MILKWEED EDITIONS, INC. FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2017

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1 MILKWEED EDITIONS, INC. FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2017

2 MILKWEED EDITIONS, INC. TABLE OF CONTENTS YEAR ENDED DECEMBER 31, 2017 INDEPENDENT AUDITORS REPORT 1 FINANCIAL STATEMENTS BALANCE SHEET 3 STATEMENT OF ACTIVITIES 4 STATEMENT OF FUNCTIONAL EXPENSE 5 STATEMENT OF CASH FLOWS 6 NOTES TO FINANCIAL STATEMENTS 7

3 CliftonLarsonAllen LLP CLAconnect.com INDEPENDENT AUDITORS REPORT Board of Directors Milkweed Editions, Inc. Minneapolis, Minnesota We have audited the accompanying financial statements of Milkweed Editions, Inc. (a nonprofit organization), which comprise the balance sheet as of December 31, 2017, and the related statements of activities, functional expense, and cash flows for the year then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation 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 auditing standards generally accepted in the United States of America. Those standards require that we 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 the auditors 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, the auditor considers 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. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant 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. (1)

4 Board of Directors Milkweed Editions, Inc. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Milkweed Editions, Inc., as of December 31, 2017, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Report on Summarized Comparative Information We have previously audited Milkweed Editions, Inc. s 2016 financial statements, and we expressed an unmodified audit opinion on those financial statements in our report dated May 3, In our opinion, the summarized comparative information presented herein as of and for the year ended December 31, 2016, is consistent, in all material respects, with the audited financial statements from which it has been derived. CliftonLarsonAllen LLP Minneapolis, Minnesota April 26, 2018 (2)

5 MILKWEED EDITIONS, INC. BALANCE SHEET DECEMBER 31, 2017 (WITH SUMMARIZED INFORMATION AS OF DECEMBER 31, 2016) ASSETS CURRENT ASSETS Cash $ 302,427 $ 247,592 Accounts Receivable - Net 509, ,487 Grants and Contributions Receivable - Net 180, ,250 Royalty Advances - Net 209, ,347 Inventory - Net 350, ,219 Investments 206, ,330 Prepaid Expense 13,798 22,826 Total Current Assets 1,772,929 1,835,051 LONG-TERM ASSETS Equipment - Net 228, ,911 Grants and Contributions Receivable 183,667 9,013 Total Long-Term Assets 412, ,924 Total Assets $ 2,185,194 $ 2,173,975 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Line of Credit $ 40,000 $ 97,000 Accounts Payable 139, ,810 Accrued Salaries Payable 32,480 39,409 Accrued Royalties 113, ,586 Sales Tax Payable 13,677 1,619 Sales Return Reserve 58,439 61,023 Current Maturities of Capital Lease Obligation - 4,210 Total Current Liabilities 397, ,657 NET ASSETS Unrestricted: Undesignated 623, ,902 Board Designated - Author Advance Fund 503, ,638 Board Designated - Emilie Buchwald Legacy Fund - 131,563 Total Unrestricted Net Assets 1,127,020 1,209,103 Temporarily Restricted 435, ,215 Permanently Restricted 225, ,000 Total Net Assets 1,787,275 1,684,318 Total Liabilities and Net Assets $ 2,185,194 $ 2,173,975 See accompanying Notes to Financial Statements. (3)

