted
                average number of shares outstanding
            
            83,376,475
            
            59,560,139The
                accompanying notes are an integral part of these consolidated financial
                statements.











**ZIM
                Corporation****Consolidated
                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, 2005**
            59,517,869
            17,651,006
            1,875,381
            (16,213,680)
            91,783
            3,404,490Shares
                issued through the exercise of options
            43,700
            7,429
            
            
            
            7,429Stock
                options granted to non-employees
            
            
            254,017
            
            
            254,017Comprehensive
                lossNet
                loss
            
            
            
            (3,388,493)Cumulative
                translation adjustment
            
            
            
            
            179,577Total
              comprehensive loss
            
            
            
            
            
            (3,208,916
            )**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
            
            
            
            
            
            (1,903,000
            )**Balance
                as at March 31, 2007**
            88,061,955
            19,047,850
            2,455,552
            (21,538,360)
            303,887
            268,929The
                accompanying notes are an integral part of the consolidated financial
                statements.











**ZIM
                Corporation****Consolidated
                Statements of Cash Flows**(Expressed
                in US dollars)Year
                ended
              March
                31, 2007
            
            Year
                ended
              March
                31, 2006$
            
            $***OPERATING
                ACTIVITIES***Net
                loss
            
            (1,936,187)
            
            (3,388,493)Items
                not involving cash:Depreciation
                of property and equipment
            
            100,242
            
            99,786Amortization
                of intangible assets
            
            972,209
            
            2,984Impairment
                of goodwill
            
            –
            
            2,133,197Interest
                accrued
            
            563
            
            10,722Loss
                on disposal of property and equipment
            
            –
            
            10,929Stock-based
                compensation
            
            313,954
            
            254,017Changes
                in operating working capital, net of effect from
                acquisition:Decrease
                (increase) in accounts receivable
            
            1,014,805
            
            941,982Decrease
                (increase) in investment tax credits receivable
            
            266,643
            
            121,806Decrease
                (increase) in prepaid expenses
            
            (3,680)
            
            42,387Increase
                in acquisition expenses
            
            –
            
            (37,524)Increase
                (decrease) in accounts payable
            
            (327,339)
            
            (587,354)Decrease
                in accrued liabilities
            
            (218,233)
            
            (495,821)Decrease
                in deferred revenue
            
            15,166
            
            (53,141)Cash
                flows provided by (used in) operating activities
            
            198,143
            
            (944,523)***INVESTING
                ACTIVITIES***Purchase
                of property and equipment
            
            (49,624)
            
            (111,278)Business
                acquisition, net of cash received
            
            (37,778)
            
            –Cash
                flows used in investing activities
            
            (87,402)
            
            (111,278)***FINANCING
                ACTIVITIES***Proceeds
                from the exercise of options
            
            4,800
            
            7,429Repayment
                of note payable
            
            (250,000)
            
            –Proceeds
                from shares issued through a private placement
            
            280,422
            
            –Proceeds
                (payments to) from bank indebtedness
            
            (29,967)
            
            29,967Proceeds
                from related parties
            
            43,305
            
            419,538Cash
                flows provided by financing activities
            
            48,560
            
            456,934Effect
                of changes in exchange rates on cash
            
            45,301
            
            98,014**Decrease
                in cash**
            
            204,602
            
            (500,853)Cash,
                beginning of year
            
            237,035
            
            737,888Cash,
                end of year
            
            441,637
            
            237,035**Supplemental
                cash flow disclosure**Interest
                paid
            
            8,721
            
            10,555Income
                taxes paid
            
            77,968
            
            74,240The
                accompanying notes are an integral part of these consolidated financial
                statements.


Non-Cash
      Financing Activities:


In
      connection with the Company’s acquisition of Advanced Internet Inc. during
      fiscal year 2007, 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.







**ZIM
                Corporation****Consolidated
                Balance Sheets**(Expressed
                in US dollars)March
                31,
            
            March
                31,2007
            
            2006$
            
            $**ASSETS**Current
                assetsCash
            
            441,637
            
            237,035Accounts
                receivable, net
            
            315,875
            
            1,301,647Investment
                tax credits receivable
            
            149,512
            
            407,766Acquisition
                costs
            
            –
            
            37,847Prepaid
                expenses
            
            63,620
            
            59,305970,644
            
            2,043,600Property
                and equipment, net
            
            230,291
            
            280,9091,200,935
            
            2,324,509**LIABILITIES
                AND SHAREHOLDERS' EQUITY**Current
                liabilitiesLine
                of credit
            
            –
            
            29,967Accounts
                payable
            
            296,958
            
            612,703Accrued
                liabilities
            
            195,615
            
            406,145Deferred
                revenue
            
            341,681
            
            322,989Due
                to a shareholder
            
            43,305
            
            430,260877,559
            
            1,802,064Deferred
                rent
            
            54,447
            
            65,425Commitments
                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, 2007 and 2006.
            
            -
            
            -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, 2007 and
                2006.
            
            -
            
            -Common
                shares, no par value,unlimited
                authorized shares issued and outstanding 88,061,955 shares as at
                March 31,
                2007 and 59,561,569 shares as at March 31, 2006.
            
            19,047,850
            
            17,658,435Additional
                paid-in capital
            
            2,455,552
            
            2,129,398Accumulated
                deficit
            
            (21,538,360)
            
            (19,602,173)Accumulated
                other comprehensive income
            
            303,887
            
            271,360268,929
            
            457,0201,200,935
            
            2,324,509The
                accompanying notes are an integral part of these consolidated financial
                statements.









**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 mobile applications and
      database services.  Prior to entering the SMS (Short Message Service)
      or mobile messaging industry, ZIM was recognized as the developer and provider
      of the Zim Integrated Development Environment software, which continues to
      be
      used by companies in the design, development, and management of information
      databases.





**BUSINESS
      DEVELOPMENT**





ZIM
      was
      formed under the laws of Canada on October 17, 2002 in order to purchase ZIM
      Technologies International Inc. ("ZIM Technologies"), which was formed in 1997
      to acquire the software technology now called the Zim Integrated Development
      Environment (the "Zim IDE software"). On February 10, 2004, ZIM purchased
      UK-based SMS service firms EPL Communications Limited and E-Promotions Limited
      (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 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 2001, the Company expanded its business strategy to include opportunities
      associated with mobile products.  Prior to this fiscal year, 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 revenue within the mobile segment of operations, the
      Company shifted its corporate focus to include offering mobile content directly
      to end users and to providing TV over the Internet, or IPTV.  With the
      acquisition of AIS, the Company commenced offering mobile content directly
      to
      end users.  During the three months ended December 31, 2006, the
      Company began to explore opportunities within the Internet TV industry; however
      as at March 31, 2007, less than $10,000 in revenue has been generated from
      this
      line of business.











