Financial Statements of COMPUTE CANADA Year ended March 31, 2016
KPMG LLP Yonge Corporate Centre 4100 Yonge Street, Suite 200 Toronto ON M2P 2H3 Canada Tel 416-228-7000 Fax 416-228-7123 INDEPENDENT AUDITORS' REPORT To the Board of Directors of Compute Canada We have audited the accompanying financial statements of Compute Canada, which comprise the statement of financial position as at March 31, 2016, the statement of operations and net assets and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian accounting standards for not-for-profit organizations, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. KPMG Canada provides services to KPMG LLP.
Page 2 Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Compute Canada as at March 31, 2016, and its results of operations and its cash flows for the year then ended in accordance with Canadian accounting standards for not-for-profit organizations. Chartered Professional Accountants, Licensed Public Accountants July 15, 2016 Toronto, Canada
Statement of Operations and Net Assets Year ended March 31, 2016, with comparative information for 2015 2016 2015 Revenue: Partner contributions $ 2,699,024 $ 1,843,379 Gift in-kind services 1,018,065 444,788 Partner contributions - WestGrid (Note 8, Schedule) 987,035 834,212 Other income 279,211 - Membership fees - WestGrid (Note 8, Schedule) 215,000 606,746 Membership fees 167,500 160,000 Consulting fees - 19,300 5,365,835 3,908,425 Expenditures: Personnel 1,235,922 914,329 Gift in-kind services 1,018,065 444,788 Expenses - WestGrid (Note 8, Schedule) 988,494 825,896 Science & technology service delivery 654,435 209,678 Communications and events 476,918 212,001 Meetings and travel 359,896 268,928 Office operations 134,078 154,603 Professional services 127,607 219,164 Amortization 55,442 22,628 Other 3,244 4,446 5,054,101 3,276,461 Excess of revenues over expenditures $ 311,734 $ 631,964 See accompanying notes to financial statements. 2
Statement of Changes In Net Assets Year ended March 31, 2016, with comparative information for 2015 2016 2015 Restricted Unrestricted WestGrid Total Total Net assets, beginning of year $ 605,345 $ 383,066 $ 988,411 $ 356,447 Excess of revenue over expenses 213,541 98,193 311,734 631,964 Net assets, end of year $ 818,886 $ 481,259 $ 1,300,145 $ 988,411 See accompanying notes to financial statements. 3
Statement of Cash Flows Year ended March 31, 2016, with comparative information for 2015 2016 2015 Cash provided by (used in): Operations: Excess of revenues over expenditures $ 311,734 $ 631,964 Amortization of capital assets which does not involve cash 14,240 22,628 Amortization of intangible asset which does not involve cash 41,202 - Decrease in accounts receivable (16,018) 158,902 Increase in prepaid expenses (48,565) (117,525) Increase (decrease) in accounts payable and accrued liabilities (74,500) 255,026 Increase (decrease) in deferred revenue 198,740 (9,395) 426,833 941,600 Financing: Decrease in deferred lease inducement (2,361) (2,361) Investing: Purchase of capital assets (15,789) (20,135) Purchase of intangible asset (82,404) - Proceeds from disposition of capital assets - 2,129 (98,193) (18,006) Increase in cash 326,279 921,233 Cash, beginning of year 965,257 44,024 Cash, end of year $ 1,291,536 $ 965,257 See accompanying notes to financial statements. 4
Notes to Financial Statements Year ended March 31, 2016 Compute Canada (the "Corporation") is a not-for-profit organization, incorporated in Canada without share capital under the Canada Corporations Act on September 27, 2012. The Corporation is a notfor-profit organization under the Income Tax Act and accordingly is exempt from income taxes, provided certain requirements of the Income Tax Act are met. The Corporation aims to promote and support the shared use of advanced computing that enables research and innovation for the socio-economic benefit of Canada; to promote the interest of the members in relation to advanced computing; and to provide members with resources and a forum for discussion and education in relation to advanced computing. The Corporation is responsible for the attribution of funds necessary for operating and maintenance support for the Canada Foundation for Innovation ("CFI") funded High Performing Computing ("HPC") infrastructure at each of the partner institutions. 1. Basis of presentation: These financial statements have been prepared for the Corporation, as a going concern, in accordance with Canadian accounting standards for not-for-profit organizations. 