6 MILKWEED EDITIONS, INC. STATEMENT OF ACTIVITIES YEAR ENDED DECEMBER 31, 2017 (WITH SUMMARIZED INFORMATION FOR YEAR ENDED DECEMBER 31, 2016) Temporarily Permanently Unrestricted Restricted Restricted Total Total SUPPORT AND REVENUE Support: Contributions and Grants (Including In-Kind Contributions of $60,480 and $74,367 Respectively) $ 233,086 $ 562,233 $ - $ 795,319 $ 516,794 Special Events (Less Direct Benefits of $32,818 in 2017 and $25,985 in 2016) 75, ,137 78,432 Grants from Governmental Agencies - 77,450-77, ,452 Total Support 308, , , ,678 Revenue: Book Revenue (Net of Returns of $170,323 in 2017 and $285,243 in 2016) 1,293, ,293,238 1,027,719 Rights Income 13, ,846 13,879 Investment Income Miscellaneous Revenue 22, ,801 4,820 Total Revenue 1,330, ,330,682 1,047,323 Net Assets Released from Restrictions: Temporarily Restricted Released 454,643 (454,643) Total Support and Revenue 2,093, ,040-2,278,588 1,832,001 EXPENSE Editorial 250, , ,148 Production and Distribution 918, , ,979 Marketing and Book Promotion 442, , ,509 Management and General 266, , ,724 Fundraising 297, , ,373 Total Expense 2,175, ,175,631 1,803,733 CHANGE IN NET ASSETS (82,083) 185, ,957 28,268 Net Assets - Beginning of Year 1,209, , ,000 1,684,318 1,656,050 NET ASSETS - END OF YEAR $ 1,127,020 $ 435,255 $ 225,000 $ 1,787,275 $ 1,684,318 See accompanying Notes to Financial Statements. (4)

7 MILKWEED EDITIONS, INC. STATEMENT OF FUNCTIONAL EXPENSE YEAR ENDED DECEMBER 31, 2017 (WITH SUMMARIZED INFORMATION FOR YEAR ENDED DECEMBER 31, 2016) Production Marketing, Management Total Total and Promotion, and Fund- All All Editorial Distribution and Outreach General raising Services Services Salaries $ 133,445 $ 36,301 $ 186,583 $ 85,696 $ 164,017 $ 606,042 $ 483,270 Payroll Taxes 12,290 3,343 17,183 7,892 15,105 55,813 55,748 Employee Benefits 6,474 1,761 9,052 4,158 7,957 29,402 23,943 In-Kind Salaries 20,160-20,160-20,160 60,480 74,367 Total Personnel Costs 172,369 41, ,978 97, , , ,328 Cost of Goods Sold - 473, , ,678 Distribution - 223, , ,665 Royalty Expense - 161, , ,733 Professional Fees - - 4,375 67,804-72,179 87,024 Outside Editorial Services 2, ,143 1,444 2,763 10,210 3,178 Supplies/Printing 3, ,903 2,252 4,310 15,924 29,210 Telephone ,221 2,219 Postage and Shipping 619-7,497 26,343 1,037 35,496 32,275 Occupancy 10,757 2,926 15,040 6,908 13,221 48,852 47,631 Equipment Rental and Maintenance 5,655 1,538 7,906 3,631 6,950 25,680 23,387 Insurance 2, ,973 1,365 2,613 9,656 12,978 Travel 4, , ,964 41,992 Trade Show Expense - - 6, ,273 13,605 Advertising and Promotions ,996 1,369-71,415 82,482 Prizes for Authors 16, ,025 11,253 Galleys - - 6, ,788 6,805 Special Events ,933 19,933 18,394 Free Books 3,376-15, ,799 23,664 16,704 Employee Training Interest Expense ,598-5,598 2,879 Dues and Subscriptions 1,621 2,608 1,999 13, ,399 10,998 Bad Debt Expense ,010-20,010 - Miscellaneous 4,300 1,170 6,012 2,761 5,284 19,527 16,043 Total Expense Before Depreciation 227, , , , ,810 2,073,715 1,767,563 Depreciation 22,441 6,105 31,377 14,411 27, ,916 36,170 Total Expense $ 250,331 $ 918,273 $ 442,890 $ 266,745 $ 297,392 $ 2,175,631 $ 1,803,733 See accompanying Notes to Financial Statements. (5)

