Financial Statements of NATIONAL CAPITAL FREENET INCORPORATED Year ended December 31, 1999 AUDITORS' REPORT TO THE BOARD OF DIRECTORS We have examined the statement of financial position of National Capital FreeNet Incorporated as at December 31, 1999 and the statements of operations, changes in net assets and cash flows for the year 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, fundraising and promotional items, 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 donations and fundraising revenue, excess of revenue over expenses, assets and net assets. 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 revenue 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, 1999 and the results of its operations and its cash flows for the year 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. Chartered Accountants Ottawa, Canada February 25, 2000 NATIONAL CAPITAL FREENET INCORPORATED Statement of Financial Position December 31, 1999, with comparative figures for 1998 Assets 1999 1998 Cash $ 86,561 $ 50,021 Accounts Receivable 5,340 - Prepaid expenses 252 252 ------- ------- 92,153 50,273 Equipment and software: Computer equipment 144,398 133.409 Telecommunications equipment 127,374 101,575 Systems software 71,230 48,784 Business equipment 7,033 7,033 ------- ------- 350,035 290.801 Less accumulated amortization 272,484 241,426 ------- ------- 77,551 49,375 ------- ------- $ 169,704 $ 99,648 ======= ======= Liabilities and Net Assets Liabilities: Accounts payable and accrued liabilities $ 7,595 $ 7,713 Deferred contributions related to equipment and software (note 2) 74,935 38,328 Net assets: Unrestricted 84,558 42,560 Invested in capital assets 2,616 11,047 ------- ------- 87,174 53,607 ------- ------- $ 169,704 $ 99,648 ======= ======= See accompanying notes to financial statements. On behalf of the Board: __________________________ Director __________________________ Director NATIONAL CAPITAL FREENET INCORPORATED Statement of Operations Year ended December 31, 1999, with comparative figures for 1998 1999 1998 Revenue: Donations $ 179,828 $ 197,593 Network projects 120,451 - Fundraising 12,299 43,313 Amortization of deferred contributions (note 2) 27,444 25,019 ------- ------- 340,022 265,925 Expenses: Telecommunications 64,046 68,280 Network projects 66,295 - Administration and professional fees 59,370 67,504 Amortization 35,875 45,657 Office staff and supplies 40,986 45,242 Systems administration 34,250 29,946 Fundraising 5,633 3,957 ------- ------- 306,455 260,586 ------- ------- Excess (deficiency) of revenue over expenses $ 33,567 $ 5,339 ======= ======= See accompanying notes to financial statements. NATIONAL CAPITAL FREENET INCORPORATED Statement of Changes in Net Assets Year ended December 31, 1999, with comparative figures for 1998 Invested in Total Total capital Unrestricted 1999 1998 assets Balance, beginning of year $11,047 $42,560 $53,607 $48,268 Excess (deficiency) of revenue over expenses - 33,567 33,567 5,339 Amortization of capital assets (35,875) 35,875 - - Amortization of deferred contribution 27,444 (27,444) - - ------- ------- ------- ------- Balance, end of year $ 2,616 $84,558 $87,174 $53,607 ======= ======= ======= ======= See accompanying notes to financial statements. NATIONAL CAPITAL FREENET INCORPORATED Statement of Cash Flows Year ended December 31, 1999, with comparative figures for 1998 1999 1998 Cash provided by (used in): Operations: Excess (deficiency) of revenue over expenses $ 33,567 $ 5,339 Items not involving cash: Amortization of deferred contributions (27,444) (25,019) Amortization 35,875 45,657 Changes in non-cash working capital items: Accounts receivable (5,340) Accounts payable and accrued - liabilities (118) (3,829) ------- ------- 36,540 22,148 Investing activity: Contribution of equipment 64,051 5,641 Contribution of equipment put into service (64,051) (5,641) Purchase of computer and telecommunications equipment - (855) ------- ------- - (855) ------- ------- Increase in cash 36,540 21,293 Cash, beginning of year 50,021 28,728 ------- ------- Cash, end of year $ 86,561 $ 50,021 ======= ======= See accompanying notes to financial statements. NATIONAL CAPITAL FREENET INCORPORATED Notes to Financial Statements Year ended December 31, 1999 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: Equipment and systems software which is purchased is recorded at cost. Contributed equipment and software is recorded as an asset at fair value at the date of contribution. Contributed equipment and software is recognized as revenue at an amount equal to the related depreciation on those assets. Amortization is provided on the straight-line basis using an annual rate of 25%. (b) Revenue recognition: Project revenue is recognized in the period in which the related expense are incurred. (c) Contributed services: Contributed services are recognized when a fair value can be reasonably estimated and when the services would otherwise have been purchased. (d) Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. 2. Deferred contributions: Deferred contributions relate to the unrecognized portion of contributed equipment and software. The changes in the deferred contributions balance for the year are as follows: 1999 1998 Balance, beginning of year $ 38,328 $ 57,706 Add contributed equipment and software 64,051 5,641 Less amount recognized as revenue (27,444) (25,019) ------- ------- Balance, end of year $ 74,935 $ 38,328 ======= ======= -- end of file