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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-15474
AMERALIA, INC.
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(Exact name of Company as specified in its charter)
UTAH 87-0403973
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1155 KELLY JOHNSON BLVD, #111, COLORADO SPRINGS, CO 80902
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(Address of Principal Executive Offices)
Company's telephone number, including area code: (719) 260-6011
Securities registered pursuant to Section 12(b) of the Act: None.
Securities to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK - $.01 PAR VALUE
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(Title of Class)
Indicate by checkmark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES /X/ NO / /
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein and will not be included herein and will
not be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K: [ X ]
Shares of common stock, $.01 par value, outstanding as of September 10, 1996:
2,892,601. Aggregate market value of the voting stock held by non-affiliates of
the Company as of September 10, 1996 was
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approximately $3,000,000. The estimate is based on an average of bid and ask
price per share and 1,493,500 shares estimated to be held by non-affiliates.
Shares of preference stock, $.05 par value, outstanding as of September 10,
1996: 720,496.
PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF THE BUSINESS
AmerAlia, Inc. (the "Company") was originally incorporated under the laws
of the State of Utah on June 7, 1983, as Computer Learning Software, Inc. After
a change in control of the Company in January, 1984, the Company has been
primarily engaged in establishing a chemical business in the manufacture of
sodium bicarbonate and related products in Colorado, United States. It also
acquired various investments in Australia which have since been sold. The
majority of the Company's Management are citizens of Australia. All dollar
amounts in this report are in United States dollars ($) unless specifically
referenced as Australian dollars (A$).
On January 19, 1993 the Company effected a reverse split of its common
stock of 40 to 1. All shares numbers hereinafter stated have been adjusted to
reflect the effect of the reverse split.
On November 15, 1989, the Company acquired Denison Resources (USA)
Corporation ("Denison") which had subleased an interest in a federal sodium
lease from an unaffiliated owner. Subsequently, on December 10, 1992, the
Company received an assignment of the lease from the previous owner. This lease
includes a substantial, naturally occurring, rare deposit of sodium bicarbonate
in Colorado, USA as more fully set out below. Denison has not maintained its
corporate charter under Delaware law and, therefore, has no remaining interest
in the Lease.
The Company's primary objective is to recover from this lease through
solution mining the naturally occurring sodium bicarbonate for the animal feed,
industrial, pharmaceutical and food grade markets. The production of sodium
bicarbonate will also enable the production of soda ash and caustic soda,
chemicals which are widely used in the manufacture of glass, detergents and a
variety of inorganic and organic chemicals. Potentially, sodium bicarbonate
might be used as an agent for flue gas desulfurization, a market the Company
expects will expand as the requirements of the Clean Air Act amendments of 1990
impact industry more significantly. It proposes to achieve this objective by:
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(a) finalizing approval of a Mining Plan to enable the construction of a mine
and associated plant for the production of sodium bicarbonate;
(b) the raising of sufficient capital to commence mining and processing
operations on the company's lease; or
(c) seeking qualified joint venture partners for the development of its sodium
bicarbonate resource if that is more beneficial to the Company.
The Company has entered into two agreements and one letter of intent with
three long standing distributors of sodium bicarbonate to the livestock
industry, although none of these distributors has any obligation to purchase any
sodium bicarbonate from the Company, even should the Company achieve production
of sodium bicarbonate from its lease (which cannot be assured). These
distributors cover most of the United States. Animal feed quality sodium
bicarbonate has a current market price between $200 and $240 per ton delivered.
Sodium bicarbonate is used in the preparation of animal feed mixes where it acts
as a rumen buffer to increase dairy cow milk production.
The Company has been involved in no bankruptcy, receivership, or similar
proceedings, except that a secured creditor, NZI Securities Australia Ltd.
("NZI"), declared a default on indebtedness of approximately A$1,200,000 in
September 1996 and advised the Company that NZI intended to immediately exercise
its power of sale over the RIT units NZI held as collateral. This debt was
subsequently acquired from NZI by the THG Partnership ("THG"), an affiliate of
the Company, and the Company then concluded an agreement with THG to settle the
debt as discussed more fully in Item 13(a). The only material reorganization in
which the Company has been involved during the past five years was the
acquisition of Denison (in November 1989) and the acquisition of the federal
sodium lease in December 1992, all as described in more detail, below.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
The Company is currently involved in only one industry segment, chemical
manufacture, and, therefore, this information is not material.
(C) NARRATIVE DESCRIPTION OF THE BUSINESS.
INTRODUCTION
The Company conducts its mining exploration activities directly. Prior to
the 1993 fiscal year, the Company conducted its
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mining exploration through its wholly-owned subsidiary, Denison Resources
(USA) Corporation ("Denison"). On November 15, 1989, the Company acquired
all the outstanding issued common stock of Denison from Denison Resources
Ltd., an unaffiliated company of Brisbane, Queensland, Australia. The
Company issued 407,866 shares of unregistered common stock in the Company in
exchange for the Denison Stock. This acquisition is referred to hereafter as
the "Denison Acquisition."
GENERAL DISCUSSION
THE PICEANCE CREEK BASIN. The Rock School Lease is one of three federal
leases granted within the Piceance Creek Basin which covers a unique, major
natural resource of a mineral called nahcolite (natural sodium bicarbonate).
The Company has performed surface geological investigation of the 1,320 acre
lease and has reviewed data assembled by other investigators in the Piceance
Creek Basin, including a 1974 report published by the United States
Geological Survey entitled "Stratigraphy and Nahcolite Resources of the
Saline Facies of the Green River Formation, Rio Blanco County, Colorado."
(John R. Dyni, USGS Report 74-56). This report analyzed the results of a
detailed study of ten core holes from the saline zone, including a core hole
known as Dunn 20-1 which is approximately 800 feet to the east of the
Company's proposed initial mine site on the Rock School lease.
From this core hole, Mr. Dyni estimated the total nahcolite content of the
saline zone in this area at 315 million tons per square mile. Using this figure
translates to a total estimated nahcolite content of the Rock School lease of
649 million short tons for the 1,320 acre lease. Due to lateral persistence of
this deposit, which allows correlation of beds over distances of many miles, it
is reasonable to assume that the concentrations found in the Dunn 20-1 hole also
exist beneath the Rock School Lease.
In 1996 the Company drilled a core hole to positively determine the extent
of mineralization and the strength of the rocks in the proposed solution mining
area. The drill encountered nahcolite in three separate resource intervals,
below the lower salt horizon, over 510 feet and averaged 26.4% nahcolite. The
Company engaged Agapito & Associates to supervise the core hole drilling and to
conduct studies on core assays, rock strength and geological evaluation.
Based on the foregoing information the Company believes that the nahcolite
deposit within the Rock School lease is of significant size. However, not all of
this resource can be recovered with existing technology and within existing BLM
sodium mining lease conditions. Until the resource is brought into production,
or until substantial additional engineering work is
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accomplished, the viability of economic recoverability cannot be established.
The Company's activities in pursuing the conduct of mining operations are
set out more fully below. (See "Exploration and Development Work To Date.")
THE SODIUM BICARBONATE MARKET. The existing and long established market
for sodium bicarbonate is principally for food grade, animal feed and commercial
usage with delivered sale prices in the range of $200-400 per ton, depending on
grade. It is dominated by a few suppliers who produce synthetic, high cost
sodium bicarbonate from soda ash (sodium carbonate) and sell under well
established brand names. The United States and Canadian markets currently
absorb about 495,000 tons annually.
The animal feed market accounts for approximately 118,000 tons of the
existing annual USA/Canada market for sodium bicarbonate. It is the lower
priced market with delivered prices in the range of $200-240 per ton. Other
markets are at higher prices with pharmaceutical grade selling for approximately
$400 per ton. These markets are mature and stable experiencing modest growth.
The Company plans to initially supply the animal feed market where the it will
be used as a rumen buffer, principally for dairy cows. Small amounts in feed
rations re-establish normal rumen balance thereby controlling acidotic stress
conditions and increasing yields of both milk and butter fat. The Company has
entered into marketing arrangements to sell sodium bicarbonate for animal feed.
(see "Marketing Arrangements")
In addition to the animal feed market, there are other potential markets
for sodium bicarbonate that may be recovered from the Company's lease, such as
the pharmaceutical, industrial and food grade markets. Sodium bicarbonate also
might be used as an agent for flue gas desulfurization, a market the Company
expects will expand as the requirements of the Clean Air Act amendments of 1990
impact industry more significantly. The Company has not, however, negotiated
any relationships with respect to these markets.
MARKETING ARRANGEMENTS. The Company has signed two agreements and one
letter of intent with three long standing distributors of sodium bicarbonate to
the livestock industry, although none of these distributors has any obligation
to purchase any sodium bicarbonate from the Company, even should the Company
achieve production of sodium bicarbonate from its lease (which cannot be
assured). These distributors cover most of the United States. Sodium
bicarbonate is used in the preparation of feed mixes. The distributors, which
have exclusive arrangements with the Company, will have the opportunity to
acquire sodium bicarbonate from the
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Company at a wholesale price. The contracts will only become effective when
the buyers place their first order after the Company commences production.
The Company has no estimate as to when it will have production for sale. The
Company has also received a letter from a third distributor indicating a
capacity to distribute additional tonnage of sodium bicarbonate.
COMPETITION. Any production that may be obtained by the Company or any
other person from the Rock School Lease will be marketed in the traditional
sodium bicarbonate market in competition with large and well established
companies. The animal feed market is subject to competition from other rumen
buffers in addition to that from other sodium bicarbonate producers. The
resources of those companies far exceed those of the Company.
However, the Company believes that in the long term its recovery of
naturally occurring sodium bicarbonate from its lease will enable it to enjoy a
significant cost advantage over competitors which currently dominate the
industry but rely on higher cost synthetic manufacture. This cost advantage
will enable the Company to penetrate the animal feed market.
Two unaffiliated companies hold adjacent or nearby sodium leases issued by
the BLM. In November 1992, shareholders of NaTec approved a joint venture
agreement with North American Chemical Company ("NACC") whereby NaTec
transferred its assets into a new entity to be known as White River Nahcolite
Minerals Ltd. Liability Co. (WRNM). In August, 1995 shareholders of NaTec
approved the sale of its interest in WRNM to NACC.
NaTrona Resources, Inc. ("NaTrona") owns a 39.58% interest in the Yankee
Gulch Joint Venture Sodium lease which was issued January 1, 1992.
Although the sodium resource in the Piceance Creek Basin is believed to be
of substantial size, the leases to the Company, NACC and the Yankee Gulch Joint
Venture are the only leases currently issued by the BLM. Competition in the
long term is not regarded as being significant since the size of the potential
market is so large.
THE ROCK SCHOOL LEASE
BACKGROUND AGREEMENTS. As noted above, the Company has purchased United
States Sodium Lease No. C-0119985 (known as the "Rock School Lease") including
1,320 acres in Rio Blanco County, Colorado, USA (the "Rock School Property").
Prior to December 1992, the Rock School Lease was owned by E. E. Kinder Co., an
unaffiliated Colorado general partnership ("Kinder") which had subleased the
property to Denison pursuant to the "Denison
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Agreement." Pursuant to the terms of the Denison Agreement, Denison was
required to meet certain requirements sufficient to obtain an extension of
the lease, proceed with mining operations and to pay minimum annual royalties
of $100,000 commencing January 1, 1992. In June, 1991 the Federal Bureau of
Land Management issued the lease renewal, effective July 1, 1991, for a
period of ten years.
On December 10, 1992 the Company purchased the Rock School Lease from
Kinder; the acquisition terms were amended by Kinder and AmerAlia in July 1994,
and again in January 1996. As amended, the acquisition agreement provided for
the following consideration:
(i) a cash payment of $600,000;
(ii) the issuance of 50,000 shares of Common Stock;
(iii) the granting of an option for two years to acquire 50,000 shares of
restricted common stock at $3 per share (which option has expired);
(iv) commencing July 1, 1994, the reservation of a production royalty of
$1.50 per ton for all production, due and payable on the last day of
the month following the month of production with a minimum annual
royalty of $75,000 payable monthly in arrears; and
(v) also commencing July 1, 1994, the establishment of a consulting
arrangement between Kinder and the Company providing for a consulting
fee of $25,000 per year, payable monthly in arrears. The Company is
negotiating certain adjustments in this contract at Kinder's request.
