MILKWEED EDITIONS, INC. FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016

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1 MILKWEED EDITIONS, INC. FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016

2 MILKWEED EDITIONS, INC. TABLE OF CONTENTS YEAR ENDED DECEMBER 31, 2016 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, 2016, 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, 2016, 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 the Milkweed Editions, Inc.'s 2015 financial statements, and we expressed an unmodified audit opinion on those financial statements in our report dated May 4, In our opinion, the summarized comparative information presented herein as of and for the year ended December 31, 2015, is consistent, in all material respects, with the audited financial statements from which it has been derived. CliftonLarsonAllen LLP Minneapolis, Minnesota May 3, 2017 (2)

5 MILKWEED EDITIONS, INC. BALANCE SHEET DECEMBER 31, 2016 (WITH SUMMARIZED INFORMATION AS OF DECEMBER 31, 2015) ASSETS CURRENT ASSETS Cash $ 247,592 $ 358,972 Accounts Receivable 464, ,998 Grants and Contributions Receivable - Net 218, ,639 Royalty Advances - Net 245, ,994 Inventory - Net 430, ,664 Investments 206, ,023 Prepaid Expense 22,826 15,250 Total Current Assets 1,835,051 1,785,540 LONG-TERM ASSETS Equipment - Net 329,911 61,696 Grants and Contributions Receivable 9,013 60,136 Total Long-Term Assets 338, ,832 Total Assets $ 2,173,975 $ 1,907,372 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Current Maturities of Capital Lease Obligation $ 4,210 $ 4,032 Accounts Payable 111,810 56,128 Accrued Royalties 174, ,733 Sales Return Reserve 61,023 46,001 Sales Tax Payable 1,619 1,254 Accrued Salaries Payable 39,409 22,358 Line of Credit 97,000 - Total Current Liabilities 489, ,506 LONG-TERM LIABILITIES Capital Lease Obligation - 3,816 Total Liabilities 489, ,322 NET ASSETS Unrestricted: Undesignated 574, ,254 Board Designated - Author Advance Fund 502, ,638 Board Designated - Emilie Buchwald Legacy Fund 131, ,965 Total Unrestricted Net Assets 1,209,103 1,059,857 Temporarily Restricted 250, ,193 Permanently Restricted 225, ,000 Total Net Assets 1,684,318 1,656,050 Total Liabilities and Net Assets $ 2,173,975 $ 1,907,372 See accompanying Notes to Financial Statements. (3)

6 MILKWEED EDITIONS, INC. STATEMENT OF ACTIVITIES YEAR ENDED DECEMBER 31, 2016 (WITH SUMMARIZED INFORMATION FOR YEAR ENDED DECEMBER 31, 2015) Temporarily Permanently Unrestricted Restricted Restricted Total Total SUPPORT AND REVENUE Support: Contributions and Grants (Including In-Kind Contributions of $74,367 and $87,360 Respectively) $ 452,069 $ 64,725 $ - $ 516,794 $ 837,046 Special Events (Less Direct Benefits of $25,985 in 2016 and $31,570 in 2015) 57,732 20,700-78,432 70,188 Grants from Governmental Agencies - 189, ,452 75,123 Total Support 509, , , ,357 Revenue: Book Revenue (Net of Returns of $285,243 in 2016 and $226,358 in 2015) 1,027, ,027, ,961 Rights Income 13, ,879 19,046 Investment Income Miscellaneous Revenue (Refund) 4, ,820 39,258 Total Revenue 1,047, ,047, ,565 Net Assets Released from Restrictions: Temporarily Restricted Released 395,855 (395,855) Total Support and Revenue 1,952,979 (120,978) - 1,832,001 1,738,922 EXPENSE Editorial 273, , ,467 Production and Distribution 678, , ,742 Marketing and Book Promotion 405, , ,144 Management and General 183, , ,493 Fundraising 262, , ,898 Total Expense 1,803, ,803,733 1,589,744 CHANGE IN NET ASSETS 149,246 (120,978) - 28, ,178 Net Assets - Beginning of Year 1,059, , ,000 1,656,050 1,506,872 NET ASSETS - END OF YEAR $ 1,209,103 $ 250,215 $ 225,000 $ 1,684,318 $ 1,656,050 See accompanying Notes to Financial Statements. (4)

