Financial Statements of NATIONAL CAPITAL FREENET INCORPORATED Year ended December 31, 1994 AUDITORS' REPORT TO THE BOARD OF DIRECTORS We have examined the balance sheet of National Capital FreeNet Incorporated as at December 31, 1994 and the statements of revenue, expenses and surplus and changes in financial position for the periods then ended. 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. Except as explained in the following paragraph, we conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance 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 statement presentation. In common with many non-profit organizations, the company derives revenue from donations, the completeness of which is not susceptible of satisfactory audit verification. Accordingly, our verification of these revenues was limited to the amounts recorded in the records of the company and we were not able to determine whether any adjustments might be necessary to donation revenues, excess of revenue over expenses, assets and surplus. In our opinion, except for the effect of adjustments, if any, which we might have determined to be necessary had we been able to satisfy ourselves concerning the completeness of the revenues referred to in the preceding paragraph, these financial statements present fairly, in all material respects, the financial position of the company as at December 31,1994 and the results of its operations and the changes in its financial position for the periods then ended in accordance with generally accepted accounting principles. As required by the Canada Corporations Act, we report that, in our opinion, these principles have been applied on a consistent basis. [original signed by KPMG Peat Marwick Thorne] Chartered Accountants Ottawa, Canada February 10,1995 NATIONAL CAPITAL FREENET INCORPORATED Balance Sheet December 31, 1994, with comparative figures for 1993 1994 1993 ASSETS Cash $ 52,467 $ 107,335 Amounts receivable 27,747 3,000 _________ ______ 80,214 110,335 Computer equipment 75,421 28,558 Systems software 36,909 - Telecommunications equipment 80,644 53,095 _________ ________ 192,974 81,653 Less accumulated depreciation 44,534 10,207 _________ ________ 148,440 71,446 _________ ________ $ 228,654 $ 181,781 ========== ========== LIABILITIES AND SURPLUS Liabilities: Accounts payable and accrued liabilities $ 39,034 $ 35,181 Deferred contributions (note 4) 67,671 34,388 Surplus 121,949 112,212 _________ ________ $ 228,654 $ 181,781 ========= ========= See accompanying notes to financial statements. On behalf of the Board: [original signed by David Sutherland, Chairman and Jean Wilmot, Treasurer] NATIONAL CAPITAL FREENET INCORPORATED Statement of Revenue, Expenses and Surplus Year ended December 31, 1994, with comparative figures for 1993 1994 1993 REVENUE: Donations $ 160,177 $ 87,167 Government grants (note 2) 52,500 90,000 Conference (note 3) 48,272 22,276 Fundraising 40,951 25,674 Deferred contributions (note 4) 15,983 4,912 Promotional items 2,973 1,141 Public access cost recoveries 2,738 - _________ ________ 323,594 231,170 EXPENSES: Telecommunications 71,604 40,626 Systems administration 49,449 8,282 Conference 48,019 20,931 Office staff and supplies 44,753 20,295 Depreciation 34,327 10,207 Administration and professional fees 32,179 13,329 Fundraising 29,615 355 Promotional items 2,515 1,203 Public events 968 3,240 Public access 428 2,011 _________ _________ 313,857 120,479 _________ _________ Excess of revenue over expenses 9,737 110,691 Surplus, beginning of year 112,212 1,521 _________ _________ Surplus, end of year $ 121,949 $ 112,212 =========== ============ See accompanying notes to financial statements. NATIONAL CAPITAL FREENET INCORPORATED Statement of Changes in Financial Position Year ended December 31, 1994, with comparative figures for 1993 1994 1993 Cash provided by (used in): Operations: Excess of revenue over expenses $ 9,737 $ 110,691 Items not involving cash: Deferred contributions (15,983) (4,912) Depreciation 34,327 10,207 Changes in non-cash working capital items: Amounts receivable (24,747) (3,000) Accounts payable and accrued liabilities 3,853 34,582 _________ ________ 7,187 147,568 Financing activity: Purchase of computer and telecommunications equipment (62,055) (42,353) __________ ________ Increase (decrease) in cash (54,868) 105,215 Cash, beginning of year 107,335 2,120 _________ ________ Cash, end of year $ 52,467 $ 107,335 ========== ========== See accompanying notes to financial statements. NATIONAL CAPITAL FREENET INCORPORATED Notes to Financial Statements Year ended December 31, 1994 National Capital FreeNet Incorporated is a non-profit organization, the aims and objectives of which are to establish and operate a community based computer network to store, access and exchange information between individuals and organizations in the national capital region. The Company was incorporated on September 29, 1992 under the Canada Corporations Act as a non-profit organization without share capital within the meaning of the Income Tax Act (Canada) and accordingly is exempt from income tax. 1. Significant accounting policies: These financial statements have been prepared in accordance with generally accepted accounting principles. The significant accounting policies are summarized as follows: (a) Equipment and software: Computer and telecommunications equipment and systems software which is purchased is recorded at cost. Contributed equipment and software is recorded at fair value at the date of contribution. Depreciation is provided on the straight-line basis using an annual rate of 25%. (b) Revenue recognition: Government grants provided for specific purposes are recognized as revenue in the period in which the related expenses are incurred. Unrestricted government grants are recognized as revenue when received. (c) Contributed services: Contributed services are recognized when a fair value can be reasonably estimated and when the services would otherwise have been purchased. 2. Government grants: Grants have been obtained from the following sources: 1994 1993 Ontario Ministry of Economic Development and Trade (Ontario Network Infrastructure Program) $ 50,000 $ 60,000 Industry Canada 2,500 - Ontario East Economic Development Commission - 20,000 Federal Department of Communications - 10,000 _______ ________ $ 52,500 $ 90,000 ======== ======== 3. Conference revenue: Conference revenue includes assistance from the following organizations: 1994 1993 Industry Canada $ 10,000 $ 10,000 Morino Institute 6,823 - Treasury Board Secretariat 5,000 - Ministry of Culture, Tourism and Recreation, Libraries and Community Information Branch 5,000 - Ontario Ministry of Economic Development and Trade, Information Infrastructure Branch 5,000 - Rogers Ottawa 1,000 - _______ ________ $ 32,823 $ 10,000 ======== ======== 4. Deferred contributions: Deferred contributions relate to the unrecognized portion of contributed equipment and software. The changes in the deferred contributions balance for the period are as follows: 1994 1993 Balance, beginning of period $ 34,388 $ 23,300 Add contributed equipment and software 49,266 16,000 Less amount recognized as revenue (15,983) (4,912) _________ ________ Balance, end of period $ 67,671 $ 34,388 ======== ======== 5. Comparative figures: Comparative figures have been restated in order to conform with the 1994 financial statement presentation.