As a result of the agreement, Kinder assigned to the Company all of its
right, title and interest in both the federal lease and the Denison Agreement.
Kinder also agreed to provide all documentation, files and records in its
possession pertaining to the exploration of and development plans for the mining
of the Rock School Lease; warranted that it had not assigned to any third party
or dealt in any way with its interest in either the Rock School Lease or the
Denison Agreement and granted the Company an option for two years to acquire its
royalty interest for the consideration of $2 million. This option expired
without being exercised. The assignment of the interest in the Rock School
Lease was subject only to approval by the BLM, which approval was granted
effective January 1, 1996.
As a result of the assignment of the Rock School Lease to the Company, the
failure of Denison to comply with certain terms of the Denison Agreement, and
the failure of Denison to maintain its corporate charter in Delaware, the
Denison Agreement has been cancelled and is of no further effect.
ROCK SCHOOL LEASE - TERMS. Under the terms of the Rock School Lease, the
leaseholder has a preferential right to renew the
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Lease at the end of the Lease term under such terms and conditions as may be
then prescribed by the Secretary of the Interior, or by applicable law. The
Lease currently requires that, as a condition to renewal, sodium must be
produced from the lease in paying quantities. Rental is payable annually in
advance at the rate of $1 per acre. In addition, production royalties equal
to 5% of the gross value of the output at the point of shipment to market are
payable. Minimum annual production and rental payments have been agreed upon
at the rate of $3 per acre annually.
EXPLORATION AND DEVELOPMENT WORK TO DATE. When Ameralia acquired Denison,
approximately $493,000 had already been invested in various geological,
engineering and marketing studies associated with sodium bicarbonate. Following
the Denison Acquisition, the Company has invested a further $1,492,244 in direct
expenditures for lease payments, geological and engineering studies including
the drilling of a core hole, legal expenses, technical consultants, and advances
to the Bureau of Land Management in order to advance the project's development.
In addition to this, there were other direct expenditures incurred by the
Company in negotiating with and meeting prospective joint venture partners.
These amounts have not been precisely determined as they have been expensed in
the Company's accounts.
The Company is carrying out further exploration work on the Rock School
Lease. The Company's principal efforts are directed towards obtaining the
necessary permits and identifying the requirements of the permitting agencies.
Because the Piceance Creek Basin is known to contain a substantial amount of oil
shale, the BLM has prohibited mining operations which adversely affect oil
shale. The federal agency has, however, accepted the proposed solution mining
method and approval of a 50,000 tons/year pilot mining operation is now
expected. The BLM requested that the Company drill a core hole on the Rock
School Property and obtain site specific underground data prior to the
commencement of operations.
The Company drilled this core hole in early 1996. The drill encountered
nahcolite in three separate resource intervals, below the lower salt horizon,
over a depth of 510 feet and averaged 26.4% nahcolite. The Company engaged
Agapito & Associates to supervise the core hole drilling and to conduct studies
on core assays, rock strength and geological evaluation. Their report on rock
mechanics and cavity design is now completed and provides further design data.
These reports have been submitted to the BLM and will be submitted to other
regulatory agencies of the federal, state and county administrations. The BLM
will consider the reports, the revised plant design and data from the mine plan
submitted in 1989 and will be asked to come to a finding of no significant
environmental impact ("FONSEI"). If they so conclude, the Company,
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subject to satisfactory financial capability, will proceed with a plant to
produce 50,000 tons per year.
The BLM's principal concern is the assessment of the effect of the proposed
cavities on the geological environment, as well as on any existing aquifers
located above the proposed leaching caverns. While it is the Company's belief
that the BLM is favorably disposed to the proposed development and that the
reports will conclude that the environmental impact will be minimal, no
guarantee can be given that a "FONSEI" will be forthcoming. Management will
proceed with its planning in the expectation of approval. Should the Company
wish to expand its production in the future beyond 50,000 tons per year, it will
be required to produce an Environmental Impact Statement ("EIS"). An EIS would
be expensive and time consuming and the Company does not contemplate undertaking
one until operational data is available from the initial 50,000 tons per year
project.
PROPOSED DEVELOPMENT PROGRAM. The Mine Plan submitted to the BLM for
approval envisages the development of the resource in stages starting with a
plant to produce 50,000 tons per year and then expanding to 500,000 tons per
year. Production will be from a 500 foot thick zone at a depth of 2,000 feet
to 2,500 feet. Hot water will be injected into the nahcolite bearing rock;
the nahcolite will dissolve and be brought to the surface in solution where
it will be recrystallized and dried prior to despatch. This in situ solution
mining technique has been previously tested in the same resource by Shell Oil
(1970-1972) and has been found to be feasible. Solution mining in other
resources is well established. The company's cash cost of production is
expected to be about $65 per ton, one-half of estimated existing average
industry cash costs.
AmerAlia is currently engaged in securing permits from the Department of
Interior, BLM and the Environmental Protection Agency as well as State agencies
necessary to proceed to mine the property. The Company is also seeking
financing (which cannot be assured), to commence development work on the Rock
School Lease. It is anticipated that the cost to construct a mine and
associated plant on the property, as anticipated in the preliminary mine plan
submitted to the BLM, will be in excess of $30 million for a 50,000 ton per year
plant. The Company has had numerous discussions with industry partners and
investors or investment representatives who have expressed interest in financing
the development of the property, but has not reached agreement with any. If the
Company is not able to obtain outside financing for the project, or if it is
unable to obtain all necessary permits, it may not be able to complete the
development of the property and commence mining.
ACCESS. The Rock School Property is accessible by a county
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maintained gravel road which is sufficient for the exploration and
development work to be accomplished. Access is difficult during the winter
and early spring because of heavy snows in the area. Should the property be
placed into production, the road will have to be improved to allow
all-weather access.
AUSTRALIAN ACTIVITIES
The Company previously owned real estate and beef cattle in Australia. The
real estate was sold in 1989 to an unaffiliated, public Australian real estate
investment trust, known as "The Rural Investment Trust" ("RIT"), for A$1,000,000
in exchange for 1,059,459 units in the trust. The agreement between the Company
and the RIT was that the Company would not liquidate more than 25% of its units
in any one year, upon providing twelve months notice. These units were
collateral for a loan from NZI Securities Australia Ltd for principal and
accrued interest in the amount of $917,045 as at June 30, 1996. The Company's
units in the RIT represent a part ownership of properties owned by the Trust.
At regular intervals, all the properties owned by The RIT are valued by
independent appraisers, and any changed value is passed on to the unit holders
through an increase or decrease in the buy-back price of the units. The Trust
distributes income semi-annually and the Company received $16,966 during the
year ended June 30, 1996 (1995: $10,000; 1994: $8,000). A reduction in the
buyback price in 1991 resulted in a decrease of $238,992 in the value of the
Company's remaining investment. Further fluctuations in property values and
foreign currency movements resulted in the current valuation of $485,661.
The RIT has leased a portion of its real estate to a company in which the
Company's President, Mr. Bill H. Gunn, and Mary L. Tiscornia, a 5% shareholder,
have an interest. When the Company sold its agricultural property, Codrington,
in November, 1989 in exchange for its units in the RIT, the Company formed a
subsidiary company to lease Codrington and two adjoining properties from the
RIT. In June, 1990 as a result of continued losses and liabilities associated
with these rural activities, a lack of adequate capital resources to further
develop the subsidiary company and to forestall further losses, the Company
transferred ownership to Mary L. Tiscornia and Bill H. Gunn in exchange for a
release from the subsidiary's liabilities as disclosed in previous filings.
As discussed more fully later (See Item 13(a): Related Party Transactions),
effective October 18, 1996 the Company transferred ownership of its investment
in the Rural Investment Trust to The THG Partnership in part settlement of a
note payable. The value ascribed to the investment was $444,375 which reflected
the present day value of the investment as a result of the restrictions
described above on liquidating the investment.
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EMPLOYEES
The Company has no salaried employees other than Mr. Marvin Hudson, Vice
President, Investor Relations, who together with Mr. Bill H. Gunn, Chairman and
President, and Mr. Robert van Mourik, Executive Vice President, handle the day
to-day business activities of the Company as well as maintain its books and
records. The services of Mr. Gunn, Mr. van Mourik and Mr. Robert Cameron, a
director who provides mining and geological consulting services, are provided to
the Company under management services agreements with affiliated entities. See
Item 11. - "Executive Compensation".
ITEM 2. PROPERTIES
The Company is a lessee of United States Sodium Lease No. C-0119985
affecting 1,320 acres in Rio Blanco County, Colorado, USA, and described more
fully in Item 1. - "Business", above.
ITEM 3. LEGAL PROCEEDINGS
The Company is a not a party to any material threatened or pending claims
as of the date of this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(A) MARKET INFORMATION.
The Company's Common Stock is publicly traded in the over-the-counter
market and, since August 1987, has been quoted on the National Association of
Securities Dealers, Inc.'s Automated Quotation System ("NASDAQ") under the
symbol "AALA." The range of closing bid quotations for the Company's Common
Stock as provided by NASDAQ for the past two fiscal years is provided below.
These over-the-counter market quotations reflect inter-dealer prices without
retail markup, markdown or commissions and may not necessarily represent actual
transactions.
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Average Closing
For the Quarter Ended Bid
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1994
September 30 $3.12
December 31 $2.63
1995
March 31 $2.50
June 30 $2.50
September 30 $2.00
December 31 $2.25
1996
March 31 $2.41
June 30 $2.33
September 30 $2.00
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(B) HOLDERS.
(B)(1) The number of record holders of the Company's Common Stock on
September 10, 1996 was approximately 446. (This does not include an
indeterminate number of shareholders whose shares are held by brokers in street
name.)
(B)(2) Not applicable.
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(C) DIVIDENDS
The Company has paid no dividends with respect to its Common Stock and has
no plans to pay cash dividends in the future. The Company's ability to pay
dividends to holders of its common stock is limited as a result of the issuance
of its outstanding shares of Series A, B, C and D Preferred Stock.
ITEM 6. SELECTED FINANCIAL DATA
The following information has been derived from the financial statements of
the Company appearing elsewhere in this Annual Report, and should be read in
conjunction with the financial statements and notes thereto. The per share
amounts and the weighted average number of shares outstanding have been adjusted
to give effect to the stock splits approved by the Company's shareholders in
January 1993.
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SELECTED FINANCIAL DATA
AMOUNTS IN THOUSANDS OF DOLLARS
(EXCEPT PER SHARE DATA)
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Year Ended June 30
1996 1995 1994 1993 1992
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Revenues 60 49 49 60 95
Net Loss (751) (1,007) (569) (580) (425)
Loss per Share (.28) (.41) (.24) (.29) (.60)
Total Assets 3,608 2,985 3,262 2,868 2,867
Total Current
Assets 232 338 755 739 819
Total Current
Liabilities 1,481 1,539 1,199 728 794
Long Term Debt 9 14 24 - -
Shareholders'
Equity 2,118 1,432 2,039 2,140 1,573
Weighted Average
No. of Shares 2,653 2,463 2,330 2,257 1,923
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This summary should be read in conjunction with the Company's Financial
Statements and Notes, included in Part IV of this Annual Report. The Company
has not paid a cash dividend since the date of its inception, and does not
anticipate doing so in the foreseeable future.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
SUBSEQUENT TO JUNE 30, 1996
As detailed below, funds are held in an escrow account pursuant to an
agreement between the Company and the Jacqueline Badger Mars Trust. Since June
30, 1996 an additional $175,000 has been withdrawn from this account leaving a
balance of $470,000 available to the Company.
In September 1996 a secured creditor, NZI Securities Australia Ltd.
("NZI"), declared a default on indebtedness due to it, and advised the
Company that it intended to immediately exercise its power of sale over the
RIT units held as collateral. This matter was resolved in a related party
transaction as described in Item 13(a), below.
JUNE 30, 1996 AS COMPARED TO JUNE 30, 1995:
In October 1995, the Company accepted two subscription applications for
issues of Series D Convertible Preferred Stock. The Series D Stock has a
liquidation preference equal to $1,000 per share, pays quarterly dividends at
the rate of 10% p.a., commencing December 31, 1995 and is payable in common
stock of the company at $1 per share. The Series D Stock carries voting rights
at the rate of 1,000 votes per share and can be converted into common stock
until October 31, 2000 on the basis of 1,000 common shares per share of Series D
Stock. If the Series C or Series D stock are not converted into common stock,
they are redeemable at the option of the Company, however, the Series C Stock
cannot be redeemed before December 31, 1998.
