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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, 2000
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.)
311 Raleigh Road, Kenilworth, Illinois 60043
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(Address of Principal Executive Offices)
Company's telephone number, including area code: (847) 256-9021
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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)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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. [ ]
Revenues for the fiscal year ending June 30, 2000: Nil.
Shares of common stock, $.01 par value, outstanding as of June 30, 2000:
8,765,699. Aggregate market value of the voting stock held by non-affiliates of
AmerAlia as of June 30, 2000 was approximately $9,295,800. The estimate is based
on the last sale price per share and an estimated 4,957,800 shares held by
non-affiliates.
Documents incorporated by reference: NONE
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PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF THE BUSINESS
AmerAlia, Inc. was incorporated as a Utah corporation on June 7, 1983.
AmerAlia was originally incorporated under the name "Computer Learning Software,
Inc." and changed its name to AmerAlia, Inc. in January 1984.
AmerAlia has been attempting to establish a chemical business for the
mining and manufacture of sodium bicarbonate and related products since 1989
when AmerAlia purchased an interest in a federal sodium lease in Rio Blanco
County, Colorado. AmerAlia acquired this lease in 1992. This lease contains a
naturally occurring, rare deposit of sodium bicarbonate, commonly known as
baking soda. AmerAlia's immediate objective is to raise sufficient funding to
construct a plant and commence operations.
AmerAlia's primary goal is to recover sodium bicarbonate from the lease
for sale initially to the animal feed market and then to the industrial,
pharmaceutical and food grade markets. Animal feed quality sodium bicarbonate is
a lower grade product with a current market price averaging approximately $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.
There are numerous other markets for sodium bicarbonate. These other markets
include pharmaceutical and food grade use of sodium bicarbonate. The production
of sodium bicarbonate also enables the production of soda ash, caustic soda and
other sodium chemicals widely used in the manufacture of glass, detergents and a
variety of inorganic and organic chemicals. Sodium bicarbonate is used as a
reagent for flue gas desulfurization.
AmerAlia submitted its mining and development plans to the Bureau of
Land Management and also submitted applications for all necessary associated
permits to other regulatory agencies of the federal, state and county
administrations. The BLM approved our mine plan to construct a solution mine
utilizing three solution cavities on our Rock School Lease in Northwest
Colorado. The BLM issued its Decision Record on December 3, 1999 after the BLM
produced an environmental assessment and reached a finding that the project
would have no significant environmental impact. The BLM did not receive any
appeals during the mandatory appeal period. Combined with the permits we have
received from state and local agencies, the BLM action allows us to begin
construction on the lease.
The BLM also approved on December 1, 1999 our request to install
groundwater monitoring wells on a portion of the lease. We have now completed
five monitoring wells. The stratigraphy and aquifers encountered in these wells
were consistent with previous wells drilled in the resource. The purpose of the
wells is to collect base line water data as a prelude to our solution mining
operations.
In May, 1999 AmerAlia entered into a Design/Build Agreement with U.S.
Filter Wastewater Group, Inc. of Naperville, Illinois to design and construct
Phase I of a 150,000 ton per year sodium bicarbonate mining and processing plant
for a cost not to exceed $32 million ($33.2 million after an amendment to the
contract). With amendments and delays, this cost may be higher by the time of
completion. Under the contact, we paid an initial $6.4 million to US Filter. We
are obliged to pay the balance at end of construction and after a production
rate of 50,000 tons per year has been achieved. US Filter requires us to obtain
long term financing for costs in excess of $6.4 million before US Filter will
advance construction financing. As a result of the $6.4 million we have advanced
to US Filter, engineering and procurement is 50% complete, most critical
delivery equipment and materials have been purchased and we are ready to begin
field construction. Some of the major plant items are now wholly or partially
fabricated. These include the crystallizers, centrifuge, product dryer, storage
silos and similar equipment. No construction has occurred on the ground, and
U.S. Filter is in a "stand by" capacity with respect to this project until we
are able to obtain adequate long-term financing.
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Our ability to commence on-site construction is dependent upon either
being able to secure long term financing to repay US Filter's construction loan,
or to obtain a significant amount of debt and equity capital to continue plant
construction. Interested lenders have been waiting for an independent review of
the project by R.W. Beck, Engineers, and TvanF Associates, as marketing
sub-consultant. On April 24, 2000 they submitted their report. This report
assessed the proposed solution mining, plant design, marketing prospects and
financial feasibility of the project. They have, amongst other things, concluded
that the proposed project is technically feasible and should support a long term
debt of $32 million with a conservative debt service coverage ratio, based on
selling all of the proposed output for animal feed grade alone. While we intend
to concentrate in the initial years on the animal feed markets as evaluated by
Beck, AmerAlia also anticipates higher production rates and selling to higher
value sodium bicarbonate markets.
The Beck report has now formed the basis of an information memorandum
and detailed financial projections provided to selected institutional and
non-institutional lenders in September 2000, for the purpose of securing long
term financing to repay the construction finance U.S. Filter has conditionally
agreed to advance. These documents and models have also been provided to Fitch
IBCA, Duff & Phelps for the purpose of their rating our long-term debt. We
believe that having Fitch assess a rating for our proposed debt instrument will
assist us in securing long-term finance. At the date of this report, we do not
have Fitch's preliminary assessment and we are awaiting expressions of interest
from prospective lenders. We anticipate having to raise approximately $50
million in new debt and equity to fund construction and associated outlays.
Whilst we are discussing our proposals with various lenders and investors, we
have not concluded any agreements to raise these funds.
AmerAlia has not been involved in any bankruptcy, receivership, or
similar proceedings.
Forward Looking Statements and Risk Factors
AmerAlia's future conduct depends on a number of factors beyond our
control, therefore, we cannot offer any assurance we will be able to conduct
AmerAlia's operations as we contemplate in this report. This report contains
various statements using the terms "may", "expects to", and other terms denoting
future possibilities. They are forward-looking statements. We cannot guarantee
the accuracy of these statements as they are subject to a variety of risks
beyond AmerAlia's ability to predict or control. These risks may cause actual
results to differ materially from the projections or estimates contained in this
report. These risks include, but are not limited to, the possibility the
described operations, reserves, exploration or production activities will not be
completed on economic terms, if at all. Undertaking exploration, development and
mining of mineral properties, significant construction projects, and the
manufacture and marketing of chemical products is risky. Many of these risks are
described in this report and it is important that each person reviewing this
report understands the significant risks accompanying the establishment of
AmerAlia's proposed operations. These risks and factors include:
o As a result of the $6.4 million we have advanced to US Filter,
engineering and procurement is 50% complete, most critical delivery
equipment and materials have been purchased and (subject to adequate
funding) we are ready to begin field construction. However, we do not
expect US Filter will provide the construction funding under the
Design/Build agreement unless AmerAlia can establish adequate long-term
financing which is a condition of the Design/Build Agreement.
Consequently, if we cannot obtain this financing we will not be able to
achieve our corporate objectives. AmerAlia will incur significant
penalties if the US Filter construction program does not proceed and it
will have spent millions of dollars of corporate funds on the
preliminary design and construction activities. US Filter holds a
security interest in the Rock School Lease.
o AmerAlia has not negotiated long term employment and compensation
arrangements with its officers, other than with its Vice President,
Operations, pending resolution of long-term financing.
o As noted above, AmerAlia needs a significant amount of debt and equity
financing to be able to commence construction of the processing plant
and the solution mine in the field. Although
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AmerAlia has been seeking such financing for more than the past two
years, it has been unable to conclude definitive arrangements for any
such financing, other than the funding it has raised to complete work
concluded so far.
o AmerAlia historically has had, and continues to have, operating losses
and significant working capital shortages. Until we can generate
revenues from operations we must raise further debt and equity capital
to fund operating losses. AmerAlia's stock has historically been quoted
on the Nasdaq SmallCap stock market that has provided accredited
investors purchasing equity prospects of liquidity. Should AmerAlia's
stock be removed from the Nasdaq SmallCap stock market for any reason,
it will likely be more difficult for AmerAlia to conclude the necessary
fund-raising.
o AmerAlia's lease is due for renewal on July 1, 2001. The lease requires
sodium be produced in paying quantities for the lease to be renewed.
Our understanding of BLM general practice is that the conduct of our
activities proceeding to plant construction will be sufficient to
enable a lease renewal. However, if there is a change in the
interpretation of the lease conditions, then the BLM may depart from
past practice and not renew the lease.
o Although we have obtained a significant amount of information about the
lease and we believe that the mineral resources can be extracted
economically, this belief cannot be tested until operations commence.
Actual operations may differ from our predictions and we may have to
spend more to rectify these differences.
o Mining activities are subject to intensive federal, state, and local
government regulation and scrutiny in a number of different areas
including worker safety and health and environmental protection.
o We have limited commitments from prospective purchasers of sodium
bicarbonate when we commence production.
(b) BUSINESS OF ISSUER
AmerAlia is currently involved in only one industry segment: seeking to
finance and construct a solution mining facility and processing plant for the
manufacture of sodium bicarbonate.
General Discussion
The Piceance Creek Basin. AmerAlia is one of three companies holding
federal leases granted within the Piceance Creek Basin in Rio Blanco County,
Colorado. The Piceance Creek Basin covers a unique, major natural resource of
nahcolite, a mineral form of naturally occurring sodium bicarbonate.
AmerAlia 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 AmerAlia's proposed plant 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.
AmerAlia's core drilling and evaluation project, conducted in 1996,
demonstrated the lateral continuity of this deposit beneath much of the Rock
School Lease. We believe it is reasonable to assume that the concentrations
found in the Dunn 20-1 hole also exist beneath much of the Rock School Lease.
This project was conducted to better determine the extent of mineralization and
the strength of the rocks in the proposed solution mining area. The project
identified a nahcolite mining interval with a vertical height of 510 feet. The
concentration within the interval averaged 26.4% nahcolite. AmerAlia engaged an
independent consulting firm, Agapito & Associates, to supervise the core hole
drilling and to conduct studies on core assays, mining interval, cavity design,
rock strength and geological evaluation.
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Consequently, we believe 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 lease conditions. The economic
viability of recovering the sodium bicarbonate cannot be established until the
resource is brought into production, or until substantial additional engineering
work is completed.
AmerAlia's activities in pursuing its operations are set out more fully
below. (See "Exploration and Development Work To Date.")
The Sodium Bicarbonate Market.
In 1998, AmerAlia commissioned Harriman Chemsault Ltd., a London based
marketing consultancy specialising in the chlor-alkali sector of the chemical
industry, to provide a study of the global market for sodium bicarbonate with
special emphasis on the United States. A further marketing study prepared by
TvanF Associates in July 1999 and updated for R.W. Beck, Engineers in April,
2000 reaffirmed the findings of the initial study. The existing and long
established market for sodium bicarbonate is principally for food grade, animal
feed and commercial usage with delivered sale prices of $200-400 per ton,
depending on grade. This market is dominated by a few suppliers producing
synthetic sodium bicarbonate from soda ash (sodium carbonate). They sell their
product under well-established brand names. Based on publicly available
information, AmerAlia believes the cost of producing synthetic sodium
bicarbonate exceeds $150 per ton. The United States and Canadian markets
currently absorb about 520,000 tons of sodium bicarbonate annually for the
animal feed market, industrial markets, food-grade sodium bicarbonate and for
pharmaceutical uses. The animal feed market, with delivered prices of
approximately $240 per ton, accounts for approximately 135,000 tons of this
usage.
Both the animal feed and the pharmaceutical grade markets are
experiencing modest growth. If we are able to commence production of sodium
bicarbonate (itself, subject to a number of risks), we plan initially to supply
the animal feed market. Small amounts of sodium bicarbonate in feed rations
re-establish normal rumen balance thereby controlling acidotic stress conditions
in a manner similar to antacids in humans. This increases yields of both milk
and butter fat in the dairy industry.
Marketing Arrangements. We are aware that distributors experience
constant difficulties sourcing secure long-term supplies of animal feed grade
sodium bicarbonate. AmerAlia has non-binding agreements with two long-standing
distributors of sodium bicarbonate to the livestock industry. Neither of these
distributors has any obligation to purchase sodium bicarbonate from AmerAlia. If
the distributors choose to take production from AmerAlia when it is available,
they will have exclusive arrangements with AmerAlia to supply the animal feed
market and the opportunity to acquire sodium bicarbonate from AmerAlia at a
wholesale price. The contracts become effective only when the buyers place their
first order after AmerAlia commences production. At this time, AmerAlia cannot
reliably estimate when it will have product for sale. AmerAlia has also received
a letter of intent from a third distributor indicating a capacity to distribute
additional tonnage of sodium bicarbonate. These distributors cover most of the
United States and Canada.
Competition. Any production by AmerAlia or any other person from the
Rock School Lease will be marketed in traditional sodium bicarbonate markets in
competition with large and well-established companies. The animal feed market is
subject to competition from other suppliers of sodium bicarbonate and
alternative rumen buffers. The resources of those companies far exceed those of
AmerAlia.
Based on preliminary engineering models, we believe that AmerAlia will
have a cost advantage over producers of sodium bicarbonate using soda ash as a
raw material. There is a number of synthetic animal feed supplements which
compete with sodium bicarbonate. Based on our informal surveys, we believe the
animal feed market will prefer to use naturally occurring sodium bicarbonate
over a synthetic
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alternative. If our plans prove to be accurate, AmerAlia's production costs
should allow AmerAlia to have a significant cost advantage in the animal feed
market.
Two unaffiliated companies hold adjacent or nearby sodium leases issued
by the BLM. The adjacent lease is owned by White River Nahcolite Minerals, a
wholly owned subsidiary of IMC Global, Inc. American Soda, L.L.P. (formerly
NaTrona Resources, Inc.) owns another lease issued January 1, 1992. Although the
sodium resource in the Piceance Creek Basin is believed to be of substantial
size, the AmerAlia, White River and American Soda leases are the only leases
currently issued by the BLM. We do not regard competition in the long term as
being significant since we believe the market can absorb the anticipated
production and high cost producers will yield market share.
The Rock School Lease
Background Agreements. United States Sodium Lease No. C-0119985, known
as the Rock School Lease, with an area of 1,320 acres in Rio Blanco County,
Colorado, U.S.A. was previously owned by E. E. Kinder Co., an unaffiliated
Colorado general partnership, which had subleased the property to Denison
Resources (USA) Corp., a company acquired by AmerAlia in 1989. Under the
sublease, Denison had to meet certain requirements sufficient to obtain an
extension of the lease. In June, 1991 the Federal Bureau of Land Management
renewed the lease, effective July 1, 1991, for a period of ten years.