8 MILKWEED EDITIONS, INC. STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2017 (WITH SUMMARIZED INFORMATION FOR YEAR ENDED DECEMBER 31, 2016) RECONCILIATION OF CHANGE IN NET ASSETS TO NET CASH PROVIDED BY OPERATING ACTIVITIES Change in Net Assets $ 102,957 $ 28,268 Adjustments to Reconcile Change in Net Assets to Net Cash Provided by Operating Activities: Depreciation 101,916 36,170 Change in Allowance for Doubtful Accounts Receivable 15,173 - Change in Royalty Advances Reserve 4,512 (4,315) Change in Sales Return Reserve (2,584) 15,022 Change in Reserve for Obsolete Inventory 45,550 12,187 (Increase) Decrease in Current Assets: Accounts Receivable (60,199) (162,489) Grants Receivable (136,459) 139,512 Royalty Advances 30,867 (29,038) Inventory 34,280 (57,742) Prepaid Expenses 9,028 (7,576) Increase (Decrease) in Current Liabilities: Accounts Payable 27,898 55,682 Accrued Royalties (60,971) 56,853 Sales Tax Payable 12, Accrued Salaries Payable (6,929) 17,051 Net Cash Provided by Operating Activities 117,097 99,950 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of Short-Term Investments (449) (307) Purchase of Equipment (603) (304,385) Net Cash Used by Investing Activities (1,052) (304,692) CASH FLOWS FROM FINANCING ACTIVITIES Line of Credit Payments (130,000) - Line of Credit Advances 73,000 97,000 Payments on Capital Lease Obligations (4,210) (3,638) Net Cash Provided (Used) by Financing Activities (61,210) 93,362 NET INCREASE (DECREASE) IN CASH 54,835 (111,380) Cash - Beginning of Year 247, ,972 CASH - END OF YEAR $ 302,427 $ 247,592 See accompanying Notes to Financial Statements. (6)

9 MILKWEED EDITIONS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2017 (WITH SUMMARIZED INFORMATION AS OF DECEMBER 31, 2016) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organizational Purpose Milkweed Editions, Inc. s (Milkweed) mission is to identify, nurture, and publish transformative literature, and build an engaged community around it. Milkweed s programs are as follows: Editorial Milkweed discovers and develops outstanding transformative literature. Activities include reading and acquiring manuscripts, and working collaboratively with writers to develop them. Production and Distribution Milkweed produces books that present the work of writers and visual artists in printed and e-book editions, with beautiful covers and illustrations. Activities include commissioning and licensing of art, design, typesetting, and printing finished copies. Marketing, Promotion, and Outreach Milkweed actively promotes its books and authors in the marketplace, combining print materials such as catalogs, brochures, and advance reading materials with online tools and an active presence on social networking sites. Milkweed also attends numerous book festivals and conventions, promoting its program and individual books to targeted audiences, and organizes author tours, special events, and outreach via the web. Taken together, this outreach functions to provide the community (both local and national) with additional activities related to its mission and the books Milkweed publishes. Milkweed Editions also operates Milkweed Books, a retail bookstore located on the ground floor of the Open Book building. Milkweed Books works to promote and sell literary titles published by Milkweed Editions and other publishers with similar missions and business models. Financial Statement Presentation Net assets and revenues, gains, and losses are classified based on donor-imposed restrictions. Accordingly, net assets of Milkweed and changes therein are classified and reported as: Unrestricted Resources over which the board of directors has discretionary control. Designated amounts represent those resources which the board has set aside for a particular purpose. Temporarily Restricted Those resources subject to donor-imposed restrictions which will be satisfied by action of Milkweed or passage of time. Permanently Restricted Those resources whose use has been permanently restricted by the donor. (7)

