Fellow shareholders:

I am pleased to report to you on the financial affairs of Shee Atiká, Incorporated (SAI) and related entities for 2016.  I am proud to say I am an original SAI shareholder and I am particularly pleased to report that in 2016 we were able to show audited net income of about $1.2 million.  This is a significant improvement from our 2015 financial results and is one of which all of your SAI team is very proud.

I have been your President/CEO now for over seven years.  When I was hired in March, 2010,

• SAI faced a serious cash flow shortfall in 2008 which led to a $5 million loan in January 2009, which was not being repaid and which was growing due to the accrual of unpaid interest on that debt
• SAI’s hotel was losing substantial amounts of money
• SAI owned a subdivision in which SAI had invested significant amounts of money but no lots were being sold
• SAI’s 8(a) companies had a $5 million dollar accounting problem (an over accrual of revenue) relative to one of our Government contracts and were owed money by one of the prime contractors
• SAI’s 8(a) companies were heavily focused on the wars in Afghanistan and Iraq and had lost significant value and earning potential as those wars had wound down
• SAI owned two very significant non-performing assets, which were our properties at Cube Cove and Katlian Bay
• SAI and its related entities owned commercial buildings that needed significant repairs and upgrades
• SAI’s buildings were only partially filled with tenants and what tenants we did have were generally paying below market rents.

All of the matters in these bullet points have been discussed in our corporate annual reports beginning with the one for 2009.

When I came aboard, there was no adequate business plan to address these problems even though these were significant problems which threatened the long term health of our corporation.   My response was to put together a multi-year business plan to improve the long term health of our corporation, including the following:

• We made sure to make payments on all our debt including the January 2009 loan.
• We sold the hotel to stop the cash losses from that activity.
• We priced our subdivision lots to the Sitka market rate and then began to sell lots to recapture our costs.
• We addressed our government accounting issues and filed suit in an unsuccessful attempt to collect moneys that were owed us by a prime contractor.
• We refocused our 8(a) efforts away from the Afghanistan and Iraq wars, and looked for businesses that would not be so prone to rapid de-escalation when the Government changed its policies.
• We began two very important projects (discussed more fully below) to make our Cube Cove and Katlian Bay assets perform economically for our shareholders.
• We invested substantial amounts in our buildings to make them either marketable or suitable for leasing.
• We found tenants for all our buildings, we increased the rents to market rate and we negotiated provisions in our leases that will help keep the rents at market rate for the future.

Throughout these past seven years, we have continued to make regular distributions to our shareholders as well as to provide funeral and educational benefits. As shown by the charts below, since inception we have paid out $69.5 million in distributions ($37,545 if you owned 100 shares since our formation), $5.6 million in educational benefits, and just over $700,000 in funeral benefits.   These are impressive achievements by any measure, particularly when you remember that SAI received cash of only $250,000 in the ANCSA settlement and that we had numerous and very costly legal battles before we could vindicate our right to harvest the timber from our ANCSA lands.

As I mentioned above, a major part of our multi-year business plan has concerned our Cube Cove asset. Our shareholders have told us in two separate surveys (one in 2003, another in 2010) that Cube Cove should be used to provide economic value for shareholders, including through a sale.  The timber harvest at Cube Cove was finished almost two decades ago, and Cube Cove’s status as an inholding to a National Monument/Wilderness makes any future development or business activity located there highly uncertain, problematic and prone to legal challenge.  We spent several million dollars in the mid-1980s in litigation with environmental groups to obtain judicial confirmation of our right to harvest Cube Cove, and we would likely spend considerably more on any future attempts to achieve an economic return from the Cube Cove lands.  The inherent problems with any business or development activity at Cube Cove because of its proximity to the National Monument/Wilderness prevents ­­SAI from realizing the complete value of the ANCSA settlement promised SAI and its shareholders almost five decades ago.

In the years that I have been SAI’s President/CEO, we have been working with the Alaska Congressional Delegation and the Forest Service to convert our Cube Cove asset into another form that will provide a meaningful return for our shareholders.   Cube Cove was appraised in late 2015 with an $18.3 million value and in mid-2016, SAI entered an agreement with the United States Government under which the Forest Service has an option to acquire the Cube Cove property in installments.  This option agreement lasts until July, 2021, and the total price of all installments equals the $18.3 million appraised value.  In September, 2016 SAI and the Forest Service closed the first of these installments.  In this first closing, the Forest Service acquired approximately 4500 acres in the southern portion of the Cube Cove property for approximately $4 million cash.  The Government’s acquisition of the remainder of the rest of the Cube Cove property is dependent on Congressional appropriations of the remaining $14.3 million.

Another part of our multi-year business plan has been to produce economic value from our other major non-performing asset, our 3,000 acres at Katlian Bay.  SAI has been working hard since 2010 to develop concepts for an Alaska state road from the end of Halibut Point Road near Starrigavan Bay into the Katlian Bay area and across SAI lands from west to east to the Forest Service lands on the eastern border of SAI’s Katlian Bay property.   The Katlian Bay Road will provide excellent recreational opportunities by allowing access from Sitka to the Forest Service lands in the upper Katlian River drainage.  An obvious benefit from the road to SAI is that our Katlian Bay lands will become better accessible to our shareholders and long term economic development of our lands will become possible.  There are still some issues to be resolved with regard to the Katlian Bay Road before construction can begin, but the State has informed me that the funding is in place and that it plans to award the contract for road construction in the fall of 2017.  The State will fund the road construction and maintenance costs.  You can view the route of the Katlian Bay Road at the State’s project website at http://dot.alaska.gov/sereg/projects/sitka_katlianbayroad/index.shtml#.

Our multi-year business plan has also included the pay down of all of SAI’s debt as well as that of the Shee Atiká Fund Endowment (SAFE).   These liabilities were all originally incurred prior to 2010, and have been refinanced since 2010 where possible. Total long term debt (SAI and SAFE combined) at December 31, 2016 was slightly in excess of $6.4 million, which is down substantially from the original borrowings on these loans of approximately $11.1 million.  We anticipate being able to further reduce this debt within the next year or so from our development activity on Alice and Charcoal Island.

Further parts of our multi-year business plan to improve the long term health of our corporation are our efforts to develop new businesses.

Balanced Accounting Solutions (BAS) was established in late 2015 to service the bookkeeping and accounting needs of Sitka and the rest of Alaska.   Since its formation, BAS (which has 8(a) status) has had significant growth and enjoys a solid customer base.   It is well positioned for the future.

It is no secret that government contracting has become far more challenging than it was in 2007 when we were able to obtain our first linguistics contract in Shee Atiká Languages, LLC (SAL).  The wind down of the wars in Afghanistan and Iraq hit our contracting business particularly hard and we have worked hard to replace that lost income.  We believe that opportunities exist in the marine/naval repair industry and in December, 2016, we negotiated a strategic partnership with a Philadelphia-based naval contractor.   We have formed a new 8(a) company, American Marine and Technical Services, LLC (AMTS) to pursue these opportunities. We are excited about the possibilities for AMTS because the Government has indicated significantly more dollars will be allocated to the U.S. Navy in the near future.  Even after 8(a) status is achieved, it can take a period of time and the investment of funds to get an 8(a) company established and growing.

In summary, the multi-year business plan we put in place in 2010 has worked well.  We have significantly reduced or eliminated problems, and stopped the hemorrhage of cash.  The multi-year business plan is providing the way forward for our corporation while at the same time allowing us to continue to provide meaningful distributions and benefits to our shareholders.  Our future is bright.  Again, your corporation thanks you.

Kenneth M. Cameron, President/CEO