MOUNTAIN LAKE PUBLIC TELECOMMUNICATIONS COUNCIL AND AFFILIATE COMBINED FINANCIAL STATEMENTS JUNE 30, 2017 AND 2016

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1 MOUNTAIN LAKE PUBLIC TELECOMMUNICATIONS COUNCIL AND AFFILIATE COMBINED FINANCIAL STATEMENTS JMM & ASSOCIATES CERTIFIED PUBLIC ACCOUNTANTS

2 MOUNTAIN LAKE PUBLIC TELECOMMUNICATIONS COUNCIL AND AFFILIATE COMBINED FINANCIAL STATEMENTS

3 TABLE OF CONTENTS Page Independent Auditor's Report 1-2 Financial Statements: Statements of Financial Position 3-4 Statements of Activities 5-6 Statement of Functional Expenses 7-8 Statements of Cash Flows 9-10 Notes to Financial Statements 11-20

4 VT License # INDEPENDENT AUDITOR'S REPORT To the Board of Directors of Mountain Lake Public Telecommunications Councn and Affiliate One Sesame Street Plattsburgh, New York We have audited the accompanying combined financial statements of Mountain Lake Public Telecommunications Council (a New York Nonprofit Corporation) and Affiliate, which comprise the combined statements of financial position as of June 30, 2017 and 2016, and the related combined statements of activities and cash flows for the years then ended, the statement of functional expenses for the year ended June 30, 2017, and the related notes to the combined financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these combined 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. Auditor's Responsibility Our responsibility is to express an opinion on these combined financial statements based on our audits. We did not audit the financial statements of Canadian Friends of WCFE-TV 57, an affiliate, which statements reflect total assets constituting $53,185 and $154,119 as of June 30, 2017 and 2016, respectively, and revenues constituting. $299,615 and $421,181, respectively, for the years then ended. Those statements were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to the amounts included for Canadian Friends of WCFE-TV 57, is based solely on the report of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the combined financial statements are free from material misstatement. JMM & ASSOCIATES CERTIFIED PUBLIC ACCOUNTANTS 336 Water Tower Circle, Suite 801 Colchester, VT FAX:

5 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the combined 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 combined 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 combined financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, based on our audits and the. reports of other auditors, the combined financial statements referred to above present fairly, in all material respects, the financial position of Mountain Lake Public Telecommunications Council and Affiliate as of June 30, 2017 and 2016, and the changes in their net assets and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. November 1, 2017

6 STATEMENTS OF FINANCIAL POSITION ASSETS CURRENT ASSETS Cash Pledges receivable, net Grants receivable Other receivables Prepaid expenses Broadcast contract rights, net $ ,361 31,370 10,000 74,201 85,260 22, (As restated) $ 205,310 41,297 6,414 92,940 73,433 20,864 TOTAL CURRENT ASSETS 312, ,258 PROPERTY AND EQUIPMENT, net 2,131,584 2,504,237 OTHER ASSETS Beneficial interest in Adirondack Foundation Investment in Centralcast, LLC 55, ,436 48, ,059 TOTAL OTHER ASSETS 536, ,117 TOTAL ASSETS $ 2,980,791 $ 3,491,612 See accompanying notes

7 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Current portion of long-term debt Line of credit Accounts payable Accrued payroll and related expenses Accrued compensated absences Deferred revenue $ , , ,402 27,020 48,280 19, (As restated) $ 19, ,259 31,794 53,629 19,949 TOTAL CURRENT LIABILITIES 725, ,631 LONG-TERM DEBT, net of current portion 795, ,776 TOTAL LIABILITIES 1,520,227 1,490,407 NET ASSETS Unrestricted: Net investment in property and equipment Other Total unrestricted net assets Temporarily restricted Permanently restricted 1,312,359 (293,685) 1,018, ,677 9,213 1,663,461 (114,961) 1,548, ,092 8,613 TOTAL NET ASSETS 1,460,564 2,001,205 TOTAL LIABILITIES AND NET ASSETS $ 2,980,791 $ 3,491,612 See accompanying notes. -4-