**ZIM
      CORPORATION**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(EXPRESSED
      IN US DOLLARS)**








**GOING
      CONCERN**





The
      Company has incurred a net loss of $1,936,187 during the year ended March 31,
      2007. The Company generated positive cash flows from operations of $187,846
      for
      the year ended March 31, 2007 but has generated negative cash flows from
      operations during each of the prior five years.





At
      March
      31, 2007, ZIM had cash, with no bank indebtedness, of $441,637 and working
      capital of $93,085, as compared to cash, net of bank indebtedness of $207,068
      and working capital of $241,536 at March 31, 2006. After factoring the losses
      for the current fiscal year, the improvement in cash is principally a result
      of
      a private placement on June 30, 2006, discussed in Note 7, and the receipt
      of
      outstanding amounts receivable and investment tax credits.





ZIM
      will
      need an estimated $1,800,000 in financing in order to fund operating losses
      and
      other working capital requirements for the next 12 months. The Company has
      access to a line of credit for approximately $385,000 from its Chief Executive
      Officer and a working capital line from its principal banker for approximately
      $43,000. In addition, there was a cash balance of $441,637 at March 31,
      2007.  Management does not believe that these funds will be able to
      fund existing operations for the next six months, and there is no guarantee
      that
      unanticipated circumstances will not require additional liquidity, and in any
      event, these funds alone will not allow for any additional expenditures or
      growth.  ZIM has not received any commitments from any party to
      provide additional financing.





All
      of
      the factors above raise substantial doubt about the Company's ability to
      continue as a going concern. Management plans to address these issues by
      continuing to obtain advances from related parties and, if necessary,
      renegotiating the repayment terms of accounts payable and accrued liabilities.
      The Company's ability to continue as a going concern is subject to management's
      ability to successfully implement the above plans. Failure to implement these
      plans could have a material adverse effect on the Company's position and/or
      results of operations and may necessitate a reduction in operating
      activities.





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





The
      consolidated financial statements have been prepared on the basis of the going
      concern assumption, i.e., assuming 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 financial statements and the balance sheet
      classification have not been adjusted as would be required if the going concern
      assumption were not appropriate.




**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.










**ZIM
      CORPORATION**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(EXPRESSED
      IN US DOLLARS)**








**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.





**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, goodwill
      impairment, 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
      LOSS**





Comprehensive
      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
      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.











**ZIM
      CORPORATION**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(EXPRESSED
      IN US DOLLARS)**





**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.





Revenue
      by product in each of the segments is as follows:





**Mobile
                Revenue**
            **Software
                Revenue****Aggregation
                Services**
            **Mobile
                Content Portals**
            **Software**
            **Maintenance
                and Consulting**
            **Total
                Revenues****2006**
            614,563
            502,177
            152,093
            926,351
            2,195,184**2005**
            2,356,598
            -
            254,050
            984,667
            3,595,315








**MOBILE
      REVENUE RECOGNITION**





Revenues
      from our mobile segment are derived principally from providing aggregation
      services and from our mobile content portals.





***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. We rely 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 share arrangement.  ZIM nets
      this revenue share fee against the revenue it receives from the mobile
      operators.





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 we
      then
      distribute.  Our 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 we acquired two internet portals
      offering mobile content (see Note 3).  Consumers are able to download
      ring tones and wallpapers directly from our 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 we manage and market the content
      we distribute. Revenue on mobile content is recognized at the point of sale,
      when the customer purchases content from the websites.










**ZIM
      CORPORATION**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(EXPRESSED
      IN US DOLLARS)**





**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.





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.










**ZIM
      CORPORATION**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(EXPRESSED
      IN US DOLLARS)**





**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 $26,120 for the
      year ended March 31, 2007 ($32,099 for the year ended March 31,
      2006).





**INVESTMENT
      TAX CREDITS**





The
      Company qualifies for scientific research and development
      expenditures.  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.  Investment tax credits not utilized in the current year can
      be used to offset income taxes in future years.





**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.





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





The
      accounts of the Company's subsidiaries that are recorded in the Company's
      functional currency, the Canadian dollar, translate their foreign currency
      transactions as follows: gains or losses from foreign currency transactions
      such
      as those resulting from the settlement of receivables or payables denominated
      in
      foreign currency, are 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 2006, the Company recognized a foreign
      exchange gain of $22,307 and a foreign exchange loss of $53,008 respectively
      in
      the accompanying consolidated statements of operations.





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.









**ZIM
      CORPORATION**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(EXPRESSED
      IN US DOLLARS)**








**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.





**STOCK
      OPTIONS**





Through
      March 31, 2006, the Company accounted for stock-based compensation under the
      intrinsic method in accordance with Accounting Principles Board Opinion No.
      25,
*Accounting for Stock Issued to Employees.*Under the intrinsic method,
      we did not record any compensation expense as stock options granted were priced
      at the fair market value of our stock at the date of grant.





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, 2007, the Company recognized compensation expense for
      employees of $301,829 and consultants of $12,125. For the year ended March
      31,
      2006, the Company recognized compensation expense for employees of $NIL and
      consultants of $254,017. The Company does not have any non-vested awards as
      of
      March 31, 2007.









