UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 10, 2004
ZIM CORPORATION
(Exact name of registrant as specified in charter)
Canada 0-30432 Not Applicable
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
200-20 Colonnade Road, Ottawa, Ontario, Canada K2E 7M6
(Address of principal executive offices)
Registrant's telephone number, including area code (613) 727-1397
Not Applicable
(Former name or former address, if changed since last report.)
Item 2. Acquisition or Disposition of Assets.
ZIM Corporation, a corporation organized under the laws of Canada (the
"Registrant"), hereby amends its Current Report on Form 8-K filed with the
Commission on February 18, 2004 in order to report the financial statements and
pro forma financial information required in connection with the Registrant's
acquisition of all of the outstanding ordinary shares of EPL Communications
Limited, a company incorporated pursuant to the Companies Act of 1985 (United
Kingdom), and E-Promotions Limited, a company incorporated pursuant to the
Companies Act of 1985 (United Kingdom).
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired.
See page F-2 of this report for the audited financial statements of
E-Promotions Limited for the years ended January 31, 2004 and January 31, 2003.
See page F-13 of this report for the audited financial statements of EPL
Communications Limited for the year ended January 31, 2004.
(b) Pro Forma Financial Information.
See page F-22 of this report for the Unaudited Pro Forma Financial Information.
(c) Exhibits.
None
Index to Items 7(a) and (b)
Financial Statements and Pro Forma Financial Information
Audited Financial Statements of Acquired Business E-Promotions Limited:
Independent Auditors' Report - Grant Thornton.......................F-2
Profit and Loss
for the years ended January 31, 2004 and January 31, 2003...........F-5
Balance Sheets as of January 31, 2004 and January 31, 2003..........F-6
Notes to the Financial Statements...................................F-8
Audited Financial Statements of Acquired Business EPL Communications Limited:
Independent Auditors' Report - Grant Thornton......................F-13
Profit and Loss
for the period ended January 31, 2004 .............................F-16
Balance Sheet as of January 31, 2004...............................F-17
Notes to the Financial Statements..................................F-19
Unaudited Pro Forma Financial Information:
Introduction.......................................................F-22
Unaudited Pro Forma Condensed Combined Statement of Operations
for the nine months ended February 29, 2004........................F-23
Unaudited Pro Forma Condensed Combined Statement of Operations
for the year ended May 31, 2003....................................F-24
Notes to the Unaudited Pro Forma Combined Financial Information....F-25
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of E-Promotions Limited:
We have audited the accompanying balance sheets of E-Promotions Limited as of 31
January 2004 and 2003, and the related profit and loss account for both years in
the two year period ended 31 January 2004. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial presentation. We believe that our audits provide a reasonable basis
for our opinions.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of E-promotions Limited as of 31
January 2004 and 2003, and the related profit and loss account for both years in
the two year period ended 31 January 2004, in conformity with generally accepted
accounting principles in the United Kingdom.
Accounting principles generally accepted in the United Kingdom vary in certain
important respects from accounting principles generally accepted in the United
States of America. Information relating to the nature and effect of such
differences is presented in note 17 to the financial statements.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 1, E-Promotions
Limited was acquired subsequent to year-end by ZIM Corporation, which has
sustained recurring losses from operations and has an accumulated deficit. The
financial uncertainty of ZIM Corporation, the future parent company of
E-Promotions Limited, raises substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Grant Thornton
GRANT THORNTON
REGISTERED AUDITORS
CHARTERED ACCOUNTANTS
London
April 8, 2004
F-2
E-PROMOTIONS LIMITED
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31ST JANUARY 2004
The directors submit their report and the financial statements of the company
for the year ended 31st January 2004.
PRINCIPAL ACTIVITY
The company's principal activity was that of the provision of web development
services.
RESULTS FOR THE YEAR
The results for the year are set out in the company's profit and loss account
statement.
DIRECTORS'
The directors who served during the year and their interests (all beneficially
held) in the share capital of the company were as follows:
Ordinary Shares
--------------------------------
10p each (pound)1 each
-------- ------------
2004 2003
---- ----
S Wright (Resigned 10th February 2004) 5,037 5,037
M Vendone (Resigned 10th February 2004) 4,057 4,057
===== =====
Dr M Cowpland was appointed Director on 10th February 2004 after the acquisition
of the previous Directors' shares by ZIM Corporation.
