Audited Financial Report for Fiscal Year Ending 30 June 2000 (Notes to Financial Statements)

(1) Organization

Internet Corporation for Assigned Names and Numbers (ICANN) was established in September 1998 under the laws of the state of California. ICANN coordinates a select set of the Internet's technical management functions such as the assignment of protocol parameters, the management of the domain name system, the allocation of internet protocol (IP) address space, and the management of the root server system. Categories of internet domains include Generic Top Level Domains (gTLDs) which include the .com, .net, .org and .edu domains and Country Code Top Level Domains (ccTLDs), examples of which are .us, .uk, and .fr. ICANN generates income from fees received from domain name registrars and related accreditation activities. Its primary sources of revenue are as follows:

• Domain name registry and registrar fees - amounts contributed by organizations responsible for the registration and administration of Internet Domain Names
  
• Address registry fees - amounts contributed by organizations responsible for the assignment and administration of Internet addresses
  
• Accreditation fees - amounts paid in connection with initial and renewal accreditation of organizations engaged in the registration and administration of domain names in the .com, .net and .org Internet domains
  
• Application fees - amounts paid in connection with processing of applications to become accredited domain name registrars.

ICANN also receives contributions and grants from other organizations.

(2) Summary of Significant Accounting Policies

(a) Basis of Presentation

The financial statements of ICANN have been prepared on the accrual basis of accounting.

ICANN recognizes contributions, including unconditional promises to give, as revenue in the period received. Contributions and net assets are classified based on the existence or absence of donor-imposed restrictions. As such, the net assets of ICANN and changes therein are classified and reported as follows:

• Unrestricted net assets - Net assets that are not subject to donor-imposed stipulations and that may be expendable for any purpose in performing the objectives of ICANN.
  
• Temporarily restricted net assets - Net assets subject to donor-imposed stipulations that may or will be met either by actions of ICANN and/or the passage of time. As the restrictions are satisfied, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the accompanying financial statements as net assets released from restrictions.
  
• Permanently restricted net assets - Net assets subject to donor-imposed stipulations that resources be maintained in perpetuity. Investment income generated from these funds is available for general support of ICANN's programs and operations unless otherwise stipulated by the donor.

As of June 30, 2000, ICANN had no permanently restricted net assets.

(b) Functional Allocation of Expenses

Expenses that can be identified with a specific program or supporting service are charged directly to the related program or supporting service. Expenses that are associated with more than one program or supporting service are allocated based on methods determined by management. As of and for the year ended June 30, 2000, ICANN's expenses are classified as follows:

Program services	$ 2,379,018
Supporting services:
Management and general	462,891
Fundraising	10,000
Total support services	472,891
Total	$ 2,851,909

(c) Reporting

The accompanying financial statements include certain ccTLD accounts receivable and related registry fee revenue. As of and for the year ended June 30, 2000, accounts receivable and ccTLD registry fees have been increased $1,355,000 by the inclusion of these receivables based solely on oral agreements between ICANN and the participating countries. Such receivables and revenues are not supported by written agreements nor has any allowance for doubtful accounts been established relating to the receivables (see note 3).

(d) Cash and Cash Equivalents

Cash and cash equivalents include deposits in bank and money market accounts.

(e) Property and Equipment

Property and equipment are stated at cost or, for contributed items, at fair market value at date of contribution. The equipment, furniture and fixtures are being depreciated using the straight-line method over estimated useful lives of five to seven years or the remaining lease term, whichever is shorter for fixtures.

(f) Deferred Revenue - Accreditation Fees

Accreditation fees attributable to future activities are included in cash and cash equivalents or accounts receivable and reflected as deferred revenue until earned.

(g) Promises to Give

Unconditional promises to give that are expected to be collected within one year are recorded at estimated net realizable value. Unconditional promises to give that are expected to be collected in future years are recorded at the present value of the estimated future cash flows. Conditional promises to give are not included as support until the conditions are substantially met.

(h) Contributed Services

Contributed services are recognized only if the services (a) create or enhance long-lived assets, or (b) require specialized skills, are provided by individuals possessing those skills and would typically need to be purchased if not provided by donation. For the year ended June 30, 2000, contributed legal services totaling $216,667 are included in the statement of activities as contributed services and professional services expense.

(i) Income Taxes

ICANN is exempt from federal and state income taxes under the provisions of Section 501(c)(3) of the Internal Revenue Code and Section 23701(d) of the California Revenue and Taxation Code. Accordingly, no provision for income taxes has been made in the accompanying financial statements.

(j) Concentration of Credit Risk

All of ICANN's cash and cash equivalents are maintained in one commercial bank and consist of cash on deposit and money market accounts. At June 30, 2000, ICANN had cash in banks in excess of Federal Deposit Insurance Corporation (FDIC) insurance limits of approximately $684,000.

(k) 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 at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(3) Accounts Receivable

Accounts receivable totaling $2,552,000 at June 30, 2000 includes amounts receivable from ccTLDs, gTLDs and IP address registries of $1,355,000, $769,000 and $428,000, respectively, for various registry and accreditation fees. Receivables from ccTLDs at June 30, 2000 include amounts receivable from the following countries:

Germany	$ 483,000
United Kingdom	249,700
Argentina	49,400
Denmark	48,300
Republic of Korea	46,000
Australia	40,100
Switzerland	35,400
Italy	32,400
Netherlands	31,600
Canada	23,200
Other countries	315,900
	$ 1,355,000

(4) Grants and Contributions Receivable

Included in grants and contributions receivable at June 30, 2000 are $100,000 of unconditional promises to give which are expected to be collected within one year.

(5) Property and Equipment

Property and equipment at June 30, 2000 consists of the following:

Depreciation expense totaled $27,882 for the year ended June 30, 2000.

(6) Notes Payable

As of June 30, 2000, notes payable are summarized as follows:

(7) Commitments and Contingencies

(a) Lease Commitments

In January 1999, ICANN entered into a five-year sublease agreement for an office facility. Future minimum lease payments under the operating lease as of June 30, 2000 are as follows:

Year ending June 30:
2001	$ 55,202
2002	55,202
2003	55,202
2004	34,056
	$ 199,662

Rent expense totaled $41,904 for the year ended June 30, 2000.

(b) Legal Matters

In the ordinary course of business, ICANN is subject to lawsuits and other potential legal actions. In the opinion of management, such matters will not have a material effect on the financial position of ICANN.

(8) Related Party Transactions

The services of ICANN's president and chief executive officer are provided to ICANN through a professional services agreement with a company that is owned by the president and his spouse. Total payments for the 12 months ended June 30, 2000, including fees for professional services and reimbursed travel, were $287,595

(9) Temporarily Restricted Net Assets

Temporarily restricted net assets totaling $135,000 at June 30, 2000 were restricted by donors for specific activities and projects as follows:

Markle Foundation - At-Large project	$ 100,000
Meeting sponsorships	35,000
	$ 135,000