The first subscription agreement for $2,000,000 was received from the
Jacqueline Badger Mars Trust which is an existing holder of common stock, Series
A and B Preferred Stock. The Company has received $1,355,000 of the $2 million
during the year and the
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balance was held in an Escrow Account with the Norwest Bank, Denver. An
Escrow Agreement between the parties determines the manner in which the money
will be released to the Company through a written "Request for Disbursement"
as to the general use of proceeds. Unless the Escrow Agent receives a
written notification from the Trust not to remit the funds or to remit a
lesser amount, then the Escrow Agent will remit the funds not later than the
third business day following the request. Shares of Series D Stock are then
issued to the trust in proportion to the receipt of funds.
The second subscription agreement for 80 shares of Series D Stock was
received from The Bromley Family Trust, an existing holder of common stock and
Series B Stock. This subscription agreement is not subject to conditions as is
the Jacqueline Badger Mars Trust Subscription.
In addition, $14,000 was raised through the issue of short term notes
payable whilst notes payable were repaid in the amount of $68,000. Preferred
stock dividends amounting to $169,315 were paid through the issuance of 107,285
shares of common stock and $23,400 in cash which was reinvested in a
subscription for Series D stock. As discussed below the Company holds notes
receivable from an Australian debtor and an Australian finance company. The
Company recovered from the latter $115,000 in cash and was able to assign a
portion of the note in the amount of $113,250 for the payment of expenses
incurred by the Company. The Company believes the balance outstanding, after
having made provisions for non-recoverability in prior years, is recoverable
(See Subsequent events above). No further recoveries were made on the other note
receivable although negotiations continued with the debtor. Interest accrued
was written off as a bad debt resulting in a reduction in the book value of the
note from $139,000 to $131,000. However, as discussed above, a recovery
significantly in excess of the book value was achieved subsequent to year end
(See above).
During the year the Company invested a further $675,000 in developing its
Rock School Lease investment, while $41,000 was advanced to related parties
and $31,000 in the issuance of a note receivable which was recovered by the
Company subsequent to year end. Accounts payable were reduced by $123,000
and the Company paid $57,000 to NZI Securities in part payment of interest
accrued on the note payable. This note was subsequently acquired by the THG
Partnership as discussed above.
The Company has historically derived its liquidity from equity investment
from existing shareholders as well as new investors. The Company's ability to
ensure its long term survival is dependent upon the Company obtaining all
permits necessary for the construction of the proposed plant and financing for
its construction, estimated to be in excess of $30 million. There can
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<PAGE>
be no assurance that the Company will be able to achieve such financing.
Total assets increased during the year to $3,608,000 (1995: $2,985,000;
1994: $3,262,000) while shareholders funds increased to $2,118,000 (1995:
$1,432,000; 1994: $2,039,000).
JUNE 30, 1995 AS COMPARED TO JUNE 30, 1994:
During the year the Company accepted three subscription agreements for an
aggregate issue of 160,000 shares of common stock to two existing stockholders
for a total of $262,000 and an issue of 750 shares of Series C Convertible
Preferred Stock for $60,000 to an unaffiliated investor. Each share of the
Series C Stock has a liquidation preference of $80, carries an annual cash
dividend of 5%, carries voting rights equal to ten shares of common stock and is
convertible into 53 shares of common stock for a period of ten years. If the
Series C stock is not converted into common stock, it is redeemable at the
option of the Company, however, the Series C Stock cannot be redeemed before
December 31, 1998.
The Company also raised a further $132,000 in short term notes payable and
entered into an agreement with a creditor to exchange its account payable into a
note payable for $299,000.
During the year, the Company issued 71,250 shares of common stock valued at
$112,500 in lieu of dividends due to the Jacqueline Badger Mars Trust.
The Company continued to encounter difficulties in recovering its notes
receivable from two debtors which continue to be affected by the continuing,
severe drought conditions in Eastern Australia. The first of these notes
resulted from the sale of the Company's herd of breeding cattle in 1991 and the
default in the note has caused the 6% interest rate to increase to 15%. The
Company, however, has increased its provision for uncollectability from 10% to
30% causing a provision for bad debt of $31,000.
In addition, the Company has increased its provision for uncollectability
of its deposit with an unrelated Australian finance company increasing its
provision for bad debt by a further $230,000 to a written down value of
$300,000. Since the end of the fiscal year, however, the Company has been able
to recover approximately $225,000 of this deposit and anticipates further
recoveries.
Additional working capital funding was provided by a growth of $209,000 in
accounts payable and $77,000 in interest payable. As a result of the capital
raising from the Jacqueline Badger Mars Trust as discussed elsewhere these
outstanding accounts payable
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have since been substantially reduced. As a consequence of the contemplated
acquisition of the debt due to NZI by a related party (See Item 13: "Certain
Relationships and Related Party Transactions") the Company has not made any
payments of principal or interest on this debt. The Company invested a
further $49,000 on the development of its Rock School Lease
Total assets decreased during the year to $2,985,000 (1994: $3,262,000,
1993: $2,868,000) while shareholders equity reduced to $1,432,000 (1994:
$2,039,000, 1993: $2,140,000) which was contrary to the Company's history of
financing its operating losses through raising additional a equity. However, as
discussed above, additional equity funds were raised subsequent to year end.
RESULTS OF OPERATIONS
JUNE 30, 1996 AS COMPARED WITH JUNE 30, 1995:
Revenue was derived from income distributions from the Company's
investment in the Rural Investment Trust with income of $17,000 exceeding
income from prior years (1995: $10,000; 1994: $8,000). Income was also
derived from interest on notes receivable $43,000 (1995: $49,000; 1994:
$49,000), however due to difficulties in collecting notes receivable as
discussed above, accrued interest was written off as bad debts.
General and administrative expenses of $682,000 were lower than for 1995,
$919,000 as a result of there being minimal additional provision for bad
debts; but greater than for 1994 ($546,000) as a result of royalties now
being paid to E. E. Kinder Co. for the Rock School Lease. Interest expense
due principally to NZI Securities Australia Ltd. and Raytheon increased to
$124,000 over 1994 ($105,000) but was less than for 1993 ($140,000). Net
foreign currency gains totalled $7,000 compared with 1995 ($3,000) and 1994
($89,000) due to much lower fluctuations in the relative values of the
Australian and United States dollars. Consequently, the loss for the year of
$751,000 compared favorably with that for 1995 ($989,000) and 1994 ($648,000).
JUNE 30, 1995 AS COMPARED WITH JUNE 30, 1994:
Revenues were again derived from interest on notes receivable, $39,000
(1994: $41,000, 1993: $49,000); and the RIT income distribution of $10,000
(1994: $8,000, 1993: $11,000) resulting in total revenues of $49,000 (1994:
$49,000, 1993: $60,000). The reduction in interest income being due to
decreasing funds held on deposit. General and administrative expenses of
$919,000 were significantly higher than those of prior years (1994: $546,000,
1993: $521,000), while depreciation increased slightly as a result of the
purchase of a vehicle and additional computing equipment;
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<PAGE>
$14,000 (1993: $11,000; 1992: $3,000). Interest expense principally due to
due to NZI Securities Australia Ltd. and Raytheon was reduced compared with
the previous prior year, $105,000 (1994: $140,000; 1993: $42,000). There
were net foreign currency gains of $3,000 compared with $89,000 in the prior
year and a loss of $74,000 in 1993.
The significant increase in the operating loss for the year is due
primarily to three reasons. Firstly, general operating expenses have
increased reflecting greater activity to bring the Company's operations into
production. Secondly, the Company has commenced paying its monthly payments
required under its acquisition of the Rock School Lease Agreement with E. E.
Kinder Co., totalling $100,000 per year, and finally, as discussed above, the
Company made total provisions for bad debts on its notes receivable of
$268,000. Apart from these additional expenses, general and administrative
expenses are comparable to prior years.
IMPACT OF INFLATION
The Company believes that its activities are not materially affected by
inflation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements prepared in accordance with Regulation S-X follow the
signature page and are listed in Item 14 of Part IV of this Annual Report on
Form 10-K.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
(A)(B) IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS.
The following table sets forth the names and ages of all the Directors and
Executive Officers of the Company, positions held by each such person, and when
such person was first elected or appointed. The directors each serve until
their successors are duly elected and qualified; officers are appointed by, and
serve at the pleasure of, the Board of Directors.
-------------------------------------------------------------
First
Elected or
Name & Age Position Appointed
-------------------------------------------------------------
Bill H. Gunn Chairman of the Board, 02/08/84
Age 54 President, & Chief
Executive Officer
Robert van Mourik Director, 09/26/90
Age 43 Executive Vice President 01/25/89
Chief Financial Officer,
Secretary & Treasurer
Neil E. Summerson Director 09/26/90
Age 48
Robert A. Cameron Director 09/26/90
Age 57
Marvin Hudson Vice President, 11/01/90
Age 52 Investor Relations
-------------------------------------------------------------
(C) SIGNIFICANT EMPLOYEES.
The Company does not employ any persons who are not executive officers but
who made significant contributions to its business.
(D) FAMILY RELATIONSHIPS.
There are no family relationships among the officers or directors.
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(E) BUSINESS EXPERIENCE.
(E)(1) BACKGROUND. Brief biographical information and a recitation of the
business experience of each officer and director of the Company is set forth
below:
BILL H. GUNN
Mr. Gunn graduated in Commerce from the University of Queensland in 1963,
achieving his Accounting Certificate from the University of Queensland in the
same year. Subsequently, he was admitted as a member of the Australian Society
of Accountants, rising to the position of Senior Associate. He now holds the
position of Certified Practicing Accountant (CPA) in Australia, and has
successfully completed and passed the examinations for admittance as a Certified
Public Accountant (CPA) in the USA.
Since March, 1977, Mr. Gunn has been a self-employed investor, CPA, and a
Director of several Stock Exchange listed public companies, as well as a number
of majority owned private corporations. These companies have been active in the
field of retailing, hotels, feed mills, mining exploration, automotive
components, securities investment, financing, property development and numerous
related fields.
During his business experience, Mr. Gunn has been exposed to a wide variety
of corporate investments and has been involved in major business acquisition and
development activities. He is particularly knowledgeable on business activities
and investments in the Queensland region of Australia, which is widely regarded
as the major Australian growth state. His principal activity is now acting as
Chairman and President of the Company.
ROBERT VAN MOURIK
Mr. van Mourik graduated in 1974 with a Bachelor of Applied Science
(Chemistry) and worked for six years as an Industrial Chemist in Quality Control
and Production. While completing studies in a Masters Degree in Business
Administration at Newcastle University, he worked in Corporate Financial
Planning for Australian Wire Industries, a subsidiary of Broken Hill Proprietary
Ltd. After completing this degree in 1981, he moved to Queensland to participate
in real estate development and its sales and marketing. In 1983, he joined
United Capital as an Investment Consultant and became Executive Director of
United Capital in April, 1986. In that position, he was instrumental in United
Capital's reconstruction and has since been heavily involved in the development
of Ameralia's activities. Since January 25, 1989, he has served as Executive
Vice President, Chief Financial Officer,
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Treasurer and Secretary of the company, and on September 26 1990, he was
appointed a director of the Company.
NEIL E. SUMMERSON
Mr. Summerson is managing partner in the international accounting firm of
Ernst & Young, at its offices in Brisbane, Australia. Prior to 1992, he worked
in the Corporate Recovery and Insolvency Division, which is involved in the
administration of insolvent companies, as well as providing counsel to small
businesses in the area of taxation, audit procedures and management advisory
services. Mr. Summerson received his Bachelor of Commerce degree from the
University of Queensland in 1968. He is a Fellow of the Institute of Chartered
Accountants, an Associate of the Australian Institute of Credit Management, a
Registered Public Accountant in Queensland, a registered Company Liquidator in
Queensland, an Official Liquidator, and an Officer of the Supreme Court of
Queensland.
On November 17, 1989, Mr. Summerson was appointed Receiver and Manager of
Denison Resources Ltd., an affiliate of the Company, and in his official
capacity, controls the vote of 407,866 common shares of the Company's stock.
ROBERT A. CAMERON
Mr. Cameron graduated with Honors in Metallurgical and Chemical Engineering
from the University of Adelaide, Australia in April, 1961. Prior to Mr.