DIRECTORS' RESPONSIBILITIES
The directors are required to prepare financial statements which give a true and
fair view of the state of affairs of the company as at the end of the financial
year and of the results of the company for the year then ended. These
requirements are specified in the Companies Act 1985 and in applicable
accounting standards. It is also the directors' responsibility to:
- - Maintain adequate accounting records.
- - Safeguard the assets of the company.
- - Prevent and detect fraud and other irregularities.
- - Prepare financial statements on the going concern basis, unless it is
inappropriate.
F-3
The directors confirm that suitable accounting policies, consistently applied
and supported by reasonable and prudent judgements and estimates have been used
in the preparation of the financial statements.
AUDITORS
Grant Thornton were appointed auditors during the year and offer themselves for
re-appointment as auditors in accordance with section 385 of the Companies Act
1985.
SMALL COMPANIES EXEMPTIONS
This report has been prepared in accordance with the special provisions of Part
VII of the Companies Act 1985 relating to small companies.
Approved by the Board of Directors
Signed by order of the Board
/s/ Jennifer North
J North
Company Secretary
Date 8th April 2004
F-4
E-PROMOTIONS LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31ST JANUARY 2004 AND 2003
2004 2003
Notes (pound) (pound)
TURNOVER 3 1,224,432 929,128
Cost of Sales (1,038,348) (585,948)
----------- ---------
GROSS PROFIT 186,084 343,180
Administrative Expenses (217,897) (227,546)
----------- ---------
OPERATING (LOSS)/PROFIT 4 (31,813) 115,634
Interest Payable 5 (1,992) (2,912)
----------- ---------
(LOSS)/PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION
(33,805) 112,722
Taxation 6 29,027 (29,444)
----------- ---------
(LOSS)/PROFIT ON ORDINARY ACTIVITIES
AFTER TAXATION (4,778) 83,278
Dividends (36,500) (50,000)
----------- ---------
RETAINED (DEFICIT)/PROFIT FOR THE YEAR (41,278) 33,278
Retained Profit Brought Forward 57,807 24,529
----------- ---------
RETAINED PROFIT CARRIED FORWARD 16,529 57,807
=========== =========
During the year there were no gains or losses other than those included in the
profit and loss account.
The accompanying notes are an integral part of these financial statements.
F-5
E-PROMOTIONS LIMITED
BALANCE SHEETS
AS AT 31ST JANUARY 2004 AND 2003
2004 2003
Notes (pound) (pound)
FIXED ASSETS
Tangible Assets 8 198,444 226,485
-------- --------
CURRENT ASSETS
Debtors 9 192,055 418,619
Cash at Bank and in Hand - 4,099
-------- --------
192,055 422,718
CREDITORS - Amounts Falling
Due Within One Year 10 250,924 408,683
-------- --------
NET CURRENT (LIABILITIES)/ASSETS (58,869) 14,035
-------- --------
TOTAL ASSETS LESS CURRENT LIABILITIES 139,575 240,520
CREDITORS - Amounts Falling Due After
One Year
11 (15,400) (49,322)
PROVISIONS FOR LIABILITIES
AND CHARGES 12 - (25,745)
-------- --------
124,175 165,453
======== ========
CAPITAL AND RESERVES
Called Up Share Capital 13 1,125 1,125
Share Premium Account 106,521 106,521
Profit and Loss Account 16,529 57,807
-------- --------
Shareholders' Funds 124,175 165,453
======== ========
The accompanying notes are an integral part of these financial statements.
F-6
E-PROMOTIONS LIMITED
BALANCE SHEET (CONT'D)
AS AT 31ST JANUARY 2004
For the year ended on the balance sheet date, the company is entitled to
exemption from audit under Section 249A(1) of the Companies Act 1985. No notice
has been deposited under Section 249B(2) of the Act in relation to its accounts
for the year.
The directors acknowledge their responsibilities for ensuring that the company
keeps accounting records which comply with Section 221 of the Act, and for
preparing accounts which give a true and fair view of the state of affairs of
the company as at the balance sheet date and of its profit or loss for the year
then ended and comply with the requirements of the Act relating to accounts, so
far as applicable to small companies.