7 MILKWEED EDITIONS, INC. STATEMENT OF FUNCTIONAL EXPENSE YEAR ENDED DECEMBER 31, 2016 (WITH SUMMARIZED INFORMATION FOR YEAR ENDED DECEMBER 31, 2015) Production Marketing, Management Total Total and Promotion, and Fund- All All Editorial Distribution and Outreach General raising Services Services Salaries $ 146,993 $ - $ 133,747 $ 64,653 $ 137,877 $ 483,270 $ 348,620 Payroll Taxes 16,957-15,429 7,458 15,904 55,748 39,527 Employee Benefits 7,283-6,626 3,203 6,831 23,943 13,535 In-Kind Salaries 24,789-24,789-24,789 74,367 87,360 Total Personnel Costs 196, ,591 75, , , ,042 Cost of Goods Sold - 357, , ,408 Distribution - 164, , ,244 Royalty Expense - 148, , ,088 Professional Fees ,651 62,720 1,653 87, ,573 Outside Editorial Services ,178 1,101 Supplies/Printing 8,885-8,084 3,908 8,333 29,210 27,064 Telephone ,219 2,071 Postage and Shipping ,939 11, ,275 16,437 Occupancy 14,488-13,182 6,372 13,589 47,631 42,674 Equipment Rental and Maintenance 7,114-6,472 3,129 6,672 23,387 19,545 Insurance 3,947-3,592 1,736 3,703 12,978 7,340 Travel 10, , ,458 41,992 32,250 Trade Show Expense - - 6,105 7,500-13,605 14,522 Advertising and Promotions 1,011 3,294 76, ,058 82, ,444 Prizes for Authors 11, ,253 10,053 Galleys - - 6, ,805 4,023 Special Events ,394 18,394 19,903 Free Books ,875-3,247 16,704 13,970 Employee Training ,790 Interest Expense ,879-2, Dues and Subscriptions 1,157 3,871 3, ,659 10,998 6,006 Bad Debt Expense ,790 Miscellaneous 4,880-4,440 2,146 4,577 16,043 11,765 Total Expense Before Depreciation 262, , , , ,054 1,767,563 1,567,741 Depreciation 11,002-10,010 4,839 10,319 36,170 22,003 Total Expense $ 273,148 $ 678,979 $ 405,509 $ 183,724 $ 262,373 $ 1,803,733 $ 1,589,744 See accompanying Notes to Financial Statements. (5)

8 MILKWEED EDITIONS, INC. STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2016 (WITH SUMMARIZED INFORMATION FOR YEAR ENDED DECEMBER 31, 2015) RECONCILIATION OF CHANGE IN NET ASSETS TO NET CASH PROVIDED BY OPERATING ACTIVITIES Change in Net Assets $ 28,268 $ 149,178 Adjustments to Reconcile Change in Net Assets to Net Cash Provided by Operating Activities: Depreciation 36,170 22,003 Change in Royalty Advances Reserve (4,315) (23,481) Change in Sales Return Reserve 15,022 4,408 Change in Reserve for Obsolete Inventory 12,187 84,019 (Increase) Decrease in Current Assets: Accounts Receivable (162,489) (27,823) Grants Receivable 139,512 4,425 Royalty Advances (29,038) 71,522 Inventory (57,742) (87,714) Prepaid Expenses (7,576) 2,237 Increase (Decrease) in Current Liabilities: Accounts Payable 55,682 (58,568) Accrued Royalties 56,853 - Sales Tax Payable Accrued Salaries Payable 17,051 (3,093) Net Cash Provided by Operating Activities 99, ,850 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of Short-Term Investments (307) (272) Purchase of Equipment (304,385) (17,574) Net Cash Used by Investing Activities (304,692) (17,846) CASH FLOWS FROM FINANCING ACTIVITIES Line of Credit Advances 97,000 - Payments on Capital Lease Obligations (3,638) (3,414) Net Cash Provided (Used) by Financing Activities 93,362 (3,414) NET INCREASE (DECREASE) IN CASH (111,380) 116,590 Cash - Beginning of Year 358, ,382 CASH - END OF YEAR $ 247,592 $ 358,972 See accompanying Notes to Financial Statements. (6)

9 MILKWEED EDITIONS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 (WITH SUMMARIZED INFORMATION AS OF DECEMBER 31, 2015) 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. 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. At times during the year, cash in bank exceeded FDIC insured limits. (7)

