0000859765-19-000006.txt : 20190226 0000859765-19-000006.hdr.sgml : 20190226 20190225174116 ACCESSION NUMBER: 0000859765-19-000006 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20181231 FILED AS OF DATE: 20190226 DATE AS OF CHANGE: 20190225 EFFECTIVENESS DATE: 20190226 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KAVILCO INC/WA/ CENTRAL INDEX KEY: 0000859765 IRS NUMBER: 920045958 STATE OF INCORPORATION: AK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-06027 FILM NUMBER: 19630776 BUSINESS ADDRESS: STREET 1: ONE UNION SQUARE STREET 2: SUITE 3010 CITY: SEATTLE STATE: WA ZIP: 98101 BUSINESS PHONE: 2066246166 N-CSR 1 ncsr2_2019.htm FINANCIAL STATEMENTS

 

 

CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-6027

 

 

KAVILCO INCORPORATED

(Exact name of registrant as specified in charter)

 

 

1000 Second Avenue, Suite 3320 
Seattle, Washington 98104

(Address of principal executive offices) (Zip code)

Registrant’s telephone number, including area code: (206) 624-6166

Date of fiscal year end: December 31, 2018

Date of reporting period: December 31, 2018

 

 

 

 

ITEM 1. REPORTS TO SHAREHOLDERS.
 

 

 

 

Kavilco Incorporated

1000 2nd Avenue, Suite 3320

Seattle, WA 98104

(206) 624-6166 or

1-800-786-9574

Fax (206) 624-8953

 

 

 

 

 

February 22, 2019

 

 

Dear Shareholder,

 

Enclosed are the annual audited financial statements for the year ended December 31, 2018. Our accountants, Peterson Sullivan LLP have conducted the audit.

 

The financial statements are presented in a format that all investment companies must adhere to pursuant to Security and Exchange Commission requirements and Generally Accepted Accounting Principles. In an investment company, the primary objective of the financial statements is to show how the net asset value changed throughout the year (net asset value is defined as the value of securities owned, cash, receivables and other assets less liabilities). We realize the statements are somewhat confusing to say the least and, to make the financial information more meaningful, we have highlighted some information below to assist you in interpreting the terminology in the financial statement

 

STATEMENT OF ASSETS AND LIABILITIES

 

This statement reflects everything the corporation owns or is obliged to pay as of December 31, 2018. Assets and liabilities are stated in terms of current market value.

 

SCHEDULE OF INVESTMENTS

 

Kavilco's investment in securities portfolio is focused primarily on large cap dividend equity investments and fixed income investments. Bonds carry a stated interest rate and maturity date. Federal, state and municipal governments, along with corporations, can issue bonds. The fair value of most stocks, rise and fall daily. A chart regarding Kavilco’s investment in securities is included.

 

STATEMENT OF OPERATIONS

 

The statement of operations is an analysis of all income and expense that the corporation incurred during the year. The aggressive actions of the Federal Reserve have had a beneficial impact on our bond portfolio. We anticipate the exceptional volatility in the bond market will be with us for some time. However, valuation changes in the portfolio do not impact the dividends you receive.

 

 

 

 

 

STATEMENT OF CHANGES IN NET ASSETS

 

What happened to our assets during the year? This statement shows all increases and decreases in our assets. Except for the dividends to shareholder accounts, this is identical to the statement of operations.

 

FINANCIAL HIGHLIGHTS

 

This schedule is a comparative analysis that combines all previously discussed statements in terms of one share of stock.

 

NOTES AND TAX INFORMATION TO THE FINANCIAL STATEMENTS

 

The notes are an integral part of the financial statements and provide information that will give the shareholder a complete summary of the operation.

 

 

Sincerely,

KAVILCO INCORPORATED

 

 

/s/ Louis L. Jones, Sr. 

 

Louis L. Jones, Sr., President

 

LLJ:cmd

encl.

 

 

 

 

 

 

 

KAVILCO INCORPORATED

 

 

FINANCIAL STATEMENTS

 

 

DECEMBER 31, 2018

 

 

 

 

 

petersonsullivan LLP

Certified Public Accountants & Advisors

Seattle, WA

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Shareholders and the Board of Directors

Kavilco Incorporated

Kasaan, Alaska

 

Opinion on the Financial Statements

 

We have audited the accompanying statement of assets and liabilities, including the schedule of investments of
Kavilco Incorporated ("the Company") as of December 31, 2018, the related statement of operations for the year then ended, the statements of changes in net assets for the years ended December 31, 2018 and 2017, the financial highlights for each of the five years that ended prior to and including December 31, 2018, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations for the year then ended, the changes in net assets for the years ended December 31, 2018 and 2017, and the financial highlights for each of the five years that ended prior to and including December 31, 2018, in conformity with accounting principles generally accepted in the United States.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting 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.