These accounts have been prepared in accordance with the special provision
relating to small companies within Part VII of the Companies Act 1985.
Approved by the Board of Directors on 8th April 2004.
/s/ M Cowpland -Director
- --------------------------
Dr M Cowpland
F-7
E-PROMOTIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST JANUARY 2004 AND 2003
1. BASIS OF PRESENTATION
These financial statements have been prepared on a going concern basis which
assumes that the Company will realize the carrying value of its assets and
satisfy its obligations as they become due in the normal course of operations.
As disclosed in Note 18, the Company was acquired subsequent to year-end and the
parent company's financial instability raises substantial doubt about the parent
company's ability to continue as a going concern.
Management of the parent company plans to address these financial instability
issues through continuing to raise capital through the placement of equity,
obtaining additional advances from related parties and, if necessary,
renegotiating the repayment terms of accounts payable and accrued liabilities.
The parent 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 parent
company's position and/or results of operations and may necessitate a reduction
in operating activities.
In the longer term, the parent company has to generate the level of sales which
would result in cash self sufficiency and it may need to continue to raise
capital by selling additional equity or by obtaining credit facilities. The
parent company's future capital requirements will depend on many factors,
including, but not limited to, the market acceptance of its software, the level
of its promotional activities and advertising required to support its software.
No assurance can be given that any such additional funding will be available or
that, if available, it can be obtained on terms favorable to the parent company.
2. ACCOUNTING POLICIES
The principal accounting policies adopted in arriving at the financial
information set out in these Financial Statements are as follows:
a. Accounting Convention
The Financial Statements have been prepared under the historical cost convention
and in accordance with the Financial Reporting Standard for Smaller Entities
(effective June 2002).
b. Turnover
Turnover represents the invoiced value of goods and services, net of discounts,
and excluding Value Added Tax.
F-8
c. Depreciation
Depreciation is provided to write off the cost of tangible fixed assets by
annual installments over their estimated useful economic lives. It is calculated
at the following rates:
Software Development 3 years - straight-line
Computer Equipment 33% Per Annum - declining balance
Fixtures and Fittings 20% Per Annum - declining balance
d. Deferred Taxation
Provision is made for deferred taxation on the incremental liability approach in
respect of all timing differences between the incidence of income and
expenditure for taxation and accounts purposes that have originated but not
reversed at the balance sheet date. Provision is made for future taxation on
gains on revalued assets only where a binding commitment to dispose of the asset
exists at the year end.
e. Leased Assets
All leases are operating leases. Their annual rentals are charged to the Profit
and Loss Account on a payable basis.
3. TURNOVER
The turnover and profit (2004-loss) before taxation arise from the principal
activity of the company in the United Kingdom.
2004 2003
(pound) (pound)
4. OPERATING (LOSS)/PROFIT
Operating (loss)/profit is stated after
charging the following:
Directors' Remuneration 14,052 21,334
Depreciation 94,792 89,643
======== ========
5. INTEREST PAYABLE
Loan Interest - 1,451
Interest on PAYE & Corporation Tax 1,992 1,461
-------- --------
1,992 2,912
======== ========
F-9
6. TAXATION
(Refund)/Charge for year (3,282) 3,282
Over/Under provision for previous year - 417
Deferred Taxation (Note 7) (25,745) 25,745
-------- --------
(29,027) 29,444
======== ========
2004 2003
(pound) (pound)
7. DEFERRED TAXATION
The full potential liability for deferred taxation
is as follows:
Balance as at 01.02.03 25,745 -
Transferred to Profit & Loss account (25,745) 25,745
-------- --------
Balance as at 31.01.04 - 25,745
======== ========
8. TANGIBLE FIXED ASSETS
Software Computer Office Total
Development Equipment Equipment
(pound) (pound) (pound) (pound)
COST
As at 01.02.03 289,225 34,879 18,965 343,069
Additions 62,610 3,171 970 66,751
-------- -------- -------- --------
As at 31.01.04 351,835 38,050 19,935 409,820
======== ======== ======== ========
DEPRECIATION
As at 01.02.03 82,260 25,047 9,277 116,584
Charge for Year 88,267 4,291 2,234 94,792
-------- -------- -------- --------
As at 31.01.04 170,527 29,338 11,511 211,376
======== ======== ======== ========
NET BOOK VALUE
As at 31.01.04 181,308 8,712 8,424 198,444
======== ======== ======== ========
As at 31.01.03 206,965 9,832 9,688 226,485
======== ======== ======== ========
None of the above assets are held under finance leases or hire purchase contracts.