10 MILKWEED EDITIONS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 (WITH SUMMARIZED INFORMATION AS OF DECEMBER 31, 2015) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. At December 31, 2016 and 2015, the allowance for doubtful accounts receivable was $-0-. 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 an average cost 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 $335,751 and $323,564 at December 31, 2016 and 2015, 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 $ 132,263 $ 102,296 Less: Return of Books to Inventory (71,240) (56,295) Sales Return Reserve $ 61,023 $ 46,001 (8)

11 MILKWEED EDITIONS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 (WITH SUMMARIZED INFORMATION AS OF DECEMBER 31, 2015) 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 $193,236 and $188,921 at December 31, 2016 and 2015, 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, 2016 (WITH SUMMARIZED INFORMATION AS OF DECEMBER 31, 2015) 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 $31,149 and $18,061 for the years ended December 31, 2016 and 2015, respectively. Shipping and Handling Costs Shipping and handling costs are charged to operations as they are incurred. Shipping and handling expense was $31,079 and $16,329 for the years ended December 31, 2016 and 2015, 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, 2015, from which the summarized information was derived. Estimates Management uses estimates and assumptions in preparing financial statements in accordance with U.S. generally accepted accounting principles. 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 May 3, 2017, the date the financial statements were available to be issued. (10)

13 MILKWEED EDITIONS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 (WITH SUMMARIZED INFORMATION AS OF DECEMBER 31, 2015) NOTE 2 SIGNIFICANT CONCENTRATIONS OF CREDIT RISK 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, 2016 and 2015, the distributor was responsible for $909,265 and $630,740, respectively, of net sales. At December 31, 2016 and 2015, gross accounts receivable of $440,148 and $292,038, respectively, were due from the distributor. The grants and contributions receivable are due from individuals, corporations, and foundations. At December 31, 2016, three contributors accounted for 50% of the Grants and Contributions Receivable balance and, at December 31, 2015, four contributors accounted for 54% of the Grants and Contributions Receivable balance. NOTE 3 GRANTS AND CONTRIBUTIONS RECEIVABLE At December 31, 2016 and 2015, Milkweed s grants and contributions receivable consisted of the following: Grants and Contributions Due Within One Year $ 218,250 $ 306,639 Grants and Contributions Due Within One to Five Years 39,500 91,500 Total Gross Pledges 257, ,139 Less: Discounted to Net Present Value at 5% in 2016 and 2015 (1,975) (4,539) Less: Reserve for Uncollectible Pledges and Grants (28,512) (26,825) Net Grants and Contributions $ 227,263 $ 366,775 NOTE 4 EQUIPMENT AND LEASEHOLD IMPROVEMENTS Milkweed owns the following assets as of December 31: Website $ 206,400 $ 10,000 Furniture and Equipment 217, ,744 Leasehold Improvements 83,616 $ 8,127 Accumulated Depreciation (177,345) (141,175) Total Equipment $ 329,911 $ 61,696 Depreciation expense of $36,170 and $22,003 was recorded for the years ended December 31, 2016 and 2015, respectively. (11)

14 MILKWEED EDITIONS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 (WITH SUMMARIZED INFORMATION AS OF DECEMBER 31, 2015) 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, 2016), with a minimum rate of 4.25%. There was an outstanding balance on the line of credit of $97,000 and -$0- as of December 31, 2016 and 2015, 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, 2016 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, 2016 and 2015, the AAF s balance was $502,638 and $412,638, respectively. As of December 31, 2016, $40,000 of advances have been paid with funds drawn from the AAF. Below is the AAF activity and balances for December 31: 2015 Activity 2016 Contributions Receivable $ 412,638 $ 90,000 $ 502,638 Royalty Advances - 40,000 40,000 FUND BALANCE Contributions Receivable Balance 66,535 (51,000) 15,535 Cash Balance 346, , ,103 Royalty Advance Balance - 40,000 40,000 NET ASSET $ 412,638 $ 90,000 $ 502,638 (12)

15 MILKWEED EDITIONS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 (WITH SUMMARIZED INFORMATION AS OF DECEMBER 31, 2015) NOTE 7 UNRESTRICTED BOARD DESIGNATED NET ASSETS (CONTINUED) Author Advance Fund (Continued) The Author Advance Fund (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 31st 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 Board Designated Endowment Fund. As of December 31, 2016 there was an internal loan of $131,563 and as of December 31, 2015, there was no outstanding loans from the 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 $ 67,000 $ 26,482 VSA - 15,000 Lindquist & Vennum Prize for Poetry 30,000 60,000 National Poetry Society 7,000 - Subtotal 104, ,482 Restricted to Time 146, ,711 Total Temporarily Restricted Net Assets $ 250,215 $ 371,193 (13)