Cameron's formation of Denison Resources Ltd in 1983, Mr. Cameron was employed
in both Australia and the United Kingdom accruing approximately 24 years of
senior management experience, not only in the Australian mining industry
regarding both large and small companies, but also specific experience in the
exploration for and mining of soda products. This includes 16 years as Chief
Executive Officer and director of a number of Australian public companies. Mr.
Cameron has been responsible for developing a number of mining operations
involving such industrial minerals as rutile, zircon, ilmenite, bentonite clay,
calcium carbonate and silver and gold properties. From 1983, Mr. Cameron was
Chairman of the Board of Directors of Denison Resources Ltd., an Australian
stock exchange listed public company formed for the specific purpose of
exploring and developing underground natural soda resources in Queensland,
Australia. In January, 1989 Denison Resources (USA) Corporation, a wholly owned
subsidiary of Denison Resources Ltd., acquired the "Rock School Lease". In
early November 1989, the Australian Stock Exchange suspended Denison Resources
Ltd. from quotation of its shares at the request of its directors. On November
17 & 20, 1989, Mr. Neil E. Summerson was appointed Receiver and Manager for
Denison Resources Ltd. by two creditors as a result of Denison Resources Ltd.
being in default
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<PAGE>
under certain loan agreements which were secured by an equitable mortgage
over Denison Resources Ltd. Under Australian law, the creditors' action did
not require court approval or supervision, and the receivership continues.
MARVIN H. HUDSON
Mr. Hudson was appointed Vice President, Investor Relations on November 1,
1990. Prior to that he was a principal of Broadmoor Investments Inc., a
brokerage firm which held a franchise to the Broker Dealers, First Eagle
Corporation from June, 1989 to September, 1990, and Darnell Kemna from February,
1989 to June, 1989. From January, 1988 to December, 1988 he was employed by
Greystone Nash, Inc. as a stockbroker.
(E)(2) DIRECTORSHIPS. No director of the Company is a director of a
company having securities registered under Section 12 or subject to Section
15(d) of the Securities Exchange Act of 1934 or a company registered under the
Investment Company Act of 1940.
(F) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS:
During the past five years, no director or officer of the Company has:
(F)(1) Filed or has had filed against him a petition under the federal
bankruptcy laws or any state insolvency law, nor has a receiver, fiscal agent or
similar officer been appointed by a court for the business or property of such
person, or any partnership in which he was a general partner, or any corporation
or business association of which he was an executive officer at or within two
years before such filings;
(F)(2) Been convicted in a criminal proceeding or is a named subject of
a pending criminal proceeding (excluding traffic violations and other minor
offenses);
(F)(3) Been the subject of any order, judgment, or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining such person from, or
otherwise limiting, the following activities:
(i) Acting as a futures commission merchant, introducing broker,
commodity trading advisor, commodity pool operator, floor broker, leverage
transaction merchant, any other person regulated by the Commodity Futures
Trading Commission, or an associated person of any of the foregoing, or as an
investment adviser, underwriter, broker or dealer in securities, or as an
affiliated person, director, or employee of any investment company, bank,
savings and loan association or insurance company, or
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<PAGE>
engaging in or continuing any conduct or practice in connection with such
activity;
(ii) Engaging in any type of business practice; or
(iii) Engaging in any activity in connection with the purchase or sale
of any security or commodity or in connection with any violation of federal or
state securities laws or federal commodities laws;
(F)(4) Been the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any federal or state authority
barring, suspending or otherwise limiting for more than 60 days the right of
such person to engage in any activity described in paragraph (3)(i) above, or to
be associated with persons engaged in any such activity; or
(F)(5) Been found by a court of competent jurisdiction in a civil action
or by the Securities and Exchange Commission (the "Commission") to have violated
any federal or state securities law, and the judgment in such civil action or
finding by the Commission has not been subsequently reversed, suspended, or
vacated; or
(F)(6) Been found by a court of competent jurisdiction in a civil action
or by the Commodity Futures Trading Commission to have violated any federal
commodities law, and the judgment in such civil action or finding by the
Commodity Futures Trading Commission has not been subsequently reversed,
suspended or vacated.
(G) PROMOTERS AND CONTROL PERSONS:
No promoter or control person of the Company has been involved in any of
the events enumerated in Item 10(f) above.
(H) COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and officers and persons who own more than ten
percent of the Company's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission (the "SEC").
Directors, officers and greater than ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) reports
filed.
Based solely on its review of the copies of the reports it received from
persons required to file, the Company believes that during the period from
November 1, 1992 through November 18, 1996 all filing requirements applicable to
its officers, directors and
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greater than ten-percent shareholders were complied with in accordance with
the requirements of said Section 16(a) except as follows: Marvin Hudson
filed a Form 4 in October 1996 reporting transactions that took place in May,
June, and August 1996; Bill Gunn filed a Form 4 in November 1996 reporting a
transaction that took place in June 1996. Neil Summerson, Robert Cameron, and
Robert van Mourik each filed a Form 4 in October 1996 reporting transactions
that took place in June 1996. The Company has no evidence that the Jacqueline
Badger Mars Trust has made any required filings during the 1996 fiscal year
or subsequently under said Section 16(a).
ITEM 11. EXECUTIVE COMPENSATION
(A) SUMMARY COMPENSATION TABLE.
The following table sets forth information regarding compensation paid to the
officers of the Company during the three fiscal years ended June 30, 1996. No
executive officer received compensation in excess of $100,000 during fiscal
1996, other than Bill H. Gunn as shown below.
<TABLE>
ANNUAL COMPENSATION ($$) LONG TERM COMPENSATION
--------------------------- ----------------------------------
AWARDS PAYOUTS
-------------------- -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Restricted
Name and Stock Options LTIP Other
Position Year Salary Bonus Other Awards & SARs Payouts Compensation
-------- ---- ------- ----- -------- ---------- ------- ------- ------------
($$) ($$) ($$) ($$) (##) ($$) ($$)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bill H. Gunn
as President and 1996 100,000 -0- 8,000(1) -0- 70,000(2) -0- -0-
Chief Executive 1995 100,000 -0- 8,000(1) -0- -0- -0- -0-
Officer 1994 100,000 -0- 8,000(1) -0- -0- -0- -0-
Robert van Mourik 1996 55,000 -0- 8,000(1) -0- -0- -0- -0-
as Chief Financial 1995 55,000 -0- 8,000(1) -0- -0- -0- -0-
Officer 1994 52,700 -0- 8,000(1) -0- -0- -0- -0-
Marvin H. Hudson 1996 55,000 -0- -0- -0- 70,000(2) -0- -0-
as Vice President, 1995 55,000 -0- -0- -0- -0- -0- -0-
Investor Relations 1994 37,655 -0- -0- -0- -0- -0- -0-
</TABLE>
NOTES: (1) Directors fees
- ----- (2) See (c) below
Compensation to Mr. Gunn is paid to Gunn Development Pty. Ltd., of which
Mr. Gunn is a controlling shareholder. Compensation to Mr. Van Mourik is paid
to Ahciejay Pty. Ltd. of which Mr. van Mourik is a controlling shareholder.
The Company has no plans which result in the payment or accrual for payment
of any amounts to any executive officer in connection with his resignation,
retirement, or other termination, or change of control or change in the
executive officer's responsibilities.
The Company has not adopted a medical insurance, life
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insurance, or other benefit plan for its employees. The Company currently
has no stock ownership or other profit-sharing or pension plans, but may
adopt such plans in the future. The Company has no retirement plans and,
therefore, has made no contributions to any such plan on behalf of the named
officers.
The Company acquired a vehicle during the 1994 year for the use of Mr.
Gunn.
(C) OPTION/SAR GRANTED DURING YEAR ENDED JUNE 30, 1996
On June 28, 1996 the Company granted to each of Messrs Bill H. Gunn and
Marvin Hudson stock appreciation rights comprising a right until June 28, 2006,
while employed by the Company, to receive $1.50 for each SAR if the average bid
price of the Company's stock is sustained at a minimum level of $3.50 for a
period of six months, and to have the indebtedness of the Company satisfied
through the issuance of restricted common stock at $1.50 per share. Effective
August 31, 1996, the Company issued to each of Mr. Gunn and Mr. Hudson 65,000
stock bonus shares. Mr. Gunn declined the issuance of the stock
bonus, and therefore the shares were never delivered.
The Company has not adopted any other stock option or stock appreciation
rights plan. No other stock appreciation rights were granted to any executive
officer during the year ended June 30, 1996.
(D) AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUE TABLE.
No executive officer exercised any options or stock appreciation rights
during the 1996 fiscal year. The following table sets forth the fiscal year-end
value of the options held by the Company's executive officers:
<TABLE>
(a) (b) (c) (d) (e)
Value of
Unexercised
Number of In-the-money
options at options at
9/30/96 9/30/96
--------------- ---------------
Shares Acquired Value Exercisable Exercisable
Name On Exercise Realized Not-exercisable Not-exercisable
------ --------------- -------- --------------- ---------------
(##) ($$) (##) ($$)
<S> <C> <C> <C> <C>
Mr. Bill H. Gunn -0- -0- 140,000 175,000
Mr. Robert van Mourik -0- -0- 75,000 93,750
Mr. Marvin H. Hudson -0- -0- 140,000 175,000
</TABLE>
* Based on the last trade price on June 28, 1996, of $2.75 per share. These
options, which are held by Gunn Development Pty. Ltd. and Ahciejay Pty.
Ltd., affiliates of Mr. Gunn and Mr. van Mourik respectively, and Mr.
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Hudson, are exercisable at $1.50 per share and were "in the money" at
6/30/96.
(E) LONG TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
The Company has no long term incentive plans, and consequently has made no
such awards.
(F) DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE
Not applicable since the Company has not defined benefit or actuarial
plans.
(G) COMPENSATION OF DIRECTORS
(G)(1) STANDARD ARRANGEMENTS.
The directors of the Company each receive $8,000 cash compensation for
their services per year. In connection with certain consulting services
rendered by them, the Company paid an affiliate of Robert A. Cameron $179,359
for services rendered during the fiscal year ended June 30, 1996, and the
Brisbane office of Ernst & Young, of which Neil E. Summerson is managing
partner, $8,300 for services rendered during the last fiscal year. In each
case, the payments were determined at the following rates: Mr. Cameron: $600
per day; Ernst & Young: normal professional charge out rates per hour. In each
case, Messrs. Cameron and Summerson were reimbursed for expenses incurred on
behalf of the Company on a fully-accountable basis.
(G)(2) OTHER ARRANGEMENTS.
Except as described herein, no officer or director of the Company has been
or is being paid any cash compensation, or is otherwise subject to any deferred
compensation plan, bonus plan or any other arrangement and understanding whereby
such person would obtain any cash compensation for his services for and on
behalf of the Company.
(H) EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS.
The Company has no compensation plan or arrangement with respect to any
executive officer which plan or arrangement results or will result from the
resignation, retirement or any other termination of such individual's employment
with the Company. The Company has no plan or arrangement with respect to any
such persons which will result from a change in control of the Company or a
change in the individual's responsibilities following a change in
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control.
(I) REPORT ON REPRICING OF OPTIONS/SARS.
Not applicable, as no options or SARs were repriced during the fiscal year
ended June 30, 1996.
(J) ADDITIONAL INFORMATION WITH RESPECT TO COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION.
A Compensation Committee comprising the non-executive directors of the
Board was formed early in 1993 and determined the management fees payable to
Messrs. Gunn and van Mourik, as set out above, and the salary paid to Mr.
Hudson. Prior to then, the full board of directors was responsible for all
compensation decisions. The members of the Compensation Committee, being
Messrs. Summerson and Cameron, have not been an officer or employee of the
Company or any of its subsidiaries during the fiscal year ended June 30, 1996,
or subsequently. Neither Mr. Summerson nor Mr. Cameron has any other direct or
indirect relationship with the Company requiring disclosure by the Company
pursuant to Item 401 of Regulation S-K. Furthermore, no executive officer of
the Company served as a member of the Compensation Committee (or similar
committee) of another entity which dealt with compensation paid to any member of
the Company's Compensation Committee, or with which any other interlocking
relationship exists. However, the Company has paid fees to affiliates of
Messrs. Cameron and Summerson as set out in paragraph g(1) above.
(K) BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
As described above, compensation is paid to Messrs. Gunn and van Mourik
under a management services agreement which retains affiliates of Messrs.