F-10
2004 2003
(pound) (pound)
9. DEBTORS
Trade Debtors 61,198 413,819
Other Debtors 130,857 4,800
-------- --------
192,055 418,619
======== ========
All debtors are receivable within one year.
2004 2003
(pound) (pound)
10. CREDITORS - Amounts Falling Due Within One Year
Bank Overdraft & Loan 14,583 5,200
Trade Creditors 94,554 354,631
Other Taxes & Social Security 33,569 42,204
Other Creditors 108,218 6,648
-------- --------
250,924 408,683
======== ========
11. CREDITORS - Amounts Falling Due After One Year
Loans 15,400 49,322
======== ========
12. PROVISIONS FOR LIABILITIES AND CHARGES
Deferred Taxation (Note 6) - 25,745
======== ========
13. CALLED UP SHARE CAPITAL No No
Ordinary Shares 10p Each
Authorized 100,000 100,000
======= ======
(pound) (pound)
Allotted, Issued and Fully Paid 1,125 1,125
======= ======
14. RELATED PARTIES
Included in trade debtors (note 9) at January 31, 2004 are (pound)4,820
(nil in 2003) due from EPL Communications Limited, a sister company.
During the year ended January 31, 2004 management fees of (pound)10,000
(nil in 2003) were received from EPL Communications Limited.
F-11
15. FINANCIAL COMMITMENTS
a. Capital Commitments
The Company had no capital commitments at the year ended 31st January
2004 or at 31st January 2003.
b. Operating Lease Commitments
The Company had an operating lease commitment of (pound)14,220 p.a
((pound)9,000 - 2003) in relation to land and buildings expiring within
one year.
16. CONTINGENT LIABILITIES
The Company had no contingent liabilities at 31st January 2004 or at
31st January 2003.
17. SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP)
These financial statements have been prepared in accordance with UK
GAAP. There are no significant differences between UK and US GAAP for
the accounting policies applied in these financial statements. Set out
below is a summary of the cash flow statement under US GAAP:
2004 2003
(pound) (pound)
Net cash provided by operating activities 123,691 179,014
Net cash used in investing activities (66,751) (194,782)
Net cash (used in) provided by financing activities (61,039) 18,420
-------- --------
Net (decrease) increase in cash under US GAAP (4,099) 2,652
======== ========
The comprehensive loss (income) is equal to the net loss (income) for
the years ended January 31, 2004 and 2003.
18. SUBSEQUENT EVENT
On February 10, 2004, ZIM Corporation acquired all of the issued share
capital of E-Promotions Limited and EPL Communications Limited from the
directors and became the ultimate controlling related party. The total
purchase price of $3,606,247 USD included cash of $250,000 USD,
acquisition costs of $76,247 USD and $3,280,000 USD in common shares of
ZIM Corporation.
F-12
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of EPL Communications Limited:
We have audited the accompanying balance sheet of EPL Communications Limited
(the "Company") as of 31 January 2004, and the related profit and loss account
for the period ended 31 January 2004. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of EPL Communications Limited as
of 31 January 2004, and the related profit and loss account for the period ended
31 January 2004, in conformity with generally accepted accounting principles in
the United Kingdom.
Accounting principles generally accepted in the United Kingdom vary in certain
important respects from accounting principles generally accepted in the United
States of America. Information relating to the nature and effect of such
differences is presented in note 13 to the financial statements.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, EPL
Communications Limited was acquired subsequent to year-end by ZIM Corporation,
which has sustained recurring losses from operations and has an accumulated
deficit. The financial uncertainty of ZIM Corporation, the future parent company
of EPL Communications Limited, raises substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Grant Thornton
GRANT THORNTON
REGISTERED AUDITORS
CHARTERED ACCOUNTANTS
London
April 8, 2004
F-13
EPL COMMUNICATIONS LIMITED
REPORT OF THE DIRECTOR
FOR THE PERIOD ENDED 31ST JANUARY 2004
The directors submit their report and the financial statements of the company
for the period ended 31st January 2004.