On December 10, 1992 AmerAlia purchased the Rock School Lease from
Kinder. Kinder and AmerAlia amended the acquisition terms in January, 1996.
AmerAlia has certain remaining obligations to pay to Kinder:
o a minimum annual royalty of $75,000;
o a production royalty equal to $1.50 per ton of production;
o an annual consulting fee of $25,000; and
o if the minimum royalty exceeds the production royalty payable,
then a credit is carried forward and allowed against any future
production royalties.
The BLM approved Kinder's assignment of the Rock School Lease effective January
1, 1996.
Rock School Lease -- Terms. The current term of the Rock School lease
is due for renewal in June 2001. As leaseholder, AmerAlia has a preferential
right to renew the lease, but this right is subject to numerous requirements.
The most significant requires that AmerAlia must be producing sodium bicarbonate
from the lease "in paying quantities." As we have discussed above in Item 1, we
believe BLM general practice is that the conduct of our activities proceeding to
plant construction will be sufficient to enable a lease renewal. This lease can
be renewed in perpetuity if we conduct operations on the lease and comply with
the terms and conditions of the lease.
AmerAlia pays rent to the BLM annually in advance at the rate of $1 per
acre. If AmerAlia succeeds in its business plan and produces sodium bicarbonate
from the lease, AmerAlia will have to pay the BLM a 5% production royalty.
Exploration and Development Work To Date. When AmerAlia acquired the
Denison interest in the Rock School Lease in 1989, approximately $493,000 had
already been invested in various geological, engineering and marketing studies
associated with developing the resource. Since then and through June 30, 2000,
AmerAlia has invested a further $2,322,000 in direct expenditures for further
geological and engineering studies including drilling a core hole, legal
expenses, technical consultants, and advances to the BLM to advance the
project's development. These expenditures, which do not include the acquisition
cost of the lease, have been capitalized in AmerAlia's financial statements.
Further capitalised expenditures include $6,995,000 paid to US Filter and others
through June 30, 2000 to design the operating facility and to commence off-site
fabrication of certain components for the plant.
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In addition to these expenditures, there were other direct expenditures
incurred by AmerAlia in negotiating with and meeting prospective joint venture
partners, investors, financiers, customers and construction contractors. These
amounts have been written off in AmerAlia's accounts.
Our principal efforts are directed towards meeting the requirements of
the permitting agencies and proceeding with our plant construction. Because the
Piceance Creek Basin is known to contain a substantial amount of oil shale, the
BLM has prohibited mining operations adversely affecting oil shale. The federal
agency has, however, accepted the proposed solution mining method and has
approved a 50,000 tons per year initial mining operation. The BLM asked AmerAlia
to drill a core hole on the Rock School Lease and obtain site specific
underground data prior to the commencement of operations.
AmerAlia drilled this core hole in early 1996. The drill encountered
nahcolite in three separate resource intervals over a depth of 510 feet,
averaging 26.4% nahcolite. AmerAlia engaged Agapito & Associates to supervise
the core hole drilling and to conduct studies on core assays, rock strength and
geological evaluation. We submitted this report to the BLM and to other
regulatory agencies of the federal, state and county administrations. The BLM
issued its Decision Record on December 3, 1999 after the BLM produced an
environmental assessment and reached a finding that the project would have no
significant environmental impact. The BLM did not receive any appeals during the
mandatory appeal period. Combined with the permits we have received from state
and local agencies, the BLM action allows us to begin construction on the lease.
The BLM also approved on December 1, 1999 our request to install
groundwater monitoring wells on a portion of the lease. We have now completed
five monitoring wells. The stratigraphy and aquifers encountered in these wells
were consistent with previous wells drilled in the resource. The purpose of the
wells is to collect base line water data as a prelude to our solution mining
operations. Should we wish to expand our production beyond 50,000 tons per year,
we may be required to produce an Environmental Impact Statement. If required,
this will be expensive and time consuming and we shall undertake that in
conjunction with obtaining operational data from the initial 50,000 tons per
year project.
Proposed Development Program. The 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 the initial facility to
150,000 tons per year. Production will be from a 500 foot thick zone at a depth
of 2,000 feet to 2,500 feet. Weak liquor 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
solution mining technology has been previously tested in the same resource by
Shell Oil (1970-1972) and found to be feasible. Solution mining in other
resources is well established. AmerAlia's cash cost of production is expected to
be about one-half of the estimated existing industry average cash costs.
In May 1999, we entered into an agreement with US Filter for the design
and construction of the plant and related facilities for no more than $33.2
million. Under the agreement, US Filter will guarantee the performance of the
plant and related facilities, but will not guarantee that the underground
facilities will produce sodium bicarbonate in solution satisfactory to feed the
plant. US Filter also agreed to finance the design and construction of the plant
and related facilities subject, however, to two principal conditions:
o First, AmerAlia was obliged to place $6.4 million into an escrow
account to fund design and engineering expenses until AmerAlia was able
to obtain a firm commitment for permanent financing (although we have
deposited the required funds, we have not obtained the firm financing
commitment as described below); and
o Before US Filter will advance any expenses to AmerAlia under the terms
of the agreement, AmerAlia must obtain a permanent financing commitment
that is acceptable to US Filter. US Filter has advised AmerAlia an
acceptable financing commitment must not be subject to conditions other
than the performance of the plant. Under the Design/Build agreement we
were required to provide acceptable financing by August 15, 1999. We
have not met this condition,
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however, US Filter has not declared a default under the agreement and
we are continuing negotiations with prospective financiers to establish
a facility satisfactory to US Filter.
o Also before US Filter will advance any expenses under the terms of the
agreement, AmerAlia was obligated to obtain all necessary permits,
bring electricity to the property, and take certain other actions.
While AmerAlia believes it has all material permits necessary for the
plant construction, there are certain other aspects of the agreement
which are overdue and must yet be met. Among these overdue obligations
are AmerAlia's obligations to supply water, natural gas and electricity
to the site.
If AmerAlia 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 production.
Access. The Rock School Lease is accessible by existing state and
county roads. About 1.3 miles of new road is needed to access the production
facility. Marathon Oil has granted an access easement on its land reducing the
length of the new facility access road construction needed. These roads will
often be covered with snow in the winter.
Australian Activities
AmerAlia previously owned real estate in Australia. The real estate was
sold in 1989 to an unaffiliated, public Australian real estate investment trust,
known as The Rural Investment Trust. AmerAlia transferred its interest in this
trust to the THG Partnership, an affiliate, as part of its settlement of debt.
AmerAlia gave THG an option to exchange this investment for the issuance of 450
shares of Series E Preferred Stock. THG exercised this option in October 1998.
AmerAlia subsequently liquidated the RIT investment as described in Item 12
"Certain Relationships and Related Party Transactions".
Employees
AmerAlia's day to-day business activities are managed by Mr. Bill H.
Gunn, Chairman and President; Mr John F. Woolard, Executive Vice President and
Mr. Robert van Mourik, Executive Vice President and Chief Financial Officer. See
Item 11. - "Executive Compensation".
ITEM 2. PROPERTIES
AmerAlia 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
AmerAlia v. Marvin Hudson
In June 1999, Marvin Hudson filed a complaint against AmerAlia, Inc. in
the United States District Court for the District of Colorado (civ. act. no.
99-M-1203) (the "Federal Action"). In this complaint, Mr. Hudson also named Bill
H. Gunn, Robert C.J. van Mourik, and Neil E. Summerson, individually and as
officers and directors of AmerAlia. None of the individuals were served. Mr.
Hudson alleged several causes of action in the Federal Action:
"Breach of Contract" in which Mr. Hudson alleged that he had been
employed by AmerAlia pursuant to an employment contract executed by Mr.
Gunn in 1996 on behalf of AmerAlia which AmerAlia breached when it
allegedly terminated Mr. Hudson's employment in June 1998. Mr. Hudson
alleged that this employment contract provided for a salary of $80,000
per year, options to purchase 30,000 shares of common stock per year,
and 200,000 stock appreciation rights.
<PAGE> 9
In the Federal Action, Mr. Hudson also claimed damages for "Willful and
Wanton Breach of Contract" and "Wrongful Termination."
After several pleadings were filed in this federal court action, but
before any substantive discovery had been performed, the federal court dismissed
the Federal Action without prejudice in October 1999.
In July 1999, AmerAlia filed a complaint against Mr. Hudson in the
Colorado District Court for Arapahoe County, Colorado (civ. act. no. 99-CV-2207)
(the "State Action"). As claims for relief against Mr. Hudson, AmerAlia alleged:
that the employment contract allegedly entered into between AmerAlia
and Mr. Hudson were forgeries or procured by fraud or duress and,
therefore, not enforceable (the "Fraudulent Employment Contracts"); and
that Mr. Hudson had converted to his own use funds, documents, personal
property, and equipment belonging to AmerAlia ("Conversion");
In the State Action, AmerAlia has sought damages and exemplary damages
against Mr. Hudson, as well as an injunction and an accounting. Mr. Hudson
sought to remove this action to the Federal Court, but the Federal Court
remanded it back to the Arapahoe County District Court. In November 1999 the
Arapahoe County District Court granted Mr. Hudson's motion to change venue of
the State Action to El Paso County, Colorado where it was assigned case no.
99-CV-3050 in Division 5.
In December 1999 Mr. Hudson filed an answer with counterclaims in the
State Action in which he denied the material allegations of AmerAlia's complaint
and re-alleged the Breach of Contract Action, Willful and Wanton Breach of
Contract, and Wrongful Discharge. At that time, Mr. Hudson also alleged
violation of the Colorado Wage Claim Act (Section 8-4-101 et seq.) and common
law fraud. As he had done in the Federal Action, Mr. Hudson also named Messrs.
Gunn, van Mourik and Summerson individually and as officers and directors of
AmerAlia.
Mr. Hudson served his answer and counterclaim on AmerAlia in December
1999, and AmerAlia replied denying all of Mr. Hudson's material allegations. Mr.
Hudson did not serve Mr. Gunn with the complaint until June 2000, and has not
yet served any other defendant. Mr. Gunn filed a reply in July 2000 denying all
of Mr. Hudson's material allegations.
This case has not been set for trial, and no discovery has taken place
as yet. Consequently, although AmerAlia believes it has meritorious claims
against Mr. Hudson and will defend its position vigorously, it is premature to
predict the possible outcome to this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
AmerAlia held an annual meeting of its shareholders on June 23, 2000.
Messrs. Gunn, Woolard, van Mourik, Summerson, Cameron and Murphy were elected to
the Board of Directors. Votes were cast for the directors as follows:
<TABLE>
<CAPTION>
VOTES FOR ABSTAIN
--------- -------
<S> <C> <C>
Bill H. Gunn 9,071,035 1,034,000
John F. Woolard 9,491,060 76,175
Robert C. J. van Mourik 9,062,060 1,043,175
Neil E. Summerson 9,062,060 1,043,175
Robert A. Cameron 9,062,060 1,043,175
Geoffrey C. Murphy 9,491,060 76,175
</TABLE>
No other matters were presented to the shareholders for action.
<PAGE> 10
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION.
Since August 1987, AmerAlia's Common Stock has been publicly traded
under the symbol "AALA" on the Nasdaq SmallCap Market which is operated by the
National Association of Securities Dealers, Inc. The Nasdaq SmallCap Market is
one of two distinct market tiers comprising the Nasdaq Stock Market which is a
highly regulated electronic securities market utilizing a sophisticated computer
and telecommunications network. Market participants comprise competing Market
Makers, independent dealers who commit capital to stocks and compete with each
other for orders, and Electronic Communications Networks, trading systems
recently integrated into Nasdaq to bring additional orders into the market. The
market structure provides visibility of orders and allows market participants to
compete for order flow. Trading is supported by a communications network linking
the market participants to quotations dissemination, trade reporting and order
execution systems. This market also provides specialized automation services for
screen-based negotiations of transactions, online comparison of transactions,
and a range of information services tailored to the needs of the securities
industry, investors and issuers.
The average trading prices for AmerAlia's common stock as provided by
Nasdaq's online service for the past two fiscal years are provided in the table
below. These prices do not include allowance for retail markup or markdown,
commissions or other transaction costs.
<TABLE>
<CAPTION>
AVERAGE
FOR THE QUARTER ENDED SALE PRICE
--------------------- ----------
<S> <C>
September 30, 1998 $1.45
December 31, 1998 $1.25
March 31, 1999 $1.50
June 30, 1999 $3.00
September 30, 1999 $3.00
December 31, 1999 $2.86
March 31, 2000 $2.91
June 30, 2000 $2.14
</TABLE>
(b) HOLDERS.
(b)(1) The number of record holders of AmerAlia's common stock on
June 30, 2000 was approximately 460. (This does not include an
indeterminate number of shareholders whose shares are held by
brokers in street name.)
(b)(2) Not applicable.
(c) DIVIDENDS
AmerAlia has not paid dividends on its common stock and has no plans to
pay cash dividends in the future. AmerAlia's ability to pay dividends to holders
of its common stock is limited as a result of the issue of its outstanding
shares of Series E Preferred Stock.
<PAGE> 11
RECENT SALES OF UNREGISTERED SECURITIES.
On August 12, 1999, AmerAlia issued 250,000 shares of its restricted
common stock for a total investment of $625,000 ($2.50 per share). Each of the
investors was an accredited investor. The offering was made under the exemptions
from registration under sections 4(2) and 4(6) of the Securities Act of 1933,
and Rule 506 of Regulation D. No underwriter or finder was involved in this
transaction.
In January 2000, AmerAlia issued 100,000 shares to an accredited
investor for an investment of $250,000. No underwriter or finder participated in
the offering of these shares. The offering was made under the exemptions from
registration under sections 4(2) and 4(6) of the Securities Act of 1933, and
Rule 506 of Regulation D.
In March 2000, AmerAlia issued 24,000 shares of its restricted common
stock to Charles D. O'Kieffe as a fee for lending AmerAlia $300,000 with
interest at the prime lending rate of the Harris Bank, Chicago. Mr. O'Kieffe
advanced the funds in October 1999 and repayment is due October 29, 2000. Mr.
