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, 2019 has been derived from our audited consolidated financial statements
for the year ended March 31, 2019. 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, 2019 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 and nine month periods ended December 31, 2019 are not necessarily indicative of
the results to be expected for the full year.
2 - GOING CONCERN
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 $20,637,653 and year to date cash flow from operations of $117,186. 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.
3
– INVESTMENT AND SUBSIDIARIES
Investments and long term deposits
|
|
Original Cost
|
|
Carrying Value
|
CP4H
|
|
|
187,367
|
|
|
|
—
|
|
Equispheres
|
|
|
111,990
|
|
|
|
721,820
|
|
HostedBizz
|
|
|
1,005
|
|
|
|
—
|
|
NuvoBio
|
|
|
762
|
|
|
|
770
|
|
Spiderwort
|
|
|
7,725
|
|
|
|
11,160
|
|
On
August 9, 2017, Connecting People for Health Co-operative Ltd. (CP4H) was acquired for an undisclosed amount. ZIM recognized its
portion of the proceeds, in the amount $216,901, as a gain on the sale of assets.
On
February 9, 2018, ZIM sold 100,000 shares of HostedBizz to HostedBizz, for cancellation, for gross proceeds of $60,000 Canadian
dollars ($45,758 United States dollars).
On
August 24, 2018, NuvoBio Corporation made an equity investment in Spiderwort Inc. The investment consisted of the purchase of
a $10,000 Canadian dollar ($7,725 US dollar) convertible promissory note.
On
October 15, 2019, Spiderwort Inc. completed a qualifying equity financing in an amount greater that $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 $11,160 US dollars. This represents an unrealized gain on this equity investment of $3,460.
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.
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, controls and procedures, prospects, revenues 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, without limitation,
foreign exchange risk, credit risk, fair value risks and key personnel risk and the other risks set forth under “RISK FACTORS”
in our Annual Report on Form 20-F for the fiscal year ended March 31, 2019, 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
" in this Form 6-K and “RISK FACTORS” in our Annual Report on Form 20-F for the fiscal year ended March 31, 2019,
as well as those discussed elsewhere in this Form 6-K and our Form 20-F. 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 contained in this
Form 6-K 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 three-month and nine-month periods ended December
31, 2019 and 2018. 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.
In
this Item 2, references to “we”, “our”, “ZIM, “the Company” and similar terms refer
to ZIM.
EXECUTIVE
SUMMARY
Revenue
for the quarter ended December 31, 2019 was $67,817, down from $211,478 for the same period last year.
Net
loss for the quarter was $69,404 as compared to a net income of $63,839 for the quarter ended December 31, 2018. On a year-to-date
basis net loss was $12,087 as compared to a net income of $610,417 for the same period in fiscal 2019. The decrease in net income
is due mainly to the adoption of FASB 2016-01 and the unrealized gain on equity securities of $608,343 that was recognized in
fiscal year 2019.
ZIM
had cash and cash equivalents of $612,070 at December 31, 2019 as compared to cash and cash equivalents of $506,524 at March 31,
2019.
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. The
Company continues to provide this software and ongoing maintenance services to its client base.
Beginning
in 2002, the Company expanded its business strategy to include opportunities associated with mobile products. Prior
to fiscal 2007, the Company focused on developing products and services for the wireless data network infrastructure known as
“SMS” or “text messaging”. SMS will continue to provide a minimal amount of revenue within
the mobile segment of operations. With the acquisition of Advanced Internet Inc. (AIS) in 2007, the Company also offers mobile
content directly to end users.
In
fiscal 2018, ZIM continued to develop and sell enterprise database software to end users as well as maintain its SMS messaging
product lines. Going forward, ZIM will evaluate the viability of the enterprise database market and make adjustments as may be
required.
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:
|
·
|
Implementing unique molecular interaction &
analytics using supercomputing technologies to design small peptide drugs that bind to target proteins for cancer therapies;
and
|
|
|
|
|
·
|
The development of bi-specific immunology therapies
for the treatment of kidney cancer.
|
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 Form 20-F for the fiscal year ended
March 31, 2019.
RESULTS
OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 COMPARED TO THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2018
The
following discussion includes information derived from the unaudited and not reviewed condensed consolidated statements of operations
for the three and nine months ended December 31, 2019 and 2018. The information for the three months and nine months ended December
31, 2019, in management's opinion, has been prepared on a basis consistent with the audited consolidated financial statements
for the fiscal year ended March 31, 2019, 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.