PRINCIPAL ACTIVITY
The company's principal activity is that of the provision of web development
services.
INCORPORATION & COMMENCEMENT OF TRADE
The company was incorporated on 27th August 2003 and commenced trading on the
1st September 2003.
RESULTS FOR PERIOD
The results for the period are set out in the company's profit and loss account
statement.
DIRECTORS
The directors who served during the period and their interests (all beneficially
held) in the share capital of the company were as follows:
Ordinary Shares of (pound)1 Each
--------------------------------
31.01.04
--------
M Vendone (Resigned 10th February 2004) 1
S Wright (Resigned 10th February 2004) 1
==
Dr. M Cowpland was appointed director on 10th February 2004 after the
acquisition of the previous directors' shares by ZIM Corporation.
DIRECTORS' RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS
The directors are required to prepare financial statements which give a true and
fair view of the state of affairs of the company as at the end of the financial
period and of the results of the company for the year then ended. These
requirements are specified in the Companies Act 1985 and in applicable
accounting standards. It is also the directors' responsibility to:
- - Maintain adequate accounting records.
- - Safeguard these assets of the company;.
- - Prevent and detect fraud and other irregularities;
- - Prepare financial statements on the going concern basis,
unless it is inappropriate
F-14
The directors confirm that suitable accounting policies, consistently applied
and supported by reasonable and prudent judgements and estimates have been used
in the preparation of the financial statements.
AUDITORS
Grant Thornton were appointed auditors during the year and offer themselves for
re-appointment as auditors in accordance with section 385 of the Companies Act
1985.
SMALL COMPANIES EXEMPTIONS
This report has been prepared in accordance with the special provisions of Part
VII of the Companies Act 1985 relating to small companies.
Approved By the Director
By Order of the Board
/s/ Jennifer North
J North
Company Secretary
Date: 8th April 2004
F-15
EPL COMMUNICATIONS LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE PERIOD ENDED 31ST JANUARY 2004
2004
Notes (pound)
TURNOVER 3 52,169
Cost of Sales 30,329
--------
GROSS PROFIT 21,840
Administrative Expenses (11,583)
--------
OPERATING PROFIT 4 10,257
Interest Received 5 3
--------
PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION 10,260
Taxation 6 -
--------
PROFIT ON ORDINARY ACTIVITIES 10,260
AFTER TAXATION
Dividends -
--------
RETAINED PROFIT FOR THE PERIOD 10,260
========
During the period there were no gains or losses other than those included in the
profit and loss account.
The accompanying notes are an integral part of these financial statements.
F-16
EPL COMMUNICATIONS LIMITED
BALANCE SHEET
AS AT 31ST JANUARY 2004
2004
Notes (pound)
CURRENT ASSETS
Debtors 7 27,549
Cash at Bank and In Hand 3,415
--------
30,964
CREDITORS - Amounts Falling 8
Due Within One Year 20,702
--------
NET CURRENT ASSETS 10,262
========
CAPITAL AND RESERVES
Called Up Share Capital 9 2
Profit and Loss Account 10,260
--------
Shareholders' Funds 10,262
========
The accompanying notes are an integral part of these financial statements.
F-17
EPL COMMUNICATIONS LIMITED
BALANCE SHEET (CONT'D)
AS AT 31ST JANUARY 2004
For the period ended on the balance sheet date, the company is entitled to
exemption from audit Section 249A(1) of the Companies Act 1985. No notice has
been deposited under section 249B(2) of the Act in relation to its accounts for
the year.
The director acknowledges his responsibilities for ensuring that the company
keeps accounting records which comply with Section 221 of the Act, and for
preparing Accounts which give a true and fair view of the state of affairs of
the company as at the balance sheet date and of its profit or loss for the
period then ended and comply with the requirements of the Act relating to
Accounts, so far as applicable to small companies.
These accounts have been prepared in accordance with the special provisions
relating to small companies within Part VII of the Companies Act 1985.
Approved by the Director On 8th April 2004.
/s/ M Cowpland - Director
- ----------------------------
Dr M Cowpland
F-18
EPL COMMUNICATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 31ST JANUARY 2004
1. BASIS OF PRESENTATION
These financial statements have been prepared on a going concern basis which
assumes that the Company will realize the carrying value of its assets and
satisfy its obligations as they become due in the normal course of operations.