O'Kieffe is an accredited investor and an existing shareholder of AmerAlia. The
offering was made under the exemption from registration found in Section 4(2) of
the Securities Act of 1933. No underwriter or finder was involved in this
transaction.
In January 2000, AmerAlia issued 433,333 shares of its restricted
common stock to Industrial Solutions, Inc. ("ISI"), a contractor performing work
for us on our Rock School Project. ISI accepted these shares in lieu of a cash
payment. ISI represented to us that it is an accredited investor and, therefore,
the offering was made under the exemption from registration found in Section
4(6) of the Securities Act of 1933. No underwriter or finder was involved in
this transaction.
During the fiscal year ended June 30, 2000, dividends aggregating
$298,600 became payable to the holders of the Series E Preferred Stock. AmerAlia
paid, or will pay, these dividends to the holders of the Series E Preferred
Stock through the issuance of 298,600 shares of its restricted common stock.
ITEM 6. SELECTED FINANCIAL DATA.
The following information has been derived from AmerAlia's financial
statements. The financial statements attached to this annual report on Form 10-K
were prepared in accordance with Regulation S-B.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
AMOUNTS IN THOUSANDS OF DOLLARS
(EXCEPT PER SHARE DATA)
YEAR ENDED JUNE 30
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues -- -- -- -- --
Net Loss (2,234) (1,902) (550) (769) (751)
Loss per Share (.27) (.31) (.13) (.26) (.28)
Total Assets 11,092 5,836 3,500 3,008 3,608
Total Current
Assets 93 1,378 725 12 2
Total Current
Liabilities 7,479 923 819 650 1,481
Long Term Debt -- -- -- 4 9
Shareholders'
Equity 3,613 4,913 2,681 2,354 2,118
Weighted Average
No. of Shares 8,270 6,230 4,313 3,014 2,653
</TABLE>
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
JUNE 30, 2000 AS COMPARED TO JUNE 30, 1999:
During the year ended June 30, 2000, AmerAlia incurred significant
working capital shortages which it resolved through borrowings and sales of its
capital stock to accredited investors. AmerAlia:
o raised $875,000 through the sale of common stock to accredited
investors;
o borrowed $300,000 from Charles D. O'Kieffe, a shareholder, in
October 1999; and
o borrowed $5.2 million from NationsBank, N.A. (now Bank of
America) in two increments in September 1999 and January 2000.
In July 2000, we borrowed a further $2.126 million from Bank of America
under the same terms and conditions. These Bank of America loans are guaranteed
by AmerAlia's principal shareholder for a fee payable in restricted shares as
explained at Item 13(a) Certain Relationships and Related Party Transactions
under "Guaranty Agreement". The number of shares of restricted common stock to
be issued to pay the fee is based upon future market prices of the Company's
common stock, hence the obligation to pay the guarantee fee is recorded as a
current liability in the Company's financial statements until the shares are
issued. This liability for the fee was $520,000 at June 30, 2000, and the
aggregate liability to the Bank of America was $5,200,000. In conjunction with
the renegotiation of the guaranty fees, the term of this aggregated loan has
been extended to September 2001.
AmerAlia met its working capital requirements in excess of these
borrowings in a number of ways during the past fiscal year, and these are
continuing into the 2001 fiscal year.
o AmerAlia has deferred paying some accounts and royalties
payable. This includes approximately $466,667 at June 30,
2000, in minimum royalties and consulting fees due to Kinder,
the vendor of the lease for our Rock School Project. This
obligation is not secured by our property, Kinder has not
demanded payment of these amounts, and we intend to bring this
account current when adequate funds are available.
o In July 2000 we paid the Bank of America $109,525 interest
that was due on June 30, 2000.
o Throughout the year, we deferred paying $122,429 to various
related parties for directors fees and other compensation due
them. We intend to pay these fees when adequate funds are
available.
During the year, we also issued 433,333 shares of our restricted common
stock to a contractor to prepay certain construction costs with a value to
AmerAlia of $1.3 million. As plant construction progresses we shall bring this
prepayment to account as capitalised construction expenditure.
At the beginning of the year we held $991,305 in an escrow account for
US Filter under our Design/Build Agreement. During the year, we paid this money
together with an additional $4,753,337 to US Filter to progress their plant
design activities and to fabricate plant and equipment. We expended a further
$541,980 in engineering, consulting, legal, and other fees and costs to obtain
the BLM Decision Record that enables us commence on-site construction, subject
to our raising satisfactory long-term financing. These costs were capitalised in
our accounts as they contributed to a definable improvement in the value of the
Rock School Lease.
In the 1999 fiscal year, we expended approximately $600,000 for the
same purpose but as the BLM decision outcome was unresolved at the end of the
fiscal year, those costs were expensed in that period. We invested a further
$222,020 in advancing our efforts to secure long-term finance. When this
financing is secured, we will amortise these costs over the term of the
financing. Finally, our resources
<PAGE> 13
were used to fund our operating loss of $2,234,000 for the year. We also settled
a contingent liability of $303,800 through arbitration for $250,000.
In summary, total assets increased during the year to $11,092,021
(1999: $5,836,061; 1998: $3,500,143) and stockholders' equity decreased to
$3,613,247 (1999: $4,912,533; 1998: $2,680,688).
AmerAlia has historically derived its liquidity from raising new equity
investment or by issuing notes payable. AmerAlia's ability to ensure its
long-term survival continues to be dependent upon AmerAlia constructing the
proposed plant and securing financing for its construction, estimated to be up
to $50 million. AmerAlia reached an agreement with US Filter to provide
construction financing, but US Filter's agreement is subject to numerous
conditions and, to date, US Filter has not advanced any funds pursuant to that
agreement. We have complied with our obligation to provide $6.4 million to
initiate the design and construction activities. We are negotiating with
prospective investors and financiers to achieve this financing objective,
although there can be no assurance we will be able to complete this financing.
Until we obtain adequate long-term financing, we will be unable to
advance the construction of the Rock School Project further. It is our goal to
maintain the Rock School Project in a "ready" status until we have received the
necessary funding and therefore are able to actively commence construction
activities on site. Until, if ever, the Rock School Project has been constructed
and has commenced operations, we will not have any product for sale and will not
receive operating revenues. Until we receive our long-term financing, we will
continue to be dependent on equity placements to accredited investors and
short-term debt financing as in the past. We will continue to engage in
appropriate cash management techniques.
A potential source of equity capital in the future is through the
exercise of our outstanding common stock purchase warrants and options. A total
of 1,307,000 options are currently outstanding. The outstanding options, if
exercised in whole or part, would result in additional capital for AmerAlia. The
option exercise prices range from $1.00 to $6.00, however, it is not likely that
any person will exercise options unless the market price for the shares exceeded
the option exercise prices on a sustained basis. Furthermore, AmerAlia will not
permit any person to exercise options unless the underlying shares of common
stock were included in an effective registration statement, or unless an
exemption from registration was available.
JUNE 30, 1999 AS COMPARED TO JUNE 30, 1998:
During the 1999 fiscal year, AmerAlia raised a total of $4,208,096
through the sale of preferred stock, common stock and warrants to accredited
investors and to investors outside of the United States. These securities were
issued for cash, cancellation of debt and in exchange for an investment in the
Rural Investment Trust. This investment was subsequently liquidated raising
$418,346.
We funded further capital expenditures on the Rock School Lease
development ($255,000) and on deposits under the Design/Build agreement with US
Filter ($1,250,000). In addition, we provided $991,305 in additional funding to
the escrow account under the Design/Build agreement. Principally, the balance of
the funds we raised were used to increase cash reserves by $395,000 and to fund
AmerAlia's operating loss. The operating loss includes a contingency for
$303,800, an amount we are disputing with Raytheon. This dispute was settled
during the 2000 fiscal year for our payment to Raytheon of $250,000.
As a result of the fund raising throughout the year, total assets
increased to $5,836,061 (1998: $3,500,143; 1997: $3,007,489) and stockholders'
equity increased to $4,912,533 (1998: $2,680,688; 1997: $2,354,561).
<PAGE> 14
RESULTS OF OPERATIONS
JUNE 30, 2000 AS COMPARED TO JUNE 30, 1999:
Since AmerAlia does not receive revenues from operations, any income it
receives is generally derived from interest earned on funds on deposit resulting
from stock subscriptions. Interest income in 2000 was nearly $40,000 compared
with less than $37,000 in the previous year. General and administrative
expenditures were less this year than for last year, $1,469,914 (1999: $1910,792
and 1998: $629,605), however, as explained above last year's expenses included
approximately $600,000 of expenditures which ultimately contributed to the BLM
Decision Record approving our mining plan but were written off in 1999. In view
of the BLM outcome, a similar level of expenditure the year was capitalised and
this has caused the general and administrative expenditures to be substantially
reduced.
As noted above, AmerAlia financed a significant portion of its
operations through debt incurred during and after fiscal 2000. As a consequence
of the increased level of debt, interest expense has increased substantially
(2000: $357,535; 1999: $18,519; 1998: $38,909) and this will increase further
unless equity capital can be raised to repay the debt finance. General &
administrative costs also include the amortisation of fees paid to secure
short-term finance facilities. These fees, including the guaranty fees discussed
above, are amortised over the term of the loans. Financing costs amortised or
written off in fiscal 2000 totalled $435,500.
It is likely that AmerAlia will continue to recognize significant
operating losses and negative cash flow until (if ever) after its Rock School
Project has been completed and operating profitably. There is a number of
significant contingencies that result in this possibility being one of
significant risk, and there can be no assurance that AmerAlia will ever achieve
profitable operations or a positive cash flow.
JUNE 30, 1999 AS COMPARED TO JUNE 30, 1998:
Interest income in 1999 was less than $37,000 and less than $5,000 in
1998. General and administrative expenditures were significantly higher this
year than for previous years (1999: $1,910,792; 1998: $629,605 and 1997:
$690,982) as expected as a result of the increased activity associated with
obtaining funding for the development of AmerAlia's lease and construction of
production facilities. Interest expense has been reduced further as a result of
lower debt (1999: $18,519; 1998: $38,909 and 1997: $70,383). Consequently, the
1999 net loss of $1,901,601 significantly exceeded those of prior years (1998:
$549,817; and 1997: $769,185). Contributing to this loss was an expenditure of
approximately $600,000 paid to external consultants in connection with
developing the permitting applications and development plans associated with the
development of our resource; approximately $410,000 in management and staff
salaries due to higher staffing levels (1998: $260,000) and increased consulting
fees as a result of increased corporate activities. We have a dispute with
Raytheon concerning additional work it performed which we consider to be outside
the specifications of the work orders. We are disputing this amount and have
agreed with Raytheon to go to mediation and/or arbitration to settle the matter.
Meanwhile we have provided for a contingency of $303,800 in our financial
statements. Under our Design/Build agreement with US Filter we contributed
$6,400,000 to an escrow account to fund the initial design and construction
activities. Our agreement provides that if we cannot secure suitable long-term
financing, US Filter is entitled to substantial liquidated damages. Its
interests are secured by our interests in the Rock School Lease
Until AmerAlia achieves its objective of establishing a plant for the
recovery and production of sodium bicarbonate, it will not be able to generate
operating revenues. Whilst we are progressing negotiations with various
prospective investors and financiers, we have not reached any definitive
agreements to enable us to build our proposed facilities. We estimate up to $50
million will be required to fund construction and the associated working capital
requirements until profitable operations are established. There is no assurance
that AmerAlia can obtain this financing and, in the meantime, we must fund our
operating losses from our own resources as discussed above.
Impact of Inflation
AmerAlia believes that its activities are not materially affected by
inflation.
<PAGE> 15
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS.
The financial statements are attached to this report following Part IV.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE> 16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
(a) IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS.
The following table sets forth the names and ages of all the Directors
and Executive Officers of AmerAlia, 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.
<TABLE>
<CAPTION>
FIRST
ELECTED OR
NAME & AGE POSITION APPOINTED
---------- -------- ----------
<S> <C> <C>
Bill H. Gunn Chairman of the Board, 02/84
Age 58 President, & Chief
Executive Officer
Robert van Mourik Director, 09/90
Age 47 Executive Vice President 01/89
Chief Financial Officer,
Secretary & Treasurer
Neil E. Summerson Director 09/90
Age 52
(1,2)
Robert A. Cameron Director 09/90
Age 62
(2)
John F. Woolard Director, 10/98
Age 60 Executive Vice President 06/98
Geoffrey C. Murphy Director 06/99
Age 59
(1,2)
Roger Day Vice President of Operations 02/99
Age 50
</TABLE>
(1) Members of the Compensation Committee.
(2) Members of the Audit Committee
There are no family relationships among the officers or directors. No
arrangement exists between any of the above officers and directors pursuant to
which any one of those persons was elected to such office or position. No
director of AmerAlia 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.
<PAGE> 17
Directors hold office until the next meeting of shareholders and a
successor is elected and qualified, or until their resignation. Executive
officers are elected at annual meetings of the Board of Directors. Each such
officer holds office for one year or until a successor has been duly elected and
qualified or until death, resignation or removal.
A brief summary of the business experience of each person who is
currently an officer or director of AmerAlia, and such person's service with
AmerAlia is as follows:
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 Certified Practising Accountants 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. His principal activity is now acting as
Chairman and President of AmerAlia.
ROBERT VAN MOURIK
Mr. van Mourik graduated in 1974 with a Bachelor of Applied Science
(Chemistry) and in 1981 with a Masters Degree in Business Administration. His
employment experience includes manufacturing, real estate development and
marketing, investment consulting and corporate reconstruction. He has served as
Executive Vice President, Chief Financial Officer, Treasurer and Secretary of
AmerAlia since 1989 and on September 26, 1990, he was elected a director.
NEIL E. SUMMERSON
Until July 1997, Mr. Summerson was the senior partner, and for five
years prior was 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. Mr. Summerson is a director of several Australian public and private
companies.
ROBERT A. CAMERON
Mr. Cameron graduated with Honors in Metallurgical and Chemical
Engineering from the University of Adelaide, Australia in April, 1961. Mr.
Cameron has had 16 years experience as Chief Executive Officer and director of a
number of Australian public companies. Mr. Cameron has been responsible for
developing 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
<PAGE> 18
formed for the specific purpose of exploring and developing underground natural
soda resources in Queensland, Australia. This led to the investigation of
natural soda deposits in the United States and securing the Rock School Lease
interest later transferred to the AmerAlia.