 

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2018, by correspondence with the custodian and brokers. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

We have served as the Company's auditor since 2012.

 

 

/S/ PETERSON SULLIVAN LLP

 

 

Seattle, Washington

February 19, 2019

 

 

 

 

 

 

 

 

 

KAVILCO INCORPORATED

STATEMENT OF ASSETS AND LIABILITIES

December 31, 2018

ASSETS      
Investments in securities, at fair value (cost $33,847,830) $      32,628,052
Real estate, at fair value (cost $1,054,089) 6,077,000
Cash and cash equivalents 46,074
Interest receivable 29,746
Dividends receivable 53,692
Premises and equipment, net 13,051
Prepaid expenses and other assets 23,119
        Total assets $      38,870,734
LIABILITIES    
Accounts payable and accrued expenses $            31,677
Dividends payable 76,195
        Total liabilities 107,872
NET ASSETS $      38,762,862
Net assets consist of:  
  Distributable earnings $        4,177,023
  Contributed capital 34,585,839
        Total net assets $      38,762,862
Net asset value per share of Class A and Class B common  
  stock ($38,762,862 divided by 12,000 shares outstanding) $              3,230
           

 

 

 

 

KAVILCO INCORPORATED

SCHEDULE OF INVESTMENTS

December 31, 2018

          Principal Amount or Shares   Fair Value
INVESTMENTS IN SECURITIES      
U.S. Corporate Bonds - 3.1%      
American Depository Receipts - 0.7%      
  Deutsche Telekom, 6.000%, due July 8, 2019 250,000   $            253,408
               
Consumer Staples - 0.9%      
  Yum! Brands Inc, 5.300%, due September 15, 2019 355,000   356,331
               
Information Technology - 0.9%      
  Adobe Systems, Inc., 4.750%, due February 1, 2020 100,000   101,995
  Oracle Corp., 5.000%, due July 8, 2019 250,000   252,662
        Total Information Technology     354,657
               
 Utilities - 0.6%      
  Metropolitan Edison, 7.700%, due January 15, 2019 250,000   250,355
               
        Total U.S. Corporate Bonds (Cost $1,209,506)     1,214,751
               

 

 

 

 

 

 

KAVILCO INCORPORATED

SCHEDULE OF INVESTMENTS

December 31, 2018

(continued)

          Principal Amount or Shares   Fair Value
U.S. Common Stock - 73.2%        
American Depository Receipts - 2.1%        
  Atlantic Power Corp. 2,700   5,859  
  Eaton Corp, PLC 1,400   96,124  
  Enbridge Inc. 11,194   347,910  
  Invesco Limited 6,300   105,462  
  Obsidian Energy Ltd. 3,400   1,370  
  Royal Dutch Shell, PLC 4,300   257,742  
  Wheaton Precious Metals Corp. 700   13,671  
        Total American Depository Receipts     828,138  
                 
Consumer Discretionary - 0.9%        
  Genuine Parts Co. 3,400   326,468  
  Ryman Hospitality Properties, Inc. 600   40,014  
        Total Consumer Discretionary     366,482  
                 
Consumer Staples - 1.4%        
  Coca Cola Company 6,700   317,245  
  The Kraft Heinz Company 4,900   210,896  
        Total Consumer Staples     528,141  
                 
Energy - 1.9%        
  Chevron Corp. 1,800   195,822  
  Diamond Offshore Drilling, Inc. 1,515   14,302  
  Exxon Mobil Corp. 2,400   163,656  
  Kinder Morgan, Inc. 14,119   217,150  
  Williams Companies, Inc. 6,784   149,587  
        Total Energy     740,517  
                         

 

 

 

 

KAVILCO INCORPORATED

SCHEDULE OF INVESTMENTS

December 31, 2018

(continued)