As disclosed in Note 14, the Company was acquired subsequent to year-end and the
parent company's financial instability raises substantial doubt about the parent
company's ability to continue as a going concern.
Management of the parent company plans to address these financial instability
issues through continuing to raise capital through the placement of equity,
obtaining additional advances from related parties and, if necessary,
renegotiating the repayment terms of accounts payable and accrued liabilities.
The parent 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 parent
company's position and/or results of operations and may necessitate a reduction
in operating activities.
In the longer term, the parent company has to generate the level of sales which
would result in cash self sufficiency and it may need to continue to raise
capital by selling additional equity or by obtaining credit facilities. The
parent company's future capital requirements will depend on many factors,
including, but not limited to, the market acceptance of its software, the level
of its promotional activities and advertising required to support its software.
No assurance can be given that any such additional funding will be available or
that, if available, it can be obtained on terms favorable to the parent company.
2. ACCOUNTING POLICIES
The principal accounting policies adopted in arriving at the financial
information set out in these Financial Statements are as follows:
a. Accounting Convention
The Financial Statements have been prepared under the historical cost convention
and in accordance with the Financial Reporting Standards for Smaller Entities
(Effective June 2002).
b. Turnover
Turnover represents the invoiced value of goods and services, net of discounts
and excluding Value Added Tax.
F-19
3. TURNOVER
The turnover and profit before taxation arise from the principal
activity of the Company in the United Kingdom.
2004
(pound)
4. OPERATING PROFIT
Operating Profit is stated after charging the following:
Directors' Remuneration -
========
5. INTEREST RECEIVABLE
Bank Deposit Interest 3
========
6. TAXATION
Charge for Current Year -
========
7. DEBTORS 24,244
Trade Debtors 3,305
Other Debtors --------
27,549
========
8. CREDITORS - Amounts Falling Due Within One Year
Trade Creditors 20,702
========
9. CALLED UP SHARE CAPITAL No
Ordinary Shares of (pound)1 Each
Authorized 1,000
========
(pound)
Allotted, Issued and Fully Paid 2
========
10. RELATED PARTIES
Included in trade creditors (note 8) at January 31, 2004 is
(pound)4,820 due to E-Promotions Limited, a sister company. During
the period ended January 31, 2004 management fees of (pound)10,000
were paid to E-Promotions Limited.
F-20
11. FINANCIAL COMMITMENTS
The Company had no capital commitments at the year end January 31,
2004.
12. CONTINGENT LIABILITIES
The Company has no contingent liabilities at the year ended January
31, 2004.
13. These financial statements have been prepared in accordance with UK
GAAP. There are no differences between UK and US GAAP for the
accounting policies applied in these financial statements.
Set out below is a summary of the cash flow statement under US GAAP:
2004
(pound)
Net cash provided by operating activities 3,413
Net cash provided by financing activities 2
--------
Net increase in cash under US GAAP 3,415
========
Comprehensive income is equal to net income for the period ended
January 31, 2004.
14. SUBSEQUENT EVENT
On February 10, 2004, ZIM Corporation acquired all of the issued
share capital of E-Promotions Limited and EPL Communications Limited
from the directors and became the ultimate controlling related
party. The total purchase price of $3,606,247 USD included cash of
$250,000 USD, acquisition costs of $76,247 USD and $3,280,000 USD in
common shares of ZIM Corporation.
F-21
INTRODUCTION TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information gives
pro forma effect to the acquisition of EPL Communications Limited and
E-Promotions Limited (together referred to as "EPL") by ZIM Corporation ("ZIM").
The unaudited pro forma combined income statement for the nine months ended
February 29, 2004 and the year ended May 31, 2003 give effect to the acquisition
as if the transaction had occurred on June 1, 2002.
The unaudited pro forma combined financial information are not necessarily
indicative of the actual results of operations that would have occurred had the
acquisition occurred on the dates indicated nor are they necessarily indicative
of future operating results.