16 MILKWEED EDITIONS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 (WITH SUMMARIZED INFORMATION AS OF DECEMBER 31, 2015) NOTE 8 RESTRICTED NET ASSETS (CONTINUED) Net Assets Released from Restrictions Time Restrictions $ 335,373 $ 290,286 Purpose Restriction 60,482 79,308 Total Net Assets Released from Restrictions $ 395,855 $ 369,594 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 U.S. generally accepted accounting principles, 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 donorrestricted 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 2016 and 2015 consisted of the following: 2016 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, 2016 (WITH SUMMARIZED INFORMATION AS OF DECEMBER 31, 2015) NOTE 8 RESTRICTED NET ASSETS (CONTINUED) 2015 Temporarily Permanently Unrestricted Restricted Restricted Total Restricted Net Assets, Beginning of Year $ 130,937 $ - $ 225,000 $ 355,937 Investment Income Contributions Appropriation for Expenditure - (272) - (272) Restricted Net Assets, End of Year $ 130,965 $ - $ 225,000 $ 355,965 Permanently restricted net assets consist of assets to be held indefinitely as a cash reserve in accordance with donor restrictions. As of December 31, 2016 there was an internal loan of $225,000 and as of December 31, 2015, there was an internal loan of $120,925. NOTE 9 CASH RESERVE FUND The cash reserve fund consists of the following as of December 31: ASSETS Internal Borrowing $ 225,000 $ 120,925 Investments - 104,075 Total Assets $ 225,000 $ 225,000 LIABILITIES AND NET ASSETS Permanently Restricted Net Assets $ 225,000 $ 225,000 The cash reserve fund was established through a permanently restricted contribution which requires the restoration of cash, cash equivalents or marketable securities within two years of the original internal borrowing. All earnings on the cash reserve fund are considered unrestricted. (15)

18 MILKWEED EDITIONS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 (WITH SUMMARIZED INFORMATION AS OF DECEMBER 31, 2015) NOTE 10 LEASED 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 Future minimum lease payments under the new lease are as follows: Year Ending December 31, Amount 2017 $ 7, , , , ,531 Thereafter 15,345 Total Minimum Lease Payments $ 52,342 The rental expense for the years ended December 31, 2016 and 2015 was $47,631 and $42,674, respectively. NOTE 11 LEASED EQUIPMENT Milkweed entered into an operating lease agreement for a postage machine beginning October The lease has a 60-month term and expired September 30, Rent expense was $2,832 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 $13,784 at December 31, The related amortization expense is included with depreciation expense. The following is a schedule of future minimum lease payments at December 31, 2016: Year Ending December 31, Amount 2017 $ 4,388 Total Lease Payments 4,388 Less: Imputed Interest (178) Present Value of Minimum Lease Payments 4,210 Less: Current Portion (4,210) Long-Term Portion $ - (16)

19 MILKWEED EDITIONS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 (WITH SUMMARIZED INFORMATION AS OF DECEMBER 31, 2015) NOTE 12 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: Beginning Inventory $ 384,664 $ 380,969 Purchases (Including Obsolescence Reserve Adjustment) 434, ,512 Goods Available for Sale 819, ,481 Sales Returns/Deferred Cost of Sales Adjustment (14,945) (6,439) Free Books (16,704) (13,970) Ending Inventory (430,219) (384,664) Cost of Goods Sold $ 357,678 $ 305,408 NOTE 13 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 $ 74,367 $ 87,360 NOTE 14 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 $47,656 and $286,000 at December 31, 2016 and 2015, respectively. As of December 31, 2016 and 2015, $42,750 and $111,443, respectively, were outstanding on pledges made by members of the board of directors. NOTE 15 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 $89,500 at December 31, (17)

20 MILKWEED EDITIONS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 (WITH SUMMARIZED INFORMATION AS OF DECEMBER 31, 2015) NOTE 16 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, 2016: 2016 Bookstore Revenues $ 39,281 COGS 26,209 Gross Profit 13,072 Expenses: Salary Expense 28,213 Payroll Taxes and Benefits 6,814 Depreciation Expense 1,991 Occupancy 2,813 Total Expenses 39,831 Net Bookstore Activity $ (26,759) (18)

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