INTERNET
CORPORATION
FOR ASSIGNED NAMES AND NUMBERS
Notes to Financial Statements
June 30, 2002 and 2001
(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, .biz,
.info, .museum, .name, and .org Internet domains.
-
Application fees – Amounts paid in connection
with processing of applications to become accredited domain name registrars
or to become operators of new gTLD registries. (See note
2).
ICANN also receives contributions and grants from other organizations.
ICANN has three supporting organizations which serve as advisory bodies
to the ICANN board of directors with respect to internet policy issues
and structure within three specialized areas, including the system of
IP addresses, the domain name system, and parameters for internet protocols.
The supporting organizations are the primary source of substantive policy
recommendations for matters lying within their respective specialized
areas. The three supporting organizations are the Address Supporting Organization
(ASO), Domain Name Supporting Organization (DNSO), and the Protocol Supporting
Organization (PSO). The supporting organizations are not separately incorporated
entities. The accounts of DNSO are included in the accompanying financial
statements as ICANN, on behalf of DNSO, receives and processes the contributions
that DNSO receives from its membership.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying financial statements are 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, 2002 and 2001, 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 years ended June 30, 2002 and 2001, ICANN's expenses
are classified as follows:
|
|
|
|
2002 |
2001 |
Program services |
$ |
4,109,456 |
3,984,750 |
Supporting services: |
|
|
|
|
Management and general |
|
1,846,277 |
1,795,113 |
|
Fundraising |
|
— |
— |
|
|
Total supporting services |
|
1,846,277 |
1,795,113 |
|
|
Total |
$ |
5,955,733 |
5,779,863 |
(c) Cash and Cash Equivalents
Cash and cash equivalents include deposits in bank and money market
accounts.
(d) Property and Equipment
Property and equipment are stated at cost or, for contributed items,
at fair market value at date of contribution. The equipment and furniture
are being depreciated using the modified accelerated cost recovery system
method over estimated useful lives of five to seven years. Fixtures
are being depreciated using the straight-line method over the useful
life or the remaining lease term, whichever is shorter.
(e) 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.
(f) 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.
(g) 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 years ended
June 30, 2002 and 2001, contributed professional services totaling $180,995
and $182,195, respectively, are included in the accompanying statements
of activities as contributed services and professional services expense.
(h) Application Fees
As described in note 1, application fees represent
amounts paid to ICANN in connection with the processing of applications
to either become accredited domain name registrars requiring an application
fee of $1,000 or to become an operator of a new gTLD. Each application
to become an operator of a new gTLD requires a nonrefundable application
fee of $50,000. During 2001, there were 47 gTLD applications processed
and reviewed, resulting in 7 new TLDs approved and selected for contract
negotiation, including .biz, .info, .name, .pro,
.museum, .coop, and .aero. In 2002, no new gTLD
applications were solicited. The only application fees received were
those for the position to run an existing registry (.org) with application
fees of $29,000 per application.
Application fees totaled $411,337 and $2,283,994 for the years ended
June 30, 2002 and 2001, respectively.
(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
ICANN holds a majority of its cash and cash equivalents at two financial
institutions. Cash and cash equivalents consist of cash on deposit,
money market accounts, and commercial paper. ICANN is exposed to credit
loss for the amount of cash in excess of the federally insured limit
of $100,000 in the event of nonperformance by the counterparties. At
June 30, 2002 and 2001, ICANN had cash in banks in excess of Federal
Deposit Insurance Corporation (FDIC) insurance limits of approximately
$736,267 and $556,038, respectively.
(k) Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
(l) Reclassifications
Certain reclassifications may have been made to the 2001 financial
data to conform with the 2002 presentation.
(3) Accounts Receivable
Accounts receivable include amounts receivable from the following constituencies
for various registry and accreditation fees at June 30, 2002 and 2001:
|
|
2002 |
2001 |
ccTLDs |
$ |
361,817 |
629,475 |
gTLDs |
|
1,148,504 |
1,271,119 |
IP address registries |
|
676,010 |
856,000 |
Other |
|
120,669 |
61,513 |
|
|
2,307,000 |
2,818,107 |
Less allowance for doubtful accounts |
|
(153,349) |
(27,381) |
|
$ |
2,153,651 |
2,790,726 |
(4) Property and Equipment
Property and equipment at June 30, 2002 and 2001 consists of the following:
|
|
2002 |
2001 |
Computer equipment |
$ |
288,167 |
261,362 |
Furniture and fixtures |
|
88,471 |
88,470 |
Leasehold improvements |
|
112,315 |
112,315 |
Total |
|
488,953 |
462,147 |
Less accumulated depreciation |
|
(267,681) |
(135,259) |
|
$ |
221,272 |
326,888 |
Depreciation expense totaled $141,468 and $105,059 for the years ended
June 30, 2002 and 2001, respectively.
(5) Notes Payable
As of June 30, 2002 and 2001, notes payable are summarized as follows:
|
|
2002 |
2001 |
Note payable to Deutsche Telekom AG, Inc., dated October 13, 1999,
bearing interest at 6.6%; principal and unpaid interest due on demand;
unsecured |
$ |
— |
200,000 |
Note payable to 3COM, dated August 23, 1999, bearing interest at
6.5%; principal and interest payable at maturity date on August 23,
2000; unsecured; the maturity date was extended to August 23, 2001 |
|
— |
175,000 |
Note payable to MCI Worldcom, Inc., dated July 28, 1999, bearing
interest at 6.5%; principal and interest payable at maturity date
on July 28, 2000; unsecured; the maturity date was extended to July
28, 2001 |
|
— |
500,000 |
|
$ |
— |
875,000 |
All notes payable outstanding at June 30, 2001 were repaid in full during
the year ended June 30, 2002.
(6) Loans Payable
ICANN subleases office space from the University of Southern California
(USC). Included in loans payable are two loans payable to USC for leasehold
improvements made on ICANN's behalf by USC. Principal and interest at
8% per annum are payable monthly through September 2003. At June 30, 2002
and 2001, amounts due to USC under these loans totaled $24,691 and $43,700,
respectively.
(7) Commitments and Contingencies
(a) Lease Commitments
ICANN subleases real property under noncancelable operating leases
that expire through September 2003. Future minimum lease payments under
the operating lease as of June 30, 2002 are as follows:
Fiscal year ending June 30: |
|
|
2003 |
$ |
219,366 |
2004 |
|
28,988 |
|
$ |
248,354 |
Rent expense totaled $135,435 and $134,137 for the years ended June
30, 2002 and 2001, respectively.
(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 former president and chief executive officer
were provided to ICANN through a professional services agreement with
a company that was owned by the former president and his spouse through
March 2001. In 2001, payments under this agreement including fees for
professional services and reimbursed travel totaled $218,819. No payments
were made in 2002.
(9) Temporarily Restricted Net Assets
Temporarily restricted net assets totaled $242,807 and $179,648 at June
30, 2002 and 2001, respectively. These net assets were restricted by donors
for specific activities and projects as follows:
|
|
2002 |
2001 |
At large project |
$ |
6,194 |
— |
Domain Name Supporting Organization sponsorships |
|
236,613 |
179,648 |
|
$ |
242,807 |
179,648 |
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Page Updated
27-Dec-2002
©2002 The Internet Corporation for Assigned Names
and Numbers. All rights reserved.
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