          Principal Amount or Shares   Fair Value  
Financials - 20.8%      
  AvalonBay Communities, Inc. 1,750   304,588
  Digital Realty Trust, Inc. 3,310   352,681
  EPR Properties 1,900   121,657
  Equity Residential Properties Trust 3,000   198,030
  Essex Property Trust, Inc. 400   98,084
  HCP, Inc. 4,600   128,478
  Healthcare Realty Trust, Inc. 5,425   154,287
  Highwoods Properties, Inc. 1,300   50,297
  Hospitality Properties Trust 13,400   319,992
  Iron Mountain, Inc. 8,100   262,521
  Lamar Advertising Company 5,750   397,785
  Liberty Properties Trust 16,040   671,755
  LTC Properties, Inc. 7,330   305,514
  Mack Cali Realty Corp. 5,600   109,704
  National Retail Properties, Inc. 1,470   71,310
  Omega Healthcare Investors, Inc. 5,831   204,960
  Public Storage, Inc. 1,000   202,410
  Realty Income Corp. 12,255   772,555
  Redwood Trust, Inc. 2,600   39,182
  RMR Group, Inc., The 274   14,544
  Sabra Health Care REIT, Inc. 2,970   48,946
  Senior Housing Properties Trust 10,400   121,888
  Stag Industrial, Inc. 14,530   361,506
  T Rowe Price Group, Inc. 5,300   489,296
  Tanger Factory Outlet Center 8,700   175,914
  Ventas, Inc. 12,500   732,375
  Vornado Realty Trust 2,500   155,075
  Washington REIT 6,600   151,800
  Wells Fargo & Co. 9,540   439,603
  Welltower, Inc. 8,810   611,502
        Total Financials     8,068,239
               
Health Care - 3.0%      
  Abbvie, Inc. 1,000   92,190
  Amgen, Inc. 2,380   463,315
  Bristol Myers Squibb 6,900   358,662
  Merck & Co, Inc. 3,125   238,781
        Total Health Care     1,152,948
                             

 

 

 

 

 

KAVILCO INCORPORATED

SCHEDULE OF INVESTMENTS

December 31, 2018

(continued)

          Principal Amount or Shares   Fair Value
Industrials - 1.4%      
  General Electric Co. 24,550   185,844
  Pitney Bowes, Inc. 3,000   17,730
  United Parcel Service 3,670   357,935
        Total Industrials     561,509
               
Information Technology - 3.1%      
  Cisco Systems, Inc. 6,250   270,813
  International Business Machines (IBM) Corp. 2,370   269,398
  Paychex, Inc. 9,925   646,614
        Total Information Technology     1,186,825
               
Master Limited Partnerships - 5.5%      
  Amerigas Partners LP 7,230   182,919
  Blackstone Group LP 8,800   262,328
  Buckeye Partners LP 6,472   187,623
  CVR Partners LP 4,760   16,184
  Energy Transfer Partners LP 15,960   210,832
  Enterprise Products Partners LP 18,600   457,374
  Magellan Midstream Partners LP 7,600   433,656
  MPLX LP 2,180   66,054
  Nustar Energy LP 4,100   85,813
  Plains All American Pipeline LP 3,914   78,437
  Suburban Propane Partners LP 3,200   61,664
  TC Pipelines LP 2,300   73,876
        Total Master Limited Partnerships     2,116,760
               
Materials - 0.2%      
  International Paper Co 1,900   76,684
               
Mutual Funds - 2.4%      
  Blackrock Global Floating Rate Income Fund 3,179   36,717
  John Hancock Preferred Income Fund 3,284   61,871
  iShares Investment Grade Corp. Bonds 640   72,205
  iShares US Preferred ETF 2,516   86,123
  iShares 1-3 Year Treasury Bond 7,200   602,064
  SPDR Barclays High Yield Bond ETF 2,600   87,334
        Total Mutual Funds     946,314
                         

 

 

 

 

 

KAVILCO INCORPORATED

SCHEDULE OF INVESTMENTS

December 31, 2018

(continued)

          Principal Amount or Shares   Fair Value
Telecommunication Services - 6.3%      
  AT & T, Inc. 29,570   843,928
  Centurylink, Inc. 6,900   104,535
  Consolidated Communications 9,600   94,848
  Verizon Communications 24,540   1,379,639
        Total Telecommunication Services     2,422,950
               
Utilities - 24.2%      
  Alliant Energy Corp. 14,900   629,525
  American Electric Power, Inc. 8,240   615,858
  Centerpoint Energy, Inc. 19,800   558,954
  Consolidated Edison, Inc. 8,100   619,326
  Dominion Energy, Inc. 10,900   778,914
  Duke Energy Corp. 9,095   784,899
  Entergy Corp. 4,170   358,912
  Eversource Energy 10,481   681,684
  Exelon Corp. 6,500   293,150
  Firstenergy Corp. 1,255   47,125
  NextEra Energy, Inc. 3,170   551,009
  OGE Energy Corp. 5,400   211,626
  PPL Corporation 13,945   395,062
  Public Service Enterprise Group, Inc. 12,000   624,600
  Sempra Energy Corp. 1,740   188,251
  Southern Company 14,730   646,942
  WEC Energy Group, Inc. 10,840   750,778
  Xcel Energy, Inc. 12,770   629,178
        Total Utilities     9,365,793
        Total U.S. Common Stock (Cost $29,586,323)     28,361,300
Cash Equivalents - 7.9%      
        Total Cash Equivalents (Cost $3,052,001)     3,052,001
Other Net Assets - 15.8%      
        Total Other Net Assets (Cost $1,111,899)     6,134,810
        TOTAL NET ASSETS (Cost $34,959,729)     $    38,762,862
                       