10 MILKWEED EDITIONS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2017 (WITH SUMMARIZED INFORMATION AS OF DECEMBER 31, 2016) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Cash Milkweed maintains its checking and savings accounts at two institutions. Milkweed considers cash and cash equivalents to include holdings with an original maturity of 90 days or less. Balances are insured by the Federal Deposit Insurance Corporation up to certain limits. Receivables Accounts, grants, and contributions receivable are stated at net realizable value. Bad debts are provided on the reserve method based on historical experience and management s evaluation of outstanding receivables at the end of each year. When all collection efforts have been exhausted, the accounts are written off against the related allowance. The allowance for doubtful accounts receivable is $15,173 and $-0- at December 31, 2017 and 2016, respectively. See Note 3 for the allowance related to contributions receivable. Inventory Inventory consists of published books and books in the process of being published. Inventory is valued at the lower of cost, determined on a first-in, first-out (FIFO) basis, or market. A reserve for obsolete inventory has been recorded for books which may be unsellable based on historical data. The reserve for obsolescence is $381,301 and $335,751 at December 31, 2017 and 2016, respectively. Investments Investments consist of cash in money market accounts. Due to their short-term nature, investments are carried at cost, which approximates fair value. Equipment and Leasehold Improvements All major expenditures for equipment in excess of $500 are capitalized at cost. Contributed items are recorded at fair market value at date of donation. If donors stipulate how long the assets must be used, the contributions are recorded as restricted support. In the absence of such stipulation, contributions of equipment are recorded as unrestricted. Depreciation is provided through the use of the straight-line method over an estimated useful life ranging from three to ten years. Sales Return Reserve Sales of books are subject to significant returns. The estimated returns amount, less the related return to inventory of the books, has been estimated upon historical return rates. The net effect of the sales return estimate is classified as the liability sales return reserve. The sales return reserve liability was as follows: Projected Sales Returns $ 124,554 $ 132,263 Less: Return of Books to Inventory (66,115) (71,240) Sales Return Reserve $ 58,439 $ 61,023 (8)

11 MILKWEED EDITIONS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2017 (WITH SUMMARIZED INFORMATION AS OF DECEMBER 31, 2016) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Royalty Advances Milkweed pays authors advances on royalties, which are earned when the books they have authored are sold in the marketplace. A reserve for unearned advances has been recorded based on historical book sales and management s estimate of future book sales. The reserve for unearned royalty advances was $188,724 and $193,236 at December 31, 2017 and 2016, respectively. Contributions Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and/or nature of any donor restrictions. All donor-restricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Unconditional contributions are recognized as revenues or gains in the period received and as assets, decreases of liabilities, or expenses, depending on the form of the benefits received. Conditional promises to give are recognized when the conditions on which they depend are substantially met. Revenue Book sales revenue is recognized in the month that books are shipped to the customer. For books sold from Milkweed s warehouse, the invoice date and recognition of revenue is the same as the shipping date. For books sold from the distributor s warehouse, the invoice date and recognition of revenue for all shipments made during the month is the last day of the month. Grants from Governmental Agencies Government funds are recorded as temporarily restricted grant revenue when notification is received. Expenditures under government contracts are subject to review by the granting authority. To the extent, if any, that such a review reduces expenditures allowable under these contracts, Milkweed will record such disallowance at the time the determination is made. Functional Allocation of Expense Salaries and related expenses are allocated based on job descriptions and the best estimates of management. Expenses, other than salaries and related expenses, which are not directly identifiable by program or support service, are allocated on the best estimates of management. (9)

12 MILKWEED EDITIONS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2017 (WITH SUMMARIZED INFORMATION AS OF DECEMBER 31, 2016) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Advertising Costs Advertising costs are charged to operations when the advertising first takes place. Advertising expense was $41,833 and $31,149 for the years ended December 31, 2017 and 2016, respectively. Shipping and Handling Costs Shipping and handling costs are charged to operations as they are incurred. Shipping and handling expense was $34,152 and $31,079 for the years ended December 31, 2017 and 2016, respectively. Tax-Exempt Status Milkweed has a tax-exempt status under Section 501(c)(3) of the Internal Revenue Code and Minnesota Statute. It has been classified as an organization that is not a private foundation under the Internal Revenue Code and charitable contributions by donors are tax deductible. Tax Accounting Policy Milkweed follows the income tax accounting standard regarding the recognition of uncertain tax positions. This guidance prescribes a recognition threshold principle for the financial statement recognition of tax positions taken or expected to be taken on a tax return that are not certain to be realized. Milkweed s tax returns are subject to review and examination by federal authorities. Summarized Information The financial statements include certain prior-year summarized comparative information in total but not by net asset class. Accordingly, such information should be read in conjunction with Milkweed s financial statements for the year ended December 31, 2016, from which the summarized information was derived. Estimates Management uses estimates and assumptions in preparing financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used. Subsequent Events In preparing these financial statements, Milkweed has evaluated events and transactions for potential recognition or disclosure through April 26, 2018, the date the financial statements were available to be issued. (10)

