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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, 2001
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.)
818 Taughenbaugh Blvd., Rifle, Colorado 81650
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(Address of Principal Executive Offices)
Company's telephone number, including area code: (970) 625-9134
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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 August 30, 2001:
12,117,276. Aggregate market value of the voting stock held by non-affiliates of
AmerAlia as of August 30, 2001 was approximately $6,826,000. The estimate is
based on the last sale price per share and an estimated 5,595,062 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
General. AmerAlia, Inc. was incorporated in Utah on June 7, 1983,
originally under the name "Computer Learning Software, Inc." We changed our name
to AmerAlia, Inc. in January 1984. We acquired various investments in Australia
that have long since been sold. Since 1989, we have been a single purpose
company engaged in establishing a chemical business in the production of
environmentally benign sodium bicarbonate and related products. When we use the
term "We" or "AmerAlia" in this annual report, we are referring to AmerAlia Inc.
and its wholly-owned subsidiary, Natural Soda, Inc.
In 1989, we purchased an interest in a federal sodium lease, known as
the Rock School Lease, in Rio Blanco County, Colorado. In 1992, we acquired the
lease and in 2001, the BLM renewed the lease for a further ten years. In October
2000, we created a wholly owned subsidiary, Natural Soda, Inc., to own our
sodium bicarbonate assets and to operate our anticipated soda business. We
believe that the existence of Natural Soda will simplify long-term debt security
placement and enable us ultimately to create a strong marketing identity. We are
one of three companies holding federal leases granted within the Rio Blanco
County, Colorado. The adjoining lease is owned by White River Nahcolite
Minerals, LLC. ("WRNM").
Our primary objective is to become the world's largest and lowest cost
producer of sodium bicarbonate. We expect to use solution mining to recover
sodium bicarbonate primarily for sale to the animal feed, industrial, food and
pharmaceutical grade markets. The production of sodium bicarbonate will also
enable the production of soda ash and caustic soda, chemicals widely used in the
manufacture of glass, detergents and a variety of inorganic and organic
chemicals. Sodium bicarbonate can also be used as an agent for flue gas
desulfurization, a market that may expand as the requirements of the 1990
amendments to the Clean Air Act impact more significantly on the power
generation industry.
White River Nahcolite Minerals, LLC. Initially, we planned to produce
sodium bicarbonate through building a solution mining and recovery facility on
our Rock School Lease. During 2001, we became aware that IMC Global, the owner
of WRNM, had offered WRNM for sale. Since then we have had numerous discussions
with representatives of IMC Global and in July 2001, we made an offer to
purchase WRNM. While we have been told our offer is basically acceptable to IMC
Global, we have not yet concluded an agreement, commenced our due diligence
investigation, nor have we secured a definitive commitment for financing the
purchase. Therefore, we cannot offer any assurance that we shall be able to
complete this transaction.
It is our opinion that the purchase of WRNM would allow us to secure an
immediate income stream, eliminate a competitor and secure a large increase in
the ownership of large-scale nahcolite reserves. Our preliminary analysis
indicates that if we acquire WRNM, we may have to invest from $3 million to $5
million of capital within the first two years to refurbish its plant. Later, we
would utilize the equipment and engineering already completed for the Rock
School Lease project to expand the plant. We believe this would lead to
significant cost savings. If we are able to complete the purchase (which we
cannot assure), we believe that this is a preferable course to the major
construction project, additional costs and time delays, and attendant risks
associated with the Rock School Lease.
Consequently, we have deferred our plans to build our facility on the
Rock School Lease. Whilst we
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envisage that our construction contractor for the Rock School Lease, US Filter,
would be closely involved in refurbishing and expanding the WRNM facility if we
complete that purchase, this is not contemplated in our current agreement with
US Filter. US Filter has the right to terminate the existing contract and if it
did, then we would be liable for breakage fees and other costs that could be
substantial. We continue to maintain our flexibility to construct a plant on the
Rock School Lease if we are not able to acquire the WRNM property.
WRNM owns BLM sodium leases covering more than 8,223 acres adjoining
the Rock School Lease. In 1991, a predecessor company, NaTec Resources, Inc.,
built a nahcolite solution mining and recovery facility with a nameplate
capacity of 125,000 ton per year. In 1994, NaTec added bagging and warehousing
facilities. The plant can produce all grades of sodium bicarbonate. Peak
performance of production of 100,000 tons was achieved in 2000. We believe that
the WRNM plant is currently probably the lowest cost producer of sodium
bicarbonate in the world.