**ZIM
      CORPORATION**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(EXPRESSED
      IN US DOLLARS)**








Under
      the
      intrinsic method of accounting, compensation expense had not been recognized
      in
      the prior period statements of operations. The following table illustrates
      the
      effect on net loss and net loss per share if ZIM had applied the fair value
      recognition provisions of SFAS No. 123(R) to stock-based compensation for the
      year ended March 31, 2006:





**Year
                ended**
              **March
                31, 2006**$Net
                loss, as reported
            
            (3,388,493)Stock-based
                employee compensation income (expense) included in net
                loss
            
            -Stock-based
                employee compensation expense determined under fair value based method
                for
                all awards
            
            (161,673)Net
                loss, pro forma
            
            (3,550,166)Basic
                and diluted net loss per share:As
                reported, basic and diluted
            
            (0.06)Pro
                forma, basic and diluted
            
            (0.06)





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, 2007**
            
            **Year
                ended**
              **March
                31, 2006**Risk-free
                interest rates
            5.00%
            
            4.50%Expected
                volatility
            80%
            
            80%Dividend
                yield
            -
            
            -Expected
                life of options (years)
            2.0
            
            2.0











**ZIM
      CORPORATION**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(EXPRESSED
      IN US DOLLARS)**








**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





**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.  No
      impairment was noted during this review.





**INTANGIBLE
      ASSETS**





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





Customer
      lists relating to ZTI do Brasil Ltda. were being amortized over their estimated
      rate of customer attrition which has been assumed to be 40% in the first year,
      50% of the then residual in the second and third years, and the remaining
      balance in the fourth year.





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.









**ZIM
      CORPORATION**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(EXPRESSED
      IN US DOLLARS)**





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 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.  No impairment was
      noted during this review.





**GOODWILL**





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





We
      perform an annual review in the fourth quarter of each year, or more frequently
      if indicators of potential impairment exist, to determine if the recorded
      goodwill is impaired. Based on negative trends in our results relating to EPL
      during the fiscal year ended March 31, 2006, and in the industry at large,
      ZIM
      performed an impairment review in the third quarter of fiscal 2006 to determine
      if the recorded goodwill relating to EPL was impaired. Our impairment review
      compares the fair value of EPL to their respective carrying values, including
      the goodwill related to these reporting units. An impairment was noted during
      the March 31, 2006 review on the EPL business.





**OTHER**





Other
      than the compensation expense recorded for options granted to the chief
      executive officer, no remuneration has been recorded in these financial
      statements for the services of the Chief Executive Officer who represents the
      controlling shareholder.





**3
      - 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 has a
      one-year term, with payments each month of $20,833.  The basis for the
      determination of the fair value of the common stock of $0.065 is 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 are held in escrow for one year.   The
      stock options were valued using the Black-Scholes method, expiring on March
      31,
      2009 with an option price of $0.071.










**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 is 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.








**4
      - ACCOUNTS RECEIVABLE**





**March
                31, 2007**
            
            **March
                31, 2006**$
            
            $Trade
                accounts receivable
            
            287,537
            
            1,216,395Unbilled
                trade accounts receivable
            25,401
            
            73,728Allowance
                for doubtful accounts
            (9,319)
            
            (43,711)Other
            
            12,238
            
            55,235315,875
            
            1,301,647








**5
      - PROPERTY AND EQUIPMENT**


**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









**ZIM
      CORPORATION**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(EXPRESSED
      IN US DOLLARS)**








**March
                31, 2006**
            **Cost**
            **Accumulated
                depreciation**
            **Net
                book value**$
            $
            $Computer
                equipment
            879,105
            761,174
            117,931Software
            
            57,823
            54,443
            3,380Office
                furniture and equipment
            183,034
            149,735
            33,299Voice
                communications equipment
            5,091
            297
            4,794Leasehold
                improvements
            133,972
            12,467
            121,5051,259,025
            978,116
            280,909





The
      Company reviewed its fixed assets for impairment at each year end 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.  No assets were determined to be impaired.





**6
      - INTANGIBLE ASSETS**


**Cost**
            **Accumulated
                amortization**
            **Net
                book value****$**
            **$**
            **$****March
                31, 2007**Customer
                list
            68,355
            (68,355)
            -Core
                technology
            722,053
            (722,053)
            -Customer
                relationships
            163,664
            (163,664)
            -954,072
            (954,072)
            -**March
                31, 2006**
            **Cost**
            **Accumulated
                amortization**
            **Net
                book value****$**
            **$**
            **$**Customer
                list
            80,997
            80,997
            -80,997
            80,997
            -









**ZIM
      CORPORATION**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(EXPRESSED
      IN US DOLLARS)**





**7
      - GOODWILL**





**EPL**





Based
      on
      negative trends in our results and in the industry at large, ZIM performed
      an
      impairment review in the third quarter of the year ended March 31, 2006 to
      determine if the recorded goodwill associated with EPL was impaired. Our
      impairment review compared the fair value of EPL to their respective carrying
      values, including the goodwill related to these reporting units.





The
      impairment test indicated that the recorded book value of this reporting unit
      exceeded its fair value, as determined by discounted cash flows; this resulted
      in a $2,133,197 non-cash impairment charge for the year ended March 31, 2006.
      As
      of the date of the prior impairment test, March 31, 2005, ZIM anticipated
      significantly higher margins and increases in its revenue levels from prior
      years, based on its actual results in fiscal 2005, the industry trends and
      reviewing comparable companies. However, due to the saturation in the market,
      which ZIM was unable to predict at the time of the previous impairment test,
      ZIM
      has been unable to increase revenues, and in fact have experienced declines
      in
      revenue from the last fiscal year. At the time of the impairment, ZIM did not
      foresee achieving the growth targets anticipated for future years. In addition,
      the margins experienced continued to decline as the industry was becoming more
      competitive. Due to these factors, ZIM continues to offer its aggregation
      services but now focuses on new growth opportunities within the mobile and
      internet TV industries.





As
      a
      result of the decrease in revenues, the increased competition and our decision
      to focus on expanded areas of growth, ZIM determined that the goodwill acquired
      in the EPL acquisition was fully impaired in the year ended March 31,
      2006.





**8
      – LINE OF CREDIT**





In
      the
      first quarter of fiscal 2006, ZIM obtained a working capital line of credit
      for
      $250,000 from its principal banker.  The $250,000 revolving credit
      facility was 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%.  At March 31, 2006, there was $220,033 available on the line of
      credit.  As at March 31, 2006, ZIM was in violation of certain
      covenants associated with the line of credit.  Specifically, ZIM had
      not maintained a ratio of current assets to current liabilities of not less
      than
      1.1:1 or a tangible net worth of at least $750,000.





During
      fiscal 2007, this working capital line of credit was reduced to approximately
      $43,000. The $43,000 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.