 

 

 

 

 

 

KAVILCO INCORPORATED

SCHEDULE OF INVESTMENTS

December 31, 2018

(continued)

 

The following graph summarizes the Company's investments at December 31, 2018:

 

 

 

 

 

 

KAVILCO INCORPORATED

STATEMENT OF OPERATIONS

For the Year Ended December 31, 2018

Investment Income  
  Interest   $            87,832
  Dividends 1,427,605
        Total investment income 1,515,437
Expenses    
  Salaries and benefits 373,640
  Directors' compensation and expenses 245,035
  Insurance 76,479
  General and administrative 69,583
  Office and equipment leases 68,810
  Professional fees 36,244
  Custodian 13,157
        Total expenses 882,948
        Net investment income 632,489
Realized and Unrealized Gain (Loss) on Investments and Real Estate  
  Net realized gain on investments 344,158
  Net change in unrealized appreciation on real estate 137,095
  Net change in unrealized depreciation on investments (2,463,059)
        Total realized gain and unrealized depreciation on investments  
             and real estate (1,981,806)
        Net operating loss (1,349,317)
Other Income and Expense, net 211,800
        Net decrease in net assets resulting from operations $     (1,137,517)
           

 

 

 

 

 

KAVILCO INCORPORATED

STATEMENTS OF CHANGES IN NET ASSETS

For the Years Ended December 31, 2018 and 2017

          2018   2017
Increase (Decrease) in Net Assets from Operations      
  Net investment income $           632,489   $           665,622
  Net realized gain on investments 344,158   425,909
  Other income and expense, net 211,800   122,639
  Net change in unrealized appreciation on real estate 137,095   163,146
  Net change in unrealized depreciation on investments (2,463,059)   (204,863)
               
        Net increase (decrease) in net assets resulting from operations (1,137,517)   1,172,453
Dividends and Distributions to Shareholders (972,001)   (1,200,001)
        Total decrease in net assets (2,109,518)   (27,548)
Net Assets      
  Beginning of year 40,872,380   40,899,928
  End of year (includes undistributed ordinary income      
    of $373,890 and $157,444, respectively) $      38,762,862   $      40,872,380

 

 

 

 

KAVILCO INCORPORATED

FINANCIAL HIGHLIGHTS

For the Years Ended December 31, 2018 to 2014

Per share operating performance (for a share of Class A and Class B capital stock outstanding):          
          Years Ended  
          2018   2017   2016   2015   2014
Net asset value, beginning of year $  3,406   $  3,408   $  3,096   $  3,381   $  3,321
Income from investment and real estate operations                  
  Net investment income 53   56   68   72   83
  Net realized and unrealized appreciation (depreciation)                  
    on investment and real estate transactions (165)   32   335   (267)   64
Net other income 17   10   14   17   16
        Total from investment and real estate operations (95)   98   417   (178)   163
Less dividends and distributions (81)   (100)   (105)   (107)   (103)
Net asset value, end of year $  3,230   $  3,406   $  3,408   $  3,096   $  3,381
Total return (2.94)%   2.88%   12.24%   (5.77)%   4.82%
Supplemental Data:                  
  Net assets, end of period (in thousands) $38,763   $40,872   $40,900   $37,154   $40,577
Ratio to average net assets                  
  Expenses 2.22%   2.08%   2.08%   2.29%   2.03%
  Net investment income 1.59%   1.63%   2.10%   2.24%   2.46%
Portfolio turnover rate 11.81%   29.18%   15.39%   8.85%   11.00%
                                     

 

 

 

 

 

 

NOTES TO FINANCIAL STATEMENTS

 

 

Note 1. Organization

 

Kavilco Incorporated ("the Company") is a village corporation within the Sealaska region organized on November 13, 1973, pursuant to the Alaska Native Claims Settlement Act ("ANCSA") of 1971. Under ANCSA, the Native claims to land in Alaska were settled in exchange for part of the state's land and compensation. Settlement benefits were given to Natives of Alaska villages in the form of ownership shares in village corporations that were organized pursuant to ANCSA. The Company was organized for the purpose of securing and administering the land and benefits for the Natives of the Kasaan village in Alaska. Contributed capital includes receipts from the U.S. government and the state of Alaska under provisions of ANCSA.