2. Significant accounting policies: (a) Revenue recognition: The Corporation follows the deferral method of accounting for contributions. Restricted contributions are recognized as revenue in the year in which the related expenses are incurred. Restricted contributions for the purchase of capital assets are recognized as revenue in the year in which the purchase is made. Unrestricted contributions are recognized as revenue when received or receivable if the amount to be received can be reasonably estimated and collection is reasonably assured. Partner contributions and membership fees are recognized in the year to which they relate. Membership fees are charged on an annual basis to partner institutions and recognized in revenue as earned over the year. (b) Financial instruments: Financial instruments are recorded at fair value on initial recognition. Freestanding derivative instruments that are not in a qualifying hedging relationship and equity instruments that are quoted in an active market are subsequently measured at fair value. All other financial instruments are subsequently recorded at cost or amortized cost, unless management has elected to carry the instruments at fair value. The Corporation does not have any financial instruments. 5
Notes to Financial Statements (continued) Year ended March 31, 2016 2. Significant accounting policies (continued): (c) Capital assets: Capital assets are stated at cost, less accumulated amortization. Amortization is provided using the declining balance method and following annual rates: Asset Rate Furniture and fixtures 20% Computer hardware 55% Computer software 100% The carrying amount of an item of capital assets is tested for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized when the asset s carrying amount is not recoverable and exceeds its fair value. (d) Intangible asset: Intangible assets acquired individually or as part of a group of other assets are initially recognized and measured at cost. Expenditures incurred to acquire, develop, maintain, and enhance intangible resources are recognized as assets only when they are separable or arise from contractual or other legal rights regardless of whether these rights are transferable or separable and it is probable that the expected future economic benefits that are attributable to the asset will flow to the Corporation and the cost can be reliably measured. The assessment of the probability of the future economic benefits using reasonable and supportable assumptions represents management's best estimate of the set of economic conditions that will exist over the useful life of the asset. Subsequent expenditures to maintain such expected economic benefits are only capitalized to the carrying amount of the existing intangible asset if these expenditures separately meet the prescribed criteria for recognition as an intangible and that these costs could be directly attributable to a specific intangible asset rather than to the business as a whole. Research and development costs are expensed as incurred. Intangible assets with finite useful lives are amortized on a 100% declining balance basis over their estimated useful lives. All intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and exceeds its fair value. Impairment losses are not subsequently reversed. No impairment was identified for the year ended March 31, 2016. (e) Gift in-kind services: Gift in-kind services received by the Corporation, for which fair value can be reasonably determined and which are used in the normal course of the Corporation's operations, are recognized in the financial statements. 6
Notes to Financial Statements (continued) Year ended March 31, 2016 2. Significant accounting policies (continued): (f) Use of estimates: The preparation of the financial statements in conformity with Canadian accounting standards for not-for-profit organizations 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 revenue and expenses during the year. Significant items subject to such estimates and assumptions include the carrying amounts of capital assets and intangible asset and provisions for impairment of trade accounts receivable. Actual results could differ from those estimates. 3. Capital assets: Cost Accumulated amortization 2016 2015 Net book Net book value value Furniture and fixtures $ 5,852 $ 3,155 $ 2,697 $ 3,371 Computer hardware 36,066 19,165 16,901 12,121 Computer software 31,048 31,048-2,557 $ 72,966 $ 53,368 $ 19,598 $ 18,049 4. Intangible asset: Cost Accumulated amortization 2016 2015 Net book Net book value value Software license $ 82,404 $ 41,202 $ 41,202 $ - 7