8 STATEMENTS OF ACTIVITIES FOR THE YEARS ENDED (As restated) CHANGE IN UNRESTRICTED NET ASSETS SUPPORT AND REVENUE Government grants - operating $ 1,448,754 $ 1,467,263 Program grants 24, ,465 Local program underwriting 41,067 87,000 Local community support 608, ,995 Underwriting and other support 93, ,068 Rental income 138, ,784 In-kind revenue 54,493 86,548 Miscellaneous income 45, ,460 Production services 7,950 5,000 Loss on foreign exchange (3,093) (1,116) 2,459,027 2,925,467 Net assets released from restrictions - program grants 60,832 TOTAL SUPPORT AND REVENUE 2,459,027 2,986,299 EXPENSES Program services: Programming 874, ,355 Production 569, ,889 Educational services 75,188 86,917 Broadcast engineering 310, ,935 Public information 113, ,463 Total program services 1,943,279 2,314,559 Support services: General and administrative 493, ,199 Development 553, ,113 Total support services 1,046,189 1,291,312 TOTAL EXPENSES 2,989,468 3,605,871 OPERATING LOSS (530,441) (619,572) NON-OPERATING INCOME Unrealized gain on investments TOTAL NON-OPERATING INCOME CHANGE IN UNRESTRICTED NET ASSETS (forward) $ (529,826) $ (618,977) See accompanying notes. - 5-

9 --~ MOUNTAIN LAKE PUBLIC TELECOMMUNICATIONS COUNCIL AND AFFILIATE STATEMENTS OF ACTIVITIES (CONTINUED) FOR THE YEARS ENDED (As restated) CHANGE IN UNRESTRICTED NET ASSETS (forwarded) $ (529,826) $ (618,977) BEGINNING UNRESTRICTED NET ASSETS -AS PREVIOUSLY REPORTED 2,218,408 Prior period restatement- change in membership revenue (50,931) BEGINNING UNRESTRICTED NET ASSETS- AS RESTATED 1,548,500 2,167,477 ENDING UNRESTRICTED NET ASSETS $ 1,018,674 $ 1,548,500 CHANGE IN TEMPORARILY RESTRICTED NET ASSETS SUPPORT AND REVENUE Contributions $ 294 $ 313 Loss on investment in Centralcast, LLC (18,623). (68,948) Net gain (loss) on endowment fund 6,914 (2,393) Net assets released from restrictions - program grants (60,832) TOTAL SUPPORT AND REVENUE (11,415) (131,860) CHANGE IN TEMPORARILY RESTRICTED NET ASSETS (11,415) (131,860) BEGINNING TEMPORARILY RESTRICTED NET ASSETS 444, ,952 ENDING TEMPORARILY RESTRICTED NET ASSETS $ 432,677 $ 444,092 CHANGE IN PERMANENTLY RESTRICTED NET ASSETS SUPPORT AND REVENUE Contributions $ 600 $ 800 CHANGE IN PERMANENTLY RESTRICTED NET ASSETS BEGINNING PERMANENTLY RESTRICTED NET ASSETS 8,613 7,813 ENDING PERMANENTLY RESTRICTED NET ASSETS $ 9,213 $ 8,613 TOTAL CHANGE IN NET ASSETS $ (540,641) $ (750,037) See accompanying notes. -6-

10 MOUNTAIN LAKE PUBLIC TELECOMMUNICATIONS COUNCIL AND AFFILIATE STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED JUNE 30, 2017 (WITH COMPARATIVE TOTALS FOR 2016) Educational Programming Production Services Broadcast Engineering Public Information Salaries and wages Payroll taxes and benefits $ 119,278 $ 186,860 $ 24,968 34,797 45,178 4,169 $ 55,778 17,857 $ 65,441 13,038 Subtotal- Personnel 154, ,038 29,137 73,635 78,479 Program acquisition Depreciation and amortization Contracted services Legal and accounting Interest expense Premium expense Repairs and maintenance Insurance - general Occupancy Postage and shipping Donated in-kind Telephone Dues and subscriptions Bank fees Travel and conferences Infrastructure fees Electric and utilities Equipment rental Underwriting expense Miscellaneous Supplies Telemarketing Bad debt expense Printing Advertising 513,544 9, ,725 1, ,370 42,990 36,212 13,170 21,124 2,469 9,664 16,103 1, ,048 2, , , , , , ,108 2, ,934 4,116 50,937 3, ,083 19, ,276 24,488 15, ,184 5,762 4,220 18, , TOTAL EXPENSES $ 874,366 $ 569,061 $ 75,188 $ 310,845 $ 113,819 See accompanying notes