 

On November 1, 1989, the Company began to operate as a self-managed, closed end management investment company, as defined by the Investment Company Act of 1940 ("the Act"). The Company is subject to various restrictions imposed by the Act and the Internal Revenue Code, including restrictions on borrowing, dividend, distribution policies, operations, and reporting requirements. The Company's investment decisions focus primarily on large-cap dividend equity investments and fixed income investments, are made by management under the direction of the Board of Directors.

 

Note 2. Significant Accounting Policies

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash on deposit with banks. The Company considers all highly liquid instruments with a maturity of three months or less to be cash equivalents. The Company has cash balances in excess of federally insured limits.

 

Valuation of Investments

 

All investments are recorded at estimated fair value, as described in Note 3.

 

Investment Transactions and Income

 

Investment transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are computed using the last in, first out (“LIFO”) method. Interest income is recorded on an accrual basis as adjusted for the amortization of discounts and premiums using the effective interest method. Premiums and discounts, including original issue discounts, are amortized for both tax and financial reporting purposes. Dividend income is recorded as of the ex-dividend date. Unrealized gains and losses are included in the statement of operations.

 

 

 

 

Federal Income Taxes

 

The Company files income tax returns in the U.S. federal jurisdiction and Alaska State.

 

The Company's policy is to continue to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies and to distribute at least 90% of its net investment taxable income to its shareholders. Generally, no federal income tax provision is required for the Company.

 

The Company records a liability, if any, for unrecognized tax benefits resulting from uncertain income tax positions taken or expected to be taken in an income tax return. No liability has been recorded for uncertain tax positions or related interest or penalties as of December 31, 2018.

 

Dividends and Distributions to Shareholders

 

Dividends and distributions to shareholders are recorded on the payable date. Dividends are generally declared and paid twice a year. Capital gain distributions are generally declared and paid annually. The timing and characterization of certain income and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with accounting principles generally accepted in the United States.

 

Directors' Compensation and Expenses

 

Each member of the Board of Directors receives compensation for each board meeting attended during the year, in addition to a per diem allowance. Directors are also reimbursed for such expenses as accommodation, airfare, and car rental related to Board meetings. In addition to meeting related expenses, the Company pays for the medical insurance of certain directors.

 

Subsequent Events

 

The Company has evaluated subsequent events through the date these financial statements were available to be issued, which was [February 19, 2019.]

 

Note 3. Fair Value Measurements

 

Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market based measurement determined based on assumptions that market participants would use in pricing an asset or liability. There are three levels that prioritize the inputs used in measuring fair value as follows:

 

·         Level 1: Observable market inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities;

·         Level 2: Observable market inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

·         Level 3: Unobservable inputs where there is little or no market data, which require the reporting entity to develop its own assumptions.

 

 

 

 

An asset's or liability's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The following is a description of the valuation methodologies used for assets measured at fair value, including a general description of the asset.

 

Equity securities (common stock)

 

Securities traded on a national securities exchange (or reported on the NASDAQ national market) are stated at the last reported sales price on the day of valuation. To the extent these securities are actively traded and valuation adjustments are not applied, they are categorized in Level 1 of the fair value hierarchy.

 

Corporate bonds

 

The fair value of corporate bonds is estimated using various techniques, which may consider recently executed transactions in securities of the issuer or comparable issuers, market price quotations (where observable), bond spreads, fundamental data relating to the issuer, and credit default swap spreads. Corporate bonds are generally categorized in Level 2 of the fair value hierarchy.

 

Real Estate

 

Real estate represents entitlement to the surface estate of real property, for which no readily available market quotation exists. Fair value of real estate is determined by management based on a Certified Forester's opinion as to the current value and status of the land, along with other factors. Other relevant factors include the lack of commercially viable timber due to previous harvest, amount of capital expenditures required for the future growth of timber, location of the property, recent sales of similar real property in the region and market demand and supply for this type of real property during the valuation process. Real estate is included in Level 3 of the fair value hierarchy.