**ZIM
      CORPORATION**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(EXPRESSED
      IN US DOLLARS)**








**9
      - ACCRUED LIABILITIES**





**March
                31, 2007**
            **March
                31, 2006**$
            $Employee
                related accruals
            
            52,376
            59,214Professional
                fees
            
            75,594
            177,762Withholding
                tax accrual
            
            16,019
            11,094Trade
            
            51,057
            156,857Interest
            
            569
            -Other
            
            -
            1,218195,615
            406,145








**10
      - RELATED PARTY TRANSACTIONS**





On
      June
      30, 2006, ZIM’s Chief Executive Officer and controlling shareholder participated
      in a private placement of common shares, where he purchased 18,024,591 units
      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, the
      closing market price on the OTCBB on June 29, 2006, with each unit consisting
      of
      one common share and one warrant to purchase common shares for $0.04 per share.
      Each warrant may be exercised at $0.04 at any time prior to September 30,
      2007.





**DUE
      TO A SHAREHOLDER**





On
      August
      11, 2005, ZIM entered into a loan agreement with its CEO to make credit facility
      available to the Company. The credit facility is an unsecured revolving facility
      in the amount of approximately $428,100. All advances shall bear interest at
      the
      Royal Bank of Canada prime rate plus 1.75% and are repayable on
      demand.





As
      at
      March 31, 2006, the principal balance due to the Chief Executive Officer is
      $419,538 plus $10,722 of interest due. The balance at March 31, 2006 plus
      interest was converted to common shares, as described above.  As at
      March 31, 2007, the balance due to the Chief Executive Officer is comprised
      of a
      loan in the amount of $43,305.





**11
      - SHAREHOLDERS' EQUITY**





Transactions
      for the periods include the following:





The
      Company issued 135,000 common shares for proceeds of $4,800 and 43,700 common
      shares for proceeds of $7,429 in the years ended March 31, 2007 and 2006,
      respectively, pursuant to the exercise of stock options by employees and
      non-employees.





On
      April
      1, 2006, the Company issued 10,000,000 common shares valued at $650,000 in
      connection with the acquisition of Advanced Internet Inc., see Note
      3.










**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.  Each unit consists of one common share and one common share
      purchase warrant.  Each warrant may be exercised at $0.04 at any time
      prior to September 30, 2007.





**ADDITIONAL
      PAID IN CAPITAL**





During
      the year ended March 31, 2007 the Company issued options to employees and
      non-employees, and as a result, additional paid in capital has been increased
      by
      $326,154. During the year ended March 31, 2006, the Company issued options
      to
      non-employees, in consideration for advisory services, and as a result,
      additional paid in capital has been increased by $254,017. 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.





**12
      - 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,
      2007, 21,243,743 (March 31, 2006, 21,874,371) options were outstanding under
      the
      Employee Stock Option Plan. In addition, 6,010,000 (March 31, 2006, 6,110,000)
      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.





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





**March
                31, 2007**
            **March
                31, 2006****Number
                of options outstanding**
            **Weighted
                average exercise price**
            **Number
                of options outstanding**
            **Weighted
                average exercise price**$
            
            $Options
                outstanding, beginning of year
            27,984,371
            0.540
            22,661,871
            0.64Granted
            13,194,561
            0.055
            6,700,000
            0.16Exercised
            (135,000)
            0.036
            (43,700)
            0.17Expired
            (13,790,189)
            0.752
            (1,333,800)
            0.48Options
                outstanding, end of year
            27,253,743
            0.200
            27,984,371
            0.54











**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,
      2007:





**Options
                outstanding**
            
            **Options
                exercisable****Range
                of exercise prices**
            **Number
                outstanding**
              **at
                March 31, 2007**
            **Weighted
                average**
              **remaining**
              **contractual
                life**
            **Weighted
                average**
              **exercise
                price**
            **Number
                exercisable at**
              **March
                31, 2007**
            **Weighted
                average exercise price**$
            
            Years
            $
            
            $0.024-0.050
            10,292,493
            2.63
            0.05
            10,292,493
            0.050.065-0.090
            3,822,068
            2.26
            0.08
            3,822,068
            0.080.130-0.170
            3,155,000
            1.19
            0.16
            3,155,000
            0.160.200-0.290
            4,075,000
            1.11
            0.20
            4,075,000
            0.200.310-0.380
            1,976,666
            0.25
            0.36
            1,976,666
            0.360.410-0.530
            1,135,000
            0.17
            0.48
            1,135,000
            0.480.690-0.800
            2,797,516
            0.06
            0.06
            2,797,516
            0.0627,253,743
            1.64
            0.20
            27,253,743
            0.20








**EMPLOYEE
      AND NON-EMPLOYEE OPTIONS**





During
      the year ended March 31, 2007, 12,244,561 (March 31, 2006 – 2,890,000) options
      were granted to employees.





During
      the year ended March 31, 2007, 950,000 (March 31, 2006 - 3,810,000) 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, 2007. Of the 3,810,000
      options granted to non-employees in the year ended March 31, 2006, no options
      were granted below market and 3,600,000 were granted at $0.20, when the market
      price was $0.17.





During
      the years ended March 31, 2007 and March 31, 2006 certain employees were
      terminated and are no longer providing any substantive services to ZIM. Under
      their termination agreements, their option grants were modified and the options
      were retained and extended to their original term.




The
      compensation expense recorded due to the modification of terminated employees’
options in the years ended March 31, 2007 and March 31, 2006 was NIL, as all
      modified options had no intrinsic value.










**ZIM
      CORPORATION**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(EXPRESSED
      IN US DOLLARS)**








**WARRANTS**





As
      at
      March 31, 2007,19,515,392(March 31, 2006, 1,150,006)
      warrants were
      outstanding.   Warrants were issued to investors in June 2006 and
      January 2004 as part of private placements.  The warrants issued in
      June 2006 are priced at $0.04 and expire September 30, 2007.  The
      warrants issued for the January 2004 private placement expire on May 30, 2008
      and have an exercise price of $0.20.  Each warrant entitles the holder
      to purchase one common share of ZIM at a price of $0.04.  During the
      fiscal year ended March 31, 2006, 8,065,686 warrants expired.  No
      warrants have been exercised.








