VICTORIA FREENET ASSOCIATION FINANCIAL STATEMENTS OCTOBER 31, 1997 (Unaudited) NOTICE TO READER We have compiled the balance sheet of Victoria FreeNet Association as at October 31, 1997 and the statements of revenue and expense and changes in cash for the year then ended, from information provided by management. We have not audited, reviewed or otherwise attempted to verify the accuracy or completeness of such information. Readers are cautioned that these statements may not be appropriate for their purposes. Victoria, British Columbia MacPherson Brown Flanagan & Fletcher January 7, 1998 CHARTERED ACCOUNTANTS BALANCE SHEET AS AT OCTOBER 31, 1997 1997 1996 (Restated) (Note 5) ASSETS Current Cash and term deposits 12,437 19,565 Accounts receivable 25 13,126 Prepaid expenses 1,962 788 14,424 33,479 Capital, at net carrying amount (Note 4) 19,678 25,156 34,102 58,635 LIABILITIES Current Accounts payable 3,914 16,553 Deferred revenue (Note 5) - 11,400 3,914 27,953 MEMBERS' EQUITY Association balance, beginning of year 30,682 35,087 Excess of expense over revenue for the year (494) (4,405) Association balance, end of year 30,188 30,682 34,102 58,635 STATEMENT OF REVENUE AND EXPENSE FOR THE YEAR ENDED OCTOBER 31, 1997 1997 1996 (Restated) (Note 5) Revenue Casino and fund raising 20,686 11,559 Donations 16,695 21,793 Government funded contracts 20,419 53,482 Member dues 9,125 12,575 Sales 429 1,924 67,354 101,333 Expense Operations Amortization 8,602 6,830 Computer 245 1,252 Goods and services tax 4,004 4,503 Rent 10,900 10,062 Telephone 31,365 36,900 55,116 59,547 Contract services B.C.C.N.A. contract 4,407 27,220 Employment costs 2,488 9,233 6,895 36,453 Fund raising Casino 160 5,142 Sundry - 134 160 5,276 Administration Advertising and promotion 339 1,782 Bad debts 58 90 Bank charges 232 327 Dues and subscriptions 65 327 Insurance 425 425 Office and postage 1,284 1,011 Professional fees 3,274 500 5,677 4,462 Total expenses 67,848 105,738 Excess of expense over revenue for the year (494) (4,405) STATEMENT OF CHANGES IN CASH FOR THE YEAR ENDED OCTOBER 31, 1997 1997 1996 (Restated) (Note 5) Operating activities Excess of expense over revenue for the year (494) (4,405) Add: Item not affecting cash Amortization 8,602 6,830 8,108 2,425 Cash provided (consumed) by changes in non- cash working capital items (12,112) 13,612 (4,004) 16,037 Investing activity Purchase of capital assets (3,124) (17,334) Decrease in cash and term deposits during the year (7,128) (1,297) Cash and term deposits, beginning of year 19,565 20,862 Cash and term deposits, end of year 12,437 19,565 NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997 1. Purpose The purpose of the Association is to provide computer-based telecommunication services at no charge to the community, and promote electronic data exchange locally and on an international basis. The Association is registered under the provisions of the Society Act of British Columbia and provides its services on a not-for-profit basis. On November 1, 1997 the Society received a charitable registration number from Revenue Canada. The Association does business under the name Victoria Telecommunity Network. 2. Summary of significant accounting policies (a) Capital assets Capital assets are recorded at cost, net of any Government funding. Amortization is provided for using the following rates and methods: Computer equipment 30% declining balance Software licenses 5 year straight-line One-half of the normal amortization is taken on assets acquired during a particular year. (b) Revenue recognition Revenue is recorded when earned. The Association follows the deferral method of accounting for restricted contributions, whereby revenue is recognized in the year in which the related expenses are incurred. Government grants related to the acquisition of equipment are applied to reduce the cost of the equipment as described in Note 2(a) above. (c) Donated services The Association receives the benefit of a significant amount of donated services, the value of which is not recorded in the accounts. 3. Income taxes The Association is exempt from income taxes under provisions of the Income Tax Act. 4. Capital assets 1997 1996 Accumulated Net Carrying Net Carrying Cost Amortization Amount Amount Computer equipment $77,504 $57,827 $19,677 $24,986 Software licenses 850 849 1 170 $78,354 $58,676 $19,678 $25,156 5. Change of accounting policy The Association changed its method of revenue recognition to the deferral method as described in Note 2(b). The change has been accounted for retroactively where the figures for the comparative year have been changed to reflect this change. Specifically, the Government funded contracts revenue, members' equity, and excess of expense over revenue for the 1996 year have been decreased by $11,400 and a deferred revenue item has been increased by $11,400 to reflect this change. There is no deferred revenue for the 1997 fiscal year. Unaudited - See "Notice to Reader" See accompanying notes to financial statements