REVENUES
|
|
Three months ended December 31, 2019
|
|
As a %
|
|
Three months ended
December 31, 2018
|
|
As a %
|
|
|
|
|
|
|
|
|
|
Bulk SMS
|
|
|
8,158
|
|
|
|
12
|
|
|
|
30,014
|
|
|
|
14
|
|
|
|
|
8,158
|
|
|
|
12
|
|
|
|
30,014
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
1,725
|
|
|
|
3
|
|
|
|
1,963
|
|
|
|
1
|
|
Maintenance and consulting
|
|
|
57,934
|
|
|
|
85
|
|
|
|
179,501
|
|
|
|
85
|
|
|
|
|
59,659
|
|
|
|
88
|
|
|
|
181,464
|
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
67,817
|
|
|
|
100
|
|
|
|
211,478
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended December 31, 2019
|
|
|
|
|
|
|
|
Nine months ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bulk SMS
|
|
|
45,262
|
|
|
|
17
|
|
|
|
81,390
|
|
|
|
15
|
|
|
|
|
45,262
|
|
|
|
17
|
|
|
|
81,390
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
22,448
|
|
|
|
8
|
|
|
|
100,926
|
|
|
|
19
|
|
Maintenance and consulting
|
|
|
196,601
|
|
|
|
75
|
|
|
|
346,326
|
|
|
|
66
|
|
|
|
|
219,049
|
|
|
|
83
|
|
|
|
447,252
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
264,311
|
|
|
|
100
|
|
|
|
528,642
|
|
|
|
100
|
|
Revenue
for the quarter ended December 31, 2019 was $67,817, as compared to $211,478 for the same period last year.
Total
revenues for the nine months ended December 31, 2019 were $264,311, a decline from $528,642 for the nine months ended December
31, 2018. The decrease in revenue resulted from decreases in all segments of our business.
REVENUES
ANALYSIS BY SERVICE/PRODUCT OFFERING
SOFTWARE,
MAINTENANCE AND CONSULTING
We
generate revenues from the sale of our database product as well as the subsequent maintenance and consulting fees. Total revenues
relating to the ZIM IDE have decreased from $1,963 to $1,725 for the quarters ended December 31, 2019 and 2018, respectively.
For the nine-month periods ended December 31, 2019 and 2018, revenues decreased from $100,926 to $22,448. Maintenance and consulting
revenue declined from $179,501 to $57,934 for the quarter and decreased from $346,326 to $196,601 for the nine-month period. Declines
in this area are mainly due to the declining economy in Brazil and subsequent decline in our business activity in Brazil.
We
will continue to allocate resources to the maintenance and development of our database products while we continue to generate
revenues from this product line. Going forward, ZIM will evaluate the viability of the enterprise database market and make adjustments
as may be required.
BULK
SMS
Bulk
SMS messaging gives our customers the ability to send out a single message concurrently to a wide distribution list. Success in
this industry is dependent upon sending large quantities of messages on stable cost effective telecommunication routes. For the
quarter ended December 31, 2019, we experienced a decrease in revenues from $30,014, for the period ended December 31, 2018, to
$8,158. We experienced a year-to-date revenue decrease from $81,390 for the nine months ended December 31, 2018, to $45,262 for
the nine months ended December 31, 2019. In general, bulk-messaging customers choose the service provider 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. We are not focusing on expanding
this area of the business. As a result, we do not expect to see any further growth in our bulk messaging revenue during the remainder
of fiscal 2020.
OPERATING
EXPENSES
|
|
Three months ended December 31, 2019
|
|
Three months ended December 31, 2018
|
|
Period to
period change
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
4,463
|
|
|
|
5,906
|
|
|
|
(1,443
|
)
|
Selling, general and administrative
|
|
|
109,621
|
|
|
|
96,113
|
|
|
|
13,508
|
|
Research and development
|
|
|
52,490
|
|
|
|
64,218
|
|
|
|
(11,728
|
)
|
|
|
|
166,574
|
|
|
|
166,237
|
|
|
|
337
|
|
|
|
Nine months ended December 31, 2019
|
|
Nine months ended December 31, 2018
|
|
Period to
period change
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
15,142
|
|
|
|
14,045
|
|
|
|
1,097
|
|
Selling, general and administrative
|
|
|
406,386
|
|
|
|
392,109
|
|
|
|
14,277
|
|
Research and development
|
|
|
152,232
|
|
|
|
183,743
|
|
|
|
(31,511
|
)
|
|
|
|
573,760
|
|
|
|
589,897
|
|
|
|
(16,137
|
)
|
COST
OF REVENUE
|
|
Three months ended December 31, 2019
|
|
Three months ended December 31, 2018
|
|
|
|
$
|
|
|
|
$
|
|
Mobile
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
8,158
|
|
|
|
30,014
|
|
Cost of revenues
|
|
|
(349
|
)
|
|
|
(378
|
)
|
Gross margin
|
|
|
7,809
|
|
|
|
29,636
|
|
|
|
|
|
|
|
|
|
|
Gross margin percentage
|
|
|
96
|
%
|
|
|
99
|
%
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
59,659
|
|
|
|
181,464
|
|
Cost of revenues
|
|
|
(1,034
|
)
|
|
|
(5,528
|
)
|
Gross margin
|
|
|
55,545
|
|
|
|
175,936
|
|
|
|
|
|
|
|
|
|
|
Gross margin percentage
|
|
|
93
|
%
|
|
|
97
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended December 31, 2019
|
|
|
|
Nine months ended December 31, 2018
|
|
|
|
|
$
|
|
|
|
$
|
|
Mobile
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
45,262
|
|
|
|
81,390
|
|
Cost of revenues
|
|
|
(1,034
|
)
|
|
|
(1,686
|
)
|
Gross margin
|
|
|
44,228
|
|
|
|
79,704
|
|
|
|
|
|
|
|
|
|
|
Gross margin percentage
|
|
|
98
|
%
|
|
|
98
|
%
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
219,048
|
|
|
|
447,252
|
|
Cost of revenues
|
|
|
(14,108
|
)
|
|
|
(12,359
|
)
|
Gross margin
|
|
|
204,941
|
|
|
|
434,893
|
|
|
|
|
|
|
|
|
|
|
Gross margin percentage
|
|
|
94
|
%
|
|
|
97
|
%
|
SELLING,
GENERAL AND ADMINISTRATIVE
Selling,
general and administrative expenses for the quarters ended December 31, 2019 and December 31, 2018 were $109,621 and $96,113,
respectively. On a year-to-date basis expenses increased by $14,277 from $392,109 for the nine month period ended December 31,
2018 to $406,386 for the nine month period ended December 31, 2019.