13 MILKWEED EDITIONS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2017 (WITH SUMMARIZED INFORMATION AS OF DECEMBER 31, 2016) NOTE 2 CONCENTRATIONS The amounts receivable for book sales, and grants and contributions, are from individuals, companies, or institutions located across the United States. Milkweed utilizes the services of a book distributor. For the years ended December 31, 2017 and 2016, the distributor was responsible for $1,029,582 and $909,265, respectively, of net sales. At December 31, 2017 and 2016, gross accounts receivable of $481,750 and $440,148, respectively, were due from the distributor. The grants and contributions receivable are due from individuals, corporations, and foundations. At December 31, 2017, two contributors accounted for 73% of the Grants and Contributions Receivable balance and, at December 31, 2016, three contributors accounted for 50% of the Grants and Contributions Receivable balance. NOTE 3 GRANTS AND CONTRIBUTIONS RECEIVABLE At December 31, 2017 and 2016, Milkweed s grants and contributions receivable consisted of the following: Grants and Contributions Due Within One Year $ 180,055 $ 218,250 Grants and Contributions Due Within One to Five Years 208,000 39,500 Total Gross Pledges 388, ,750 Less: Discounted to Net Present Value at 5% in 2017 and 2016 (22,833) (1,975) Less: Reserve for Uncollectible Pledges and Grants (1,500) (28,512) Net Grants and Contributions $ 363,722 $ 227,263 NOTE 4 EQUIPMENT AND LEASEHOLD IMPROVEMENTS Milkweed owns the following assets as of December 31: Website $ 206,400 $ 206,400 Furniture and Equipment 217, ,240 Leasehold Improvements 83,616 83,616 Accumulated Depreciation (279,261) (177,345) Total Equipment $ 228,598 $ 329,911 Depreciation expense of $101,916 and $36,170 was recorded for the years ended December 31, 2017 and 2016, respectively. (11)

14 MILKWEED EDITIONS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2017 (WITH SUMMARIZED INFORMATION AS OF DECEMBER 31, 2016) NOTE 5 LINE OF CREDIT Milkweed has a revolving line of credit for $140,000 which expires on December 16, 2018, and is secured by all assets of the Organization. The interest rate is at the prime rate of interest plus 1% (4.25% at December 31, 2017), with a minimum rate of 4.25%. There was an outstanding balance on the line of credit of $40,000 and $97,000 as of December 31, 2017 and 2016, respectively. NOTE 6 RETIREMENT PLAN Milkweed has a Simplified Employee Pension Plan (SEP) which provides for annual discretionary contributions to eligible employees SEP-IRA accounts. Contributions are contingent on board approval and are based on a percentage of the employees annual earnings up to a maximum of 25% of earnings. Employees who are at least 21 years of age and have earned at least $450 in two of the last five years are eligible. There were no discretionary contributions made by Milkweed during the years ended December 31, 2017 and NOTE 7 UNRESTRICTED BOARD DESIGNATED NET ASSETS Author Advance Fund In the fall of 2014, the board of directors resolved to undertake a second phase of the Metamorphosis Campaign, aimed at raising $300,000-$500,000 for an Author Advance Fund (AAF). This fund will allow for withdrawals exclusively for the payment of advances to authors. A portion of the proceeds generated by the sales of these books will be reinvested in the AAF, making it a revolving fund. As of December 31, 2017 and 2016, the AAF s balance was $553,723 and $502,638, respectively. As of December 31, 2017, $90,375 of advances has been paid with funds drawn from the AAF. Below is the AAF activity and balances for December 31: YTD 2017 Support/Assets: Pledges ($-0-) / (Cash Transfers) ($4K) $ 15,535 $ (4,000) $ 11,535 Cash/Cash Transfers ($4K) / New Cash Gifts ($-0-) / Interest ($710) 447,103 (45,665) 401,438 Author Advances made 40,000 50,375 90,375 Total Support $ 502,638 $ 710 $ 503,348 Author Advance Fund Balance: Contributions Receivable Balance $ 15,535 $ 11,535 Cash and Investments Balance 447, ,438 Royalty Advance Balance 40,000 90,375 Net Assets $ 502,638 $ 503,348 (12)