Notes to Financial Statements (continued) Year ended March 31, 2016 5. Canada Foundation for Innovation: Major Science Initiatives ("MSI") Fund: University of Western Ontario, on behalf of Compute Canada has entered into an agreement with CFI under CFI s Major Science Initiative Fund for the period from April 1, 2012 to March 31, 2016. Under this program, CFI will contribute to the operating and maintenance ("O & M") costs of CFI-funded large scale research facilities, and also provide governance and management oversight of these facilities based on best practices. To date, the Corporation has earned $6,602,500 with $6,301,600 received by March 31, 2016. Under the MSI Fund, the CFI will provide O & M funding, beyond that currently offered through the Infrastructure Operating Fund ("IOF"), for up to five years. Funding decisions will be based on the demonstrated need for O & M funding to enable these facilities to fully exploit their capabilities; on their advanced governance and management structures; on their scientific excellence; and on their current and potential benefits to Canada. Under the agreement, the Corporation agreed, among other things, to obtain financial support from other parties. The maximum funding under the program is 40% of total eligible expenditures, with matching funds being provided by partner institutions, provincial granting agencies and membership fees. 6. Lease commitments: The Company is committed to minimum annual lease payments under an operating lease for office premises as follows: 2017 $ 88,087 2018 88,087 2019 88,087 2020 90,127 2021 90,127 Total $ 444,515 8
Notes to Financial Statements (continued) Year ended March 31, 2016 7. Financial risks and risk management: The Corporation considers its total assets to be its capital. The Corporation's objectives in managing capital are to safeguard the assets and maintain liquidity. (a) Liquidity risk: Liquidity risk is the risk that the Corporation will be unable to fulfill its obligations on a timely basis or at a reasonable cost. The Corporation manages its liquidity risk by monitoring actual and projected cash disbursements against funding received or to be received from operations. The Corporation prepares budgets and cash forecasts to ensure it has sufficient funds to fulfill its obligations. There has been no significant change in exposure from 2015. (b) Credit risk: Credit risk refers to the risk that a counterparty may default on its contractual obligations, resulting in a financial loss. The Corporation is exposed to credit risk with respect to the accounts receivable. The Corporation manages its credit risk by assessing accounts receivable on a continuous basis. The Corporation deals with creditworthy counterparties and seldom has doubtful accounts. There has been no significant change in exposure from 2015. 8. WestGrid: Effective April 1, 2014 the payroll expenses of WestGrid were assumed by the Corporation. Effective July 1, 2014 the Corporation assumed all other WestGrid operational expenses. All WestGrid CFI eligible expenses are reimbursed to the Corporation from CFI funds flowing through the University of Alberta. This reimbursement is secured through a Service Agreement between Compute Canada and University of Alberta signed in October, 2014, supported by the revised University of Alberta MSI 30198 Award Agreement of November, 2015. Effective April 1, 2014 the Corporation invoiced WestGrid member institutions for the appropriate membership fees. For fiscal 2015, these membership fees were held by Compute Canada on behalf of the WestGrid institutions. In addition, $316,746 of WestGrid membership fees from prior years, previously held at the University of Alberta on behalf of WestGrid, was transferred to Compute Canada and recognized into revenue in the prior period. In the event the CFI funds are not approved, or expenses are deemed ineligible, WestGrid expenses will be paid in part by the membership fees from the institutions in the WestGrid region. 9
Notes to Financial Statements (continued) Year ended March 31, 2016 9. Restricted net assets: At the conclusion of the fiscal year, the Board internally restricted net assets in the amount of $213,541 (2015 - $605,345) for WestGrid operating purposes. These funds flowed through revenue as WestGrid membership fees and are therefore intended for future WestGrid operations. 10. Comparative information: Certain comparative information has been reclassified to conform with the financial statement presentation adopted in current year. 10
Schedule of Revenues and Expenditures - WestGrid Year ended March 31, 2016, with comparative information for 2015 2016 2015 Revenue: Membership fee $ 215,000 $ 606,746 Partner contributions 987,035 834,212 1,202,035 1,440,958 Expenditures: Personnel 726,860 719,844 Professional services - 23,290 Communications 27,577 2,240 Committee meetings - 8,987 General and administration 156,150 30,897 Travel and professional development 62,164 39,238 Meals and entertainment 1,458 1,328 Office and administration 14,285 72 988,494 825,896 Excess of revenues over expenditures $ 213,541 $ 615,062 11