The unaudited pro forma combined financial information is based on the audited
and unaudited historical consolidated financial statements of ZIM and the
unaudited historical financial statements of EPL, which are prepared in
accordance with U.S. GAAP and UK GAAP, respectively. For the purposes of these
financial statements there are no significant differences between U.S. GAAP and
UK GAAP. The consolidated historical income statement of ZIM for the year ended
May 31, 2003 is from the audited consolidated financial statements of the
Company included elsewhere in this document. The consolidated historical income
statement of ZIM for the nine months ended February 29, 2004 is from the
unaudited quarterly consolidated financial statements of the Company included
elsewhere in this document. The historical income statements of EPL for the year
ended May 31, 2003 and the nine months ended February 29, 2004 were derived by
adding the unaudited monthly income statements for the twelve months ended May
31, 2003 and the nine months ended February 29, 2004.
The unaudited pro forma combined financial information should be read in
conjunction with the audited historical consolidated financial statements of ZIM
Corporation and the audited historical financial statements of EPL.
F-22
ZIM Corporation
Unaudited Pro Forma Condensed Combined Statement of Operations
Nine months ended February 29, 2004
(Expressed in US dollars)
- ---------------------------------------------------------------------------------------------------------------------------------
EPl Pro forma
ZIM (Note 5) E-Promotions Adjustments ZIM Pro Forma
- ---------------------------------------------------------------------------------------------------------------------------------
$ $ $
Revenues 1,591,823 96,017 1,037,604 (17,000) 4 2,708,444
Cost of revenue 55,959 587,525 643,484
--------------- ---------- ----------------- ------------ ------ ---------------
1,591,823 40,058 450,079 (17,000) 2,064,960
--------------- ---------- ----------------- ------------ ------ ---------------
Expenses
Selling, general and administrative 2,349,055 21,725 239,921 (17,000) 4 2,593,701
Research and development 513,523 513,523
Amortization of property and equipment 101,594 101,594
Amortization of intangible assets 36,529 368,100 4 404,629
Foreign exchange loss 4,853 4,853
--------------- ---------- ----------------- ------------ ------ ---------------
3,005,554 21,725 239,921 351,100 3,618,299
--------------- ---------- ----------------- ------------ ------ ---------------
Net income (loss) from operations (1,413,731) 18,332 210,158 (368,100) (1,533,339)
Interest 2,806 - 2,806
--------------- ---------- ----------------- ------------ ------ ---------------
Net income (loss) before income taxes (1,416,537) 18,332 210,158 (368,100) (1,556,145)
--------------- ---------- ----------------- ------------ ------ ---------------
Income taxes (199,990) (199,990)
--------------- ---------- ----------------- ------------ ------ ---------------
Net income (loss) (1,216,547) 18,332 210,158 (368,100) (1,356,155)
=============== ========== ================= ============ ====== ===============
Loss per share - basic and diluted (0.03) (0.03)
=============== ===============
Weighted average number of shares outstanding 42,412,978 46,134,590
=============== ===============
=================================================================================================================================
The accompanying notes are an integral part of this unaudited pro forma
condensed combined financial information.
F-23
ZIM Corporation
Unaudited Pro Forma Condensed Combined Statement of Operations
Year ended May 31, 2003
(Expressed in US dollars)
- ------------------------------------------------------------------------------------------------------------------------------------
EPL Pro forma
ZIM (Note 5) E-Promotions Adjustments ZIM Pro Forma
--------------- ------ ------------------- ----------------- ----- ---------------
$ $ $ $ $
Revenues 1,671,871 - 2,150,154 3,822,025
Cost of revenue - - 1,731,196 1,731,196
--------------- ------ ------------------- ----------------- ----- ---------------
1,671,871 - 418,958 2,090,829
Expenses
Selling, general and administrative 2,425,509 - 542,289 2,967,798
Research and development 634,902 - 634,902
Amortization of property and equipment 190,976 - 190,976
Amortization of intangible assets 20,033 - 529,333 4 549,366
Foreign exchange loss (gain) 38,917 - 38,917
--------------- ------ ------------------- ----------------- ----- ---------------
3,310,337 - 542,289 529,333 4,381,959
--------------- ------ ------------------- ----------------- ----- ---------------
Net loss from operations (1,638,466) - (123,331) (529,333) (2,291,130)
Interest 65,329 - 65,329
Other (1,012) - (1,012)
--------------- ------ ------------------- ----------------- ----- ---------------
Net loss before income taxes (1,702,783) - (123,331) (529,333) (2,355,447)
--------------- ------ ------------------- ----------------- ----- ---------------
Income taxes (242,980) - (242,980)
--------------- ------ ------------------- ----------------- ----- ---------------
Net loss (1,459,803) - (123,331) (529,333) (2,112,467)
=============== ====== =================== ================= ===== ===============
Loss per share - basic and diluted
(0.04) (0.06)
=============== ===============
Weighted average number of shares outstanding 33,186,158 37,186,158
=============== ===============
====================================================================================================================================
The accompanying notes are an integral part of this unaudited pro forma
condensed combined financial information.