STOCK-BASED
COMPENSATION
For
the three months ended December 31, 2019 and December 31, 2018, the Company recognized compensation expense for employees and
consultants of $1,350 and $123, respectively. On a year-to-date basis, stock-based compensation increased from $458 for the nine
month period ended December 31, 2018 to $2,156 for the nine month period ended December 31, 2019. The Company does not have any
non-vested awards.
RESEARCH
AND DEVELOPMENT
Research
and development expenses for the quarters ended December 31, 2019 and 2018 were $52,490 and $64,218 respectively. On a year-to-
date basis, research and development expenses decreased from $183,743 for the nine month period ended December 31, 2018 to $152,232
for the nine month period ended December 31, 2019 and are reflective of decreased investment in research and development labour.
NET
INCOME
Net
loss for the quarter was $69,404 as compared to a net income of $63,839 for the quarter ended December 31, 2018. On a year-to-date
basis net loss was $12,087 as compared to a net income of $610,417 for the same period in fiscal 2019. The decrease in net income
is due mainly to the adoption of FASB 2016-01 and the unrealized gain on equity securities of $608,343 that was recognized in
fiscal year 2019.
LIQUIDITY
AND CAPITAL RESOURCES
At
December 31, 2019, ZIM had cash and cash equivalents of $612,070 and working capital of $632,677, as compared to cash and cash
equivalents of $506,524 and working capital of $652,488 at March 31, 2019.
Cash
flows for the fiscal periods were as follows:
|
|
Nine months ended
December 31, 2019
|
|
Nine months ended
December 31, 2018
|
|
|
|
$
|
|
|
|
$
|
|
Cash flows generated by (used in) operating activities
|
|
|
117,186
|
|
|
|
96,746
|
|
Cash flows used in investing activities
|
|
|
(6,233
|
)
|
|
|
(4,404
|
)
|
Cash flows provided by financing activities
|
|
|
—
|
|
|
|
—
|
|
At
December 31, 2019, the Company had a working capital line from its principal banker for approximately $38,497 in addition to a
cash and cash equivalent balance of $612,070. 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 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:
|
|
December 31, 2019
|
|
March 31, 2019
|
|
|
|
|
|
Canadian dollars
|
|
|
378,768
|
|
|
|
131,463
|
|
US dollars
|
|
|
21,656
|
|
|
|
153,406
|
|
Brazilian reals
|
|
|
1,201,060
|
|
|
|
1,013,757
|
|
Accounts
receivable include the following amounts receivable in their source currency:
|
|
December 31, 2019
|
|
March 31, 2019
|
|
|
|
|
|
Canadian dollars
|
|
|
7,487
|
|
|
|
44,287
|
|
US dollars
|
|
|
14,931
|
|
|
|
4,548
|
|
Brazilian reals
|
|
|
35,918
|
|
|
|
85,476
|
|
Accounts
payable include the following amounts payable in their source currency:
|
|
December 31, 2019
|
|
March 31, 2019
|
|
|
|
|
|
Canadian dollars
|
|
|
16,690
|
|
|
|
44.537
|
|
US dollars
|
|
|
12,400
|
|
|
|
3.275
|
|
Brazilian reals
|
|
|
772
|
|
|
|
772
|
|
Accrued
liabilities include the following accruals in their source currency:
|
|
|
|
December 31, 2019
|
|
March 31, 2019
|
|
|
|
|
|
Canadian dollars
|
|
|
|
|
|
|
14,831
|
|
|
22,397
|
Brazilian reals
|
|
|
|
|
|
|
34,456
|
|
|
18,412
|
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:
|
|
December 31, 2019
|
|
March 31, 2019
|
|
|
|
|
|
Canada
|
|
|
20
|
%
|
|
|
55
|
%
|
North America, excluding Canada
|
|
|
50
|
%
|
|
|
8
|
%
|
South America
|
|
|
30
|
%
|
|
|
37
|
%
|
|
|
|
100
|
%
|
|
|
100
|
%
|
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.