 

The following table presents information about the Company's investments in securities and real estate measured at fair value as of December 31, 2018:

 

          Level 1 Level 2 Level 3 Balance
Investments in Securities        
  U.S. Corporate Bonds $                - $  1,214,751 $               - $   1,214,751
  U.S. Common Stock 28,361,300     28,361,300
  Money Market Fund 3,052,001     3,052,001
          $ 31,413,301 $  1,214,751 $               - $ 32,628,052
Real Estate $               - $               - $ 6,077,000 $   6,077,000

 

The Company recognizes transfers between Level 1 and 2 at the end of the reporting period. As of December 31, 2018, no significant transfers between Level 1 or 2 occurred.

 

 

 

 

At December 31, 2018, there were no realized gain (loss), cost or purchases, proceeds from sales, or transfers in or out of Level 3 at the end of the reporting period. Refer to Note 4 (Real Estate) for a description of unrealized gain of $137,095 in the value of real estate during 2018.

 

Note 4. Real Estate

 

At December 31, 2018, the Company owns fee title to the surface estate of 22,946 acres of real estate located in southeast Alaska.

 

As of December 31, 2018, there is no commercially viable timber on the real estate and the Company has no outstanding timber agreements. The last harvest and sale of timber from this land was in 2001.

 

The financial statements include real estate valued at $6,077,000 in 2018, the value of which was determined by an independent appraisal. The value at December 31, 2018 represents an increase of $137,095 from the value at December 31, 2017, of $5,939,905. The board approved this fair value estimate of the real estate.

 

Note 5. Trading Risk

 

In the normal course of business, the Company enters into financial transactions involving instruments where there is risk of potential loss due to changes in the market (market risk) or failure of the other party to the transaction to perform (credit risk).

 

Market risk is the potential change in value caused by fluctuations in market prices of an underlying financial instrument. Subsequent market fluctuations may require selling investments at prices that differ from the values reflected on the statement of assets and liabilities. Market risk is directly impacted by the volatility and liquidity in the markets in which financial instruments are traded. The Company's exposure to market risk may be increased in that a significant portion of its assets may be invested in a relatively small number of investment positions at any one time. Accordingly, appreciation or depreciation in value of investment positions may have a more significant effect on the value of the Company's portfolio than would be the case in a more diversified or hedged portfolio.

 

Credit risk is the possibility that a loss may occur due to the failure of the counterparty to perform according to the terms of a contract. The Company's exposure to credit risk associated with counterparty nonperformance includes cash deposits that may exceed applicable insurance limits. The Company seeks to control such credit risk by maintaining deposits with only high quality financial institutions and trading exchange traded financial instruments, which generally do not give rise to significant counterparty exposure due to the requirements of the individual exchanges.

 

Note 6. Investment Transactions

 

Purchases of investment securities (common stock and publicly traded partnerships) aggregated $3,792,293 for the year ended December 31, 2018, and sales and maturities of investment securities (consisting of corporate bonds and common stock) aggregated $4,174,686 for the year ended December 31, 2018.

 

 

 

 

The U.S. federal income tax basis of the Company's investments is the same as for financial reporting purposes. The gross unrealized appreciation and gross unrealized depreciation for U.S. federal income tax purposes is $2,535,872 and $3,755,650, respectively, as of December 31, 2018.

 

Note 7. Premises and Equipment

 

The following is a summary of premises and equipment at December 31, 2018:

 

Building $           170,601
Furniture, fixtures, and equipment 79,836
  250,437
Less accumulated depreciation (237,386)
  $            13,051

 

All assets are recorded at cost less accumulated depreciation. Depreciation is computed on the method over the estimated useful lives of the related assets, which range from 5 to 15 years. Depreciation expense was $5,735 for the year ended December 31, 2018.

 

Note 8. Lease Obligation

 

The Company leases office space under a non-cancelable operating lease agreement, which terminates September 30, 2021. Pursuant to the lease agreement, the Company paid a lease deposit of $3,528 which will be credited to the last month's rent. Future minimum lease commitments under this non-cancelable operating lease are as follows:

 

   
2019  $            41,175
2020                41,470
2021                31,755
   $          114,400

 

Rent expense for the year ended December 31, 2018, was $40,593.

 

Note 9. Net Assets

 

Upon organization of the Company, 100 shares of common stock (Class A) were issued to each qualified shareholder enrolled in the Company pursuant to ANCSA. The Company utilized a roll comprising 120 Alaska Natives eligible to receive stock certificates as certified by the U.S. Secretary of the Interior. Under the provisions of ANCSA, stock dividends paid or other stock grants are restricted, and the stock may not be sold, pledged, assigned, or otherwise alienated, except in certain circumstances by court decree or death, unless approved by a majority of the shareholders. The stock carries voting rights only if the holder hereof is an eligible Alaska Native. Nonvoting common stock (Class B) is issued to non-Native persons who inherit stock or are gifted stock.