**13-
      INTEREST**





**Year
                ended**
              **March
                31, 2007**
            **Year
                ended**
              **March
                31, 2006**$
            $Interest
                expense
            15,569
            21,401Interest
                income
            (20,865)
            (26,911)Total
            (5,296)
            (5,510)








**14
      - INCOME TAXES**





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





**Year
                ended**
              **March
                31, 2007**
            **Year
                ended**
              **March
                31, 2006**Tax
                Rate, comprised of a federal rate of 22.12% and a provincial rate
                of
                14%
            
            36.12%
            36.12%Expected
                Canadian Income Tax Recovery
            
            (699,351)
            (1,265,122)Adjustment
                due to application of Small Business Deduction
            
            338,833
            612,947Change
                in valuation allowance for originating temporary differences and
                losses
                available for carry forward
            
            358,208
            639,441Difference
                between Canadian and foreign tax rates
            
            21,658
            14,480Other
            
            16,358
            72,641Refundable
                tax credits
            
            (338,261)
            (188,446)(302,555)
            (114,059)










**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
      18.62%, 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 $302,555 and $114,059 for the years ended March 31, 2007
      and
      2006 respectively relate to refundable income tax credits receivable, partially
      offset by income taxes paid by the Company's Brazilian subsidiary.





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











**March
                31, 2007**
            
            **March
                31, 2006**$
            
            $Temporary
                differencesLosses
                available for carry forward
            
            1,720,553
            
            1,754,778Property
                and equipment - differences in net book value and unamortized capital
                cost
            
            116,174
            
            113,701Intangible
                assets - differences in net book value and tax basis
            
            288,355
            
            149,419Unused
                scientific research and experimental development amounts
                deductible
            
            858,728
            
            815,551Gross
                deferred tax asset
            
            2,983,810
            
            2,833,449Valuation
                allowance
            
            (2,983,810)
            
            (2,833,449)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****$**
            **$**2008
            2,837,325
            2,837,3252009
            1,652,856
            1,652,8562010
            637,732
            637,7322014
            1,340,587
            1,340,5872015
            1,420,008
            1,420,008thereafter
            1,224,525
            1,224,5259,113,033
            9,113,033










**ZIM
      CORPORATION**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(EXPRESSED
      IN US DOLLARS)**





As
      at
      March 31, 2007, the Company had accumulated unclaimed federal and provincial
      scientific research and experimental development deductions of approximately
      $2,513,615 and $3,541,041 respectively ($2,413,521 and $3,427,542 in 2006).
      This
      amount can be carried forward indefinitely to reduce income taxes payable in
      future years.





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





2008
            1,5712009
            1,1832010
            6,3752011
            -2012
            15,657Thereafter
            318,413343,199





For
      the
      year ended March 31, 2007, the Company recorded an amount of $188,444 of
      investment tax credits ($142,550 for the year ended March 31,
      2006).





**15
      - LOSS PER SHARE**





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





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 anti-dilutive:





**March
                31, 2007**
            **March
                31, 2006**Stock
                options
            510,843
            -Warrants
            -
            -





Total
      options outstanding at March 31, 2007 and 2006 were 27,253,743 and 27,984,371
      respectively. Total warrants outstanding at March 31, 2007 and 2006 were 19,515,392and 1,150,006
      respectively.





**16
      - FINANCIAL INSTRUMENTS**





**RISK
      MANAGEMENT ACTIVITIES**





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










**ZIM
      CORPORATION**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(EXPRESSED
      IN US DOLLARS)**








**FOREIGN
      EXCHANGE RISK MANAGEMENT**





Cash
      includes the following amounts in their source currency:





**March
                31, 2007**
            
            **March
                31, 2006**Canadian
                dollars
            
            25,235
            
            -US
                dollars
            
            95,138
            
            10,010Brazilian
                reals
            
            551,389
            
            390,573British
                pounds
            
            9,326
            
            22,639Euros
            
            18,255
            
            9,347








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





**March
                31, 2007**
            
            **March
                31, 2006**Canadian
                dollars
            
            60,744
            
            588,206US
                dollars
            
            39,843
            
            5,709Brazilian
                reals
            
            288,057
            
            340,150British
                pounds
            
            8,401
            
            260,670Euros
            
            37,414
            
            150,746








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





**March
                31, 2007**
            
            **March
                31, 2006**Canadian
                dollars
            
            92,264
            
            343,439US
                dollars
            
            29,427
            
            9,857Brazilian
                reals
            
            23,594
            
            24,688British
                pounds
            
            42,496
            
            132,921Euros
            
            68,859
            
            57,424





Accrued
      liabilities include the following accruals in their source
      currency:





**March
                31, 2007**
            
            **March
                31, 2006**Canadian
                dollars
            146,885
            
            280,312US
                dollars
            20,876
            
            -Brazilian
                reals
            26,127
            
            15,846British
                pounds
            1,727
            
            109,987








**CONCENTRATION
      OF 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.









**ZIM
      CORPORATION**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(EXPRESSED
      IN US DOLLARS)**








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, 2007**
            
            **March
                31, 2006**Canada
            22%
            
            37%North
                and South America, excluding Canada
            12%
            
            17%Great
                Britain
            1%
            
            28%Europe,
                excluding Great Britain
            17%
            
            11%Other
            48%
            
            7%100%
            
            100%


**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.








**17
      – COMMITMENTS AND CONTINGENCIES**





**OPERATING
      LEASE COMMITMENTS**





The
      Company has the following lease commitments relating to facilities:





$2008
            
            62,9872009
            
            62,7792010
            
            59,5942011
            
            34,7632012
            
            -220,123








For
      the
      year ended March 31, 2007, rent expense was $58,973 ($239,867 for the year
      ended
      March 31, 2006).