Rock School Lease and Agreement with US Filter. The Rock School Lease
continues to be important to us. We have achieved significant progress on
several regulatory issues necessary before we can begin any development of the
Rock School Lease. We have approval from the US Department of Interior, Bureau
of Land Management (BLM) to construct a plant to produce 50,000 tons per year of
sodium bicarbonate from the Rock School Lease. We are currently applying for
permits to allow a larger scale project. The US Environmental Protection Agency
(EPA), which regulates solution mining of nahcolite in Colorado, issued a Final
Area Permit on February 1, 2001. The EPA's permit allows the proposed 50,000
ton-per-year project as well as the larger, planned development, to proceed
without limiting the number of production wells or the production rate. This
process took approximately two years to complete.
The lead Colorado permitting agency, the Division of Minerals and
Geology (DMG), required the collection of five quarterly periods of water data
prior to commencing solution mining. During the last year, we installed five
water monitoring wells and collected base line data. The last data was collected
in February 2001, completing the regulatory requirements necessary to begin
solution mining activities. Like the EPA, the DMG does not limit production
rates.
Thus, we will be fully permitted to commence construction and solution
mining on the Rock School Lease once we post the required land reclamation
bonds.
In May, 1999 we 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. With amendments and delays, this cost may be
higher by the time of completion. Under the contract, we paid $6.9 million to US
Filter. As a result, engineering and procurement is nearly complete, most
critical delivery equipment and materials have been purchased and we are ready
to begin field construction when we have financing available.
Financing Activities. US Filter agreed to provide construction finance
under certain conditions including evidence of take out financing at the end of
the construction and start up period. The business plan and financial
projections for the development of the Rock School Lease require long-term debt
funding up to $32 million. We have prepared detailed proposals to lenders of
long-term funding. R.W. Beck, independent consulting engineers, satisfactorily
reviewed the project on behalf of potential lenders.
On May 25, 2001 we announced that we had executed a non-binding
statement of terms with a major, international financial institution to provide
credit support for a $32 million loan facility for the construction of the
facility on the Rock School Lease. If we finalize this loan facility, we will
use it principally to reimburse
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US Filter upon completion of a 75,000 tons per year sodium bicarbonate solution
mine and plant to be built on the Rock School Lease. The proposed loan is for
ten years with interest based on LIBOR plus loan provision fees. In addition, a
deferred fee will be payable to the loan facility provider. The proposed
financing was subject to AmerAlia meeting certain conditions by June 30, 2001,
including providing satisfaction that additional equity will be committed to the
project and reaching further agreement with US Filter. In order for the proposed
financing to become binding, these and other requirements would need to be met
before the issue of a commitment letter.
Since we have now changed our focus to the acquisition of WRNM, we have
had further discussions with the proposed lender. The lender has expressed its
interest in financing the WRNM acquisition, but we have not yet received a
definitive proposal or a term sheet. The lender has been facilitating
discussions with its counsel and has been preparing for due diligence, and
therefore we are optimistic that we will be able to reach acceptable
arrangements with the lender.
We have not been involved in any bankruptcy, receivership, or similar
proceedings.
Forward Looking Statements and Risk Factors Statement pursuant to 1933 & 1934
Securities Acts
Our future conduct depends on a number of factors beyond our control,
so we cannot offer any assurance we will be able to conduct our 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 our ability to
predict or control. These risks may cause actual results to differ 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. 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 risks accompanying the
establishment of our proposed operations. These risks and factors include:
o The most significant risk we face results from our recent change of
focus from developing our own lease to attempting to purchase WRNM. We
have performed a significant amount of study on the economics of our
Rock School project and have received reports from R.W. Beck and others
which substantiate our view that the Rock School project can be
completed economically over approximately an 18 month period of time
provided adequate financing is available on reasonable terms. We have
only recently changed our focus to the possible acquisition of WRNM.
While we believe that, if successful, WRNM will prove economically
beneficial to us, we have not yet commenced our due diligence
investigation and we have not yet devoted the same intensive study to
this project.
o As noted above and throughout this report, we need a significant amount
of debt and equity financing to be able to pursue either the completion
of the Rock School project or the purchase of WRNM. Although we have
been seeking such financing for more than the past two years and
although we have raised limited amounts of financing to complete the
work concluded to date, we have been unable to conclude definitive
arrangements for the significant financing we require for WRNM or the
Rock School project. For the most part, existing shareholders have
provided the interim financing we have used, either through equity
investment or by guaranteeing our loans at commercial financial
institutions. We currently have significant working capital shortages
and have deferred certain salaries and payment of our accounts payable.