11 2016 Total Program General & 2017 Total Services Administrative Development Total (As restated) Salaries and wages $ 452,325 $ 182,180 $ 186,654 $ 821 '159 $ 985,463 Payroll taxes and benefits 115,039 45,548 36, , ,654 Subtotal - Personnel 567, , ,300 1,018,392 1,231 '117 Program acquisition 513, , ,160 Depreciation and amortization 367,199 9,948 16, , ,610 Contracted services 221,572 19,688 7, , ,387 Legal and accounting 85,939 85,939 87,290 Interest expense 46,641 13,157 22,225 82,023 66,262 Premium expense 76,234 76,234 91,952 Repairs and maintenance 50,937 7,090 8,485 66,512 66,543 Insurance - general 65,356 65,356 70,545 Occupancy 35,257 9,799 16,377 61,433 63,318 Postage and shipping ,611 55, ,385 Donated in-kind 30,521 1,234 22,739 54,494 86,698 Telephone 22, ,844 52,190 53,694 Dues and subscriptions 2,817 30,535 1,058 34,410 37,163 Bank fees 356 4,810 23,809 28,975 35,820 Travel and conferences 6,178 10,302 10,126 26,606 62,720 Infrastructure fees 25,000 25,000 25,000 Electric and utilities 24,488 24,488 27,153 Equipment rental 16,285 3,130 1,838 21,253 23,058 Underwriting expense 18,655 18,655 15,440 Miscellaneous 5,912 1,293 3,266 10,471 20,655 Supplies 5,128 1,510 3, ,049 16,965 Telemarketing 9,377 9,377 23,087 Bad debt expense 5,048 5,048 1,043 Printing ,708 Advertising ,098 TOTAL EXPENSES $ 1,943,279 $ 493,092 $ 553,097 $ 2,989,468 $ 3,605,871 See accompanying notes

12 MOUNTAIN LAKE PUBLIC TELECOMMUNICATIONS COUNCIL AND AFFILIATE STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30,2017 AND (As restated) CASH FLOWS FROM OPERATING ACTIVITIES Cash received from grants $ 1,510,807 $ 1,717,049 Cash received from contributions 711, ,137 Other operating receipts 199, ,933 Cash received for services 7,950 5,000 Cash paid for salaries and benefits (1,028,515) (1,216,078) Cash paid to suppliers for goods and services (1,597,839) (1,575,577) Cash paid for interest (82,023) (66,262) NET CASH USED BY OPERATING ACTIVITIES (278,518) (11,798) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (20,880) (28, 115) Capital contribution - Centralcast, LLC (10,787) NET CASH USED BY INVESTING ACTIVITIES (20,880) (38,902) CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings on line of credit 205, ,000 Principal payments on long-term debt (21,551) (29,910) NET CASH PROVIDED BY FINANCING ACTIVITIES 183,449 90,090 INCREASE (DECREASE) IN CASH (115,949) 39,390 BEGINNING CASH AND CASH EQUIVALENTS 205, ,920 ENDING CASH AND CASH EQUIVALENTS $ 89,361 $ 205,310 See accompanying notes

13 STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED JUNE 30,2017 AND 2016 RECONCILIATION OF CHANGE IN NET ASSETS TO NET CASH USED BY OPERATING ACTIVITIES (As restated) Change in net assets $ (540,641) $ (750,037) Adjustments to reconcile change in net assets to net cash used by operating activities: Depreciation and amortization 393, ,610 Unrealized (gain) loss (7,528) 3,061 Net loss from Centralcast, LLC 18,623 68,948 Restricted for capital grants and endowment (1,113) (Increase) decrease in: Pledges receivable 9,927 (11,731) Grants receivable (3,586) 8,786 Other receivables 18,739 (40,195) Prepaid expenses (11,827) (4,416) Broadcast contract rights (1,880) 5,210 Increase (decrease) in: Accounts payable (142,857) 287,505 Accrued payroll and related expenses (4,774) 3,754 Accrued compensated absences (5,349) 11,285 Deferred revenue (649) (1 0,465) Total adjustments 262, ,239 NET CASH USED BY OPERATING ACTIVITIES $ (278,518) $ (11,798) See accompanying notes

