Natives of Kodiak, Inc. 2010 Annual Report to Shareholders

Natives of Kodiak, Inc. 2010 Annual Report to Shareholders

NOK President s Report by Michael L. Kelly Dear NOK Shareholder: June 30, 2011 I am pleased and grateful to have this opportunity to discuss NOK s activities during Fiscal Year 2010 with you. Before continuing, it is very important to recognize that our significantly improved profitability during FY 2010 could not have been achieved without the leadership, wisdom and dedication of our Chairperson, Alexis ( Sonny ) Chichenoff and the other eight exceptional people you have elected to serve on the NOK Board of Directors. Their unselfish and unwavering service to our shareholders, executive team, employees and business partners resulted in a profitable year and a $1,435,768 (13%) increase in shareholder equity. (Note: These financial results are after deducting 2010 s $545,000 Special Distribution and 2010 s $35,000 in scholarship awards.) During the past year, NOK continued its longstanding relationships with two professional investment management firms, Union Bank (UB) and Pacific Wealth Advisors (PWA). At December 31, 2010, the total value of NOK s actively managed portfolios, excluding NOK s Scholarship Fund ($315,754) and the NOK Shareholder Permanent Fund Trust Account ($13,778,189 beneficiaries equity), totaled $6,078,975. UB s FY 2010 annual rate of return was 15.85%, as compared to Standard and Poor s (S&P) 500 Composite Index Return of 15.05%. PWA s 18.24% annual rate of return was measurably better than the S & P 500 benchmark. NOK and its subsidiaries continued to focus on a balanced, profitable business model during 2010, by concentrating our corporate activities into four primary areas: Small Business Administration (SBA) 8(a) government contracting, venture capital, land management and development, and tourism. (continued on page 7) 2 Cover: Chiniak Bay, as viewed from Pillar Mountain, Kodiak, Alaska, 2011 Michael DeYoung. Above: NOK s Kodiak office building, courtesy Georgia Putney. Right: The next generation, 2011 Clark James Mishler. Back: Kodiak brown bears peering over the falls, 2011 Don Pitcher. NOK Board photos by Jan Pennington.

NOK Vice-President s Report by David Anderson Dear NOK Shareholder: June 30, 2011 It is my pleasure to report on the current financial status of Natives of Kodiak, Inc., as shown in the enclosed audited financial statements and schedules. December 31, 2010 NOK Shareholder Equity was $12,101,492, a $1,435,768 increase over 2009 s equity of $10,665,719. There are several things that contributed to this increase. Our Corporation s 2010 overall revenues from investments and logging activities saw a 55% increase over 2009. In 2010, NOK received $1,378,821 in timber harvest revenues through subsidiary VXM, Inc. as compared to no revenue being received in the previous year. Because we have no operating costs and extremely low general and administrative costs associated with this business line, NOK was able to realize $1,284,051 in FY 2010 net income and we anticipate this remaining a profitable enterprise for NOK in the years to come. Another area of positive change in FY 2010 was NOK s income received from its affiliates. For example, Kodiak Ventures LP saw a $1.8 million increase in its 2010 earnings (details of which follow on page 7). As I look to the past 8 months as part of the NOK management team, I am proud of what NOK has accomplished for the benefit of its shareholders and I look forward to accomplishing even more in the years ahead. Thank you for the opportunity to be of service to our corporation. Sincerely, David Anderson Vice-President Above: Weaving hands. Right: Kodiak s Holy Resurrection Russian 3 Orthodox Cathedral. 2011 Marion Owen dba Carotte, Inc.

Independent Auditor s Report The Board of Directors Natives of Kodiak, Incorporated We have audited the accompanying consolidated balance sheets of Natives of Kodiak, Incorporated and subsidiaries (Company) as of December 31, 2010 and 2009, and the related consolidated statements of operations, changes in stakeholders equity and comprehensive income, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principals used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Natives of Kodiak, Incorporated and subsidiaries as of December 31 2010 and 2009, and the results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The consolidating information in schedules 1 and 2 is presented for purposes of additional analysis of the consolidated financial statements rather than to present the financial position and results of operations of the individual companies. The supplementary information included in schedule 3 is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. The consolidating information and other supplementary information referred to in this report* has been subjected to the auditing procedures applied in the audits of the consolidated financial statements, and, in our opinion, such information is fairly stated, in all matertial respects, in relation to the consolidated financial statements taken as a whole. KPMG LLP Anchorage, Alaska May 31, 2011 4 * Complete consolidated financial statements are enclosed with this report.