Gunn and van Mourik. The compensation comprises amounts determined on the
basis of salary and an additional amount equal to the directors fees paid to
non-executive directors.
The Compensation Committee intends to relate future salary increases for
the chief executive officer to the Company's financial performance and stock
market performance as compared to other companies in the specialty chemicals and
mineral exploration industry, as well as to compensation paid to the chief
executive officers of companies similarly situated.
By the directors comprising the Compensation Committee:
Robert A. Cameron
Neil A. Summerson
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OF
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THE COMPANY'S FILINGS WITH THE SEC UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES EXCHANGE ACT OF 1934, THIS SECTION ENTITLED "BOARD COMPENSATION
COMMITTEE REPORT ON EXECUTIVE COMPENSATION" SHALL NOT BE INCORPORATED INTO
ANY FUTURE FILINGS WITH THE SEC.
(L) PERFORMANCE GRAPH
Not applicable.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A capitalization table is helpful in understanding the security ownership
of certain beneficial owners and management of the Company. The following table
sets forth this capitalization information as of June 30, 1996:
Number of Voting Rights
Description of Class Shares per share
- -------------------- --------- -------------
Common Stock 2,717,041 one vote per share
Series A Preferred Stock 666,666 one vote per share
Series B Preferred Stock 51,000 five votes per share
Series C Preferred Stock 750 ten votes per share
Series D Preferred Stock 2,080 1,000 votes per share
(A) AND (B) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information as of September 10, 1996 with
respect to the ownership of the Common Stock for each director, all officers and
directors as a group, and all beneficial owners of more than five percent of the
Common Stock. The following shareholders have sole voting and investment power
with respect to the shares, unless indicated otherwise. (This does not include
shares held in the name of known depositaries, such as CEDE & Co., for the
benefit of the underlying beneficial shareholders).
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<PAGE>
- ------------------------------------------------------------------------------
NAME & ADDRESS AMOUNT & NATURE PERCENT PERCENT
OF OF BENEFICIAL OF OF VOTING
BENEFICIAL OWNER OWNERSHIP CLASS SECURITIES
- ------------------------------------------------------------------------------
Mr N. E. Summerson 493,116 (1) 17.0% 7.2%
c/o Ernst & Young
1 Eagle St
Brisbane, Qld,
Australia
Bill H. Gunn 279,460 (2) 9.4% 2.4%
"Codrington"
Bowenville, Qld
Australia
Robert van Mourik 220,384 (3) 7.6% 2.5%
127 Central Ave
St Lucia, Qld
Australia
Madeline Ahern 285,855 (4) 9.7% 4.9%
atf The Bromley Family Trust
8th fl, 87 Wickham Tce, #65
Brisbane, Qld
Australia
Robert A. Cameron 75,000 (5) 2.6% 0%
Marvin H. Hudson 251,813 (6) 8.5% 1.9%
OFFICERS & DIRECTORS
AS A GROUP: 1,319,773 20.8% 14.0%
Jacqueline Badger Mars 3,058,616 (7) 54.4% 52.4%
atf the Jacqueline
Badger Mars Trust dated
Feb 5, 1975 as amended
6885 Elm St., McLean, VA
Mary L Tiscornia 226,745 (8) 7.6% 1.1%
770 Tamalpais Dr, #200
Corte Madera, CA
(continued on next page)
-28-
<PAGE>
- ------------------------------------------------------------------------------
NAME & ADDRESS AMOUNT & NATURE PERCENT PERCENT
OF OF BENEFICIAL OF OF VOTING
BENEFICIAL OWNER OWNERSHIP CLASS SECURITIES
- ------------------------------------------------------------------------------
S/B Technology Group 156,945 (9) 5.4% 1.2%
c/- D.P. Ferguson
591 Redwood Hwy, #3250
Mill Valley, CA
- ------------------------------------------------------------------------------
(1) Represents 407,866 shares held as Receiver & Manager for Denison Resources
Ltd. (Receiver & Manager appointed), 10,250 shares held by Glendower
Investments Pty. Ltd., as trustee of a superannuation fund of which Mr
Summerson is a beneficiary and shareholder, as well as options to acquire
75,000 shares for $1.50 up to June 28, 2006 held by Glendower Investments
Pty. Ltd. as trustee of a trust of which Mr. Summerson and his family are
beneficiaries.
(2) Comprises 7,500 shares owned by Bill H. Gunn and 131,960 shares owned by
Gunn Development Pty. Ltd. (of which Mr. Gunn is a controlling shareholder)
as well as options to acquire 140,000 shares at $1.50 up to June 28, 2006.
(3) Comprises 500 shares held directly by Mr. van Mourik, 131,259 shares owned
by Ahciejay Pty. Ltd. as Trustee for The R.C.J. Trust, and 13,625 shares
owned by the R.C.J. Superannuation Fund, both of which Mr. van Mourik and
his family are beneficiaries as well as options to acquire 75,000 shares of
common stock at $1.50 up to June 28, 2006.
(4) Comprises 75,855 shares, 26,000 shares of Series B Preferred Stock and 80
shares of Series D Preferred Stock. The Bromley Family Trust is a trust
for the benefit of relatives of Robert van Mourik's spouse. Neither Mr.
van Mourik nor his wife has any direct or indirect interest in the Bromley
Family Trust, although Mrs. van Mourik is a contingent, unnamed
beneficiary. Neither Mr. nor Mrs. van Mourik have received any
distributions from the Bromley Family Trust and neither influences nor
controls the decisions of the trustee. See Item 13. Certain Relationships
and Related Party Transactions.
(5) Comprises options held by Jacinth Pty. Ltd. a company in which Robert
Cameron, a director of the company, is a controlling shareholder, to
acquire 75,000 shares at $1.50 up to June 28, 2006.
-29-
<PAGE>
(6) Mr. Hudson is an executive officer of the company and these shares include
options to acquire 140,000 shares of common stock at $1.50 up to June 28,
2006.
(7) Comprises 266,950 shares, 666,666 shares of Series A Preferred Stock,
25,000 shares of Series B Preferred Stock and 2,000 shares of Series D
Preferred Stock.
(8) Comprises 64,245 shares and options to acquire 162,500 shares of common
stock at $2 up to December 31, 1998.
(9) Comprises 69,445 shares and options to acquire 87,500 shares of common
stock at $2 up to December 31, 1998.
The foregoing table does not include the possible effect of issuance of up
to 13,333 shares pursuant to the exercise of options held by persons who are
neither officers, directors, nor significant shareholders of the Company, which
options are exercisable at $1.50 up to July 31, 1998.
To the best knowledge of the Company, there are no arrangements,
understandings or agreements relative to the disposition of any of the Company's
securities, the operation of which would at a subsequent date result in a
change in control of the Company.
(C) CHANGES IN CONTROL.
The Company knows of no arrangement, the operation of which may, at a
subsequent date, result in a change in the control of the Company.
-30-
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
(A) TRANSACTIONS WITH MANAGEMENT AND OTHERS.
The following sets out information regarding transactions between officers,
directors and significant shareholders of the company.
Loans made to the Company by related parties as detailed in Note 8 to the
Financial Statements which states that the Company owed $53,000 to directors and
affiliates of the Company at June 30, 1996. This comprised compensation and
directors fees accrued but unpaid.
As of June 30, 1996 the Company had advances of $35,719 to Gunn
Development Pty. Ltd., an affiliate of Mr. Bill H. Gunn, and $26,811 to Mr.
Marvin Hudson, an officer of the Company. The following summarizes these
advances during the fiscal year ended June 30, 1996:
Related Party: GUNN
DEVELOPMENT PTY. LTD.
Balance at June 30, 1995: $ 22,472
Repayments made during year: 149,754
Advances made during year: 162,996
Interest accrued: Nil
Balance at June 30, 1996: $ 35,714
--------
Officer: MR. M. HUDSON
Balance at June 30, 1995: Nil
Advances made during year: $ 26,811
Repayments made during year Nil
Interest accrued: Nil
Balance at June 30, 1996: $ 26,811
--------
These advances bear no interest, are due on demand, and are not evidenced
by promissory notes. Gunn Development repaid its entire balance due following
the end of the fiscal year in cash. Mr. Hudson's balance due was resolved in
connection with the THG/NZI transaction described below in this Item 13(a).
During the year, dividends of $130,685 became payable on the Series A,
Series B and Series D Preferred Stock and the Company, upon the agreement of the
investors, paid this dividend through the
-31-
<PAGE>
issuance of 107,285 shares of restricted common stock in accordance with the
statements of preferences. In October 1995, the Jacqueline Badger Mars Trust,
holder of all the Series A Preferred Stock and a portion of the Series B
Preferred Stock, entered into an agreement to purchase 2,000 shares of Series
D Preferred Stock, which shares have the preferences and conversion
privileges discussed elsewhere herein. The funds used to subscribe for the
shares were held in an escrow account, pending disbursement in accordance
with the provisions of the escrow agreement. As at June 30, 1996 $1,355,000
was disbursed under the agreement for the issue of 1,355 shares of Series D
Preferred Stock. An additional $175,000 was disbursed in July 1996 and
November 1996 for the issue of another 175 shares.
In October, 1995 The Bromley Family Trust, a holder of some of the Series B
Preferred Stock subscribed $80,000 for 80 shares of Series D Preferred Stock.
In early 1994, NZI Securities Australia Ltd ("NZI") threatened to sue the
Company based on the principal and interest outstanding on a note payable,
secured by the Company's investment in the Rural Investment Trust. In view of
the Company's capital requirements for other purposes, principals of the Company
were unable to resolve the situation with NZI during the period following the
initial overtures in early 1994. At the Company's suggestion, a significant
shareholder, Miss Mary L. Tiscornia, agreed to attempt to assist the Company in
resolving the NZI matter provided that appropriate arrangements for satisfaction
of the debt could be achieved. To do so, she formed a partnership ("THG") with
Messrs. Gunn and Hudson, the Company's president and a vice president.
In September 1996, after significant discussions between NZI and THG which
had not resulted in any agreement, NZI declared that the approximately
A$1,200,000 loan was in default; NZI advised THG and the Company that NZI
intended to immediately exercise its power of sale over the RIT units NZI held
as collateral. After subsequent negotiations between THG and NZI, THG acquired
the Company's debt to NZI on October 5, 1996 at a total cost to THG of
approximately A$810,000.
Thereafter the Company's independent directors engaged in negotiations with
THG which, in November 1996 resulted in an agreement to fully satisfy the full
NZI debt effective as of November 19, 1996 by transferring to THG the following:
two Notes Receivable from unaffiliated
parties (book value) A$ 460,000
shareholder receivables (Tiscornia
and Hudson) 45,000
Investment in RIT (present value) 562,500
-32-
<PAGE>
In addition, the Company agreed to issue to THG 100 shares of its Series D
Convertible Preferred Stock in partial settlement of this pre-existing debt.
THG has an option until November 30, 1998, to sell the RIT units to the Company
for $450,000 payable by the issue of 450 shares of Series D Preferred Stock. If
THG chooses not to exercise this option, THG may, in its discretion during the
option period pay $450,000 in cash to purchase 450 shares of Series D Preferred
Stock.
The net effect of this settlement to the Company is to record a net profit
of approximately $92,000 over book value on the recovery of the assets assigned
to THG.
Satisfaction of Section 16(b) Liability
As a result of a sale of the Company's common stock made by Mr. Hudson in
May 1996 and an acquisition in August 1996, it is likely that Mr. Hudson will be
liable under Section 16(b) of the Securities Exchange Act of 1934 for certain
profits. The Company is engaged in discussions with Mr. Hudson as to the
existence of these liabilities and the means by which Mr. Hudson will satisfy
any liabilities found to exist. Resolution of these issues is expected to be
completed prior to December 31, 1996.
(B)(1)-(4) CERTAIN BUSINESS RELATIONSHIPS
See Item 13(a), above.
(B)(5) No nominee or director of the Company is, or has been, a partner or
executive officer of any investment banking firm that has performed services for
the Company during the last fiscal year or that the Company proposes to have
perform services during the current year.
(B)(6) The Company is not aware of any other relationship between its directors
and the Company that are similar in nature and scope to those relationships
listed in paragraphs (b)(1) through (5) of this Item 13 except as described
above.
(C) INDEBTEDNESS OF MANAGEMENT.