F-24
Notes to the Unaudited Pro Forma Combined Financial Information
(1) U.S. GAAP Adjustments
EPL prepares its financial statements in accordance with UK GAAP. There are no
significant differences between UK and US GAAP for the accounting policies
applied in these financial statements.
(2) Purchase Price Allocation
Effective February 10, 2004, ZIM acquired all of the issued and outstanding
common stock of EPL Communications Limited and E-Promotions (together referred
to as EPL). The acquisition has been accounted for using the purchase method of
accounting and accordingly, the purchase price has been allocated to the
identifiable assets acquired and liabilities assumed using estimates of their
fair value. The results of operations are included in the consolidated financial
statements beginning on the acquisition date. The total purchase price of
US$3,606,247 included cash of US$250,000, acquisition costs of US$76,247 and
US$3,280,000 in common shares. 4,000,000 common shares were issued, of which
400,000 will be held in escrow. These shares were valued at $0.82 based on the
market price a few days before and after February 10, 2004.
The aggregate purchase price for these acquisitions has been allocated to the
assets acquired and liabilities assumed based upon their estimated fair values
at the date of acquisition as follows:
US$
--------------------
Assets acquired:
Cash 6,219
Accounts receivable 501,222
Software and equipment 361,406
Goodwill 1,881,355
Core technology 980,000
Customer relationships 500,000
--------------------
4,230,202
Current Liabilities Assumed 623,955
--------------------
Total Purchase Price 3,606,247
--------------------
(3) Foreign Currency Translation
Year ended May 31, 2003
The functional currency of the consolidated financial statements of ZIM is
Canadian dollars. The historical consolidated financial statements of ZIM have
been translated, for the purpose of preparing pro forma financial information,
into US dollars at the average exchange rate for the year of 0.656 US dollars to
one Canadian dollar. The historical EPL income statement for the year ended May
31, 2003 has been translated, for the purpose of preparing pro forma financial
information, into US dollars at the average exchange rate for the year of 1.57
US dollars to one British pound.
F-25
Nine months ended February 29, 2004
The historical consolidated unaudited financial statements of ZIM are presented
in U.S. dollars. The historical unaudited financial statements of EPL included
in the pro forma combined financial statements are presented in British pounds.
The historical EPL income statement for the nine months ended February 29, 2004
has been translated, for the purpose of preparing pro forma financial
information, into US dollars at the average exchange rate for the nine months
ended of 1.70 U.S. dollars to one British pound.
(4) Pro Forma Adjustments
The following are descriptions of the pro forma adjustments which have been
reflected in the accompanying pro forma condensed combined statements of
operations.
(a) The adjustments of $368,100 and $529,333 represent amortization of
intangible assets acquired. The estimated lives of the intangible assets are as
follows:
- ------------------------------------ ------------------
Core technology 60 months
- ------------------------------------ ------------------
Customer relationships 18 months
- ------------------------------------ ------------------
(b) The adjustment of $17,000 represents the elimination of management fees
paid to E-Promotions Limited by EPL Communications Limited.
(5) EPL Communications Limited.
EPL Communications Limited was incorporated on August 27, 2003 and commenced
operations on September 1, 2003. As a result, the pro forma condensed combined
statement of operations for the year ended May 31, 2004 includes five months of
operations and for the year ended May 31, 2003, includes no results, for EPL
Communications Limited.
F-26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ZIM CORPORATION
(Registrant)
Dated: April 21, 2004
By: /s/ Michael Cowpland
----------------------------
(Signature)
Michael Cowpland, Chairman,
President and CEO
F-27