14 NOTES TO FINANCIAL STATEMENTS 1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES Summary of operations Mountain Lake Public Telecommunications Council and Affiliate (the Council), formerly known as Northeast New York Public Telecommunications Council, Inc., is a nonprofit corporation organized under the Education Law of the State of New York for the purpose of providing educational services. The Council obtains its revenue principally from federal and state grants, public contributions and underwriting contracts with area businesses. Principles of combination The, combined financial statements include the accounts of Mountain Lake Public Telecommunications Council and its affiliated friends organization, Canadian Friends of WCFE-TV 57. All significant intercompany accounts and transactions have been eliminated in consolidation. Basis of presentation The Council is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets and permanently restricted net assets. Cash and cash equivalents For. purposes of reporting the Statements of Cash Flows, the Council considers all highly-liquid investments purchased with a maturity of three months or less to be cash equivalents. The Council maintains its cash and investments in banks and investment firms. Accounts at each bank are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor. Amounts on deposit in excess of the FDIC limit were $0 as of June 30, 2017 and Recognition of donor restrictions Support that is restricted by the donor is reported as an increase in unrestricted net assets if the restriction expires in the reporting period in which the support is recognized. All other 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, temporarily restricted net assets are reclassified to unrestricted net assets. Foreign currency translation Translation of Canadian currency amounts for the Canadian affiliate that operates in a local currency environment is performed as follows: assets and liabilities are translated to U.S. dollars at year-end exchange rates. Income and expense items are translated at average rates of exchange prevailing during the year. Translation gain or loss is included in the Statements of Activities

15 MOUNTAIN LAKE PUBLIC TELECOMMUNICATIONS COUNCIL AND AFFILIATE NOTES TO FINANCIAL STATEMENTS 1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (continued) Property and equipment Property and equipment is stated at cost. The cost of maintenance and repairs is charged to expense as incurred; renewals and betterments costing greater than $1,000 are capitalized. Donated furniture and equipment with a fair value greater than $1,000 at the date of the gift is similarly capitalized. Depreciation is computed by the straight-line method over the estimated useful lives of the underlying asset. Depreciation and amortization expenses were $393,284 and $417,610 for the years ended June 30, 2017 and 2016, respectively. I nco me taxes The Council is exempt from income taxes under Section 501 (c)(3) of the Internal Revenue Code. However, income from certain activities not directly related to the Council's tax-exempt purpose is subject to taxation as unrelated business income, as defined by Section 509(a)(1) of the Code. The Council generates unrelated business tax from the net income of its production services and tower rental activities. The Council has available a net operating loss carryforward of $29,820 to offset future unrelated business taxable income. The Council does not believe there are any material uncertain tax positions and, accordingly, it will not recognize any tax liability for unrecognized tax benefits. No interest or penalties were accrued as a result of the adoption of this new accounting standard. Functional allocation of expenses The costs of providing the various programs and other activities have been summarized on a functional basis in the Statements of Activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Accounts and pledges receivable Accounts receivable are stated at unpaid balances, less an allowance for doubtful accounts. The Council provides for losses on accounts receivable using the allowance method. The allowance method is based on experience, third party contracts and other circumstances which may affect the ability of third parties to meet their obligations. Receivables are considered impaired if full principal payments are not received in accordance with contractual terms. It is the Council's policy to charge off uncollectible accounts receivable when management determines the receivable will not be collected. -12-

16 NOTES TO FINANCIAL STATEMENTS 1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (continued) Accounts and pledges receivable (continued) Effective for 2017, the Council changed its policy for recognition of sustaining membership revenue. Previously, sustaining membership revenue was amortized over a 12-month period. Under the new policy, the Council will recognize sustaining membership revenue on a cash basis. This change in accounting policy required a prior period restatement. Reclassifications Certain amounts in the financial statements for 2016 have been restated to provide an improved comparison to Advertising The Council expenses advertising costs as they are incurred. Advertising expenses were $628 and $3,098 for the years ended June 30, 2017 and 2016, respectively. Donated services and materials The Council receives noncash contributions in the form of volunteers performing duties to support activities. No amounts have been reflected in the statements for donated services as no objective basis is available to measure the value of such services. In-kind donations are recorded as revenue and expense in the accompanying Statements of Activities or as additions to assets in the Statements of Financial Position. Broadcast contract rights Broadcast contract rights relate to programs that will be aired principally in the next fiscal year. Broadcast contract rights purchased by the Council are amortized on a straight-line method over the periods of their expected usage. Unexpired broadcast contract rights were $39,180 and $40,330 at June 30, 2017 and 2016, respectively, with accumulated amortization of $16,436 and $19,466 for those respective years. Amortization is recorded in program acquisition expense