No director, executive officer, nominee for election as a director, any
member of the immediate family of any of the foregoing, or any corporation or
organization of which any of the foregoing persons is an executive officer,
partner or beneficial holder of ten percent or more of any class of equity
securities, or any trust or other estate in which any such person has a
substantial beneficial interest or as to which such person serves as a trustee
or in a similar capacity, was indebted to the Company at any time, except as
disclosed in Item 13(a), above.
-33-
<PAGE>
(D) TRANSACTIONS WITH PROMOTERS: Not applicable.
-34-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K.
(a) Certain of the following exhibits are hereby incorporated by reference
pursuant to Rule 12b-23 as promulgated under the Securities and Exchange Act of
1934, as amended, from the reports noted below:
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 (A) Articles of Incorporation and Amendment.
3.2 (A) Bylaws of AmerAlia, Inc.
3.3 (A) Statement of Preferences for Series A Convertible Preferred Stock.
3.4 (F) Statement of Preferences for Series B Preferred Stock, as amended.
10.1 (B) Agreement with Eagle Star Nominees Ltd. as trustee for The Rural
Investment Trust for sale of property in consideration for issuance of
vendor units in the Rural Investment Trust.
10.2 (C) "Mineral Lease with Option to Purchase" agreement between Denison
Resources (USA) Corporation and E.E. Kinder Co.
10.3 (C) First Amendment to Mineral Lease With Option to Purchase.
10.4 (C) "Rock School Joint Venture Agreement" between Denison Resources (USA)
Corporation and Gale Peters & Associates.
10.5 (D) Success Fee Agreement with United Capital Pty. Ltd. dated November 14,
1988.
10.6 (E) Form of Distributor agreements for marketing of sodium bicarbonate.
10.7 (E) General Services Agreement with Raytheon Engineers & Constructors,
Inc.
10.8 (F) First Amendment to Special Warranty Assignment, Royalty Reservation,
and Minimum Royalty Payment between AmerAlia and E.E. Kinder Co.
10.9 (F) Consulting Agreement between AmerAlia and E.E. Kinder Co.
10.10(F) U.S. Government Sodium Lease
-35-
<PAGE>
21.1 Subsidiaries of the Registrant.
Denison Resources (USA), Inc., a defunct Delaware corporation
(A) INCORPORATED BY REFERENCE FROM THE COMPANY'S FORM 10 GENERAL REGISTRATION
STATEMENT FILED WITH THE COMMISSION ON MARCH 5, 1987.
(B) INCORPORATED BY REFERENCE FROM THE COMPANY'S FORM 10-K FOR ITS YEAR ENDED
JUNE 30, 1989.
(C) INCORPORATED BY REFERENCE FROM THE COMPANY'S FORM 10-K FOR ITS YEAR ENDED
JUNE 30, 1990.
(D) INCORPORATED BY REFERENCE FROM THE COMPANY'S FORM 10-K FOR ITS YEAR ENDED
JUNE 30, 1992.
(E) INCORPORATED BY REFERENCE FROM THE COMPANY'S FORM 10-K FOR ITS YEAR ENDED
JUNE 30, 1993.
(F) INCORPORATED BY REFERENCE FROM THE COMPANY'S FORM 10-K FOR ITS YEAR ENDED
JUNE 30, 1995.
(b) During the last quarter of the period covered by this report the
Company filed no current reports on Form 8-K.
(c) Required exhibits are attached hereto and are listed in Item 14(a)(3)
of this Report.
(d) Item 14(a)(2) of this Report lists all required financial statement
schedules to be attached hereto.
-36-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: Nov. 21, 1996
------------------------------
AMERALIA, INC.
By: /s/ Bill H. Gunn
------------------------------
Bill H. Gunn, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Bill H. Gunn
- -------------------------- Principal Executive Date: 11/21/96
Bill H. Gunn Officer and Director
/s/ Robert C. J. van Mourik
- -------------------------- Secretary, Treasurer Date: 11/21/96
Robert C. J. van Mourik Principal Financial
and Accounting Officer,
and Director
/s/ Robert A. Cameron
- --------------------------- Director Date: 11/21/96
Robert A. Cameron
/s/ Neil E. Summerson
- --------------------------- Director Date: 11/21/96
Neil E. Summerson
<PAGE>
AMERALIA, INC.
Financial Statements
June 30, 1996 and 1995
<PAGE>
CONTENTS
Independent Auditors' Report................................................. 3
Balance Sheets............................................................... 4
Statements of Operations..................................................... 6
Statements of Stockholders' Equity........................................... 7
Statements of Cash Flows..................................................... 9
Notes to the Financial Statements............................................11
<PAGE>
[Letterhead]
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders of Ameralia, Inc.
Colorado Springs, Colorado
We have audited the accompanying balance sheets of Ameralia, Inc. as of June
30, 1996 and 1995, and the related statements of operations, stockholders'
equity and cash flows for the years ended June 30, 1996, 1995 and 1994.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ameralia, Inc. as of June
30, 1996 and 1995, and the results of its operations and its cash flows for
the years ended June 30, 1996, 1995 and 1994 in conformity with generally
accepted accounting principles.
Jones, Jensen & Company
October 11, 1996
<PAGE>
AMERALIA, INC.
Balance Sheets
Amounts in $'000
<TABLE>
ASSETS
June 30,
----------------
1996 1995
------ ------
CURRENT ASSETS
<S> <C> <C>
Cash (Note 1) $ 21 $ 5
Accounts receivable 39 5
Related party receivables (Note 2) 69 28
Net realizable value of notes receivable - current (Note 3) 103 300
------ ------
Total Current Assets 232 338
------ ------
OTHER ASSETS
Note receivable, net (Note 6) 131 139
Lease acquisition, exploration and development costs (Note 4) 2,735 2,060
Investment (Note 5) 485 413
Property and equipment (Note 7) 25 35
------ ------
Total Other Assets 3,376 2,647
------ ------
TOTAL ASSETS $3,608 $2,985
------ ------
------ ------
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
AMERALIA, INC.
Balance Sheets
Amounts in $'000
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30,
-----------------
1996 1995
------- -------
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 201 $ 261
Due to related parties (Note 8) 53 116
Notes payable - current portion (Note 9) 844 821
Interest payable 383 341
------- -------
Total Current Liabilities 1,481 1,539
------- -------
LONG-TERM LIABILITIES
Notes payable (Note 9) 9 14
------- -------
Total Long-Term Liabilities 9 14
------- -------
Total Liabilities 1,490 1,553
------- -------
COMMITMENTS AND CONTINGENCIES (Note 13) - -
------- -------
STOCKHOLDERS' EQUITY
Preferred stock, $0.05 par value; 1,000,000 authorized;
and 719,851 and 718,416 issued at June 30, 1996 and 1995,
respectively 36 36
Common stock, $0.01 par value; 100,000,000 shares
authorized; 2,717,041 and 2,609,756 issued at
June 30, 1996 and 1995, respectively 27 26
Additional paid-in capital 9,486 7,944
Unrealized gain (loss) on securities available for sale,
net (Note 5) 25 -
Accumulated deficit (7,579) (6,697)
Foreign currency translation adjustment (Note 1) 123 123
------- -------
Total Stockholders' Equity 2,118 1,432
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,608 $ 2,985
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
AMERALIA, INC.
Statements of Operations
Amounts in $'000
FOR THE YEARS ENDED JUNE 30,
------------------------------------
1996 1995 1994
------ ------ -------
REVENUE
Investment income $ 17 $ 10 $ 8
Interest 43 39 41
------ ------- ------
Total Revenue 60 49 49
------ ------- ------
EXPENSE
General and administrative 682 919 546
Depreciation and amortization 12 14 11
Interest 124 105 140
------ ------- ------
Total Expense 818 1,038 697
------ ------- ------
LOSS FROM OPERATIONS (758) (989) (648)
------ ------- ------
OTHER INCOME (EXPENSE)
Foreign currency gain (loss) 7 3 89
Realized gain (loss) on non-current asset - (21) (10)
------ ------- ------
Total Other Income (Expense) 7 (18) 79
------ ------- ------
NET LOSS BEFORE INCOME TAX EXPENSE (751) (1,007) (569)
Income tax expense - - -
------ ------- ------
NET INCOME (LOSS) $ (751) $(1,007) $ (569)
------ ------- ------
------ ------- ------
INCOME (LOSS) PER SHARE $(0.28) $ (0.41) $(0.24)
------ ------- ------
------ ------- ------
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 2,653 2,463 2,330
------ ------- ------
------ ------- ------
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
AMERALIA, INC.
Statements of Stockholders' Equity (Deficit)
Amounts in $'000
<TABLE>
<CAPTION>
UNREALIZED FOREIGN
PREFERRED STOCK COMMON STOCK ADDITIONAL GAIN CURRENCY
---------------- ----------------- PAID-IN (LOSS) ON SUBSCRIPTION ACCUMULATED TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL SECURITIES RECEIVABLE DEFICIT ADJUSTMENT TOTAL
-------- ------- --------- ------- ------- ----------- ---------- --------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993 666,666 $ 33 2,282,256 $ 23 $6,837 $ - $ - $(4,919) $166 $2,140
Shares issued for payment
of obligations - - 36,250 - 78 - - - - 78
Shares issued in lieu of
dividends - - 60,000 1 90 - - - - 91
Issuance of Series B
preferred stock for cash 51,000 3 - - 507 - - - - 510
Subscriptions receivable on
Series B stock - - - - - - (78) - - (78)
Dividends paid - - - - - - - (90) - (90)
Change in cumulative
adjustment account - - - - - - - - (43) (43)
Net loss for the year
ended June 30, 1994 - - - - - - - (569) - (569)
------- ------- --------- ------ ------ ------- -------- ------- ---- ------
Balance, June 30, 1994 717,666 $ 36 2,378,506 $ 24 $7,512 $ - $ (78) $(5,578) $123 $2,039
------- ------- --------- ------ ------ ------- -------- ------- ---- ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
AMERALIA, INC.
Statements of Stockholders' Equity (Deficit)
Amounts in $'000
<TABLE>
<CAPTION>
UNREALIZED FOREIGN
PREFERRED STOCK COMMON STOCK ADDITIONAL GAIN CURRENCY
---------------- ----------------- PAID-IN (LOSS) ON SUBSCRIPTION ACCUMULATED TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL SECURITIES RECEIVABLE DEFICIT ADJUSTMENT TOTAL
-------- ------- --------- ------- ------- ----------- ---------- --------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994 717,666 $ 36 2,378,506 $ 24 $7,512 $ - $ (78) $(5,578) $123 $2,039
Shares issued for cash and
extinguishment of debt - - 180,000 1 261 - - - - 262
Shares issued in lieu of
dividends - - 71,250 1 111 - - - - 112
Issuance of Series C
preferred for cash 750 - - - 60 - - - - 60
Payment received on
Series B stock
subscriptions - - - - - - 78 - - -
Dividends paid - - - - - - - (112) - (112)
Net loss for the year
ended June 30, 1995 - - - - - - - (1,007) - (1,007)
------- ------- --------- ------- ------ ----- -------- ------- ---- ------
Balance, June 30, 1995 718,416 36 2,609,756 26 7,944 - - (6,697) 123 1,432
Shares issued in lieu
of dividends - - 107,285 1 107 - - - - 108
Issuance of series D
preferred stock for
cash 1,435 - - - 1,435 - - - - 1,435
Dividends paid - - - - - - - (131) - (131)
Unrealized gain on
securities available
for sale - - - - - 25 - - - 25
Net loss for the year
ended June 30, 1996 - - - - - - - (751) - (751)
------- ------- --------- ------- ------ ---- -------- ------- ---- ------
Balance, June 30, 1996 719,851 $ 36 2,717,041 $ 27 $9,486 $ 25 $ - $ (7,579) $123 $2,118
------- ------- --------- ------- ------ ---- -------- ------- ---- ------
------- ------- --------- ------- ------ ---- -------- ------- ---- ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
AMERALIA, INC.