JOHN F. WOOLARD
Mr. Woolard graduated from the University of Wisconsin, Madison,
Wisconsin, in June 1961. He received a Bachelor of Science degree with a major
in economics. After graduation he was employed by an advertising agency, working
in all major departments and finally as an account executive handling $5,000,000
annual advertising budgets. He joined an investment banking firm in 1968. In his
30 years in the investment banking business, Mr. Woolard has supervised all
departments in the firm, including retail sales, corporate finance,
underwriting, and accounting. Mr. Woolard has been a registered principal with
the New York Stock Exchange member firm, Stiffel, Nicolas & Co. for more than
the past five years until taking a leave of absence in January 1998. He is also
a director and an investor in a number of privately-held companies. Presently,
Mr. Woolard serves as Executive Vice President and Director of AmerAlia.
GEOFFREY C. MURPHY
Mr. Murphy has, for more than the past five years, been a principal of
Coloney Von Soosten + Associates Inc., a consulting firm located in Kenilworth,
Illinois. Mr Murphy graduated with a Bachelor's degree from Dartmouth College,
and a Master's of Business Administration from the Amos Tuck School of Business
Administration at Dartmouth College.
ROGER DAY
Mr. Day is a graduate from Michigan Technical University with
approximately twenty years experience in researching, developing and managing
operations similar to AmerAlia's undertakings. Mr. Day previously held senior
technical and management positions with two mining operations in Colorado. As
Vice President of Operations, Mr. Day is responsible for supervising the design,
construction and management of the solution mine and processing plant on
AmerAlia's lease.
(b) SIGNIFICANT EMPLOYEES.
AmerAlia does not employ anyone who is not an executive officer who
contributes significantly to its business.
(c) FAMILY RELATIONSHIPS.
There are no family relationships among the officers or directors.
(d) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS:
During the past five years, no director or officer of AmerAlia has:
(d)(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;
(d)(2) Been convicted in a criminal proceeding or is a named subject of
a pending criminal proceeding (excluding traffic violations and other minor
offences);
<PAGE> 19
(d)(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 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;
(d)(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
(d)(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
(d)(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.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires AmerAlia's directors and officers and persons who own more than 10% of
AmerAlia'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-10% shareholders are required by SEC regulation to
furnish AmerAlia 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, AmerAlia believes that during the period from July 1, 1998
through June 30, 2000, all filing requirements applicable to officers,
directors, and greater-than-10% shareholders were met in accordance with the
requirements of Section 16(a) except as follows:
o The THG Partnership, of which Ms. Tiscornia, Bill H. Gunn, and
Marvin H. Hudson were partners, exercised an option and
acquired 450 shares of AmerAlia's Series E Preferred Stock in
November 1998; Ms. Tiscornia and Mr. Gunn reported this
transaction on a Form 4 in April 1999.
o Although Roger Day was appointed an executive officer of
AmerAlia effective in November 1998, the appointment was not
approved by the Board of Directors until April 1999.
Consequently Mr. Day did not file a Form 3 until April 1999.
Mr. Day considers this report to have been filed on time since
his appointment was not effective without Board approval.
<PAGE> 20
o AmerAlia is aware that Mr. Hudson, through his ownership of an
interest in THG, acquired beneficial ownership in additional
securities which have not been reported as required. Mr.
Hudson may have acquired or disposed of other shares of
AmerAlia common stock or derivative securities. AmerAlia has
no knowledge of his activities or whether he complied with his
reporting obligations. Mr. Hudson ceased being subject to the
reporting obligations of Section 16(a) in April 1999,
following the dissolution of The THG Partnership.
AmerAlia is obligated to pay common stock dividends to the holders of
its Series E Preferred Stock as a class. Some of these holders are subject to
the reporting obligations of Section 16(a). It is the position of these
reporting persons that the dividends are exempt from the reporting requirements
by virtue of Rule 16a-9 and, therefore, reports were not required to be filed to
report each issuance of dividends.
ITEM 11. EXECUTIVE COMPENSATION
(a) SUMMARY COMPENSATION TABLE.
The following table sets forth information regarding compensation paid to
the officers of AmerAlia during the three fiscal years ended June 30, 2000.
Messrs. Gunn and Woolard were the only executive officers receiving compensation
exceeding $100,000 during fiscal 2000, as shown below. Compensation to Mr. Gunn
is paid to Gunn Development Pty. Ltd., of which Mr. Gunn is a controlling
shareholder.
AmerAlia has no plans for 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.
AmerAlia has adopted a group medical insurance plan for its employees
which includes dental coverage. This plan also provides a minimum amount of life
insurance. AmerAlia has not adopted any other benefit plan for its employees.
Prior to the adoption of that plan, AmerAlia reimbursed Messrs. Woolard, Gunn,
and Day for certain medical expenses and insurance premiums. AmerAlia currently
has no stock ownership, other profit-sharing or pension plans, but may adopt
such plans in the future. AmerAlia has no retirement plans and, therefore, has
made no contributions to any such plan on behalf of the named officers. AmerAlia
acquired a vehicle during the 1994 year for the use of Mr. Gunn
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
-------------------------- ----------------------------
Awards Payout
-------------------- -----
Restricted Options LTIP All Other
Name and Position Year Salary Bonus Other Awards & SAR's Payout Compensation
------------------ ---- -------- ----- ------- ---------- ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bill H. Gunn
President and 2000 $150,000 -0- $14,000(a) -0- -0- -0- -0-
Chief Executive 1999 $125,000 -0- $14,000(a) -0- -0- -0- -0-
Officer 1998 $100,000 -0- $14,000(a) -0- -0- -0- -0-
============================================================================================================
John F. Woolard, 2000 $150,000 -0- $14,000(a)(c) -0- -0- -0- -0-
Executive Vice 1999 $135,000 -0- $ 9,333(a)(c) -0- -0- -0- -0-
President (b)
</TABLE>
Notes: (a) Directors fees
(b) Mr. Woolard was employed by AmerAlia on June 1, 1998.
(c) These fees have not been paid but have been accrued as
liabilities.
<PAGE> 21
OPTIONS/SAR GRANTED DURING YEAR ENDED JUNE 30, 2000
During the fiscal year ended June 30, 1999, AmerAlia granted stock
options, as described below, to Roger Day who became an executive officer in
April 1999.
In May 2000, AmerAlia granted Mr. Gunn options to purchase 150,000
shares, Mr van Mourik options to purchase 100,000 shares, and Mr Cameron and Mr
Summerson options to purchase 75,000 shares each. These options expire April 30,
2003 and the exercise price was to be determined based upon the market price of
the company's shares during August 2000. Accordingly, an exercise price of $1.09
has been determined and the grant of the options is subject to acceptance by
October 15, 2000. AmerAlia has not received acceptances yet from any of the
directors offered options. AmerAlia has not adopted any other stock option or
stock appreciation rights plan
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUE TABLE.
No officer exercised stock options during the fiscal year ended June
30, 2000, or subsequently. The following table sets forth information regarding
the year-end value of options and Stock Appreciation Rights held by the Chief
Executive Officer and the other named officers on June 30, 2000: No other Stock
Appreciation Rights have been granted, or are held by, any such person
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
------------------------ ------------------- -------------- ------------------ --------------------
NAME SHARES ACQUIRED ON VALUE REALIZED # OF UNEXERCISED VALUE OF
EXERCISE OPTIONS AT FY END IN-THE-MONEY OPTIONS
(EXERCISABLE/ AT FY END
UNEXERCISABLE) (EXERCISABLE/
UNEXERCISABLE)
------------------------ ------------------- -------------- ------------------ --------------------
<S> <C> <C> <C> <C>
Bill H. Gunn -0- -0- 140,000 52,500
------------------------ ------------------- -------------- ------------------ --------------------
Robert van Mourik -0- -0- 75,000 28,125
------------------------ ------------------- -------------- ------------------ --------------------
John Woolard -0- -0- 250,000 143,750
------------------------ ------------------- -------------- ------------------ --------------------
Roger Day -0- -0- 40,000 15,000
------------------------ ------------------- -------------- ------------------ --------------------
</TABLE>
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
------------------------ ------------------- -------------- ------------------ --------------------
NAME SHARES ACQUIRED ON VALUE REALIZED # OF UNEXERCISED VALUE OF
EXERCISE SAR'S AT FY END IN-THE-MONEY SAR'S
(EXERCISABLE/ AT FY END
UNEXERCISABLE) (EXERCISABLE/
UNEXERCISABLE)
------------------------ ------------------- -------------- ------------------ --------------------
<S> <C> <C> <C> <C>
Bill H. Gunn -0- -0- 70,000 -0-
------------------------ ------------------- -------------- ------------------ --------------------
</TABLE>
LONG TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
AmerAlia has no long term incentive compensation plans, defined benefit
plans, or actuarial plans. There are no plans to pay bonuses or deferred
compensation to employees of AmerAlia. AmerAlia has not adopted any medical,
life or other insurance plan for its employees.
DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE
Not applicable since AmerAlia has not defined benefit or actuarial plans.
<PAGE> 22
COMPENSATION OF DIRECTORS
STANDARD ARRANGEMENTS.
AmerAlia's directors are authorized to receive $14,000 cash compensation
per year for their services as Directors each year. In connection with certain
consulting services rendered by them, AmerAlia paid or accrued liabilities to an
affiliate of Robert A. Cameron $25,972 for services rendered during the fiscal
year ended June 30, 2000, and $18,302 for the fiscal year ended June 30, 1999.
In addition, AmerAlia pays Coloney Von Soosten + Associates Inc. a
retainer of $2,500 per month for financial and administrative services. Hours in
excess of 15 per month are paid to Coloney Von Soosten + Associates Inc. at the
rate of $200 per hour. This consulting agreement ends in September 2000.
Geoffrey C. Murphy is a principal of Coloney Von Soosten + Associates Inc. and
has primary responsibility for the services it provides to AmerAlia. Mr. Murphy
became a director in June 1999 following the annual meeting of shareholders.
In each case, Directors are reimbursed expenses they incurred on behalf
of AmerAlia on a fully accountable basis.
OTHER ARRANGEMENTS.
Except as described herein, no officer or director of AmerAlia 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 AmerAlia.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS.
AmerAlia 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 AmerAlia. AmerAlia has no plan or arrangement with respect to any such
persons which will result from a change in control or a change in the
individual's responsibilities following a change in control.
AmerAlia's only employment contract is with its vice president of
operations, Roger Day. In April 1999, effective November 1998, AmerAlia entered
into a five year employment agreement with Mr. Day who is employed with the
title of Vice President of Operations. As compensation for services rendered
under the employment agreement, Mr. Day shall receive a salary of $100,000 per
annum, plus bonuses and salary increases as the Board of Directors may determine
in its sole discretion. AmerAlia also granted Mr. Day options to acquire 100,000
shares of Common Stock for an exercise price of $1.50 per share, exercisable
through December 31, 2003. Options to acquire 20,000 shares vested on Board
approval of the employment agreement; the remainder vest annually through
November 2002. In addition, AmerAlia advanced $25,000 to Mr. Day as a loan,
which amount will be forgiven over the period of his employment
REPORT ON REPRICING OF OPTIONS/SARS.
Not applicable, as no options or SARs were repriced during the fiscal
year ended June 30, 2000.
ADDITIONAL INFORMATION WITH RESPECT TO COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION.
<PAGE> 23
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, van Mourik and Woolard, as set out above. The Compensation
Committee now comprises Mr. Summerson and Mr Murphy, neither has been an officer
nor an employee of AmerAlia or any of its subsidiaries during the fiscal year
ended June 30, 2000, or subsequently. Neither Mr. Summerson nor Mr. Murphy has
any other direct or indirect relationship with AmerAlia requiring disclosure by
AmerAlia pursuant to Item 401 of Regulation S-K. Furthermore, no executive
officer of AmerAlia served as a member of the Compensation Committee (or similar
committee) of another entity which dealt with compensation paid to any member of
AmerAlia's Compensation Committee, or with which any other interlocking
relationship exists.
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 AmerAlia. The following
table sets forth this capitalization information as of June 30, 2000.
<TABLE>
<CAPTION>
NUMBER OF VOTING RIGHTS
DESCRIPTION OF CLASS SHARES PER SHARE
-------------------- --------- -------------
<S> <C> <C>
Common Stock 8,765,699 one vote per share
Series E Preferred Stock 2,986 1,000 votes per share
</TABLE>
(a) AND (b) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
At June 30, 2000, AmerAlia had two classes of outstanding voting
securities, its common stock (referred to herein as the "Common Stock") and its
Series E Preferred Stock (each share of which is equivalent to the beneficial
ownership of 1,000 shares of Common Stock). The following table sets forth
information as of June 30, 2000 with respect to the ownership of the Common
Stock and Series E Preferred Stock for all directors, individually, all
executive officers named in the compensation table, all executive officers and
directors as a group, and all beneficial owners of more than five percent of the
Common Stock (not including shares held in the name of known depositories, such
as CEDE & Co., for the benefit of the underlying beneficial shareholders). The
following shareholders have sole voting and investment power with respect to the
shares unless indicated otherwise.
<PAGE> 24
<TABLE>
<CAPTION>
NAME & ADDRESS AMOUNT & NATURE PERCENT PERCENT
OF OF BENEFICIAL OF OF VOTING
BENEFICIAL OWNER OWNERSHIP CLASS SECURITIES
---------------- --------------- ------- ----------
<S> <C> <C> <C>
Bill H. Gunn 320,960 (1) 3.6% 0.9%
Robert van Mourik 220,384 (2) 2.5% 1.2%
John F. Woolard 276,000 (3) 3.1% 0.2%
Geoffrey C. Murphy 40,000 (4) 0.5% 0.5%
Neil E. Summerson 75,000 (5) 0.9% nil
Robert A. Cameron 75,000 (6) 0.9% nil
OFFICERS & DIRECTORS
AS A GROUP (7 PERSONS) 1,047,344 (7) 10.9% 2.7%
Jacqueline Badger Mars 5,297,460 (8) 49.2% 45.1%
atf the Jacqueline
Badger Mars Trust dated
Feb 5, 1975 as amended
6885 Elm St., McLean, VA 22101
Madeline Ahern 514,319 (9) 5.6% 4.4%
atf The Bromley Family Trust
8th fl, 87 Wickham Tce,
Brisbane, Qld, Australia
Mary L. Tiscornia 467,830 (10) 5.1% 4.0%
448 Ignacio Boulevard, Suite 338
Novato, CA 94949
</TABLE>
(1) Mr. Gunn: Includes 22,835 shares of Common Stock owned directly by Mr.