17 NOTES TO FINANCIAL STATEMENTS 2) PLEDGES RECEIVABLE Unconditional promises to give are as follows as of June 30: (As restated) Pledges receivable within one year $ Less allowance for uncollectible pledges $ 39,212 $ (7,842) 31,370 $ 42,557 (1,260) 41,297 Bad debt expense related to pledges receivable was $5,048 and $1,043 for the years ended June 30, 2017 and 2016, respectively. 3) OTHER RECEIVABLES Other receivables consist of amounts due for underwriting, rent and other items as of June 30: Other receivables $ 74,201 $ 92,940 Due to the underlying amounts, no allowance for uncollectible accounts is considered necessary. 4) PROPERTY AND EQUIPMENT Property and equipment consists of the following at June 30: Land $ 53,511 $ 53,511 Land improvements 109, ,373 Studio building 1,460,731 1,460,731 Antenna, tower and power lines 1,789,462 1,789,462 Transmitter building 57,678 57,678 Transmitter and equipment 842, ,242 Studio and technical equipment 2,877,197 2,877,197 Vehicles 121, ,037 Information systems 50,657 50,657 Translator 90,440 90,440 Furniture and fixtures 252, ,951 7,705,156 7,684,279 Less accumulated depreciation (5,573,572) (5,180,042) $ 2,131,584 $ 2,504,

18 NOTES TO FINANCIAL STATEMENTS JUNE 30,2017 AND ) BENEFICIAL INTEREST WITH ADIRONDACK FOUNDATION The Council has placed its endowment and other Board-designated financial assets with the Adirondack Foundation (formerly Adirondack Community Trust) and has granted variance power to the Adirondack Foundation. The Board of Trustees of the Adirondack Foundation has the power to modify any restriction or condition on the distribution of funds for any specified charitable purpose or to a specified organization if, in the sole judgment of the Board, such restriction or condition becomes, in effect, unnecessary, incapable of fulfillment or inconsistent with the charitable needs of the community served. As the beneficiary, the Council will receive distributions of income from the funds, subject to the Adirondack Foundation's investment spending policy. The Adirondack Foundation holds endowment funds for the benefit of the Council with fair values totaling $55,835 and $48,058 at June 30, 2017 and 2016, respectively. 6) LONG-TERM INVESTMENT IN CENTRALCAST, LLC In 2012, the Council made capital contributions of $65,102 to Centralcast; LLC, a New York limited liability company established to provide joint master control services to eight New York public television stations. Of the initial $65,102 investment, $20,257 was provided through a grant from the State of New York, and the remainder was paid from the Council's unrestricted resources. The Council's investment in Centralcast, LLC is recorded using the equity method and, as such, the Council records its share of the net income or loss of Centralcast, LLC according to its member's equity share (10% as of June 30, 2017 and 2016). For the years ended June 30, 2017 and 2016, the Council's share of Centralcast, LLC's net loss was $18,623 and $68,948, respectively, which has been recorded as temporarily restricted. 7) DEFINED CONTRIBUTION RETIREMENT PLAN Many of the Council's employees participate in a defined contribution retirement plan administered by the Teachers Insurance Annuity Association (TIM) and College Retirement Equities Fund (CREF). Eligible employees-may begin participation on a voluntary basis after completing two years of service, with executive staff eligible after one year and some staff eligible immediately. The Council contributes, on a matching basis, an amount equal to 7% of each participant's gross wages. The Council's contributions totaled $44,030 and $51,765 for the years ended June 30, 2017 and 2016, respectively. 8) LINE OF CREDIT The Council has a line of credit agreement with a local bank. The amount available to the Council was $300,000 as of June 30, 2017 and The line of credit bears interest at the Wall Street Journal Prime Rate plus 2% (6.25% and 5.50% as of June 30, 2017 and 2016, respectively). Under the terms of the agreement, the Council's assets are pledged as collateral and the line of credit is cross-collateralized with the Council's long-term debt. There was $205,000 and $0 outstanding on the current line of credit as of June 30,2017 and 2016, respectively. As of June 30, 2016, there was an outstanding balance of $300,000 on the line of credit which was classified as long term debt due to its subsequent consolidation with the mortgage note