**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.










**ZIM
      CORPORATION**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(EXPRESSED
      IN US DOLLARS)**





**18.  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.





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





**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
            0
            972,209Allocation
                of interest income, 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)








**Year
                ended March 31, 2006**
            **Mobile**
            **Software**
            **Total**$
            $
            $Revenue
            2,356,598
            1,238,717
            3,595,315Cost
                of revenue
            (1,770,338)
            (205,303)
            (1,975,641)Gross
                margin
            586,260
            1,033,414
            1,619,674Allocation
                of operating expenses
            2,461,257
            519,369
            2,980,626Amortization
                of intangible assets
            -
            2,984
            2,984Impairment
                of goodwill
            2,133,197
            -
            2,133,197Loss
                on disposable of fixed assets
            10,929
            -
            10,929Allocation
                of interest income, net
            (4,550)
            (960)
            (5,510)Income
                tax expense (benefit)
            (156,688)
            42,629
            (114,059)4,444,145
            564,022
            5,008,167Net
                (loss) income
            (3,857,885)
            469,392
            (3,388,493)








**ZIM
        CORPORATION**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(EXPRESSED
        IN US DOLLARS)**





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





**March
                31, 2007**
            
            **March
                31, 2006**$
            
            $Mobile
            610,943
            
            1,919,468Software
            589,992
            
            405,041Total
                assets
            1,200,935
            
            2,324,509








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:








**Year
                ended March 31, 2007**
            
            **Year
                ended March 31, 2006**$
            
            $United
                States
            315,130
            
            504,286United
                Kingdom
            184,070
            
            411,889Europe
            312,646
            
            892,592Brazil
            1,109,234
            
            1,012,115Canada
            260,926
            
            765,743Other
            13,178
            
            8,690Total
                revenue
            2,195,184
            
            3,595,315










**ZIM
      CORPORATION**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(EXPRESSED
      IN US DOLLARS)**





**March
                31, 2007**
            **March
                31, 2006**$
            $**Long-lived
                assets**Canada
            221,601
            273,532Brazil
            8,690
            7,377United
                Kingdom
            -
            -Total
                long-lived assets
            230,291
            280,909








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





**20
      - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS**





**FASB
      Interpretation 48**





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 prescribes
      a recognition threshold and measurement attribute for the financial statement
      recognition and measurement of a tax position taken or expected to be taken
      in a
      tax return. This Interpretation also provides guidance on de−recognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure, and transition.





This
      Interpretation is effective for fiscal years beginning after December 15, 2006,
      and earlier application of the provisions of this Interpretation is encouraged
      if the enterprise has not yet issued financial statements, including interim
      financial statements, in the period this Interpretation is adopted. The Company
      is currently assessing the impact the adoption of FASB Interpretation 48 on
      its
      financial statements.





**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.
      Earlier adoption is permitted, provided the company has not yet issued financial
      statements, including for interim periods, for that fiscal year. The Company
      is
      currently accessing the impact the adoption of SFAS 157 will have on its
      consolidated financial position, results 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.









**ZIM
      CORPORATION**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(EXPRESSED
      IN US DOLLARS)**








**SAB
      108**




In
      September 2006, the Securities and Exchange Commission issued Staff Accounting
      Bulletin No. 108, Considering the Effects of Prior Year Misstatements when
      Quantifying Misstatements in Current Year Financial Statements ("SAB 108").
      SAB
      108 provides interpretive guidance on how the effects of prior-year uncorrected
      misstatements should be considered when quantifying misstatements in the current
      year financial statements. SAB 108 requires registrants to quantify
      misstatements using both an income statement ("rollover") and balance sheet
      ("iron curtain") approach and evaluate whether either approach results in a
      misstatement that, when all relevant quantitative and qualitative factors are
      considered, is material. If prior year errors that had been previously
      considered immaterial now are considered material based on either approach,
      no
      restatement is required so long as management properly applied its previous
      approach and all relevant facts and circumstances were considered. If prior
      years are not restated, the cumulative effect adjustment is recorded in opening
      accumulated earnings as of the beginning of the fiscal year of adoption. SAB
      108
      is effective for fiscal years ending after November 15, 2006.  SAB 108
      was effective for the year ended March 31, 2007; however it did not have any
      impact on our financial statements.









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





Not
      applicable.





**ITEM
      8A.  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, carried out an evaluation of the effectiveness of
      the
      design and operation of our disclosure controls and procedures as of March
      31,
      2007.  Subsequent to March 31, 2007, our Chief Financial and
      Accounting Officer resigned and we have not refilled this position. Our Chief
      Executive Officer, who is now also filing the role of the Chief Financial
      Officer, concluded that our disclosure controls and procedures were not
      effective due to the material weakness in our internal control over financial
      reporting described below related to our financial reporting processes and
      information technology security protocols.





A
      material weakness is a significant deficiency in one or more of the internal
      control components that, alone or in the aggregate, precludes our internal
      controls from reducing to an appropriately low level of risk that material
      misstatements in our financial statements will not be prevented or detected
      on a
      timely basis.





The
      main
      deficiencies consisted principally of inadequate staffing and supervision that
      could lead to the untimely identification and resolution of accounting and
      disclosure matters and failure to perform timely and effective
      reviews.





Other
      internal control deficiencies that are considered to contribute to the material
      weakness and the remedies taken to date, or planned, are as
      follows:





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





·
            Inadequate
                segregation of duties and cross
                training.





·
            We
                continue to be reliant on manual systems to account for revenue and
                expenses which has resulted in errors.  We have been unable to
                find a cost-effective automated process that would eliminate our
                manual
                systems.  As such we are dependent on tools such as Excel and
                reviews by managers and other finance team members.  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.









·
            The
                Ringingphone.com and Monstertones.com databases were inherited through
                the
                purchase of Advanced Internet Services in April 2006.  Several third
                party billing services are used for payment processing on these
                sites.  There are internal control weaknesses in the system in
                regards to the relationship between recurring payment processing and
                account updates.  In order to help mitigate this situation, when
                customers cancel through one of the third party billing services,
                we are
                notified.  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.





We
      intend
      to continue to ensure that our internal controls continue to improve, however,
      our small size and financial resources continues 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***





During
      the quarter ended March 31, 2007, we reallocated tasks subsequent to the
      resignation of the controller. We also continued to monitor the other internal
      control processes that we have established to ensure that they were working
      to
      remediate the internal control deficiencies.





Besides
      the changes discussed above, there have been no other changes in internal
      control over financial reporting that have materially affected, or is reasonably
      likely to materially affect, the company’s internal control over financial
      reporting.








**ITEM
      8B. OTHER INFORMATION.**





Not
      applicable.





**PART
      III**





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





The
      following sets forth information concerning our 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 ZIM**Dr.
                Michael Cowpland
            64
            President,
                Chief Executive Officer, Chief Financial Officer and
                DirectorRoberto
                Campagna
            29
            Vice
                President SalesPhil
                Scavo
            30
            Vice
                President Business DevelopmentSteven
                Houck
            37
            DirectorJames
                Stechyson
            42
            DirectorDonald
                Gibbs
            61
            Director








Michael
      Cowpland has served as President Director and Chief Executive Officer since
      February 2001 and as Chief Financial Officer since April 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.