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o We historically have had, and we continue 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. Our stock has historically been quoted on the Nasdaq
SmallCap stock market and has provided accredited investors purchasing
equity prospects of liquidity. Should Nasdaq remove our stock from the
Nasdaq SmallCap stock market for any reason, it will likely be more
difficult for us to conclude the necessary fund-raising for short-term
or long-term capital. See Item 7 - "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
o As a result of the $6.9 million we have advanced to US Filter,
engineering and procurement for the Rock School project is nearly
complete. We have acquired most critical delivery equipment and
materials and (subject to adequate funding) we are ready to begin field
construction of the Rock School Project.
o However, US Filter has refused to provide the construction
funding under the Design/Build agreement unless we 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. We will incur significant penalties if the US
Filter construction program does not proceed and we will have
spent millions of dollars of corporate funds on the
preliminary design and construction activities.
o Furthermore, we have changed our focus from the construction
of the Rock School project to the possible acquisition of
WRNM. Although we believe that much of the equipment we have
acquired will be useful should we acquire WRNM and although we
believe that US Filter can assist us in refurbishing and
expanding the WRNM plant, we have not held those discussions
with US Filter or completed any engineering analysis to prove
whether our assumptions are accurate.
o We have not negotiated long term employment and compensation
arrangements with our officers other than with our Vice President,
Operations pending resolution of long-term financing.
o Although we have obtained a significant amount of information about our
Rock School Lease and we believe that the mineral resources can be
extracted economically, we cannot test this belief until operations
commence. Actual operations may differ from our predictions and we may
have to spend more to rectify these differences.
o If we acquire the WRNM property, we believe that the characteristics
are similar and that we will be able to continue WRNM's current
production. However, we have not yet commenced our due diligence and we
will not be able to reach any definitive conclusions until after doing
so.
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
We are 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.
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General Discussion
The Piceance Creek Basin. We are one of three companies holding federal
leases granted within the Piceance Creek Basin in Rio Blanco County, Colorado;
WRNM is the second of the three companies. The Piceance Creek Basin covers a
unique, major natural resource of nahcolite, a mineral form of naturally
occurring sodium bicarbonate. The Piceance Creek Basin is both an elevated
structural basin and a topographic basin. The topographic basin is approximately
1,600 square miles ranging from 5,000 ft to 8,500 ft above sea level. The Unita
Formation generally extends from surface to 1,000 feet. The Uinta is primarily
sandstone and siltstone of no known economic interest while the Green River
Formation lies below the Uinta. It contains the prospectively valuable oil shale
and sodium minerals mostly at depths of 1,000 to 3,000 feet. The saline zone of
the Green River Formation contains abundant quantities of the sodium minerals
nahcolite, halite and dawsonite. The saline zone contains the largest known
deposit of nahcolite in the world. A thick sequence of sedimentary rocks occurs
beneath the Green River Formation. These rocks are prospectively valuable for
oil, gas and coal, mostly at depths exceeding 3,000 feet. The sodium minerals
leases restrict the owners to recovery of sodium minerals.
We have performed surface geological investigation of the 1,320 acre
Rock School Lease and we have 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 our 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.
We completed a core drilling and evaluation project in 1996. This
demonstrated the lateral continuity of this deposit beneath much of the Rock
School Lease and (based on our preliminary review and the continuing production
at WRNM) beneath the WRNM 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 and the WRNM lease. We conducted the core drilling project 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. We 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.
Consequently, we believe the nahcolite deposit within the Rock School
Lease and (based on our pre-due diligence analysis) under the WRNM lease is of
significant size. When combined with the Rock School Lease, the total lease area
will be 9,543 acres. 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.
Our activities in pursuing our operations on the Rock School Lease are
set out more fully below. (See "Exploration and Development Work To Date.")
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The Sodium Bicarbonate Market.
