ZIMCF Zim Corporation (CE)

1 - BASIS OF PRESENTATION

The accompanying unaudited selected financial data of ZIM Corporation (“ZIM” or the “Company”) and its subsidiaries have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (US GAAP) have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet as of December 31, 2020 has been derived from our audited consolidated financial statements for the year ended March 31, 2020. These selected financial data should be read in conjunction with the financial statements and notes thereto included in the latest annual report on Form 20-F. These data have been prepared on the same basis as the audited consolidated financial statements for the year ended March 31, 2020 and, in the opinion of management, include all adjustments considered necessary for a fair presentation of the financial position, results of operations and cash flows of the Company. Unless otherwise stated in this Form 6-K the information contained herein has not been audited or reviewed by an independent auditor. The results of operations for the three-month period ended December 31, 2020 are not necessarily indicative of the results to be expected for the full year.

These consolidated financial statements have been prepared on a going concern basis in accordance with accounting principles generally accepted in the United States ("US GAAP").The going concern basis of presentation assumes that the Company will continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business. To date the Company has incurred an accumulated loss of $21,137,102and cash flow used in operations of $321,700. This raises significant doubt about the ability of the Company to continue as a going concern. The ability of the Company to continue as a going concern and to realize the carrying value of its assets and discharge its liabilities and commitments when due is dependent on the Company generating revenue sufficient to fund its cash flow needs. There is no certainty that this and other strategies will be sufficient to permit the Company to continue as a going concern.

Management is currently investigating and evaluating options that may include recapitalization of the Company and pursuing other ventures of a different nature.

The consolidated financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. If the going concern basis were not appropriate for these consolidated financial statements, then adjustments would be necessary in the carrying value of the assets and liabilities, the reported revenue and expenses and the classifications used in the statement of financial position. Such differences in amounts could be material.

On August 24, 2018, NuvoBio Corporation made an investment in Spiderwort Inc. The investment consisted of the purchase of a $10,000 Canadian dollar ($7,725 US dollar) convertible promissory note and is accounted for at amortized cost. The note accrues simple interest of 5% per annum.

On October 15, 2019, Spiderwort Inc. completed a qualifying equity financing in an amount greater than $3,000,000 Canadian dollars. NuvoBio automatically converted securities in Spiderwort to Class B voting common shares. The convertible promissory note converted into shares of Spiderwort at a value of $10,006 US dollars. This represents an unrealized gain on this equity investment of $2,956. Spiderwort Inc. is an advanced materials company developing novel, plant derived, biomaterial that will offer new avenues in 3D in vitro research and in regenerative medicine.

On September 5, 2020, ZIM Corporation announced the sale of its database technology business as part of management’s plan to focus the business on its biomedical subsidiary NuvoBio. The database assets include all of the Software, Consulting and Maintenance segment and have been purchased by members of Zim Corporation’s staff and will operate under the name Zim Databases Canada Inc. The purchase price of $84,584 ($120,000 Canadian dollars) is to be paid in 5 equal payments over a 5-year period on the anniversary date of the agreement. The sale resulted in a net loss of $258,492 due to the write down of intercompany amounts owing from ZIM do Brazil the effects of foreign exchange between Brazil and Canada.

ITEM 2 – QUARTERLY BUSINESS REVIEW

This Form 6-K contains forward-looking statements regarding our business, financial condition, results of operations, liquidity and sufficiency of cash reserves, recapitalization, restructuring, pursuit of new businesses, controls and procedures, prospects, revenue expectations, and allocation of resources 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. These risks include foreign exchange risk, credit risk, fair value risks and key personnel risk and are therefore qualified in their entirety by reference to the factors specifically addressed in the sections entitled " QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK " and “RISK FACTORS” in our Annual Report on Form 20-F for the fiscal year ended March 31, 2020, as well as those discussed elsewhere in this Form 6-K. 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 Form 6-K. 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 Form 6-K, other than as required by law.

The following discussion includes information from the Selected Financial Data for the nine-month and three-month periods ended December 31, 2020 and 2019.  These 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.

EXECUTIVE SUMMARY

As at December 31, 2020, all revenue generating operations were discontinued and all company resources will be focused on the biomedical research being performed in our NuvoBio subsiduary.

Net loss for the quarter was $30,391, as compared to a net loss of $69,404 for the quarter ended December 31, 2019. Net loss for the nine months ended December 31, 2020 was $505,997, as compared to a net loss of $12,087 for the nine-month period ended December 31, 2019. The increase in net loss is due mainly to the recognition of $216,901 in gain on the sale of assets in the nine-month period ended December 31, 2019 and the recognition of $258,361 in loss on the sale of assets in the nine-month period ended December 31, 2020.

ZIM had cash and cash equivalents of $271,599 at December 31, 2020, as compared to cash and cash equivalents of $429,824 at March 31, 2020.

BUSINESS OVERVIEW

ZIM started operations as a developer and provider of database software known as ZIM IDE software.  ZIM IDE software is used by companies in the design, development, and management of information databases and mission critical applications.  On September 5, 2020, ZIM Corporation announced the sale of its database technology business as part of management’s plan to focus the business on its biomedical subsidiary NuvoBio. This operation was discontinued as of April 1, 2020.

Beginning in 2002, the Company expanded its business strategy to include opportunities associated with mobile products.  Prior to fiscal 2007, the Company focused on developing products and services for the wireless data network infrastructure known as “SMS” or “text messaging”.  Due to the stagnation in SMS revenue, low usage and uncertainty in future SMS revenue, SMS operations were discontinued as of December 31, 2020.