Statements of Cash Flows
Amounts in $'000
<TABLE>
For the Years Ended June 30,
----------------------------
1996 1995 1994
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $ (751) $(1,007) $ (569)
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities
Bad debt 62 267 17
Stock issued for services rendered - - 79
Expenses paid with note receivable and note
payable 136 - -
Depreciation 12 14 11
Exchange (gain) loss (7) (3) (89)
Realized loss on investments - 21 10
Change in Assets and Liabilities
(Increase) decrease in accounts and
interest receivable (76) 26 (46)
(Increase) decrease in related party receivables (41) - -
(Increase) decrease in loss on disposal of assets - 1 -
Increase (decrease) in accounts payable (123) 209 300
Increase (decrease) in interest payable 8 77 123
------- ------- -------
Net Cash Provided (Used) in
Operating Activities (780) (395) (164)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Lease acquisition, exploration and development
expenditure (675) (49) (416)
Purchase of property and equipment (2) - (40)
Cash received from notes receivable 115 6 225
------- ------- -------
Net Cash Provided (Used) in
Investing Activities $ (562) $ (43) $ (231)
------- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements
9
<PAGE>
AMERALIA, INC.
Statements of Cash Flows
Amounts in $'000
<TABLE>
For the Years Ended June 30,
----------------------------
1996 1995 1994
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Cash received from issuance of preferred stock $ 1,412 $ 60 $ 510
Cash received from issuance of common stock - 150 -
Cash received from notes 14 132 51
Cash received from stock subscriptions - 78 (78)
Payments on note payable (68) - (28)
Increase (decrease) in cumulative adjustment
account - - (43)
------- ------ -------
Net Cash Provided (Used) by Financing Activities 1,358 420 412
------- ------ -------
NET INCREASE (DECREASE) IN CASH 16 (18) 17
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 5 23 6
------- ------ -------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 21 $ 5 $ 23
------- ------ -------
------- ------ -------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Income taxes $ - $ - $ -
Interest $ 82 $ 3 $ 5
NON-CASH FINANCING ACTIVITIES
Common stock issued for payment of obligations $ - $ 112 $ 78
Payment of preferred stock dividends through
the issuance of additional common stock $ 108 $ 112 $ 91
Conversion of accounts payable and accrued
interest into a note payable $ - $ 299 $ -
Payment of series B dividend by issuing
series D preferred stock $ 23 $ - $ -
Unrealized gain on securities available-for-sale $ 25 $ - $ -
</TABLE>
The accompanying notes are an integral part of these financial statements
10
<PAGE>
AMERALIA, INC.
Notes to the Financial Statements
June 30, 1996 and 1995
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ameralia, Inc. (the Company) is currently engaged in the acquisition of
diverse business investments in North America and Australia. The Company's
operations include the development, for mining and production, of a
naturally occurring deposit of sodium bicarbonate in Colorado, USA, and
various investments in Australia. A summary of significant accounting
policies follows:
REPORTING CURRENCY AND REMEASUREMENT
The Company's financial statements are reported in its reporting currency,
the United States dollar. Remeasurement of Australian assets, liabilities
and operations into United States dollars results in foreign currency gains
and losses which are reflected in the statements of operations.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is determined using the straight-line method over the
estimated useful lives of the assets ranging from 3 to 30 years.
Expenditures for property additions and betterments are capitalized at
cost. Maintenance and repairs are charged to expense when incurred. Gains
and losses on sales and retirements of property and equipment are credited
or charged to income (See Note 7).
INCOME TAXES
At June 30, 1996, the Company had net operating loss carryforwards of
approximately $1,672 that may be offset against future taxable income from
the year 2000 through 2011. No tax benefit has been reported in the June
30, 1996 financial statements because the Company believes that the
carryforwards are more likely than not to expire unused. Accordingly, the
potential tax benefit is offset by a valuation allowance of the same
amount.
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding during the applicable period. The Company's outstanding
stock purchase warrants and options have been excluded from the calculation
as they are anti-dilutive. In January, 1993 the Company reverse split its
shares of common stock on a one for forty basis. All references to shares
outstanding and earnings per share have been restated to reflect the
reverse stock split on a retroactive basis.
CASH
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
ESTIMATES
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses.
11
<PAGE>
AMERALIA, INC.
Notes to the Financial Statements
June 30, 1996 and 1995
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
CONCENTRATIONS OF RISK
The Company records receivables from advances to related parties and from
uncollected investment revenues.
Credit losses, if any, have been provided for in the financial statements
and are based on management's expectations. The Company's accounts
receivable are subject to potential concentrations of credit risk. The
Company does not believe that it is subject to any unusual risks, or
significant risks in the normal course of its business.
INVESTMENTS
Securities to be held for indefinite periods of time and not intended to be
held to maturity or on a long-term basis are classified as available-for-
sale and are carried at fair value.
Realized gains and losses on dispositions are based on the net proceeds and
the adjusted book value of the securities sold, using the specific
identification method. Unrealized gains and losses on investment
securities available-for-sale are based on the difference between book
value and fair value of each security. These gains and losses are credited
or charged to stockholders' equity, whereas realized gains and losses flow
through the Company's statement of operations.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued a new
statement titled "Accounting for Impairment of Long-Lived Assets." This
new standard is effective for years beginning after December 15, 1995, but
was adopted early by the Company. The early adoption of the new standard
did not have a material effect on the financial statements.
In October 1995, the Financial Accounting Standards Board issued a new
statement titled "Accounting for Stock-Based Compensation". This new
standard encourages, but does not require, companies to recognize
compensation expense for grants of stock, stock options, and other equity
instruments to employees based on fair value. Companies that do not adopt
the fair value accounting rules must disclose the impact of adopting the
new method in the notes to the financial statements. Transactions in
equity instruments with non-employees for goods or services must be
accounted for on the fair value method. Although the Company has not
performed a detailed analysis of the impact of this new standard on the
Company's financial statements, the Company does not believe that adoption
of the new standard will have a material effect on the financial
statements.
NOTE 2 - RELATED PARTY RECEIVABLES
The Company occasionally issues advances to related parties who have
supported the Company over the years. The balance due from related parties
at June 30, 1996 and June 30, 1995 totals $69 and $28, respectively.
12
<PAGE>
AMERALIA, INC.
Notes to the Financial Statements
June 30, 1996 and 1995
NOTE 3 - NET REALIZABLE VALUE OF NOTES RECEIVABLE
The Company holds an unsecured note receivable from an unrelated Australian
finance company as a result of placing funds from a stock issuance on
deposit. The terms of the note receivable are due upon demand, earning 4%
per annum.
JUNE 30,
-------------------
1996 1995
---- ----
Principal $ 748 $ 954
Accrued interest 85 76
Less allowance for uncollectables (730) (730)
------- --------
Net balance $ 103 $ 300
------- --------
------- --------
Due to the uncollateralized nature of the note and the concentrated credit
risk involved with the collection of the note, a provision for
uncollectability has been made.
NOTE 4 - LEASE ACQUISITION, EXPLORATION AND DEVELOPMENT COSTS
In December 1992, the Company acquired from an unrelated party ("Kinder"),
BLM Sodium Lease C-0119985 known as the Rock School Lease, including 1,320
acres, in Rio Blanco County, Colorado, USA. The Company acquired the Rock
School Lease from Kinder for consideration comprising (i) a cash payment of
$600; (ii) the issuance of 50,000 shares of common stock; and (iii)
commencing July 1, 1994, the reservation of a production royalty of $2 per
ton which was amended January 1, 1996 to $1.50 per ton for all production,
due and payable on the last day of the month following the month of
production provided that a minimum annual royalty of $100 (which was
changed to $75 on January 1, 1996) be paid monthly in arrears, which began
in July 1994. Kinder assigned to the Company all of its rights, title and
interest in the federal lease to the Company. Kinder also agreed to
provide all documentation, files and records in its possession pertaining
to the exploration of and development plans for the mining of the Rock
School Lease; warranted that it had not assigned to any third party or
dealt in any way with its interest in the Rock School Lease and granted the
Company an option to acquire its royalty interest. The assignment of the
interest in the Rock School Lease from Kinder was approved by the BLM on
January 1, 1996.
The Rock School Lease was renewed July 1, 1991 for a period of ten years
and is renewable under terms and conditions prescribed by the Secretary of
the Interior. The lease is currently undeveloped, although the adjoining
lease has been brought into production. The Company has obtained the
necessary permits from the appropriate regulatory authorities to mine its
lease. As a part of obtaining the approval of the Bureau of Land
Management to solution mine the property, the Company drilled its first
core hole during 1996. The completed core hole has provided specific data
which prove the existence and continuity of the nahcolite beds through the
Rock School Lease as described below.
13
<PAGE>
AMERALIA, INC.
Notes to the Financial Statements
June 30, 1996 and 1995
NOTE 4 - LEASE ACQUISITION, EXPLORATION AND DEVELOPMENT COSTS (Continued)
The Company has engaged engineering consultants to form preliminary
estimates of the cost of constructing a 50,000 ton per year plant. The
Company estimates that $30 million or more will be required for construction
and annual operating costs will be up to $5 million for mining operations.
The Company is seeking potential investors that would provide the necessary
funds to construct a plant. The decision as to when these funds will be
available rests with the prospective investors.
The lease is one of three federal leases which cover a unique, major
natural resource of nahcolite (naturally occurring sodium bicarbonate).
The Company has performed surface geological investigation of the 1,320
acre lease and has reviewed data assembled by other investigators in the
Piceance Creek Basin, including a 1974 report published by the United
States Geological Survey entitled "Stratigraphy and Nahcolite Resources of
the Saline Facles of the Green River Formation, Rio Blanco County,
Colorado." (John R. Dyni, USGS Report 74-56). This report analyzed the
results of a detailed study of ten core holes from the saline zone,
including a core hole known as Dunn 209-1 which is approximately 800 feet
to the east of the Company's proposed initial mine site on the Rock School
lease.
From this core hole, Mr. Dyni estimated the total nahcolite content of the
saline zone in this area at 315 tons per square mile. Using this figure
translates to a total nahcolite content of the Rock School Lease of 649
million short tons for the 1,320 acre lease. Due to lateral persistence of
this deposit, which allows correlation of beds over distances of many
miles, it is reasonable to assume that the concentrations found in the Dunn
20-1 hole also exist beneath the Rock School Lease.
Based on the foregoing information the Company believes that the nahcolite
deposit within the Rock School Lease is of significant size. However, not
all of this resource can be recovered with existed technology and until the
resource is brought into production or until substantial additional
engineering work is accomplished, the viability of economic recoverability
cannot be established.
The Company has capitalized costs associated with the acquisition of the
lease site and certain other costs associated with the development of the
resource. All other costs incurred in developing the resource are expensed
as period costs (Note 14).
NOTE 5 - INVESTMENT IN THE RURAL INVESTMENT TRUST
On November 16, 1988, the Company acquired 1,059,459 units valued at $790
in The Rural Investment Trust ("RIT") as a result of the sale of property
to the Trust. The RIT is an Australian public, unlisted real estate
investment trust which invests in agriculturally oriented properties, It
is managed by a wholly owned subsidiary of National Mutual Life, a large
life insurance company in Australia.
A provision of the agreement between the Company and The RIT is that the
Company will not liquidate more than 25% of its 1,059,459 units in the
Trust in any one year. The Company will also provide twelve months notice.
14
<PAGE>
AMERALIA, INC.
Notes to the Financial Statements
June 30, 1996 and 1995
NOTE 5 - INVESTMENT IN THE RURAL INVESTMENT TRUST (Continued)
Investment in the RIT is considered to be a security available-for-sale and
the approximate market value at June 30, 1996 was as follows:
Unrealized
Market Appreciation
Cost Value (Depreciation)
------ ------ -------------
Investment in RIT $ 460 $ 485 $ 25
------ ------ -----
------ ------ -----
NOTE - 6 NOTE RECEIVABLE
In June, 1991 the Company sold its entire breeding herd of cattle and
received a 6% note from the purchaser in the amount of $296, repayable over
three years in quarterly payments of $25 due at the end of March, June,
September and December of each year. The note is secured by a stock
mortgage over the cattle herd. The purchaser of the cattle herd is now in
default of its note to the Company. Accordingly, the Company has provided
a 30% allowance for uncollectibles. Due to the default there is a
provision in the note agreement for the annual interest to increase from 6%
to 15%. The balances are as follows:
JUNE 30,
----------------------
1996 1995
------- -------
Note receivable $ 179 $ 187
Less allowance for uncollectibles (48) (48)
------- -------
Net balance $ 131 $ 139
------- -------
------- -------
NOTE 7 - PROPERTY AND EQUIPMENT
Property and equipment comprises office furniture and equipment as follows:
JUNE 30,
----------------------
1996 1995
------- -------
Vehicle $ 34 $ 32
Equipment 34 34
Less accumulated depreciation (43) (31)
------- -------
$ 25 $ 35
------- -------
------- -------
Depreciation expense for the years ended June 30, 1996, 1995 and 1994 was
$12, $14 and $11 respectively.