In 1998, we 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. A few suppliers producing synthetic sodium bicarbonate from soda ash
(sodium carbonate) dominate this market. They sell their product under
well-established brand names. Based on publicly available information, we
believe 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, we plan initially to supply the animal feed market. Small amounts
of sodium bicarbonate in feed rations re-establish normal rumen balance in dairy
cattle, thereby controlling acidosis 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 securing long-term supplies of animal feed grade sodium
bicarbonate. We have 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 us. If the distributors
choose to take production from us when it is available, they will have exclusive
arrangements with us to supply the animal feed market. The distributors will
also have the opportunity to acquire sodium bicarbonate from us at a wholesale
price. The contracts become effective only when the buyers place their first
order after we commence production. Although we originally anticipated that we
would commence production for these distributors at the Rock School Lease, they
have expressed their willingness to accept production from WRNM if we acquire
that plant. At this time, we cannot reliably estimate when we will have product
for sale. We have 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. We anticipate that any production from the Rock School
Lease or from WRNM 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 at either the
Rock School project (should we build a plant) or through WRNM (should we
complete the purchase), we 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 to a synthetic alternative. If our plans prove to
be accurate, our production costs should allow us to have a significant cost
advantage in the animal feed market.
In addition to the adjacent property owned by WRNM, American Soda,
L.L.P. (formerly NaTrona Resources, Inc.) owns another lease in the Piceance
Creek Basin that was issued January 1, 1992. Although
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the sodium resource in the Piceance Creek Basin is believed to be of substantial
size, the AmerAlia, WRNM 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. As we have discussed above, we
are pursuing the acquisition of WRNM and have submitted an offer to IMC Global,
which has led to further discussions with IMC Global's senior management.
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 BLM renewed the lease, effective July
1, 1991, for a period of ten years. We renewed this lease again in June 2001.
We purchased the Rock School Lease from Kinder on December 10, 1992. We
amended the acquisition terms in January 1996. We have 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 2010. As leaseholder, we have a preferential right to
renew the lease, but this right is subject to numerous requirements. The most
significant requires that we produce sodium bicarbonate from the lease "in
paying quantities" before the expiration of the current term. 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. We believe that we will be able to renew the Rock School Lease
in perpetuity if we conduct operations on the lease and comply with the terms
and conditions of the lease.
We pay rent to the BLM annually in advance at the rate of $1 per acre.
If we succeed in our business plan and produces sodium bicarbonate from the Rock
School Lease, we will have to pay the BLM a 5% production royalty. Although we
have not seen the terms of the WRNM lease, we believe that we would have a
similar production royalty obligation if we are successful in acquiring WRNM.
Exploration and Development Work To Date. When we 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, 2001,
o We have invested a further $3,067,432 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.
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o We have also capitalised additional expenditures of $8,057,108
paid to US Filter and others through June 30, 2001 to design
the operating facility and to commence off-site fabrication of
certain components for the plant.
In addition to these expenditures, we have incurred additional direct
expenditures negotiating with and meeting prospective joint venture partners,
investors, financiers, customers and construction contractors. We have
considered these costs to be expenses for the purposes of our financial
statements.
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 our proposed solution mining method and has
approved a 50,000 tons per year initial mining operation. The BLM asked us to
drill a core hole on the Rock School Lease and obtain site-specific underground
data prior to the commencement of operations.
As discussed above, we 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. We 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
when we are able to secure adequate financing.
The BLM also approved on December 1, 1999 our request to install
ground-water 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 we submitted to the BLM
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. We anticipate producing nahcolite from a 500 foot thick zone at a
depth of 2,000 feet to 2,500 feet. Through a solution mining technique, 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.
On May 25, 2001 we announced that we executed a non-binding statement
of terms with a major, international financial institution to provide credit
support for a $32 million loan facility. If the loan facility is finalized, it
will be used principally to reimburse US Filter upon completing a 75,000 tons
per year sodium bicarbonate solution mine and plant to be built on the Rock
School Lease. The proposed loan is for ten years
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with interest based on LIBOR plus loan provision fees. In addition, a deferred
fee will be payable to the loan facility provider. The proposed financing was
subject to our meeting certain conditions by June 30, 2001, including providing
satisfaction that additional equity will be committed to the project and
reaching further agreement with US Filter. We did not meet those conditions, but
we have been in further discussions with the proposed lender. The proposed
lender has supported us in our efforts to acquire WRNM.
Our preference is to purchase WRNM enabling us to secure an immediate
income stream, eliminate a competitor and secure a large increase in the
ownership of large scale nahcolite reserves. Our primary plan is to acquire
WRNM, refurbish it, and then expand the plant by utilizing the equipment and
engineering already undertaken on the Rock School Lease project.
Consequently, our plans to build our facility on the Rock School Lease
have been deferred. Whilst we envisage that US Filter would still build our
planned facility on the WRNM property and we already have completed project
equipment currently in storage, this will require a renegotiation of our current
contract with US Filter. US Filter has the right to terminate the existing
contract and if it did, then we would be liable for breakage fees and other
costs, which could be substantial.