Steven
      Houck has served as a director since April 2001. Currently, Mr. Houck is the
      Vice President of World – wide Sales, EMC Insignia, for EMC Corporation. From
      early 2004 until 2005 Mr. Houck has been working as a consultant for various
      startup companies.  From 1995 to early 2004, Mr. Houck held various
      positions with Corel Corporation. Prior to his service to Corel, he founded
      Worldview Technologies, a company specializing in multimedia design and
      authoring and served as its CEO until 1995. He received a Bachelor’s Degree in
      Business Administration from 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
      President of OM Video, Inc., a major hardware sales and systems integrator
      of
      professional video and presentation technology based in Ottawa, Canada. He
      is
      also the recipient of the Ottawa Carleton Board of Trade Young Entrepreneur
      of
      the Year Award.





Donald
      R
      Gibbs has been a director of ZIM since July 2003. He also serves as the Chairman
      of ZIM's Audit Committee. Since April 2007, Mr. Gibbs has been 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. We do not have a Nominating
      Committee. In the absence of such a committee, the Board as a whole considers
      individuals to recommend to the Board for inclusion among management's nominees
      and considers corporate governance issues. The Board
      will consider director candidates recommended by shareholders if the name and
      qualifications of candidates are timely presented to the
      Board.












The
      Audit
      Committee's functions include evaluating, and recommending to the Board the
      engagement of 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, 2007.





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, 2007.





**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.





We
      are
      aware that Jennifer North filed a Form 4 on December 15, 2006 for a transaction
      that occurred on December 6, 2006 and that Michael Cowpland filed a Form 4
      on
      February 22, 2007 for a transaction that occurred on February 8, 2007. We are
      unaware of any other required reports that were not timely filed.





**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 hereunder 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***




At
        ZIM 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. We do encourage
        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.




***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 2007, 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 2007.  For the
        fiscal year ended March 31, 2007, we 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 there are no plans to
        replace her. There are no assurances that we 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 Corporation to attract, motivate and retain
        qualified individuals and to align their success with that of the Corporations
        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 labour
        markets
        in which the Corporation competes for employees. The compensation committee
        compares remuneration for executive officers of the Corporation to the
        remuneration for similar executives in relevant labour
        markets.


***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 (“RRSP”).  In fiscal 2007, one of
        the executive officers participated in the RRSP plan. The Company provides
        a matching contribution of $0.50CDN on each $1.00CDN contributed to a
        maximum of $250.00CDN per calendar quarter and $1,000CDN per calendar
        year to each plan participant





***Summary
        Compensation Table***





The
      table
      below provides detailed information on the compensation of the Chief Executive
      Officer and the Vice President of Sales and the Vice President of Business
      Development for services rendered for the fiscal year ended March 31,
      2007.  No other executive officer or employee received compensation in
      excess of $100,000 for the fiscal year ended March 31, 2007.





Name
                and principal position
            
            Salary
                ($)
            Option
                Awards ($)(1)
            Total
                ($)YearMichael
                Cowpland, President and Chief Executive Officer
            2007
            –
            204,633
            204,633Roberto
                Campagna, Vice President, Sales
            2007
            105,391
            11,737
            117,128Phil
                Scavo, Vice President Business Development
            2007
            102,098
            13,492
            115,590








(1)
            Represents
                the compensation expense incurred by the Company for the year ended
                March
                31, 2007 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.










***Outstanding
      Equity Awards At Fiscal Year-End***


Name
                Number
                    of Securities
                  Underlying
                    Unexercised
                  Options
                Option
                    Awards
                  Number
                    of
                  Securities
                  Underlying
                  Unexercised
                  Options
                Option
                  Exercise
                  Price
                    ($)
                Option
                  Expiration
                  Date(#)
                (#)Exercisable
                Unexercisable
 Michael
                  Cowpland, President and Chief Executive Officer
              47,500
              Nil
              0.690
              6-Apr-0795,000
              Nil
              0.380
              8-Jun-07326,683
              Nil
              0.340
              19-Sep-0766,667
              Nil
              0.310
              30-Sep-0766,666
              Nil
              0.310
              6-Nov-0710,000
              Nil
              0.300
              8-Dec-07263,333
              Nil
              0.400
              30-Dec-07200,000
              Nil
              0.170
              9-Feb-0830,000
              Nil
              0.170
              9-Feb-0843,333
              Nil
              0.210
              18-Feb-08120,000
              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-10Roberto
                  Campagna, Vice President, Sales
              25,000
              Nil
              0.690
              6-Apr-07100,000
              Nil
              0.710
              11-Apr-0750,000
              Nil
              0.380
              8-Jun-07200,000
              Nil
              0.170
              9-Feb-08100,000
              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-10Phil
                  Scavo, Vice President Business Development
              25,000
              Nil
              0.690
              6-Apr-0770,000
              Nil
              0.690
              6-Apr-0750,000
              Nil
              0.380
              8-Jun-07200,000
              Nil
              0.170
              9-Feb-08100,000
              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-10





(1)
      All
      options above vested immediately upon option grant.  All options
      granted three years prior to the expiry date.










**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, 2007.





Name
            Option
                Awards ($)(1)
            Total
                ($)Steven
                Houck
            7,170
            7,170James
                Stechyson
            5,754
            5,754Donald
                Gibbs
            5,800
            5,800Charles
                Saikaley
            1,142
            1,142





(1)
              Represents
                  the compensation expense incurred by the Company for the year ended
                  March
                  31, 2007 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 8, 2007, 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 8, 2007. 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
            
            PercentageMichael
                Cowpland
            234
                Perley Court, Ottawa, Ontario
            President
                and CEO
            75,413,212
            (1)
            55.9%Advanced
                Telecom Services
            996
                Old Eagle School Road, Suite 1105, Wayne, PA
            N/A
            10,500,000
            (2)
            7.8%Roberto
                Campagna
            
            Vice
                President of Sales
            1,011,611
            (3)
            0.8%Phil
                Scavo
            
            Vice
                President of Business Development
            994,722
            (4)
            0.7%James
                Stechyson
            
            Director
            890,000
            (5)
            0.7%Steven
                Houck
            
            Director
            410,000
            (6)
            0.3%Donald
                Gibbs
            
            Director
            410,000
            (7)
            0.3%


All
      executive officers and officers as a group (6 persons) hold 79,129,545 common
      shares, which totals 58.7% of ownership.