Gunn and 96,125 shares of Common Stock owned by Gunn Development Pty.
Ltd. (of which Mr. Gunn is a controlling shareholder); 62 shares of
Series E Preferred Stock (convertible into common shares at the rate of
1,000:1); and options to acquire 140,000 shares of Common Stock at
$1.50 per share expiring on dates up to June 28, 2006. Does not include
70,000 Stock Appreciation Rights issued at $1.50 per share expiring on
dates up to June 28, 2006.
(2) Mr. van Mourik: Includes 500 shares of Common Stock owned directly by
Mr. van Mourik, 90,759 shares of Common Stock owned by Ahciejay Pty.
Ltd. as Trustee for The R.C.J. Trust, and 54,125 shares of Common Stock
owned by the R.C.J. Superannuation Fund, as to both of which Mr. van
Mourik and his family are beneficiaries. Also includes options to
acquire 75,000 shares of Common Stock at $1.50 per share expiring on
June 28, 2006.
(3) Mr. Woolard: Includes 6,000 shares of Common Stock, 20 shares of Series
E Preferred Stock, options to acquire 100,000 shares of Common stock at
$1.00 per share exercisable through March 31, 2001, and options to
acquire 150,000 shares of Common Stock at $1.50 per share exercisable
through March 31, 2003.
(4) Mr. Murphy: Includes 40,000 shares of common stock.
(5) Mr. Summerson: Represents options to acquire 75,000 shares of common
stock for $1.50 per share expiring June 28, 2006. The options are held
by Glendower Investments Pty. Ltd. as trustee for a trust of which Mr.
Summerson and his family are beneficiaries.
<PAGE> 25
(6) Mr. Cameron: Represents options to acquire 75,000 shares of Common
Stock at $1.50 per share expiring on June 28, 2006. The options are
held by Jacinth Pty. Ltd., a company in which Robert Cameron, a
director of AmerAlia, is a controlling shareholder.
(7) All officers and directors: Includes beneficial ownership of Messrs.
Gunn, van Mourik, Woolard, Murphy, Summerson and Cameron as described
in notes 1, 2, 3, 4, 5, and 6, above, and options held by Roger Day, an
executive officer who is not a director to acquire 40,000 shares of
Common Stock at $1.50 per share. Does not include options held by Mr.
Day to acquire 60,000 shares of Common Stock at $1.50 per share which
vest over a period of four years commencing November 2000 until
December 31, 2003.
(8) Mars Trust: Includes 3,297,460 shares of Common Stock and 2,000 shares
of Series E Preferred Stock. See "Certain Relationships and Related
Party Transactions".
(9) Bromley Family Trust: Includes 138,319 shares of Common Stock, and 376
shares of Series E 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 has received any
distributions from the Bromley Family Trust and neither influences nor
controls the decisions of the trustee. See "Certain Relationships and
Related Party Transactions."
(10) Ms. Tiscornia: Includes 61,830 shares of common stock and 406 shares of
Series E Preferred Stock.
The above table does not include the possible effect of issuance of up
to 582,000 shares pursuant to the exercise of options held by persons who are
neither officers, directors, nor significant shareholders of AmerAlia, which
options are exercisable as follows:
140,000 at $1.50 until June 28, 2006
442,000 at $6.00 until March 31, 2000
Nor does it include options granted in May, 200 as follows: to Mr. Gunn
to purchase 150,000 shares, to Mr. van Mourik to purchase 100,000 shares, and to
Mr Cameron and Mr Summerson to purchase 75,000 shares each. These options expire
April 30, 2003 and the exercise price was to be determined based upon the market
price of the company's shares during August 2000. Accordingly, an exercise price
of $1.09 has been determined and the grant of the options is subject to
acceptance by October 15, 2000. At the date of this report directors offered
options have not indicated their acceptance.
The Series E Stock consists of 2,986 shares issued at $1,000 per share.
The stock is entitled to a dividend preference of 10% per year, payable
quarterly in restricted common stock valued at $1 per share through October 31,
2000. The Series E Stock is convertible into common stock at the option of the
holder until October 31, 2000 on the basis of 1,000 shares per share of Series E
Stock. AmerAlia may redeem all or any portion of the outstanding shares of
Series E Stock at any time upon giving six months notice, but only if the holder
fails to exercise its conversion rights.
To the best of our knowledge, there are no arrangements, understandings
or agreements relative to the disposition of any of AmerAlia's securities, the
operation of which would at a subsequent date result in a change in control of
AmerAlia.
CHANGES IN CONTROL.
AmerAlia knows of no arrangement, the operation of which may, at a
subsequent date, result in a change in the control of AmerAlia.
<PAGE> 26
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS.
The following sets out information regarding transactions between
officers, directors and significant shareholders of AmerAlia during the most
recent two fiscal years and subsequently.
Corporate Loans - Loans to AmerAlia. During the fiscal years ended June
30, 1999 and 2000, certain related parties advanced loans to AmerAlia as
detailed in Note 5 to the Financial Statements which states that AmerAlia owed
$9,333 to directors and affiliates of AmerAlia at June 30, 1999 and $131,762 at
June 30, 2000. This comprised advances to AmerAlia, as well as accrued but
unpaid compensation and directors fees. The following summarises the Company's
liabilities to related parties:
<TABLE>
<CAPTION>
RELATED PARTY JUNE 30, 2000 JUNE 30, 1999
------------- ------------- -------------
<S> <C> <C>
Ahciejay Pty. Ltd. (an affiliate of Robert van Mourik) $ 51,700 $ -0-
Jacinth Pty. Ltd. (an affiliate of Robert A. Cameron 28,729 -0-
John F. Woolard 23,333 9,333
Geoffrey C. Murphy 14,000 -0-
Neil E. Summerson 14,000 -0-
-------- ------
Total: $131,762 $9,333
======== ======
</TABLE>
In addition, at June 30, 2000 AmerAlia owed John F. Woolard $50,818 for
reimbursement of expenses paid on behalf of the company. This liability was
extinguished in July 2000.
Corporate Loans - Loans from AmerAlia. As detailed in Note 2 to the
Financial Statements, AmerAlia advanced funds to Gunn Development Pty. Ltd., an
associate of Mr. Gunn. The following summarizes these advances during the fiscal
years ended June 30, 1999 and 2000:
<TABLE>
<S> <C>
Balance due from Gunn Development at June 30, 1998: $17,674
Advances to Gunn Development during year: 60,508
Repayments received during year: 35,174
Net interest accrued: Nil
-------
Balance due from Gunn Development at June 30, 1999: $43,008
Advances to Gunn Development during year: 28,063
Repayments received during year: 14,000
Net interest accrued: Nil
-------
Balance due from Gunn Development at June 30, 2000: $57,071
-------
</TABLE>
These advances bear no interest, are due on demand, and are not
evidenced by promissory notes. However, on January 6, 1999 and on March 3, 1999,
AmerAlia advanced short-term loans of $68,670 and $125,000, respectively to Bill
H. Gunn. These advances were evidenced by written documents and bore interest at
10% per annum. Mr. Gunn repaid the loans and interest in May 1999.
Compensation Arrangements. AmerAlia entered into an employment
agreement with Roger Day, its vice president of operations, in November 1998, as
described above under "Executive Compensation -- Employment Agreements" This
agreement was approved by the Board of Directors in April 1999.
Directors and the other officers of AmerAlia are compensated as
described above under "Executive Compensation -- Compensation of Directors."
Purchase of Common Stock and Warrants. On December 30, 1998, Ms.
Jacqueline Badger Mars, in her capacity as trustee for the Jacqueline Badger
Mars Trust (the "Mars Trust"), acquired 700,000 shares of AmerAlia common stock
at $1.50 per share for a total investment of $1,050,000. When the Mars
<PAGE> 27
Trust purchased these shares, the price of AmerAlia common stock was less than
$1.30 per share, as quoted by the Nasdaq SmallCap Market. Included with the
purchase were 700,000 common stock purchase warrants, granting the Mars Trust
the right to buy an additional 700,000 shares of common stock at a price of
$2.00 per share through March 31, 1999. On March 26, 1999, the Mars Trust
exercised these warrants for a total of $1,400,000 paid to AmerAlia.
Guaranty Agreement. AmerAlia entered into an agreement with the Mars
Trust on September 13, 1999 for the purpose of establishing a loan with Bank of
America, N.A. AmerAlia subsequently borrowed $4.2 million from Bank of America
for one year. The Mars Trust facilitated the loan by guaranteeing its repayment
in a manner satisfactory to the bank. To compensate the Trust, AmerAlia agreed
to pay an amount equal to 10% per year of the amount guaranteed payable in
shares of AmerAlia's restricted common stock valued according to a formula based
on future market prices of AmerAlia's common stock. On January 20, 2000 the Mars
Trust facilitated a further loan for $1 million and again in July 2000 for
$2.126 million. Additional guaranty agreements provided for the same level of
fees. In September 2000, AmerAlia and the Mars Trust amended the guaranty
agreements to aggregate the three guaranties into a single guaranty for a total
loan of $7.326 million. Based on our negotiations with the Bank of America, the
loan now has a repayment date of September 14, 2001. The former 10% fee for the
one year guaranties is no longer payable; AmerAlia now is obligated to pay the
Mars Trust a 15% fee which, when adjusted for the extended period of the
guaranty, amounts to approximately 9.2% per annum. The fee is not payable until
after AmerAlia announces its permanent financing. If AmerAlia does not announce
permanent financing by September 1, 2001, AmerAlia will be obligated to pay the
fee in shares of its restricted common stock valued at $3.34 per share.
THG Partnership Transactions. In connection with the settlement of a
pre-existing debt, AmerAlia granted The THG Partnership an option until October
1998 to exchange units of the Rural Investment Trust, an Australian public real
estate investment trust, for an additional 450 shares of Series E Preferred
Stock or (at THG's election) to purchase 450 shares of Series E Preferred Stock
for $450,000 in cash. The partners of The THG Partnership were Miss Mary L.
Tiscornia, a significant shareholder of AmerAlia, Mr. Bill H. Gunn, Chairman and
CEO of AmerAlia, and Mr. Marvin H. Hudson, a former Vice President.
On October 13, 1998 THG notified AmerAlia it was exercising its option
to put the RIT investment to AmerAlia. As part of its own working capital
requirements, THG had secured a debt facility with the ANZ Bank in Australia
using the RIT investment as collateral. AmerAlia assumed THG's liability to the
ANZ Bank in exchange for payment to AmerAlia of the amount of the outstanding
indebtedness. This debt was approximately A$300,000 ($180,000). Consequently,
effective October 18, 1998, AmerAlia and THG entered into an agreement whereby:
o THG assigned the RIT units to AmerAlia;
o THG paid to AmerAlia the amount of its outstanding debt due to
ANZ Bank;
o AmerAlia assumed liability for THG's debt to the ANZ Bank, guaranteed
it would pay principal and interest in accordance with the requirements
of the loan facility, and indemnified THG and its partners against any
loss which it might incur in settling the debt;
o THG delivered to AmerAlia transfer documents and powers of attorney
sufficient to enable AmerAlia to transfer the RIT investment into
AmerAlia's name.
Although the transaction occurred between AmerAlia and THG, then an
affiliate, management believed the substance of the transaction was between
AmerAlia and the ANZ Bank. AmerAlia believed it gained access to this borrowing
on favorable terms without the costs normally associated with secured borrowing
from financial institutions. THG did not receive any consideration for providing
the credit facility to AmerAlia. Subsequently THG dissolved.
<PAGE> 28
The RIT units were liquidated in May 1999 and the debt to the ANZ Bank
repaid. The total consideration received by AmerAlia for the issue of the 450
shares of Series E Preferred Stock upon liquidation of its RIT investment was
$418,346.
No nominee or director of AmerAlia is, or has been, a partner or
executive officer of any investment banking firm that has performed services for
AmerAlia during the last fiscal year or that AmerAlia proposes to have perform
services during the current year. AmerAlia is not aware of any other
relationship between its directors and AmerAlia 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.
Dividend Payments. During the fiscal year ended June 30, 2000,
dividends aggregating $298,600 became payable to the holders of the Series E
Preferred Stock AmerAlia paid, or will pay, these dividends to the holders of
the Series E Preferred Stock through the issuance of 298,600 shares of its
restricted common stock.
Employment Disputes. Marvin Hudson, formerly a vice president, employee
and greater-than-10% shareholder of AmerAlia, has made certain claims against
AmerAlia and has filed litigation against AmerAlia as described above. AmerAlia
has also filed litigation against Mr. Hudson.
(b)(1)-(4) CERTAIN BUSINESS RELATIONSHIPS
See Item 13(a), above.
(b)(5) No nominee or director of AmerAlia is, or has been, a partner or
executive officer of any investment banking firm that has performed
services for AmerAlia during the last fiscal year or that AmerAlia
proposes to have perform services during the current year.
(b)(6) AmerAlia is not aware of any other relationship between its directors
and AmerAlia 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 AmerAlia at any time, except as
disclosed in Item 13(a), above.
(d) TRANSACTIONS WITH PROMOTERS: Not applicable.
<PAGE> 29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) EXHIBITS.
(1) The financial statements included as a part of this report are
as described on page F-2.
(2) No financial statement schedules are included in this report.
(3) The exhibits required by Item 601 of Regulation S-K are as
follows. 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
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 (b) Restated Articles of Incorporation
3.2 (a) Bylaws of AmerAlia, Inc.
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
10.11 (g) Design/Build Contract with U.S. Filter Corp.
10.12 (b) Amended and Restated Guaranty Agreement with the Jacqueline Badger
Mars Trust
21.1 Subsidiaries of the Registrant: None.
27 (b) Financial Data Schedule
(a) Incorporated by reference from the Company's Form 10 General
Registration Statement filed with the Commission on March 5, 1987.
(b) filed herewith..
(c) Not included.
(d) Not included.
(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.
(g) Incorporated by reference from the Company's Form 10-K for its year
ended June 30, 1999.