15 MILKWEED EDITIONS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2017 (WITH SUMMARIZED INFORMATION AS OF DECEMBER 31, 2016) NOTE 7 UNRESTRICTED BOARD DESIGNATED NET ASSETS (CONTINUED) Author Advance Fund (Continued) The AAF is designated by the board of directors as follows: All donations solicited for this purpose are to be held in one account, in order to separate the AAF from operating capital. Funds are to be drawn from this account to acquire books with cash advances (on royalties) paid to authors at the Publisher s discretion. On December 31 of each calendar year, the balance of the AAF will be reviewed by the finance committee with a follow-up report to the full board. As titles acquired with capital drawn from the AAF are published, a portion of the revenue generated by sales of these titles will be used to replenish it. Portions of the AAF may be invested to maximize the asset s potential for growth, subject to the review and advisement of the finance committee. Emilie Buchwald Legacy Fund The Emilie Buchwald Legacy Fund, a board-designated fund, is used to perpetuate Emilie Buchwald s legacy of excellence at Milkweed Editions and guarantees successful transition from the active participation of its Founder to the next generation of leadership. The board of directors from time-to-time sets rules and policies for distribution and use of the Emilie Buchwald Legacy Fund as well as for investment of the funds. During the transition period, the board policies provide Milkweed with the ability to borrow from the fund interest-free with all loans to be repaid within two years. Following the transition period, the board policies provide that the funds in the Emilie Buchwald Legacy Fund will be set aside as a boarddesignated endowment fund. As of December 31, 2016, there was an internal loan of $131,563. As of December 31, 2017, the board of directors voted to remove the restriction on the Emilie Buchwald Legacy Fund. Therefore, this is no longer a board-designated fund. NOTE 8 RESTRICTED NET ASSETS Temporarily Restricted Temporarily restricted net assets consist of the following as of December 31: Restricted to Purpose: Underwriting for Future Books $ 45,000 $ 67,000 Max Ritvo Poetry Prize 192,500 - Lindquist & Vennum Prize for Poetry 20,000 30,000 National Poetry Society 3,500 7,000 Subtotal 261, ,000 Restricted to Time 174, ,215 Total Temporarily Restricted Net Assets $ 435,255 $ 250,215 (13)

16 MILKWEED EDITIONS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2017 (WITH SUMMARIZED INFORMATION AS OF DECEMBER 31, 2016) NOTE 8 RESTRICTED NET ASSETS (CONTINUED) Net Assets Released from Restrictions Time Restrictions $ 376,643 $ 335,373 Purpose Restriction 78,000 60,482 Total Net Assets Released from Restrictions $ 454,643 $ 395,855 Unrestricted Board-Designated and Permanently Restricted Net Assets Milkweed has board-designated and donor-restricted funds established for the purpose of providing an operating cash reserve. As required by accounting principles generally accepted in the United States of America, these net assets are classified and reported based on the existence or absence of donor-imposed restrictions. The board of directors of Milkweed has interpreted the State s Uniform Prudent Management of Institutional Funds Act (UPMIFA) as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted funds, absent explicit donor stipulations to the contrary. As a result of this interpretation, Milkweed classifies as permanently restricted net assets the original value of gifts for this purpose and the value of any subsequent gifts. The remaining portion of the donor-restricted net assets that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the organization in a manner consistent with the standard of prudence prescribed by UPMIFA. The organization considered all amounts earned on the permanently restricted net assets to be appropriated for current use. Milkweed has adopted an investment policy to provide guidelines for investing assets. Under this policy, as approved by the finance committee of the board of directors, the assets are invested in a manner that is intended to protect the principal balance, manage cash flow to meet all expected and unexpected future funding requirements, and maximize return with minimal risk. To achieve these objectives and adhere to donor-imposed restrictions, Milkweed invests its assets in certificates of deposits with maturities of 18 months or less, money market funds and other readily available liquid assets. The net assets and activity for 2017 and 2016 consisted of the following: 2017 Temporarily Permanently Unrestricted Restricted Restricted Total Restricted Net Assets - Beginning of Year $ 131,563 $ - $ 225,000 $ 356,563 Investment Income (449) Contributions Appropriation for Expenditure (131,114) (449) - (131,563) Restricted Net Assets - End of Year $ - $ - $ 225,000 $ 225, Temporarily Permanently Unrestricted Restricted Restricted Total Restricted Net Assets - Beginning of Year $ 130,965 $ - $ 225,000 $ 355,965 Investment Income Contributions Appropriation for Expenditure - (307) - (307) Restricted Net Assets - End of Year $ 131,563 $ - $ 225,000 $ 356,563 (14)