If we are not able to obtain outside financing for the project, or if
we are unable to obtain all necessary permits, we 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. Were we to acquire WRNM, we believe
that we have all-weather access to its property.
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.
AmerAlia also leases a 1000 square-foot office in Rifle, Colorado, from
an unaffiliated landlord for $2,200 per month.
ITEM 3. LEGAL PROCEEDINGS
AmerAlia v. Marvin Hudson
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 Marvin H. Hudson, a former officer
and employee, AmerAlia alleged:
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o that an employment contract that Mr. Hudson alleged AmerAlia entered
into with him were forgeries or procured by fraud or duress and,
therefore, not enforceable (the "Fraudulent Employment Contracts"); and
o that Mr. Hudson had converted to his own use funds, documents, personal
property, and equipment belonging to AmerAlia ("Conversion").
In the State Action, AmerAlia 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 alleged against AmerAlia:
o "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;
o damages for alleged "Willful and Wanton Breach of Contract" and
"Wrongful Termination"; and
o alleged violation of the Colorado Wage Claim Act (Section 8-4-101 et
seq.) and common law fraud.
Mr. Hudson also named Gunn, van Mourik and Summerson individually and
as officers and directors of AmerAlia although only AmerAlia and Mr. Gunn were
served and are involved in this action. AmerAlia and Mr. Gunn have replied to
Mr. Hudson's counterclaims denying all of Mr. Hudson's material allegations.
This case has been set for a five day jury trial to begin April 30,
2002. Discovery is currently in process. Consequently, although AmerAlia
believes it has meritorious claims against Mr. Hudson, it is premature to
predict the possible outcome to this matter.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
AmerAlia held an annual meeting of its shareholders on June 21, 2001.
Messrs. Gunn, Woolard, van Mourik, Summerson, Cameron, Stern and Murphy were
elected to the Board of Directors. Votes were cast for the directors as follows:
<Table>
<Caption>
Votes For Abstain
------------ ------------
Bill H. Gunn 8,337,455 504,081
John F. Woolard 8,608,755 232,781
Robert C. J. van Mourik 8,161,694 679,842
Neil E. Summerson 8,133,255 708,281
Robert A. Cameron 8,144,694 696,842
Samuel A. Stern 8,144,755 696,781
Geoffrey C. Murphy 8,366,805 474,731
</Table>
On August 7, 2001 Mr. Stern resigned as one of our directors. We have
not selected a replacement for Mr. Stern. In addition, the shareholders voted:
<Table>
<Caption>
Proposal For Against Withheld
-------- ------------ ------------ ------------
To approve the adoption of the AmerAlia, Inc. 2001 Directors'
Incentive Plan 8,002,692 713,498 121,346
To approve the grant of options to directors and management 7,996,752 723,398 121,406
To approve the adoption of the AmerAlia, Inc. 2001 Stock
Option Plan 8,354,942 372,116 114,478
</Table>
For further discussion on the matters voted upon see Item 11 -
"Executive Compensation".
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PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION.
Since August 1987, our Common Stock has been publicly traded under the
symbol "AALA" on the Nasdaq SmallCap Market, operated by the National
Association of Securities Dealers, Inc. The average closing 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
--------------------- ----------
September 30, 1999 $3.00
December 31, 1999 $2.86
March 31, 2000 $2.91
June 30, 2000 $2.14
September 30, 2000 $1.17
December 31, 2000 $0.75
March 31, 2001 $1.05
June 30, 2001 $1.43
</Table>
(b) HOLDERS.
(b)(1) The number of record holders of our Common Stock on June 30,
2001 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.
RECENT SALES OF UNREGISTERED SECURITIES.
o In October 2000, a stock bonus of 16,000 shares was granted to
Mr. Roger Day, an officer of AmerAlia. A further 22,291 shares
were issued in settlement of fees payable to a financial
advisory firm.
o In October 2000, holders of 2,904 shares of Series E Preferred
stock exercised their rights to convert their preferred shares
into 2,904,000 shares of Common Stock.
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o In January 2001, we issued 30,000 shares of restricted Common
Stock to an accredited investor as a loan fee.
o In February 2001, we issued 16,420 shares of restricted Common
Stock in settlement of fees payable - See Item 11 - "Executive
Compensation".
o In June 2001, we issued 63,566 shares of restricted Common
stock in settlement of fees payable.
o In June 2001, we issued 75,000 shares and 50,000 options to
three accredited investors for an investment of $75,000. No
underwriter or finder participated in the offering of these
shares. We made the offering under the exemptions from
registration under sections 4(2) and 4(6) of the Securities
Act of 1933, and Rule 506 of Regulation D.
o In July 2001, we issued 75,000 shares of restricted Common
Stock to an accredited investor for an investment of $75,000.