<PAGE> 30
(b) REPORTS ON FORM 8-K
During the last quarter of the period covered by this report the
Company filed no current reports on Form 8-K. In August 2000, the Company filed
a current report on Form 8-K reporting the results of its shareholders meeting
held in June 2000.
(c) EXHIBITS
Required exhibits are attached hereto and are listed in Item 14(a)(3)
of this Report.
(d) FINANCIAL STATEMENT SCHEDULES
Item 14(a) of this Report lists all required financial statement
schedules to be attached hereto.
<PAGE> 31
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.
September 26, 2000
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 AmerAlia
and in the capacities and on the dates indicated.
/s/ Bill H. Gunn Principal Executive Date: 9/26/2000
----------------------- Officer and Director ----------
Bill H. Gunn
/s/ Robert van Mourik Secretary, Treasurer Date: 9/26/2000
----------------------- Principal Financial ---------
Robert C. J. van Mourik and Accounting Officer,
and Director
/s/ John F. Woolard Director Date: 9/26/2000
----------------------- ---------
John F. Woolard
/s/ Robert A. Cameron Director Date: 9/26/2000
----------------------- ---------
Robert A. Cameron
/s/ Neil E. Summerson Director Date: 9/26/2000
----------------------- ---------
Neil E. Summerson
/s/ Geoffrey C. Murphy Director Date: 9/26/2000
----------------------- ---------
Geoffrey C. Murphy
<PAGE> 32
AMERALIA, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
<PAGE> 33
C O N T E N T S
<TABLE>
<S> <C>
Independent Auditors' Report................................................. 3
Balance Sheets............................................................... 4
Statements of Operations..................................................... 6
Statements of Stockholders' Equity........................................... 7
Statements of Cash Flows..................................................... 14
Notes to the Financial Statements............................................ 16
</TABLE>
<PAGE> 34
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders of
AmerAlia, Inc.
(A Development Stage Company)
Kenilworth, Illinois
We have audited the accompanying balance sheets of AmerAlia, Inc. (a development
stage company) as of June 30, 2000 and 1999, and the related statements of
operations, stockholders' equity and cash flows for the years ended June 30,
2000, 1999 and 1998 and from the beginning of the development stage on July 1,
1992 through June 30, 2000. 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 audits.
We conducted our audits 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 audits provide 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. (a development
stage company) as of June 30, 2000 and 1999, and the results of its operations
and its cash flows for the years ended June 30, 2000, 1999 and 1998 and from the
beginning of the development stage on July 1, 1992 through June 30, 2000 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 13 to the
financial statements, the Company has suffered recurring losses and has not
established a current source of revenue. Together these factors raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 13. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
HJ & Associates, LLC
Salt Lake City, Utah
September 18, 2000
<PAGE> 35
AMERALIA, INC.
(A Development Stage Company)
Balance Sheets
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
2000 1999
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash (Note 1) $ 4,980 $ 312,104
Restricted cash (Note 1) -- 991,305
Related party receivables (Note 2) 57,071 43,008
Prepaid expenses 30,152 30,082
Interest receivable 2,713 1,167
----------- -----------
Total Current Assets 94,916 1,377,666
----------- -----------
FIXED ASSETS, net (Notes 1 and 4) 24,524 24,202
----------- -----------
OTHER ASSETS
Lease acquisition and exploration costs (Notes 3 and 10) 3,565,267 3,023,287
Plant construction in progress (Note 3) 6,994,642 1,250,000
Deferred financing costs (Note 1) 392,020 110,000
Note receivable - related party (Note 2) 20,000 25,000
Deposits 650 25,906
----------- -----------
Total Other Assets 10,972,579 4,434,193
----------- -----------
TOTAL ASSETS $11,092,019 $ 5,836,061
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 36
AMERALIA, INC.
(A Development Stage Company)
Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 727,812 $ 232,017
Royalties payable (Note 9) 354,167 279,167
Bank overdraft 38,356 5,702
Guarantee fees payable (Note 11) 520,000 --
Accrued expenses (Note 11) 91,862 88,219
Due to related parties (Note 5) 131,762 9,333
Notes payable (Note 6) 5,504,000 4,000
Interest payable 110,815 1,290
------------ ------------
Total Current Liabilities 7,478,774 619,728
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 9) -- 303,800
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, $0.05 par value; 1,000,000 authorized;
2,986 and 2,986 issued and outstanding, respectively 149 149
Common stock, $0.01 par value; 100,000,000 shares
authorized; 8,765,699 and 7,659,766 issued and
outstanding, respectively 87,657 76,598
Additional paid-in capital 19,068,338 16,545,797
Prepaid construction costs (Note 3) (1,300,000) --
Accumulated deficit (14,242,899) (11,710,011)
------------ ------------
Total Stockholders' Equity 3,613,245 4,912,533
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,092,019 $ 5,836,061
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 37
AMERALIA, INC.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
FROM THE
BEGINNING
OF DEVELOPMENT
STAGE ON
FOR THE YEARS ENDED JUNE 30, JULY 1, 1992
--------------------------------------------- TO JUNE 30,
2000 1999 1998 2000
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
REVENUES $ -- $ -- $ -- $ --
EXPENSES
General and administrative 1,523,717 1,910,792 629,605 7,589,829
Depreciation and amortization 11,225 9,056 8,618 81,195
----------- ----------- ----------- -----------
Total Expenses 1,534,942 1,919,848 638,223 7,671,024
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (1,534,942) (1,919,848) (638,223) (7,671,024)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Other income -- -- 29 29
Investment income -- -- -- 89,760
Interest expense (357,535) (18,519) (38,909) (994,583)
Other financing costs (435,502) -- -- (435,502)
Interest income 39,891 36,752 4,075 319,407
Gain on settlement of debt 53,800 -- -- 53,800
Foreign currency gain (loss) -- 14 123,211 (63,572)
----------- ----------- ----------- -----------
Total Other Income (Expense) (699,346) 18,247 88,406 (1,030,661)
----------- ----------- ----------- -----------
NET LOSS BEFORE INCOME TAX
EXPENSE (2,234,288) (1,901,601) (549,817) (8,701,685)
Income tax expense -- -- -- --
----------- ----------- ----------- -----------
NET LOSS $(2,234,288) $(1,901,601) $ (549,817) $(8,701,685)
=========== =========== =========== ===========
BASIC NET LOSS PER SHARE $ (0.27) $ (0.31) $ (0.13)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 8,269,928 6,229,634 4,313,400
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 38
AMERALIA, INC.
(A Development Stage Company)
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------------------- --------------------------- PAID-IN SUBSCRIPTION
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1992
(beginning of development stage) -- $ -- 1,803,627 $ 18,036 $ 4,449,738 $ --
Shares issued for cash at $2.99
per share -- -- 421,250 4,213 1,255,787 --
Shares issued for payment
of obligations at $2.05 per share -- -- 7,312 73 14,927 --
Change in cumulative
adjustment account -- -- -- -- -- --
Net loss for the year ended
June 30, 1992 -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ---------
Balance at June 30, 1992 -- -- 2,232,189 22,322 5,720,452 --
Issuance of Series A preferred
stock for cash at $1.50 per share 666,666 33,333 -- -- 966,667 --
Issuance of fractional shares
on reverse split -- -- 67 -- -- --
Shares issued in acquisition
of Rock School lease at $3.00
per share -- -- 50,000 500 149,500 --
Change in cumulative
adjustment account -- -- -- -- -- --
Net loss for the year ended
June 30, 1993 -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ---------
Balance at June 30, 1993 666,666 $ 33,333 2,282,256 $ 22,822 $ 6,836,619 $ --
----------- ----------- ----------- ----------- ----------- ---------
<CAPTION>
OTHER
ACCUMULATED COMPREHENSIVE
DEFICIT INCOME
----------- -------------
<S> <C> <C>
Balance at July 1, 1992
(beginning of development stage) $(3,797,189) $ 22,211
Shares issued for cash at $2.99
per share -- --
Shares issued for payment
of obligations at $2.05 per share -- --
Change in cumulative
adjustment account -- 147,000
Net loss for the year ended
June 30, 1992 (392,712) --
----------- -----------
Balance at June 30, 1992 (4,189,901) 169,211
Issuance of Series A preferred
stock for cash at $1.50 per share -- --
Issuance of fractional shares
on reverse split -- --
Shares issued in acquisition
of Rock School lease at $3.00
per share -- --
Change in cumulative
adjustment account -- (3,000)
Net loss for the year ended
June 30, 1993 (524,482) --
----------- -----------
Balance at June 30, 1993 $(4,714,383) $ 166,211
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 39
AMERALIA, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------------------- --------------------------- PAID-IN SUBSCRIPTION
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993 666,666 $ 33,333 2,282,256 $ 22,822 $ 6,836,619 $ --
Shares issued for payment of
obligations at $2.18 per share -- -- 36,250 363 78,650 --
Shares issued in lieu of
dividends at $1.50 per share -- -- 60,000 600 89,400 --
Issuance of Series B preferred
stock for cash at $10.00 per share 51,000 2,550 -- -- 507,550 --
Subscriptions receivable on
Series B stock -- -- -- -- -- (77,904)
Dividends paid -- -- -- -- -- --
Change in cumulative
adjustment account -- -- -- -- -- --
Net loss for the year ended
June 30, 1994 -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30,1994 717,666 $ 35,883 2,378,506 $ 23,785 $ 7,512,219 $ (77,904)
----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
OTHER
ACCUMULATED COMPREHENSIVE
DEFICIT INCOME
------------ -------------
<S> <C> <C>
Balance at June 30, 1993 $(4,714,383) $ 166,211
Shares issued for payment of
obligations at $2.18 per share -- --
Shares issued in lieu of
dividends at $1.50 per share -- --
Issuance of Series B preferred
stock for cash at $10.00 per share -- --
Subscriptions receivable on
Series B stock -- --
Dividends paid (90,000) --
Change in cumulative
adjustment account -- (43,000)
Net loss for the year ended
June 30, 1994 (568,333) --
----------- -----------
Balance at June 30,1994 $(5,372,716) $ 123,211
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE> 40
AMERALIA, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------------------- --------------------------- PAID-IN SUBSCRIPTION
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30,1994 717,666 $ 35,883 2,378,506 $ 23,785 $ 7,512,219 $ (77,904)
Shares issued for cash and
extinguishment of debt at $1.64 per
share -- -- 160,000 1,600 261,031 --
Shares issued in lieu of dividends
at $1.57 per share -- -- 71,250 713 111,287 --
Issuance of Series C preferred
for cash at $80.00 per share 750 38 -- -- 59,963 --
Dividends paid -- -- -- -- -- --
Payment received on Series B
stock subscriptions -- -- -- -- -- 77,904
Net loss for the year ended
June 30, 1995 -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 1995 718,416 35,921 2,609,756 26,098 7,944,500 --
Shares issued in lieu of dividends
at $1.00 per share -- -- 107,285 1,072 106,182 --
Issuance of series D preferred
stock for cash at $1,000 per share 1,435 72 -- -- 1,434,958 --
Dividends paid -- -- -- -- -- --
Net loss for the year ended
June 30, 1996 -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 1996 719,851 $ 35,993 2,717,041 $ 27,170 $ 9,485,640 $ --
----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
OTHER
ACCUMULATED COMPREHENSIVE
DEFICIT INCOME
------------ -------------
<S> <C> <C>
Balance at June 30,1994 $(5,372,716) $ 123,211
Shares issued for cash and
extinguishment of debt at $1.64 per
share -- --
Shares issued in lieu of dividends
at $1.57 per share -- --
Issuance of Series C preferred
for cash at $80.00 per share -- --
Dividends paid (112,000) --
Payment received on Series B
stock subscriptions -- --
Net loss for the year ended
June 30, 1995 (1,009,917) --
----------- -----------
Balance, June 30, 1995 (6,494,633) 123,211
Shares issued in lieu of dividends
at $1.00 per share -- --
Issuance of series D preferred
stock for cash at $1,000 per share -- --
Dividends paid (333,216) --
Net loss for the year ended
June 30, 1996 (751,350) --
----------- -----------
Balance, June 30, 1996 $(7,579,199) $ 123,211
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE> 41
AMERALIA, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------------------- --------------------------- PAID-IN SUBSCRIPTION
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1996 719,851 $ 35,993 2,717,041 $ 27,170 $ 9,485,640 $ --
Shares issued for cash and
extinguishment of debt at $1.00
per share -- -- 358,500 3,585 354,915 --
Shares issued in lieu of dividends
at $1.00 per share -- -- 233,790 2,338 231,452 --
Issuance of Series D preferred
stock for cash at $1,000.00 per share 405 20 -- -- 404,993 --
Issuance of Series D preferred
stock for extinguishment of
debt at $1,000.00 per share 100 5 -- -- 99,995 --
Dividends paid -- -- -- -- -- --
Additional capital contributed -- -- -- -- 167,418 --
Net loss for the year ended
June 30, 1997 -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------
Balance, June 30, 1997 720,356 $ 36,018 3,309,331 $ 33,093 $10,744,413 $ --
----------- ----------- ----------- ----------- ----------- ----------
<CAPTION>
OTHER
ACCUMULATED COMPREHENSIVE
DEFICIT INCOME
----------- -------------
<S> <C> <C>
Balance, June 30, 1996 $(7,579,199) $ 123,211
Shares issued for cash and
extinguishment of debt at $1.00
per share -- --
Shares issued in lieu of dividends
at $1.00 per share -- --
Issuance of Series D preferred
stock for cash at $1,000.00 per share -- --
Issuance of Series D preferred
stock for extinguishment of
debt at $1,000.00 per share -- --
Dividends paid (233,790) --
Additional capital contributed -- --
Net loss for the year ended
June 30, 1997 (769,185) --
------------ -----------
Balance, June 30, 1997 $(8,582,174) $ 123,211
------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE> 42
AMERALIA, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------------------- --------------------------- PAID-IN SUBSCRIPTION
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE
----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1997 720,356 $ 36,018 3,309,331 $ 33,093 $ 10,744,413 $ --
Issuance of Series D preferred
stock for cash at $1,000.00 per share 240 12 -- -- 239,988 --
Common stock sold for cash
at $1.00 per share -- -- 865,000 8,650 856,350 --
Offering costs -- -- -- -- (240,800) --
Foreign currency translation
adjustment -- -- -- -- -- --
Shares issued in lieu of dividends
at $1.00 per share -- -- 356,554 3,566 352,988 --