Applicable
      percentage of ownership is based upon 88,061,955 shares of common stock
      outstanding as of June 8, 2007, together with applicable options for such
      shareholder.  Shares of common stock subject to options currently
      exercisable or exercisable within 60 days of June 8, 2007 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 33,958,556 common
                shares owned directly by Dr. Cowpland and 10,015,049 common shares
                under
                options and 18,024,591 common shares under warrants which are currently
                exercisable or are exercisable within 60 days of June 8,
                2007.  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 8, 2007, 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 8,
                2007.





3.
            The
                beneficial ownership of Roberto Campagna consists of 1,011,611 common
                shares which he has a right to acquire under stock options that are
                currently exercisable or are exercisable within 60 days of June 8,
                2007.









4.
            The
                beneficial ownership of Phil Scavo consists of 994,722 common shares
                which
                he has a right to acquire under stock options that are currently
                exercisable or are exercisable within 60 days of June 8,
                2007





5.
            The
                beneficial ownership of James Stechyson consists of 450,000 common
                shares
                owned directly, 390,000 common shares which he has a right to acquire
                under stock options that are currently exercisable or are exercisable
                within 60 days of June 8, 2007, and 50,000 shares issuable upon exercise
                of warrants that are currently exercisable or are exercisable within
                60
                days of June 8, 2007.





6.
            The
                beneficial ownership of Steven Houck consists of 410,000 common shares
                which he has a right to acquire under stock options that are currently
                exercisable or are exercisable within 60 days of June 8,
                2007.





7.
            The
                beneficial ownership of Donald Gibbs consists of 410,000 common shares
                which he has a right to acquire under stock options that are currently
                exercisable or are exercisable within 60 days of June 8,
                2007.





**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, 2007 are
      as
      follows:





Plan
                category
            Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights
            Weighted
                average exercise price of 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)Equity
                compensation plans approved by security holders
            21,243,743(1)
            0.21
            5,956,257Equity
                compensation plans not approved by security holders
            6,010,000(2)
            0.05
            NILTotal
            27,253,743
            0.20
            5,956,257








(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.








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





On
      August
      11, 2005, ZIM entered into a loan agreement with its CEO to make a credit
      facility available to the Company. The credit facility is an unsecured revolving
      facility in the amount of approximately $428,100. All advances shall bear
      interest at the Royal Bank of Canada prime rate plus 1.75% and are repayable
      on
      demand.





As
      at
      March 31, 2006, the principal balance due to the Chief Executive Officer is
      $419,538 plus $10,722 of interest due. As at March 31, 2007, the balance due
      to
      the Chief Executive Officer is $43,305.





On
      June
      30, 2006, ZIM’s Chief Executive Officer participated in a private placement of
      common shares.  Dr. Michael Cowpland, ZIM’s Chief Executive Officer,
      purchased 18,024,591 units through a cash investment of approximately $267,000
      with the balance satisfied through the conversion of debt discussed
      above.   In addition, the brother of the Chief Executive Officer
      purchased 90,795 units. The units were priced at $0.04 per unit, the closing
      market price on the OTCBB on June 29, 2006, with each unit consisting of one
      common share and one warrant to purchase common shares for $0.04 per
      share.





The
      Board
      of Directors has determined that all directors who served on the Board during
      2006, 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. None of
      the
      non-employee directors, to the Company’s knowledge, had any business, financial,
      family or other type of relationship with the Company or its management (other
      than as a director and stockholder of the Company), except for any relationships
      that the Board considered to be immaterial under the NASDAQ independence
      standards.








**PART
      IV**





**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 Limited Liability Partnership, as follows:





Year
                ended
              March
                31, 2007
            Year
                ended
              March
                31, 2006Audit
                fees
            
            111,124
            110,357Audit
                related fees
            
            19,063
            75,290Tax
                fees
            
            6,838
            14,109All
                other fees
            
            0
            3,386Total
            
            137,025
            203,142







**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.









**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
      21, 2007





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, Principal Financial Officer and
                Director
            June
                21, 2007/s/
                Steven Houck
              Steven
                Houck
            Director
            June
                21, 2007/s/
                James Stechyson
              James
                Stechyson
            Chairman
                and Director
            June
                21, 2007/s/Donald
                Gibbs
              Donald
                Gibbs
            Director
            June
                21, 2007










**EXHIBIT
      INDEX**





**Exhibit                      EXHIBIT**


**Number**





2.1
            Stock
                Purchase Agreement dated March 28, 2006 by and among ZIM Corporation,
                Advanced Telecom Services, Inc. and Advanced Internet, Inc. (Incorporated
                by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                8-K filed March 28, 2006)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))10.2
            Form
                of Warrant Agreement by and among certain investors and ZIM Corporation
                dated June 30, 2004 (Incorporated by reference to the Registrant’s Form
                10-QSB for the quarter ended September 30, 2004)10.6
            Form
                of Share Purchase Agreement between Marlen Cowpland and ZIM Corporation
                dated October 7, 2004 (Incorporated by reference to the Registrant’s
                Quarterly Report on Form 10-QSB for the quarter ended December 31,
                2004)10.7
            Form
                of Warrant between Marlen Cowpland and ZIM Corporation dated October
                7,
                2004 (Incorporated by reference to the Registrant’s Quarterly Report on
                Form 10-QSB for the quarter ended December 31, 2004)10.8
            Amended
                Form of Warrant Agreement by and between certain investors and ZIM
                Corporation (Incorporated by reference to the Registrant’s Amendment No.1
                to the Registration Statement on Form SB-2 filed on June 30, 2004.
                (no.
                333-114736))10.9
            Form
                of Warrant Agreement by and between certain investors and ZIM Corporation
                (Incorporated by reference to the Registrant’s Quarterly Report on Form
                10-QSB for the quarter ended June 30, 2004)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)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 and Chief Financial Officer, Dr. Michael
                Cowpland, pursuant to Exchange Act Rules 13(a)-14(a) and 15d-14(a)
                (*)32.1
            Certification
                by the Chief Executive Officer and Chief Financial Officer, Dr. Michael
                Cowpland, 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.