 

 

 

 

 

The Company's capital structure is as follows:

 

·         Common stock:

-    Class A, no par value - Authorized, 1,000,000 shares; issued and outstanding, 10,882.83 shares

-    Class B, no par value - Authorized, 500,000 shares; issued and outstanding, 1,117.17 shares

 

Note 10. Dividends and Distributions to Shareholders

 

On March 9, 2018, a distribution of $11.00 per share was declared. The dividend was paid on March 22, 2018, to shareholders of record on March 12, 2018.

 

On November 8, 2018, a distribution of $70.00 per share was declared. The dividend was paid on November 21, 2018, to shareholders of record on November 13, 2018.

 

The tax character of distributions paid during 2018 and 2017 were as follows:

 

    2018   2017
Distributions paid from:      
  Ordinary income $           420,895   $           994,366
  Long-term capital gain 551,106   205,635
    $           972,001   $        1,200,001
         

 

As of December 31, 2018, and 2017, the components of distributable earnings on a tax basis were as follows:

 

    2018   2017
Undistributed ordinary income $           373,890   $           157,444
Net unrealized appreciation (depreciation) on:      
  Investments (1,219,778)   1,130,842
  Real estate 5,022,911   4,885,816
    $        4,177,023   $        6,174,102
         

 

 

 

 

 

Note 11. Schedule of Investments

 

Investments are categorized by type, country, and industry. The industry category represents management's belief as to the most meaningful presentation of the classification of the principal business of the investors. The percentage of net assets is computed by dividing the fair value of each category by net assets.

 

Note 12. Pension Plan

 

Employees of the Company are covered by a defined contribution pension plan. The Company contributes 20% of each participant's compensation to the plan. The Company's contributions during the year ended December 31, 2018, totaled $47,379.

 

Note 13. Other Income and Expense

 

The Company earned income of $195,480 and $106,320 for the years ended December 31, 2018, and 2017, respectfully, as a result of ANCSA Section 7(i), which requires regional corporations to distribute 70% of any net revenues derived from timber resources and the subsurface estate to other regional corporations, which then redistribute under Section 7(j) 50% of such amounts to the village corporations and at large shareholders.

 

Other income also includes $16,320 and $16,319 of lease and rental income for the years ended December 31, 2018 and 2017, respectively.

 

 

 

 

 

 

 

 

 

 

 

 

petersonsullivan LLP

Certified Public Accountants & Advisors

Seattle, WA

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

 

To the Shareholders and Board of Directors

Kavilco Incorporated

Kasaan, Alaska

 

 

In planning and performing our audit of the financial statements of Kavilco Incorporated ("the Company") as of and for the year ended December 31, 2018, in accordance with the standards established by the Public Company Accounting Oversight Board (United States), we considered the Company's internal control over financial reporting, including controls over safeguarding securities, as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements and to comply with the requirements of Form N-CEN, 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. Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of controls. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the Company are being made only in accordance with authorizations of management and directors of
the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of a company's assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are

 

 

 

 

subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

A deficiency in internal control over financial reporting exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

 

Our consideration of the Company's internal control over financial reporting was for the limited purpose described in the first paragraph and would not necessarily disclose all deficiencies in internal control that might be material weaknesses under standards established by the Public Company Accounting Oversight Board (United States). However, we noted no deficiencies in the Company's internal control over financial reporting and its operation, including controls for safeguarding securities, that we consider to be a material weakness as defined above as of December 31, 2018.

 

This report is intended solely for the information and use of management and the Board of Directors of
the Company and the Securities and Exchange Commission and is not intended to be and should not be used by anyone other than these specified parties.

 

 

/S/ PETERSON SULLIVAN LLP

 

 

Seattle, Washington

February 19, 2019

 

 

 

 

 

 

 ITEM 2. CODE OF ETHICS.

Kavilco adopted a code of ethics on January 29, 1990. The code of ethics was amended on May 9, 2008 and is available on the registrant's website at: www.kavilco.com.

 

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

Kavilco Incorporated is subject to the Alaska Native Claims Settlement Act (Act). Pursuant to the Act, Kavilco’s stock and dividends may not be sold, pledged, subjected to a lien or judgment execution, assigned in present or future, or otherwise alienated, except pursuant to court decree of separation or child support. However, the stock can be gifted to a relative provided the recipient is a descendant of an Alaska Native.