Natives of Kodiak, Inc. and Subsidiaries Consolidated Balance Sheets December 31, 2010 and 2009 - Assets - 2010 2009 Current assets: Cash and cash equivalents $ 1,218,301 688,708 Certificate of deposit 500,000 - Receivable for investment securities sold - 250,981 Income taxes receivable 49,596 51,196 Accounts receivable 1,494,287 476,005 Costs and estimated earnings in excess of billing uncompleted contracts (note 3) 58,465 38,357 Prepaid expenses 67,722 38,421 Total current assets 3,388,371 1,543,668 Restricted certificate of deposit 12,143 12,456 Investment securities (note 4) 6,078,975 5,277,953 Scholarship Fund (notes 4 and 5) 315,754 310,829 Investment in affiliates (note 6) 1,871,411 2,417,887 Land held for development 292,083 292,083 Reforestation 189,240 189,240 Property and equipment, net (notes 7 and 8) 1,115,497 1,184,170 Total assets $ 13,263,474 11,228,286 - Liabilities and Stockholders' Equity - Current liabilities: Accounts payable and accrued expenses $ 967,135 546,136 Payable to Natives of Kodiak Shareholder Permanent Fund Trust 35,000 - Deferred revenue 140,000 - Dividends payable 19,847 16,426 Total current liabilities 1,161,982 562,562 Stockholders' equity: Common stock of $1 par value. Authorized, issued, and outstanding 54,500 shares 54,500 54,500 Paid-in capital 320,625 320,625 Retained earnings 9,960,502 8,849,085 Accumulated other comprehensive incomenet unrealized gains on securities 1,765,860 1,441,509 Stockholders equity attributable to NOK 12,101,487 10,665,719 Noncontrolling interest 5 5 Total stockholders' equity 12,101,492 10,665,724 Commitments and contingencies (notes 8, 10, 11, 12 and 16) Total liabilities and stockholders equity $ 13,263,474 11,228,286 Ripples in the mud at Women s Bay, 2011 Kevin G. Smith. * See accompanying notes in consolidated financial statements enclosed. 5

Shareholders Revenues Net Equity & Income Income s s s 13% 55% * 2010 $ 12,101,492 $ 5,875,766 $ 1,656,417 2009 $ 10,665,724 $ 3,796,421 $ (1,362,359) Kalsin Bay shoreline, 2011 Kevin G. Smith. * Since the amount shown in the base year under comparison (FY2009) is negative, no meaningful percentage can be calculated. 6

NOK President s Report (continued) SBA 8(a) Government Contracting: NOK subsidiary KOMAN, Inc. continued its 49% ownership and participation with Inuit Services, LLC on the US Coast Guard Kodiak Base Operations Support Services (BOSS) contract. During FY 2010, this contract was in its fifth year of a 10-year contract. Kodiak Support Services, Joint Venture (KSS JV) posted a profit of $4,980 in 2010 as compared to a loss of $51,947 in 2009. We continue to anticipate significant improvements in the profitability for this JV in the future. The GMC/KOMAN JV was created in July of 2007 to provide services for the 176th Wing Relocation of Utilities and Infrastructure Project at Elmendorf Air Force Base in Anchorage, Alaska. This JV concluded operations in 2010 with a $20,133 loss as compared to 2009 net income of $147,351. NOK subsidiary KOMAN, Inc. posted a $783,306 loss for 2010 as compared to a loss of $638,319 in 2009. Most of 2010 s increased loss in was due to a $680,079 decline in total revenue. A major reason for the lower revenue was a lack of bonding capacity for federal construction contracts in 2010, which has since been remedied. The future outlook for federal government contracting is of some concern, however, based on the large national debt and need to reduce annual U.S. Government budget deficits. Given the current national unemployment rate of 9.1%, the majority of U.S. states are struggling to balance their budgets, and with the lower level of economic activity overall, there are many companies struggling to stay in business. As a result, the bidding process on federal contracts has become even more competitive. Fortunately, NOK and its subsidiaries maintain a very lean, efficient organizational structure that allows us to be more competitive in contract pricing, as we do not have to add large general and administrative cost recovery mark-ups on our bids. Venture Capital: Kodiak Ventures, LP was created to find investment opportunities in early stage telecommunications, high-tech, biomedicine, internet, software, and application service provider start-up companies. NOK s investment in this venture capital fund posted a $2,041,348 net return in 2010, compared to 2009 s return of $254,025. This significant increase in net income was primarily due to NOK selling 100% of its interest in Green Dot, during its initial public stock offering. We will continue to take advantage of opportunities to sell investments at a profit. Tourism: NOK s 15% ownership interest in the Portland Paramount Hotel returned a modest $23,281 in net income for the year 2010 as compared to a $27,520 loss in 2009. The stagnant national economy has caused both U.S. businesses and families to limit business and vacation travel costs. As a result, tourism investment returns remain challenging; a trend anticipated to reverse with on-going economic recovery. If you will be travelling to Portland or other areas around the country, remember that NOK shareholders can request a special rate at any participating Coast or Paramount Hotel by contacting the NOK office for reservations. While FY 2010 was a profitable year for our corporation, our Board of Directors, executive team and employees continue to work hard to maximize the profitability of all NOK business lines for the benefit of NOK shareholder owners. I genuinely appreciate all of the kindnesses and hospitality you have shown toward me during my first fifteen months with NOK. I look forward to the year ahead and to seeing many of you at our upcoming annual shareholders meeting, in September. Sincerely, Michael L. Kelly President and Chief Executive Officer 7

NOK Board of Directors Top row from left: Alexis Sonny Chichenoff, Chairperson, David Anderson, Vice Chairperson, Vivian A. Beukers, Treasurer, and Laurence Anderson, Secretary. Second row from left: Directors Leonard Pat Heitman, Emil Norton, Margaret L. Roberts, Carla Schauff and Donene Tweten. Natives of Kodiak, Inc. 215 Mission Road, Suite 201, Kodiak, Alaska 99615 Office: (907) 486-3606 Fax: (907) 486-2745 e-mail: nokshare@alaska.com www.nativesofkodiak.com