Conversion of preferred stock (718,060) (35,903) 791,666 7,917 63,987 --
Dividends paid -- -- -- -- -- --
Shares canceled -- -- (5,000) (50) (4,950) --
Additional capital contributed -- -- -- -- 139,954 --
Net loss for the year ended
June 30, 1998 -- -- -- -- -- --
------------ ----------- ------------ ------------ ------------ -----------
Balance, June 30, 1998 2,536 $ 127 5,317,551 $ 53,176 $ 12,151,930 $ --
------------ ----------- ------------ ------------ ------------ -----------
<CAPTION>
OTHER
ACCUMULATED COMPREHENSIVE
DEFICIT INCOME
------------- -------------
<S> <C> <C>
Balance, June 30, 1997 $ (8,582,174) $ 123,211
Issuance of Series D preferred
stock for cash at $1,000.00 per share -- --
Common stock sold for cash
at $1.00 per share -- --
Offering costs -- --
Foreign currency translation
adjustment -- (123,211)
Shares issued in lieu of dividends
at $1.00 per share -- --
Conversion of preferred stock -- --
Dividends paid (392,554) --
Shares canceled -- --
Additional capital contributed -- --
Net loss for the year ended
June 30, 1998 (549,817) --
------------- ------------
Balance, June 30, 1998 $ (9,524,545) $ --
------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 43
AMERALIA, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
-------------------------- ---------------------------- PAID-IN SUBSCRIPTION
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE
--------- ----------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1998 2,536 $ 127 5,317,551 $ 53,176 $ 12,151,930 $ --
Shares issued for cash and
extinguishment of debt at $1.00
per share -- -- 72,500 725 71,775 --
Shares issued for cash and
extinguishment of debt at $1.50
per share -- -- 807,500 8,075 1,203,175 --
Shares issued in lieu of dividends
at $1.00 per share -- -- 209,215 2,092 207,123 --
Shares issued through exercise
of warrants at $2.00 per share -- -- 1,253,000 12,530 2,493,470 --
Issuance of Series E preferred
stock through exercise of option
at $929.66 per share 450 22 -- -- 418,324 --
Dividends declared -- -- -- -- -- --
Net loss for the year ended
June 30, 1999 -- -- -- -- -- --
--------- ----------- ------------ ----------- ------------ ---------
Balance, June 30, 1999 2,986 $ 149 7,659,766 $ 76,598 $ 16,545,797 $ --
--------- ----------- ------------ ----------- ------------ ---------
<CAPTION>
OTHER
ACCUMULATED COMPREHENSIVE
DEFICIT INCOME
------------- -------------
<S> <C> <C>
Balance, June 30, 1998 $ (9,524,545) $ --
Shares issued for cash and
extinguishment of debt at $1.00
per share -- --
Shares issued for cash and
extinguishment of debt at $1.50
per share -- --
Shares issued in lieu of dividends
at $1.00 per share -- --
Shares issued through exercise
of warrants at $2.00 per share -- --
Issuance of Series E preferred
stock through exercise of option
at $929.66 per share -- --
Dividends declared (283,865) --
Net loss for the year ended
June 30, 1999 (1,901,601) --
-------------- -----------
Balance, June 30, 1999 $(11,710,011) $ --
-------------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 44
AMERALIA, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
-------------------------- ---------------------------- PAID-IN SUBSCRIPTION
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE
--------- ----------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1999 2,986 $ 149 7,659,766 $ 76,598 $ 16,545,797 $ --
Shares issued for cash at $2.50
per share -- -- 250,000 2,500 622,500 --
Shares issued in lieu of loan fees
at $2.50 per share -- -- 24,000 240 59,760 --
Shares issued for cash at $2.50
per share -- -- 100,000 1,000 249,000 --
Shares issued as prepaid
construction costs at $3.00
per share -- -- 433,333 4,333 1,295,667 --
Shares issued in lieu of dividends
at $1.00 per share -- -- 298,600 2,986 295,614 --
Dividends declared -- -- -- -- -- --
Net loss for the year ended
June 30, 2000 -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ---------
Balance, June 30, 2000 2,986 $ 149 8,765,699 $ 87,657 $ 19,068,338 $ --
============ ============ ============ =========== ============ =========
<CAPTION>
OTHER
ACCUMULATED COMPREHENSIVE
DEFICIT INCOME
------------- -------------
<S> <C> <C>
Balance, June 30, 1999 $(11,710,011) $ --
Shares issued for cash at $2.50
per share -- --
Shares issued in lieu of loan fees
at $2.50 per share -- --
Shares issued for cash at $2.50
per share -- --
Shares issued as prepaid
construction costs at $3.00
per share -- --
Shares issued in lieu of dividends
at $1.00 per share -- --
Dividends declared (298,600) --
Net loss for the year ended
June 30, 2000 (2,234,288) --
------------ -----------
Balance, June 30, 2000 $(14,242,899) $ --
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 45
AMERALIA, INC.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
FROM THE
BEGINNING
OF DEVELOPMENT
STAGE ON
FOR THE YEARS ENDED JUNE 30, JULY 1, 1992
--------------------------------------------- TO JUNE 30,
2000 1999 1998 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,234,288) $(1,901,601) $ (549,817) $(8,701,685)
Adjustments to reconcile net loss to net cash
(used) by operating activities:
Bad debt -- -- -- 624,798
Stock issued for services rendered -- -- -- 65,000
Depreciation and amortization 11,225 9,056 8,618 90,773
Exchange (gain) -- (14) (123,211) (168,556)
Gain on settlement of debt (53,800) -- -- (53,800)
Change in Operating Assets and Liabilities:
Decrease in prepayments -- -- -- 18,000
Decrease in notes receivable -- -- -- 1,300,497
(Increase) decrease in restricted cash 991,305 (991,305) -- --
(Increase) in accounts and interest
receivable (1,546) (1,167) -- (2,048)
(Increase)in related party receivables (14,063) (25,334) (7,610) (57,071)
(Increase) in prepaid expenses (70) (30,082) -- (30,152)
(Increase) decrease in deposits 25,256 (25,906) -- (650)
(Increase) decrease in other assets (222,020) (110,000) 224,500 (332,020)
Increase in bank overdraft 32,654 1,116 4,586 38,356
Increase (decrease) in due to related parties 122,429 (35,354) (45,704) 50,460
Increase (decrease) in accounts payable and
royalties payable 624,595 146,173 106,319 1,073,175
Increase in accrued expenses 3,643 19,836 -- 23,479
Increase in guarantee fees payable 520,000 -- -- 520,000
Increase (decrease) in interest payable 109,525 860 (22,096) (8,251)
Increase (decrease) in contingent liabilities (303,800) 303,800 -- --
----------- ----------- ----------- -----------
Net Cash (Used) in Operating Activities (388,955) (2,639,922) (404,415) (5,549,695)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Lease acquisition, exploration and development
expenditures (541,980) (255,000) (13,051) (2,719,870)
Plant construction in progress (5,744,642) (1,250,000) -- (6,994,642)
Liquidation of RIT investment -- 418,346 -- 418,346
Purchase of property and equipment (11,547) (26,261) -- (103,076)
Cash paid on note receivable related -- (25,000) -- (25,000)
Cash received from notes receivable 5,000 -- -- (139,853)
----------- ----------- ----------- -----------
Net Cash (Used) in Investing Activities $(6,293,169) $(1,137,915) $ (13,051) $(9,564,095)
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 46
AMERALIA, INC.
(A Development Stage Company)
Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
FROM THE
BEGINNING
OF DEVELOPMENT
STAGE ON
FOR THE YEARS ENDED JUNE 30, JULY 1, 1992
------------------------------------------------ TO JUNE 30,
2000 1999 1998 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Cash received from issuance of stock $ 875,000 $ 3,574,000 $ 859,200 $ 9,166,596
Cash received from notes 5,500,000 198,217 223,606 6,257,222
Payments on note payable -- (389,475) (100,183) (612,658)
Additional capital contributed -- -- 139,954 307,372
------------ ------------ ------------ ------------
Net Cash Provided by Financing Activities 6,375,000 3,382,742 1,122,577 15,118,532
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH (307,124) (395,095) 705,111 4,742
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 312,104 707,199 2,088 238
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 4,980 $ 312,104 $ 707,199 $ 4,980
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Income taxes $ -- $ -- $ -- $ --
Interest $ 248,010 $ 17,659 $ 38,479 $ 527,383
NON-CASH FINANCING ACTIVITIES
Common stock issued for payment of
obligations $ 60,000 $ 215,750 $ -- $ 668,781
Common stock issued for services rendered -- $ -- $ -- $ 65,000
Payment of preferred stock dividends through
the issuance of additional common and
preferred stock $ 298,600 $ 209,215 $ 356,554 $ 1,443,413
Common stock issued as prepaid construction
costs $ 1,300,000 $ -- $ -- $ 1,300,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 47
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 2000 and 1999
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. General Development of the Business
AmerAlia, Inc. (AmerAlia) was originally incorporated as Computer
Learning Software, Inc. under the laws of the State of Utah on June 7,
1983 and renamed AmerAlia, Inc. in January 1984. AmerAlia acquired
various investments in Australia which have since been sold.
Since 1989, AmerAlia has been primarily engaged in establishing a
chemical business in the manufacture of sodium bicarbonate and related
products. AmerAlia purchased an interest in, and subsequently
acquired, a federal sodium lease in Colorado, USA. AmerAlia's lease
contains a substantial, naturally occurring, rare deposit of sodium
bicarbonate, commonly known as baking soda.
AmerAlia's primary objective is to use solution mining to recover
sodium bicarbonate for sale to the animal feed, industrial,
pharmaceutical and food grade markets. The production of sodium
bicarbonate also enables the production of soda ash, caustic soda and
other sodium chemicals commonly used in the manufacture of glass,
detergents and a variety of inorganic and organic chemicals. Sodium
bicarbonate is also used as an agent for flue gas desulfurization, a
market AmerAlia expects to expand with the national clean air effort.
AmerAlia proposes to construct and operate a 150,000 ton per year
design capacity facility in two or three phases. AmerAlia submitted
its mining plans to the Bureau of Land Management which has found that
the project would have no significant environmental impact. This
finding, combined with the permits AmerAlia has received from state
and local agencies, allows AmerAlia to begin construction on the
lease.
b. Accounting Method
AmerAlia's financial statements are prepared using the accrual method
of accounting. AmerAlia has elected a June 30, year-end.
c. Cash and Restricted Cash
AmerAlia considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
AmerAlia had $991,305 in restricted cash at June 30, 1999 held in an
escrow account to be used for the construction of its sodium
bicarbonate plant (see Note 3).
16
<PAGE> 48
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 2000 and 1999
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
d. Reporting Currency and Remeasurement
AmerAlia'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. During the year ended June 30, 1998,
management decided that the foreign currency translation adjustment
was no longer valid because the Australian operations had ceased.
Therefore, the amount was removed from the balance sheet and recorded
through the current year statement of operations.
e. Fixed Assets
Fixed assets 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 7 years.
Expenditures for property additions and betterments are capitalized at
cost. Maintenance and repairs are charged to expense when incurred.
f. Income Taxes
At June 30, 2000, AmerAlia had net operating loss carryforwards of
approximately $8,600,000 that may be offset against future taxable
income from the year 2000 through 2020. No tax benefit has been
reported in the June 30, 2000 financial statements since the potential
tax benefit is offset by a valuation allowance of the same amount.
g. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
17
<PAGE> 49
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 2000 and 1999
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
h. Basic Net Loss Per Share
The computations of basic loss per share of common stock are based on
the weighted average number of shares outstanding during the period of
the financial statements as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
--------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Loss (numerator) $(2,234,288) $(1,901,601) $ (549,817)
Shares (denominator) 8,269,928 6,229,634 4,313,400
Per share amount $ (0.27) $ (0.31) $ (0.13)
</TABLE>
AmerAlia's outstanding stock purchase warrants and options have been
excluded from the basic net loss per share calculation as they are
anti-dilutive.
i. Concentrations of Risk
AmerAlia records receivables from advances to related parties and from
uncollected investment revenues.
AmerAlia maintains several accounts with financial institutions. The
accounts are insured by the Federal Deposit Insurance Corporation up
to $100,000. The Company's balances occasionally exceed that amount.
The Company also maintains a cash account with a brokerage firm. This
account is not insured by the Federal Deposit Insurance Corporation.
At June 30, 2000 and 1999, the amount of uninsured cash in all
accounts was $-0- and $1,086,479, respectively.
Credit losses, if any, have been provided for in the financial
statements and are based on management's expectations. AmerAlia's
accounts receivable are subject to potential concentrations of credit
risk. AmerAlia does not believe that it is subject to any unusual
risks, or significant risks in the normal course of its business.
j. Deferred Financing Costs
AmerAlia has incurred costs of $144,497 in establishing short-term
loans. These costs are being amortized over the remaining term of the
loan. In addition, AmerAlia has incurred costs of $247,523 in
connection with establishing a long-term financing package for
approximately $32,000,000 for the construction of a plant for the
recovery and production of the sodium bicarbonate. This amount will be
amortized over the life of the long-term financing agreement once
established.
18
<PAGE> 50
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 2000 and 1999
NOTE 2 -- RELATED PARTY RECEIVABLES
AmerAlia occasionally issues advances to related parties who have
supported AmerAlia over the years. The balance due from related
parties at June 30, 2000 and 1999 totals $57,071 and $43,008,
respectively. These advances are non-interest bearing and are due on
demand.
AmerAlia also loaned an officer of the Company $25,000 during the year
ended June 30, 1999 as part of his employment agreement. Interest is
payable on the loan at 7.0% per annum, payable quarterly. Accrued
interest receivable at June 30, 2000 and 1999 was $2,713 and $1,167,
respectively. As part of the agreement, AmerAlia will cancel $5,000 of
the principal amount each year on the anniversary date of the
employment agreement until paid in full. In the event of termination
for any reason, the entire unpaid principal is due within 30 days of
the termination date. The principal balance outstanding at June 30,
2000 was $20,000.
