Financial Statements of NATIONAL CAPITAL FREENET INCORPORATED Year ended December 31, 1996 AUDITORS' REPORT TO THE BOARD OF DIRECTORS We have examined the balance sheet of National Capital FreeNet Incorporated as at December 31, 1996 and the statements of revenue, expenses and surplus and changes in financial position 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 donation, fundraising and promotional items revenue, excess of expenses over revenue, 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 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, 1996 and the results of its operations and the changes in its financial position 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 6, 1997 NATIONAL CAPITAL FREENET INCORPORATED Statement of Revenue, Expenses and Surplus Year ended December 31, 1996, with comparative figures for 1995 1996 1995 Revenue: Donations $ 105,980 $ 175,941 Fundraising 90,403 81,390 Deferred contributions (note 3) 28,139 23,290 Government grants (note 2) 28,000 105,000 Promotional items 3,927 5,992 Public access cost recoveries - 530 ------- ------- 256,449 392,143 Expenses: Systems administration 74,729 57,459 Telecommunications 70,545 69,076 Administration and professional fees 68,607 67,352 Depreciation 65,917 54,677 Office staff and supplies 42,819 31,217 Fundraising 32,608 53,652 Public events 217 722 Promotional items 115 6,113 Public access - 1,086 ------- ------- 355,557 341,354 ======= ======= Excess of rev. over exp (99,108) 50,789 Surplus, beginning of year 172,738 121,949 Surplus, end of year $ 73,630 $ 172,738 See accompanying notes to financial statements. NATIONAL CAPITAL FREENET INCORPORATED Balance Sheet December 31, 1996, with comparative figures for 1995 1996 1995 Assets Cash $ 18,368 $ 95,885 Amounts receivable - 5,000 Prepaid expenses 252 601 ------- ------- 18,620 101,486 Equipment and software: Computer equipment 123,517 113,830 Systems software 43,784 36,909 Telecommunications equipment 112,976 83,753 Business equipment 6,533 6,033 ------- ------- 286,810 240,525 Less accumulated depreciation 165,128 99,211 ------- ------- 121,682 141,314 ======= ======= Total Assets $ 140,302 $ 242,800 Liabilities and Surplus Liabilities: Accounts payable and accrued liab $ 11,650 $ 16,481 Deferred contributions (note 3) 55,022 53,581 Surplus 73,630 172,738 ======= ======= Total Liabilities & Surplus $ 140,302 $ 242,800 See accompanying notes to financial statements. NATIONAL CAPITAL FREENET INCORPORATED Notes to Financial Statements Year ended December 31, 1996 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. 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: 1996 1995 Ontario Ministry of Economic Development and Trade (Ontario Network Infrastructure Program) $ 15,000 $ 15,000 Regional Municipality of Ottawa-Carleton 10,000 90,000 Community Foundation of Ottawa-Carleton - 3,000 ======= ======= $ 28,000 $ 105,000 3. 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: 1996 1995 Balance, beginning of year $ 53,581 $ 67,671 Add contributed equipment and software 29,580 9,200 Less amount recognized as revenue (28,139) (23,290) ======= ======= Balance, end of year $ 55,022 $ 53,581 ------------------- end of file -- Jeff Bossert (bossert@freenet.carleton.ca) : Treasurer and Director, National Capital FreeNet Senior Engineer, Comgate Engineering