NOTE 8 - DUE TO RELATED PARTIES
The Company owed $53 and $116 to affiliates of the Company at June 30, 1996
and 1995, respectively. This liability is comprised of accrued
compensation and $24 owed to three directors for unpaid directors fees in
1996.
15
<PAGE>
AMERALIA, INC.
Notes to the Financial Statements
June 30, 1996 and 1995
NOTE 9 - NOTES PAYABLE - LONG TERM
Notes payable - comprises the following amounts:
JUNE 30,
-------------------
1996 1995
---- ----
Note payable to investors; unsecured, due on
demand; at 10% interest. $ 21 $ 4
Notes payable to investors; unsecured, due on
demand; interest free. 8 15
Note payable to financial institution; principal
and interest payment of $568 due monthly;
at 9.5% interest; secured by vehicle. 15 20
Note payable to an investor; unsecured, due
December 31, 1995; at 5% interest. - 15
Note payable Raytheon Engineers & Constructors,
Inc; unsecured, due upon a 90 day demand; at
12% interest. 272 299
Note payable to NZI Securities Australia Ltd; past
due as of January 27, 1992; interest due quarterly
at 2.5% over the 90 day bankbill rate; secured by a
charge over the RIT investment. 537 482
Less current portion (844) (821)
----- -----
Total long-term notes payable $ 9 $ 14
----- -----
----- -----
Principal maturities are as follows:
1997 $ 844
1998 6
1999 3
$ 853
-----
-----
NOTE 10 - SEGMENT INFORMATION
The Company previously was engaged in the acquisition of diverse business
investments in North America and Australia, however, the current focus of
the Company is the development of its sodium bicarbonate lease in Colorado.
The Company has been engaged in rural operations which consisted of cattle
management, trading, breeding and embryo transplants. Other investments
consist of an investment in The Rural Investment Trust (See Note 5).
16
<PAGE>
AMERALIA, INC.
Notes to the Financial Statements
June 30, 1996 and 1995
NOTE 10 - SEGMENT INFORMATION (Continued)
Summarized financial information concerning these industry segments
follows:
<TABLE>
<CAPTION>
Mining Investments and
Operations Corporate Consolidated
---------- --------------- ------------
<S> <C> <C> <C>
1996
Revenue - non-affiliates $ - $ 60 $ 60
Net (loss) (375) (376) (751)
Depreciation and amortization
expenses - 12 12
Identifiable assets 2,735 873 3,608
Purchase of property and equipment - 2 2
1995
Revenue - non-affiliates $ - $ 49 $ 49
Net (loss) (300) (707) (1,007)
Depreciation and amortization
expenses - 14 14
Identifiable assets 2,060 925 2,985
Purchase of property and equipment - - -
1994
Revenue - non-affiliates $ - $ 49 $ 49
Net (loss) (285) (284) (569)
Depreciation and amortization
expenses - 11 11
Identifiable assets 2,011 1,251 3,262
Purchase of property and equipment - 40 40
</TABLE>
There are no customers, or foreign or domestic governments which account
for 10 percent or more of revenues from non-affiliates.
NOTE 11 - OFFICER COMPENSATION
The Company paid $100 to Gunn Development Pty. Ltd. and $55 to Ahciejay
Pty. for management fees. These companies are affiliates of Mr. Bill H.
Gunn, Chairman and President of the company, and Mr. Robert van Mourik,
Executive Vice President, Secretary & Treasurer. The Company paid $55 in
compensation to Mr. Marvin Hudson, Vice President, Investor Relations.
Additional fees totalling $187 and $8, have been paid to Jacinth Pty. Ltd.
and Neil E. Summerson for consulting work and director fees. This Company
is an affiliate of Robert Cameron, a director of the Company. In addition,
all directors received $8 for directors fees.
In June 1996 the Company agreed to grant 70,000 Stock Appreciation Rights
("SAR's") to each of Mr. Bill Gunn and Mr. Marvin Hudson. The terms
require that should the average bid price of the Company's stock rise to
$3.50 per share and be sustained at that level for a period of six months,
then the Company would be required to pay the indebtedness to the holders
through the issuance of restricted common stock at $1.50 per share.
17
<PAGE>
AMERALIA, INC.
Notes to the Financial Statements
June 30, 1996 and 1995
NOTE 11 - OFFICER COMPENSATION (Continued)
All other holders of SAR's may at any time after the share price has
sustained an average bid price of more than $3.50 per share for a six month
period and before June 28, 2006, can advise the Company of their decision
to have the Company redeem their outstanding SAR's. The SAR's can either
be converted in whole or in part at the holder's option. The redeemed
SAR's will be satisfied by the issuance of common stock on a one for one
basis. If the holders are terminated as directors or employees prior to
the conversion of all or part of the SAR's, the remaining SAR's are to be
cancelled.
NOTE 12 - OUTSTANDING STOCK OPTIONS AND PURCHASE WARRANTS
The following summarizes the exercise price per share and expiration date
of the Company's outstanding options and warrants to purchase common stock
at June 30, 1996:
EXPIRATION DATE EXERCISE PRICE NUMBER
--------------- -------------- ------
July 31, 1998 $1.50 13,333
December 31, 1998 $2.00 250,000
June 28, 2006 $1.50 375,000
June 26, 2006 (SAR's) $1.50 140,000
-------
778,333
-------
-------
During the year ended June 30, 1996 options to acquire 260,000 shares, at
up to $4.00 expired or were surrendered. During the year ended June 30,
1995 options to acquire 52,500 shares exercisable up to $8.00 expired.
NOTE 13 - COMMITMENTS AND CONTINGENCIES LIABILITIES
The Company is a party to certain claims and lawsuits arising from its
business activities. Management, after consultation with counsel, is of
the opinion that these actions will not have a materially adverse effect on
the financial condition or results of operations of the Company.
On December 10, 1992 the Company acquired the Rock School Lease from
Kinder; the acquisition terms were amended by Kinder and the Company on
January 1, 1996. As amended, the acquisition agreement provides for the
following consideration:
1. Commencing January 1, 1996, the reservation of a production royalty of
$1.50 per ton for all production, due and payable on the last day of
the month following the month of production subject to a minimum
annual royalty of $75 in arrears;
18
<PAGE>
AMERALIA, INC.
Notes to the Financial Statements
June 30, 1996 and 1995
NOTE 13 - COMMITMENTS AND CONTINGENCIES LIABILITIES (Continued)
2. Starting January 1, 1996, the establishment of a consulting
arrangement between Kinder and the Company providing for an annual
consulting fee of $25 payable monthly in arrears.
Minimum amounts due are as follows:
1997 $ 100
1998 100
1999 100
2000 100
--------
Total $ 400
--------
--------
These payments will continue while the Company holds the Rock School
Lease.
NOTE 14 - RECOVERABILITY OF LEASE ACQUISITION, EXPLORATION AND DEVELOPMENT
COSTS
The recoverability of this investment is dependent upon the Company
developing mining operations on the lease so that the profitability of
mining operations, or prospective mining operations, is sufficient to
enable the Company to be able to sell its investment and recover the lease
acquisition, exploration and development costs, as well as any subsequent
capitalized expenditures.
NOTE 15 - STOCK TRANSACTIONS
On October 10, 1995 an agreement was signed by the Jacqueline Badger Mars
Trust to invest $2,000 by subscribing for 2,000 of Series D Cumulative
Convertible Preferred Stock. The preferred stock carries a 10% dividend
payable quarterly in restricted common stock at $1.00 per share. The cash
has been deposited into an escrow account and as of June 30, 1996 $1,355 of
the total has been exercised. The preferred stock is convertible into
2,000,000 shares of common stock until October 31, 2000.
On October 26, 1995, the Bromley Family Trust, an existing stockholder in
the Company, subscribed $80 for 80 shares of Series D Convertible Preferred
Stock.
NOTE 16 - SUBSEQUENT EVENTS
Since June 30, 1996, the Company has drawn from the Jacqueline Badger
Mars Trust escrow account a total of $175, leaving a $470 balance
available in the escrow account.
Effective August 31, 1996, the Company issued to each Mr. Gunn and Mr.
Hudson 65,000 shares of common stock as a bonus. Mr. Gunn declined the
issuance of bonus shares to him, therefore, the shares were never
delivered.
In early 1994, NZI Securities Australia Ltd. ("NZI") threatened to sue
the Company based on the principal and interest outstanding on the note
payable, secured by the Company's investment in the Rural Investment
Trust. In view of the Company's capital requirements for other purposes,
principals of the Company were unable to resolve the situation with NZI,
19
<PAGE>
AMERALIA, INC.
Notes to the Financial Statements
June 30, 1996 and 1995
NOTE 16 - SUBSEQUENT EVENTS (Continued)
but (at the Company's suggestion) a significant shareholder, Miss Mary
L. Tiscornia, agreed to attempt to do so provided that appropriate
arrangements for satisfaction of the debt could be achieved, including
among other things, payment in shares of the Company's stock. In October
1994 Miss Tiscornia, through a partnership consisting of herself and Mr.
Bill H. Gunn and Mr. Marvin Hudson, executive officers of the Company,
(THG Partnership, "THG") entered into an agreement with NZI to assign
the indebtedness from NZI to THG. This assignment was completed on
October 5, 1996.
Once the note was assigned the Company's directors engaged in
negotiations with THG which in November 1996 resulted in an agreement to
fully satisfy the full NZI debt effective November 21, 1996 by
transferring and issuing to THG the following:
Note receivable South Pacific Grazing $103
Note receivable Wood Rural Finance 131
Two shareholder receivables (Tiscornia and Hudson) 32
Investment in Rural Investment Trust (present value) 450
100 shares of Series D Convertible Preferred Stock 100
In addition, THG has an option until November 30, 1996, to sell the RIT
units to the Company for $450 payable by the issuance of 450 shares of
Series D Preferred Stock. If THG chooses not to exercise this option,
THG may, in its discretion during the option period pay $450 in cash to
purchase 450 shares of Series D Preferred Stock.
The net effect of this settlement to the Company is to record a net
profit of $92 over book value on the recovery of the assets assigned to
THG.
NOTE 17 - CONSULTING AGREEMENT
On December 21, 1994 the Company entered into a non-exclusive consulting
agreement with an engineering firm for a term of five years. The agreement
requires the Company to pay a consulting fee equal to 2.5 times the
standard rates of the engineering firm's employees for its services
provided to the Company. The Company has the option to pay for these
services by issuing convertible preferred stock.
NOTE 18 - PREFERRED STOCK
The following are terms of the various series of preferred stock:
1. The Company has issued 666,666 shares of Series A Convertible
Preferred Stock at $1.50 per share. The shares are convertible into
666,666 shares of common stock until December 12, 1997 and carry a 9%
dividend payable annually in restricted common stock.
2. There are 51,000 shares of Series B Preferred Stock issued at $10 per
share. Each share is convertible into 5 shares of common stock for
four years until July 1998 and carries a 9% dividend payable annually
in restricted common stock.
3. Series C Convertible Preferred Stock consists of 750 shares issued at
$80 per share. Each share is convertible into common stock until
April 22, 2005 on the basis of 53 shares of common stock for each
share of Series C and carries a 5% dividend payable annually in cash.
4. There is a provision to issue a total of 2,080 shares of Series D
Cumulative Convertible Preferred Stock as detailed in Note 15
of which 1,435 were issued at June 30, 1996. The terms of the
Series D Cumulative Convertible Preferred Stock are also disclosed
in Note 15.
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 21
<SECURITIES> 0
<RECEIVABLES> 211
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 232
<PP&E> 67
<DEPRECIATION> 42
<TOTAL-ASSETS> 3608
<CURRENT-LIABILITIES> 1481
<BONDS> 9
36
0
<COMMON> 27
<OTHER-SE> 2046
<TOTAL-LIABILITY-AND-EQUITY> 3608
<SALES> 0
<TOTAL-REVENUES> 60
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (187)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (124)
<INCOME-PRETAX> (751)
<INCOME-TAX> 0
<INCOME-CONTINUING> (751)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (751)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> 0
</TABLE>