17 MILKWEED EDITIONS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2017 (WITH SUMMARIZED INFORMATION AS OF DECEMBER 31, 2016) NOTE 9 LEASED EQUIPMENT AND FACILITIES Milkweed leases space in the Open Book Building. As a founding tenant of Open Book, Milkweed is entitled to name two members to the board of directors of that entity. Milkweed signed a 10-year lease agreement beginning January 1, 2014, and expiring December 31, The lease was amended on December 11, 2015, to increase the amount of square footage for the bookstore that opened in September Milkweed entered into an operating lease agreement with Pitney Bowes for a postage machine beginning January The lease has a 63-month term and expires March 31, Rent expense was $-0- for the year ended December 31, Milkweed also leases certain office equipment under noncancelable leases. The leases have been capitalized and included in equipment. The cost of equipment under the capital leases is $17,231 at December 31, Accumulated depreciation is $17,231 at December 31, The related amortization expense is included with depreciation expense. Future minimum lease payments are as follows: Year Ending December 31, Amount 2018 $ 11, , , , ,356 Thereafter 8,652 Total Minimum Lease Payments $ 64,680 The rental expense for the years ended December 31, 2017 and 2016 was $48,852 and $47,631, respectively. NOTE 10 COST OF GOODS SOLD The following is the calculation of cost of goods sold, reflected on the statement of functional expense, for the years ended December 31: Inventory - Beginning of Year $ 430,219 $ 384,664 Purchases (Including Obsolescence Reserve Adjustment) 346, ,882 Goods Available for Sale 776, ,546 Sales Returns/Deferred Cost of Sales Adjustment 71,240 (14,945) Free Books (23,664) (16,704) Inventory - End of Year (350,389) (430,219) Cost of Goods Sold $ 473,524 $ 357,678 (15)

18 MILKWEED EDITIONS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2017 (WITH SUMMARIZED INFORMATION AS OF DECEMBER 31, 2016) NOTE 11 IN-KIND CONTRIBUTIONS Milkweed records in-kind contributions at fair market value at the date of donation. In-kind contributions include the following for the years ended December 31: Salaries - Interns at $14.00 Per Hour $ 60,480 $ 74,367 NOTE 12 RELATED PARTIES Members of Milkweed s board of directors have made contributions to the organization. These amounts are included in contributions in the amount of $97,465 and $47,656 at December 31, 2017 and 2016, respectively. As of December 31, 2017 and 2016, $22,750 and $42,750, respectively, were outstanding on pledges made by members of the board of directors. NOTE 13 COMMITMENTS The Organization, in the normal course of business, provides advances to authors for future publications. The amounts due for future advances, which are not recorded as a liability until certain performance measures take place, were $127,725 at December 31, NOTE 14 BOOKSTORE The Organization opened a bookstore in September 2016 at the Milkweed Editions location in Minneapolis. The bookstore has revenue related to book sales and expenses related to COGS, salaries, benefits, and depreciation for leasehold improvements. Bookstore revenues are included with Book Sales on the statement of activities. All expenses are included in the allocation of expenses on the statement of activities. Bookstore activity is as follows for the year ended December 31, 2017 and the four months ended December 31, 2016: (12 Months) (4 Months) Bookstore Revenues $ 128,373 $ 39,281 COGS 74,003 26,209 Gross Profit 54,370 13,072 Expenses: Salary Expense 75,835 28,213 Payroll Taxes and Benefits 7,130 6,814 Depreciation Expense 11,945 1,991 Occupancy 8,400 2,813 Other Expenses 5,829 - Total Expenses 103,310 39,831 Net Bookstore Activity $ (48,940) $ (26,759) (16)

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