NOTE 3 -- LEASE ACQUISITION AND EXPLORATION COSTS
In December 1992, AmerAlia 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. AmerAlia
acquired the Rock School Lease for consideration comprising (i) a cash
payment of $600,000; (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 $100,000 (which was changed to $75,000 on January 1,
1996) be paid monthly in arrears. A further condition of the lease
acquisition agreement with Kinder is that all minimum royalty payments
will be credited against any future liability which exceeds the
minimum royalty (see Note 9). Kinder assigned all of its rights, title
and interest in the federal lease to AmerAlia. Kinder also agreed to
provide all documentation, files and records in its possession
pertaining to the exploration of and development plans for 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 AmerAlia 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.
AmerAlia has the permits to construct the mining facilities. AmerAlia
is required to provide a $1,300,000 reclamation bond on the site prior
to full commencement. AmerAlia is currently negotiating this bond. The
EPA's Underground Injection Control Permit, currently issued in draft
form, is the only significant additional permit required to operate
the facility.
19
<PAGE> 51
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 2000 and 1999
NOTE 3 -- LEASE ACQUISITION AND EXPLORATION COSTS (Continued)
AmerAlia has entered into a construction agreement dated May 14, 1999
with a Delaware corporation doing business as U.S. Filter Corporation
and HPD Products (US Filter) to design, manage and construct a sodium
bicarbonate solution mining and production plant on the Rock School
Lease for an amount not to exceed $33,200,000. As of June 30, 2000,
the Company had advanced a total of $6,384,397 to U.S. Filter for the
construction of the plant. The Company has also capitalized certain
costs related to the construction of the plant totaling $610,245,
bringing the total capitalized costs at June 30, 2000 to $6,994,642.
In addition, during the year ended June 30, 2000, AmerAlia issued
433,333 shares of its outstanding common stock valued at $3.00 per
share as prepaid construction costs related to the plant construction,
for a total value of $1,300,000. These costs will be reclassified in
the future as plant construction costs as the services are performed.
Since the prepaid amount was the result of a stock issuance, the
amount is being shown in the equity section of the accompanying
balance sheet at June 30, 2000.
Subject to AmerAlia obtaining satisfactory long-term financing, US
Filter will complete the design and construction of the mine and
processing plant for AmerAlia, guarantee the plant's performance and
advance the costs of construction to AmerAlia. An independent
engineering and marketing report has formed the basis of an
information memorandum and detailed financial projections provided to
selected institutional and non-institutional lenders in September 2000
for the purpose of securing $32 million of long-term financing to
repay the US Filter construction finance. These documents and models
have also been provided to Fitch IBCA, Duff & Phelps for the purpose
of their rating the long-term debt. At the date of this report,
AmerAlia does not have Fitch's preliminary assessment and is awaiting
expressions of interest from prospective lenders.
In addition, AmerAlia has continued discussions with an organization
to provide the long- term financing once the plant is completed. This
agreement had not been finalized as of the date of our audit report.
If AmerAlia is unable to obtain the long-term financing, U.S. Filter
has the right to cease any further work on the project and recover
damages from AmerAlia. As a result of an amendment to the agreement
with U.S. Filter, U.S. Filter holds a security interest in AmerAlia's
Rock School Lease.
AmerAlia is one of three companies holding federal leases which cover
a unique, major natural resource of nahcolite (naturally occurring
sodium bicarbonate). AmerAlia 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
AmerAlia's proposed initial mine site on the Rock School lease.
20
<PAGE> 52
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 2000 and 1999
NOTE 3 -- LEASE ACQUISITION AND EXPLORATION COSTS (Continued)
From this core hole, the total nahcolite content of the saline zone in
this area was estimated 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, AmerAlia 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. Until the resource is brought into production or until
substantial additional engineering work is accomplished, the viability
of economic recoverability cannot be established.
AmerAlia 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 4 -- FIXED ASSETS
Fixed assets at June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
2000 1999
-------- --------
<S> <C> <C>
Vehicle $ 31,960 $ 31,960
Equipment 61,916 50,369
Less accumulated depreciation (69,352) (58,127)
-------- --------
$ 24,524 $ 24,202
======== ========
</TABLE>
Depreciation expense for the years ended June 30, 2000, 1999 and 1998
was $11,225, $9,056 and $8,618, respectively.
NOTE 5 -- DUE TO RELATED PARTIES
AmerAlia owed $131,762 and $9,333 to affiliates of AmerAlia at June
30, 2000 and 1999, respectively. This liability is comprised of
advances to AmerAlia, accrued compensation and unpaid directors fees.
21
<PAGE> 53
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 2000 and 1999
NOTE 6 -- NOTES PAYABLE
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
2000 1999
---------- ----------
<S> <C> <C>
Notes payable consist of the following amounts:
Note payable to investors; unsecured, due on
demand; at 10% interest $ 4,000 $ 4,000
Note payable to an individual; unsecured, due on
October 29, 2000; interest at the prime rate
(9.50% at June 30, 2000) 300,000 --
Note payable to financial institution; principal
and interest due January 21, 2001; interest at the
prime rate (9.50% at June 30, 2000); secured
by a related party guarantee agreement 5,200,000 --
---------- ----------
Total Notes Payable $5,504,000 $ 4,000
========== ==========
</TABLE>
NOTE 7 -- OFFICER COMPENSATION
AmerAlia paid $150,000 and $125,000 to Gunn Development Pty. Ltd. and
$55,000 and $55,000 to Ahciejay Pty. for management fees during the
years ended June 30, 2000 and 1999, respectively. These companies are
affiliates of Mr. Bill H. Gunn, Chairman and President of AmerAlia,
and Mr. Robert van Mourik, Executive Vice President, Chief Financial
Officer, Secretary & Treasurer. On June 1, 1998, AmerAlia appointed
Mr. John Woolard as an Executive Vice President. Previously, Mr.
Woolard had been employed as a consultant under a consulting
agreement. AmerAlia paid $150,000 and $135,000 in total compensation
to Mr. Woolard during the years ended June 30, 2000 and 1999,
respectively. Additional fees totaling $25,972 and $18,302 have been
paid to Jacinth Pty. Ltd., an affiliate of Robert Cameron, a director
of AmerAlia for the years ended June 30, 2000 and 1999, respectively.
In addition, directors earned fees of $14,000 each. The liabilities to
related parties include these fees (See Note 5), except in one
instance where the fee reduced a related party receivable (See
Note 2).
In June 1996, AmerAlia agreed to grant 70,000 Stock Appreciation
Rights ("SAR's") to Mr. Bill Gunn. At any time after the share price
has sustained an average bid price of more than $3.50 for a six month
period before June 28, 2006, a holder of SAR's may require AmerAlia to
exchange its SAR's, in whole or in part at the holder's option, for an
issuance of restricted common stock at $1.50 per share on a
one-for-one basis. If a holder of a SAR ceases to be a director or
employee of AmerAlia prior to the conversion of all its SAR's, then
the remaining SAR's are canceled.
22
<PAGE> 54
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 2000 and 1999
NOTE 8 -- OUTSTANDING STOCK OPTIONS AND PURCHASE WARRANTS
AmerAlia has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options because
the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires
use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, of the exercise price of
AmerAlia's stock options is greater than or equal to the market price
of the underlying stock on the date of grant, no compensation expense
is recognized. Accordingly, no additional compensation expense was
recorded by AmerAlia for the years ended June 30, 2000, 1999 or 1998.
The following summarizes the exercise price per share and expiration
date of AmerAlia's outstanding options and warrants to purchase
preferred and common stock at June 30, 2000:
<TABLE>
<CAPTION>
EXPIRATION DATE PRICE NUMBER
--------------- ----- ---------
<S> <C> <C> <C>
March 31, 2001 $6.00 442,000
March 31, 2001 $1.00 100,000
March 31, 2003 $1.50 150,000
December 31, 2003 $1.50 40,000 (See Note 9)
June 28, 2006 $1.50 505,000
June 28, 2006 (SAR's) $1.50 70,000 (See Note 7)
---------
1,307,000
=========
</TABLE>
During the year ended June 30, 2000, no options or warrants were
exercised or expired.
During the year ended June 30, 1999, 363,333 options and warrants
expired and options for 1,253,000 common shares were exercised.
During the year ended June 30, 1998, no options expired.
NOTE 9 -- COMMITMENTS AND CONTINGENT LIABILITIES
AmerAlia is a party to certain claims and lawsuits arising from its
business activities.
In 1993, AmerAlia entered into an engineering contract with Raytheon
Engineering (Raytheon) for the design and construction of a processing
plant for the Rock School Lease. AmerAlia rescinded the contract
claiming that Raytheon was late in providing engineering plans and
testing and that their work was substandard. Raytheon had an
outstanding invoice due them for approximately $303,800. During the
year ended June 30, 2000, the amount was settled for $250,000 and the
claim was dropped, resulting in a gain on settlement of debt of
$53,800 for the year ended June 30, 2000.
Marvin Hudson, a former officer and employee of AmerAlia has alleged
that AmerAlia breached an employment agreement. AmerAlia claims that
the agreement was fraudulent and void and intends on vigorously
contesting the claim. The litigation is only in the earliest stages
and the outcome or potential loss cannot currently be reasonably
predicted. AmerAlia believes it has a valid defense and intends to
defend its case vigorously.
23
<PAGE> 55
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company
June 30, 2000 and 1999
NOTE 9 -- COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
On December 10, 1992, AmerAlia acquired the Rock School Lease from
Kinder; the acquisition terms were amended by Kinder and AmerAlia 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 $75,000 in arrears;
2. Starting January 1, 1996, the establishment of a consulting
arrangement between Kinder and AmerAlia providing for an annual
consulting fee of $25,000 payable monthly in arrears.
Minimum amounts due are as follows:
<TABLE>
<S> <C>
2001 $100,000
2002 100,000
--------
Total $200,000
========
</TABLE>
These payments will continue while AmerAlia holds the Rock School
Lease. Royalties payable as of June 30, 2000 and 1999 were $354,167
and $279,167, respectively.
As discussed in Note 3, the payment of the minimum annual royalties
accrues credits which AmerAlia can offset against future royalty
liabilities if they exceed the minimum annual royalty due. The total
of these credits at June 30, 2000 was $487,500.
In April 1999 (effective November 1998), AmerAlia entered into an
employment contract with its Vice-President of Operations for a period
of five years. Pursuant to the employment agreement, the officer will
receive a salary of $100,000 per annum, plus bonuses and salary
increases. AmerAlia also granted the officer options to acquire
100,000 shares of common stock at an exercise price of $1.50 per
share, through December 31, 2003. 20,000 of those options vested upon
signing the agreement and the remaining options vest annually through
November 2002.
NOTE 10 -- RECOVERABILITY OF LEASE ACQUISITION AND EXPLORATION COSTS
The recoverability of this investment is dependent upon AmerAlia
developing mining operations on the lease so that the profitability of
mining operations, or prospective mining operations, is sufficient to
enable AmerAlia to be able to sell its investment and recover the
lease acquisition and exploration costs, as well as any subsequent
capitalized expenditures.
24
<PAGE> 56
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 2000 and 1999
NOTE 11 -- ACCRUED EXPENSES
Accrued expenses consist of the following at June 30, 2000 and 1999,
respectively:
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Accrued dividends $74,650 $74,650
Payroll taxes 12,495 13,569
Other 4,717 --
------- -------
Total $91,862 $88,219
======= =======
</TABLE>
AmerAlia has also entered into certain Guarantee Agreements with the
Mars Trust, whereby the Mars Trust has guaranteed the repayment of the
notes payable to the Bank of America (Note 6) in the event of a
default. AmerAlia has agreed to pay the Mars Trust a guarantee fee
equal to 10% of the loan proceeds, payable in restricted shares of
common stock with the number of shares determined by future market
prices of AmerAlia's stock. As of June 30, 2000, $520,000 was owed to
the Mars Trust for these guarantee fees on the $5,200,000 note payable
to the Bank of America. Upon the extension of the original due dates
applicable to the Bank of America notes payable subsequent to June 30,
2000, the Guarantee Agreements were also amended and extended for an
additional fee (see Note 14).
NOTE 12 -- PREFERRED STOCK
There are 2,986 shares of Series E preferred stock which carry a 10%
dividend payable quarterly in restricted common stock at $1.00 per
share. Each share of the preferred stock is convertible into 1,000
shares of common stock until October 31, 2000.
NOTE 13 -- GOING CONCERN
AmerAlia's financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates
the realization of assets and liquidation of liabilities in the normal
course of business. However, AmerAlia does not have significant cash
or other material assets, nor does it have an established source of
revenues sufficient to cover its operating costs and to allow it to
continue as a going concern. It is the intent of AmerAlia to generate
revenue through the manufacture and sales of its sodium bicarbonate
products. However, AmerAlia cannot begin mining the product until
long-term financing for the construction of the plant is obtained and
the plant completed.
NOTE 14 -- SUBSEQUENT EVENTS
On July 10, 2000, AmerAlia borrowed from Bank of America $2,126,000
and entered into a further guarantee agreement with the Mars Trust.
These funds have been used to pay interest due to Bank of America,
reduce accounts payable, working capital and for further capital
expenditure on the Rock School Lease project.
25
<PAGE> 57
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 2000 and 1999
NOTE 14 -- SUBSEQUENT EVENTS (Continued)
On September 1, 2000, AmerAlia completed an Amended and Restated
Guarantee Agreement with the Mars Trust to replace the three existing
guarantee agreements. It provides for the total $7,326,000 borrowed
from the Bank of America and the extension of the guarantee to
September 14, 2001 for a fee equal to 15% of the total loan, payable
in restricted shares with the number of shares determined by future
market prices of AmerAlia's common stock. Compared with the fee of 10%
per year payable on the three existing guarantees, the new fee of 15%
for the extended time is equivalent to a weighted average of
approximately 9.2% per year.
26
<PAGE> 58
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
3.1 (b) Restated Articles of Incorporation
3.2 (a) Bylaws of AmerAlia, Inc.
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
10.11 (g) Design/Build Contract with U.S. Filter Corp.
10.12 (b) Amended and Restated Guaranty Agreement with the Jacqueline Badger
Mars Trust
21.1 Subsidiaries of the Registrant: None.
27 (b) Financial Data Schedule
</TABLE>
(a) Incorporated by reference from the Company's Form 10 General
Registration Statement filed with the Commission on March 5, 1987.
(b) filed herewith..
(c) Not included.
(d) Not included.
(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.
(g) Incorporated by reference from the Company's Form 10-K for its year
ended June 30, 1999.