In 2017, our wholly-owned subsidiary, NuvoBio signed strategic partnerships and exclusive global licensing agreements with leading drug research institutes and companies. NuvoBio is currently funding research and development projects in the following areas:

CRITICAL ACCOUNTING ESTIMATES

We prepare our condensed consolidated financial statements in accordance with United States GAAP, 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 condensed consolidated financial statements are prepared. On an ongoing basis, management reviews our accounting policies and how they are applied and disclosed in our annual consolidated financial statements.

There have been no material changes to our critical accounting estimates from those described in our Annual Report on Form 20-F for the fiscal year ended March 31, 2020.

RESULTS OF OPERATIONS FOR THE NINE MONTHS AND THREE MONTHS ENDED DECEMBER 31, 2020 COMPARED TO THE NINE MONTHS AND THREE MONTHS ENDED DECEMBER 31, 2019

The following discussion includes information derived from the unaudited and not reviewed condensed consolidated statements of operations for the nine months and three months ended December 31, 2020 and 2019. The information for the nine months and three months ended December 31, 2020, in management's opinion, has been prepared on a basis consistent with the audited consolidated financial statements for the fiscal year ended March 31, 2020, and includes all adjustments necessary for a fair presentation of the information presented.

These operating results are not necessarily indicative of results for any future period. You should not rely on them to predict our future performance.

As at December 31, 2020, all revenue generating operations were discontinued and all company resources will be focused on the biomedical research being performed in our NuvoBio subsiduary.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses related to continuing operations for the quarters ended December 31, 2020 and December 31, 2019 were $25,053 and $42,688, respectively. Selling, general and administrative expenses related to continuing operations for the nine month periods ended December 31, 2020 and December 31, 2019 were $162,072 and $128,624, respectively. The increase in selling, general and administrative expense is mainly due to withholding taxes on funds from Brazil and legal fees related to the sales of the database business.

Selling, general and administrative expenses related to discontinued operations for the quarters ended December 31, 2020 and December 31, 2019 were a gain of $1,206 and an expense 57,331, respectively. The gain in 2021 is due to a revision of management’s estimate of 60% of audit fees being related to discontinued operations to 50%. Selling, general and administrative expenses related to discontinued operations for the nine month periods ended December 31, 2020 and December 31, 2019 were $75,082 and $243,215, respectively. The expenses in fiscal 2021 are related to severance costs and management’s estimate of 50% of audit fees being related to discontinued operations.

STOCK-BASED COMPENSATION

For the three months ended December 31, 2020, and December 31, 2019, the Company recognized compensation expense for employees and consultants of NIL and $1,305, respectively. The Company does not have any non-vested awards.

For the nine months ended December 31, 2020, and December 31, 2019, the Company recognized compensation expense for employees and consultants of NIL and $2,156, respectively. The Company does not have any non-vested awards.

RESEARCH AND DEVELOPMENT

Research and development expenses related to continuing operations for the quarter ended December 31, 2020 were $14,056 and for the quarter ended December 31, 2019 were $18,210. Research and development expenses related to continuing operations for the nine month periods ended December 31, 2020 and 2019 were $25,095 and $18,767, respectively.

Research and development expenses related to discontinued operations for the quarters ended December 31, 2020 and 2019 were $NIL and $21,708, respectively. Research and development expenses related to discontinued operations for the nine month periods ended December 31, 2020 and 2019 were $10,033 and $76,475, respectively. The expenses in fiscal 2021 are related to severance costs.

NET INCOME (LOSS)

Net loss for the quarter was $30,391, as compared to a net loss of $69,404 for the quarter ended December 31, 2019. Net loss for the nine months ended December 31, 2020 was $505,997, as compared to a net loss of $12,087 for the nine month period ended December 31, 2019. The increase in net loss is due mainly to the recognition of $216,901 in gain on the sale of assets in the nine-month period ended December 31, 2019 and the recognition of $258,361 in loss on the sale of assets in the nine-month period ended December 31, 2020.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2020, ZIM had cash and cash equivalents of $271,599 and working capital of $439,041, as compared to cash and cash equivalents of $429,824 and working capital of $543,915 at March 31, 2020.

Cash flows for the fiscal periods were as follows:

At December 31, 2020, the Company had a working capital line from its principal banker for approximately $39,271in addition to a cash and cash equivalent balance of $271,599. Management believes that these funds, together with cash from on-going operations, may not be sufficient to fund existing operations for the next 12 months. Management is currently investigating and evaluating options that may include recapitalization of the Company, raising debt or equity capital and pursuing other ventures of a different nature.

Future liquidity and cash requirements will depend on a wide range of factors, including the level of success the Company has in executing its strategic plan as well as its ability to maintain business in existing operations and its ability to raise additional financing. If ZIM’s expenses surpass the funds available or if ZIM requires additional expenditures to grow the business, the Company may be unable to obtain the necessary funds and ZIM may have to curtail or suspend some or all of its business operations, which would likely have a material adverse effect on its business relationships, financial results, financial condition and prospects, as well as on the ability of shareholders to recover their investment.

OFF-BALANCE SHEET ARRANGEMENTS

The Company does not have any off-balance sheet arrangements.

SUBSEQUENT EVENTS

None.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

FOREIGN EXCHANGE RISK

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

Cash and cash equivalents includes the following amounts in their source currency:

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

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

Accrued liabilities include the following accruals in their source currency:

The Company does not use derivative financial instruments to reduce its foreign exchange risk exposure.

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.

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

FAIR VALUE

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

KEY PERSONNEL RISK

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