19 NOTES TO FINANCIAL STATEMENTS 9) DEFERRED REVENUE Deferred revenue consists of unspent grant funds and prepaid rent amounts. Deferred revenue was $19,300 and $19,949 at June 30, 2017 and 2016, respectively. 10) LONG-TERM DEBT Long-term debt consists of the following at June 30: Champlain National Bank: Mortgage note payable in monthly installments of $6,041, including interest at 5.95%, collateralized by the Council's assets, balloon payment due August 2026 Less current portion $ 819,225 _$; --::8--:-40::-'-, 7::::7::-::6:- 819, ,776 (24,000) (19,000) $ 795,225 $ 821,776 Future maturities of long-term debt for the years ending June 30 are as follows: Thereafter $ 24,000 26,000 27,000 29,000 31, ,225 $ 819,225 Monthly installments on the Champlain National Bank mortgage are subject to change as of August 2021 due to variable interest rates based on the five-year Federal Home Loan Bank of New York Rate index. The loan carries a prepayment penalty of 3% to 5% of the outstanding balance within the first five years of the loan term. 11) RESTRICTIONS ON NET ASSETS Temporarily restricted net assets consist of the following at June 30: Investment in Centralcast, LLC (grant-funded) Unappropriated earnings on endowment funds $ 425,412 7,265 $ 443, $ $ Permanently restricted net assets consist of an endowment fund investment to be held indefinitely, the income of which is to be used to support the Council's programs

20 NOTES TO FINANCIAL STATEMENTS 12) LEASES The Council leases tower space to third parties on an annual basis. The primary purpose of these towers is for the broadcasting of the television station operated by the Council. The Council also leases a portion of their studio building to third parties. A portion of the Council's third-party rental income is considered unrelated to the Council's primary exempt purpose and, as such, is subject to unrelated business tax on the net income. Total rental income for the years ended June 30, 2017 and 2016 was $138,988 and $141,784, respectively. The Council has noncancelable operating leases for office equipment that expire at various dates through May Lease payments were $14,039 and $6,486 for the years ended June 30, 2017 and 2016, respectively. Future minimum lease commitments under operating leases as of June 30, 2017 are as follows for the years ending June 30: $ 17,000 15,000 11,000 7,000 $ 50,000 13) ENDOWMENT FUNDS Interpretation of Relevant Law The Council follows the New York Prudent Management of Institutional Funds Act (NYPMIFA) and its own governing documents. The Council's donors have not placed restrictions on the use of the investment income or net appreciation resulting from the dor:~or-restricted endowmen.t funds. The Board of Directors, on the advice of legal counsel, has determined that the majority of the Council's conti-ibutions are subject to the terms of its governing documents. Certain contributions received are subject to specific agreements with the Council. Under the terms of the Council's governing documents, the Board of Directors has the ability to distribute so much of the original principal of any trust or separate gift, devise, bequest, or fund as the Board in its sole discretion shall determine. As a result of the ability to distribute the original principal, all contributions not classified as temporarily restricted or permanently restricted are classified as unrestricted net assets for financial statement purposes. Endowment Investment and Spending Policies The Council has adopted investment and spending policies, approved by the Board of Directors, for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets over the long term. The Council's spending and investment policies work together to achieve this objective. The investment policy has provided variance power to Adirondack Community Trust to invest endowment assets in order to achieve this objective

21 NOTES TO FINANCIAL STATEMENTS 13) ENDOWMENT FUNDS (continued) Strategies Employed for Achieving Objectives To satisfy its long-term rate of return objectives, the Council relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Council targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. Spending Policy and How the Investment Objectives Relate to Spending Policy The spending policy calculates the amount of money available annually for distribution from the Council's various endowment funds in support of programs. The current spending policy is to distribute an amount at least equal to 4% of a moving four-year average of the fair value of the endowment funds. Accordingly, over the long term, the Council expects its current spending policy to allow its endowment assets to grow. This is consistent with the Council's objective to maintain the purchasing power of endowment assets as well as to provide additional real growth through investment return. Funds With Deficiencies From time to time, the fair value of assets associated with donor-restricted endowment funds may fall below the level the donors or UPMIFA requires the Council to retain as a fund of perpetual duration. In accordance with GAAP, deficiencies of this nature that are reported in unrestricted net assets were $0 as of June 30, 2017 and Endowment net asset composition was as follows as of: Temporarily Permanently Unrestricted Restricted Restricted Total June 30, 2017 Board-designated endowment funds $ 39,357 $ $ $ 39,357 Donor-restricted endowment funds 7,265 9,213 16,478 $ 39,357 $ 7,265 $ 9,213 $ 55,835 June 30, 2016 Board-designated endowment funds $ 39,094 $ $ $ 39,094 Donor-restricted endowment funds 351 8,613 8,964 $ 39,094 $ 351 $ 8,613 $ 48,