The Chief Financial Officer has no control over the financial records of the corporation. The Corporate Secretary maintains the accounting records. Monthly, an independent accountant performs various reconciliations and adjusting journal entries on the corporate books and records.

Kavilco does not have an audit committee. The CFO reviews the entire audited financial statements and various CPA correspondence with the board of directors. Two board members have degrees in business. However, pursuant to SEC regulations their experience would not qualify them as financial experts. The only contentious financial issue that Kavilco has had to deal with since becoming an Investment Company involves the evaluation of our land holdings in Alaska. After a two-year battle with our previous auditors, PricewaterhouseCoopers, and pressure by the Security Exchange Commission, the board relented and increased the value of our land holdings. The CFO opposed this action because it served no practical purpose.

The primary purpose of a financial expert serving on the board of directors is to prevent the gross accounting inequities that were driven by greed and outright thievery at such firms as Qwest Communications, Enron and Tyco. There is no incentive on behalf of management to commit fraud since Kavilco’s stock cannot be publicly traded and we do not have compensation incentives. More importantly, the board of directors is not a rubber stamp for management. Many of the shareholders are related to the directors, which acts as an additional incentive to have a high degree of business probity.

Kavilco has never been involved in financial deceit. This superior track record can only be attributable to the excellent oversight of an active and knowledgeable board of directors. Accordingly, Kavilco does not have an audit committee or a financial expert as defined by the SEC.

 

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

During the period covering the fiscal years ended December 31, 2018 and 2017, Peterson Sullivan performed the following professional services.

           
    2018      2017
Audit fees $ 18,800    $ 21,695
Audit related fees   0     0
Tax fees $ 8,625   $ 6,645

 

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.

Kavilco is a privately held registered investment company, and accordingly is not subject to the Securities Act of 1933.

 

ITEM 6. SCHEDULE OF INVESTMENTS.

Please see Schedule of Investments contained in the Report to Shareholders filed under Item 1 of this Form N-CSR/A.

 

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

The board of directors adopted the following resolution during the November 2003 board meeting.

Kavilco Incorporated Resolution 11-14-03b: Proxy Voting Policies

The Securities and Exchange Commission believes the recent corporate scandals have created renewed investor interest in corporate governance issues. In response, the SEC has new rules designed to increase transparency of proxy voting by mutual funds.
          RESOLVED, on voting common stock, the Chief Financial Officer is hereby directed to vote the management slate of directors and management’s recommendations on corporate proposals that appear on the proxy.
          RESOLVED, where there is a material conflict of interest where the Chief Financial Officer has a business, personal, or family relationship with a public company, voting will be deferred until the next scheduled board of directors meeting at which time the issue will be discussed.
          RESOLVED, pursuant to rule 30b1-4 under the Investment Company Act, Kavilco will file form N-PX with the SEC detailing a complete voting record. This filing will be made for a 12-month period commencing on June 30, 2004. In addition, this information will be available on Kavilco’s web site as soon as reasonably practicable, after filing the report with the SEC, which means the same day, absent unforeseen circumstances.

Date: November 14, 2003

/s/ Louis A. Thompson
Louis A. Thompson, President

/s/ John Campbell
John Campbell, Secretary

 

ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

This disclosure requirement is not applicable to registrant .

 

ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.

The Alaska Native Claims Settlement Act (ANCSA), which is our primary regulating authority, places numerous restrictions on the Company's stock. Kavilco's stock was given to its shareholders. It can only be transferred by court decree or gifting to a blood relative and cannot be sold or used as collateral. There is no provision in the ANCSA regulations for repurchase of shares.

 

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were voted on by shareholders during the period covered by this report.

 

ITEM 11. CONTROLS AND PROCEDURES.

(a) The registrant’s President/Chief Executive Officer and Chief Financial Officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) are effective at the reasonable assurance level based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document.

(b) There were no changes in the registrant’s internal controls over financial reporting that occurred during the fourth fiscal quarter of the period that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

ITEM 12. EXHIBITS.

The following exhibits are attached to this Form N-CSR:

 

     
EXHIBIT NO.   DESCRIPTION OF EXHIBIT
12 (a) (1)   Certification of President
   
12 (a) (2)   Certification of Chief Financial Officer

 

 

 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

     
(Registrant): Kavilco Incorporated
   
By:   /s/ Louis L. Jones, Sr.
    Louis L. Jones, Sr.
    President

Date: February 25, 2019

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

     
By:   /s/ Scott Burns
    Scott Burns
    Chief Financial Officer
 
Date: February 25, 2019

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