22 MOUNTAIN LAKE PUBLIC TELECOMMUNICATIONS COUNCIL AND AFFILIATE NOTES TO FINANCIAL STATEMENTS 13) ENDOWMENT FUNDS (continued) Changes in endowment net assets were as follows for the years ended June 30, 2016 and 2017: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, July 1, 2015 $ 38,781 $ 2,744 $ 7,813 $ 49,338 Additional designations/ gifts '113 Investment return (2,393) (2,393) Endowment net assets, June 30, 2016 $ 39,094 $ 351 $ 8,613 $ 48,058 Endowment net assets, July 1, 2016 $ 39,094 $ 351 $ 8,613 $ 48,058 Additional designations/ gifts Investment return 6,914 6,914 Endowment net assets, June 30, 2017 $ 39,357 $ 7,265 $ 9,213 $ 55,835 14) COMMITMENTS AND CONTINGENCIES As part of the Council's investment in Centralcast, LLC (the Company), the Council is required to make ongoing infrastructure payments in accordance with the Company's annual budget. The Council was liable for infrastructure payments of $25,000 for the years ended June 30, 2017 and Grants and contracts require the fulfillment of certain conditions as set forth in the instrument of the grant or contract. Failure to fulfill the conditions could result in the return of the funds to the grantors. Although that is a possibility, management deems the contingency remote since by accepting the awards and their terms, it has accommodated the objectives of the Organization to the provisions of the grant. 15) RELATED PARTY TRANSACTIONS The Council has a member equity share in Centralcast, LLC of 10.04%. The Council paid Centralcast, LLC infrastructure fees of $25,000 for the years ended June 30, 2017 and The combined financial statements include the activity and balances of the Council's affiliated friends organization, Canadian Friends of WCFE-TV

23 NOTES TO FINANCIAL STATEMENTS 16) CHANGE IN ACCOUNTING POLICY As described in Note 1, the Council has changed its policy for recognizing receivables from sustaining members. The new policy recognizes sustaining member pledges on a cash basis. As a result, the Council restated the prior year financial statements by decreasing pledges receivable and unrestricted net assets by $50,931 as of June 30, 2015, reducing membership income by $72,873, and decreasing bad debt expense by $59,692 for the year ended June 30, 2016 and decreasing pledge receivables by $64,112 as of June 30, The restatement decreased the change in net assets by $13,181 for the year ended June 30, 2016 and had no effect on the change in net assets for the year ended June 30, ) FINANCIAL STABILITY The Council has experienced significant operating losses in recent years, which has significantly reduced the Organization's liquidity. In order to reduce the impact, the Council refinanced its outstanding debt agreements and increased its working line of credit from $150,000 to $300,000. The Council has also increased its mortgage loan by $700,000 in recent years. Management continues to review its operations for opportunities to reduce the operating losses in future years. Mountain Lake Public Telecommunications Council's Affiliate, Canadian Friends of WCFE-TV 57 (Affiliate), was recently audited by the Canada Revenue Agency (CRA). The audit examined the Affiliate's operations during the 2011 fiscal year. In the opinion of the CRA, the audit raised concerns about the purposes and activities of the Affiliate which, if proven, would not satisfy the registration requirements under the Income Tax Act and lead to the issuance of a Notice of Annulment of Registration. The Affiliate, with the assistance of its legal counsel, has responded to the issues raised by the CRA and is of the opinion that their conclusions are unfounded. On August 20, 2015, the CRA reached a conclusion and issued a "Notice of Annulment of Registration", thereby annulling the Affiliate's charitable status. Accordingly, as of August 20, 2015, the Affiliate does not qualify as a charity under the Income Tax Act and is not permitted to issue donation receipts. During 2017, subsequent to the Canadian Friend's contestation, the CRA reversed its prior decision and re-instated the Organization's charitable status retroactive to August 20, In August of 2017, Canadian Friends was notified that the CRA is attempting to revoke its exempt status. Canadian Friends filed a response in September of ) SUBSEQUENT EVENTS As described in Note 17, in August 2017, the CRA notified the Council's affiliate, Canadian Friends, that the CRA is attempting to revoke its exempt status. The Council has evaluated events and transactions for potential recognition or disclosure through November 1, 2017, the date the financial statements were available to be issued. -20-