We paid a finder's fee of $3,750. We made the offering under
the exemptions from registration under sections 4(2) and 4(6)
of the Securities Act of 1933, and Rule 506 of Regulation D.
o During the fiscal year ended June 30, 2001, dividends
aggregating $74,650 were payable to the holders of the Series
E Preferred Stock. In addition, we had outstanding dividends
payable of $74,650 from the previous year. We paid these
dividends to the holders of the Series E Preferred Stock
through the issuance of 149,300 shares of its restricted
Common Stock. Under the Certificate of Preferences that
established the Series E Preferred Stock, our obligation to
pay dividends ceased on October 31, 2000. By that time, all
but 82 shares of Series E Preferred Stock had converted to
common stock. Those 82 shares are held by a single individual
against whom we filed litigation for other matters as
described in Item 3, above. Although we continue to accrue
dividends for those shares, we have no obligation to pay
dividends, those shares have lost their right to convert into
common stock, and those shares no longer have the right to
vote.
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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.
SELECTED FINANCIAL DATA
Amounts in Thousands of Dollars
(Except Per Share Data)
Year ended June 30
<Table>
<Caption>
2001 2000 1999 1998 1997
------------ ------------ ------------ ------------ ------------
Revenues -- -- -- -- --
Net Loss (2,424) (2,234) (1,902) (550) (769)
Loss per Share (.22) (.27) (.31) (.13) (.26)
Total Assets 13,804 11,092 5,836 3,500 3,008
Total Current
Assets 489 93 1,378 725 12
Total Current
Liabilities 12,230 7,479 923 819 650
Long Term Debt -- -- -- -- 4
Shareholders'
Equity 1,574 3,613 4,913 2,681 2,354
Weighted Average
No. of Shares 10,892 8,270 6,230 4,313 3,014
</Table>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
JUNE 30, 2001 AS COMPARED TO JUNE 30, 2000:
During the year ended June 30, 2001, we incurred further significant
working capital shortages, principally through raising additional debt while
raising only a small amount of new equity through sales of our capital stock to
accredited investors. We:
o raised $75,000 through the sale of Common Stock to accredited
investors;
o borrowed $500,000 from Harris Bank, N.A. in June 2001; and
o borrowed $4.222 million from Bank of America, N.A. in
increments through March 2001.
Our principal shareholder guarantees these loans from the Bank of
America for a fee payable in restricted shares as explained at Item 13(a)
Certain Relationships and Related Party Transactions under "Guaranty Agreement -
Mars Trust". The number of shares of restricted Common Stock to be issued to pay
the fee is based upon future market prices of our Common Stock. Therefore, our
obligation to pay the guarantee fee is recorded as a current liability in our
financial statements until the shares are issued. The liability for this fee was
$1,350,000 at June 30, 2001, and the aggregate liability to the Bank of America
was $8,9521,583. In conjunction with the renegotiation of the guaranty fee, the
term of this aggregated loan was extended to December 1, 2001.
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We entered into a similar arrangement to secure a loan from the Harris
Bank for $500,000. This guaranty fee is also discussed at Item 13(a) Certain
Relationships and Related Party Transactions under "Guaranty Agreement - Messrs.
C. O'Kieffe & R. Woolard". We are obligated to pay a fee of $65,000 to these
persons in shares of restricted Common Stock based upon future market prices of
AmerAlia's Common Stock. This loan is due June 19, 2002.
These additional borrowings, increases in guaranty fees and the accrual
of unpaid compensation and directors' fees have funded our operating loss for
the year, our continuing investment in our project's development and reductions
in accounts payable and other current liabilities. In addition, we issued shares
to satisfy $152,400 of expenses and outlays at an average price of $1.15 per
share.
<Table>
We mainly applied these funds to:
Operating loss for year $2,424,134
Plant construction in progress 985,466
Lease development &exploration expenditures 745,165
Net reduction in accounts & royalties payable 282,604
Deferred financing costs 256,365
Prepaid expenses 218,515
Deposits, bonds & restricted cash 157,863
Repayment of bank overdraft 38,356
Reduction in interest payable 37,645
Purchase of office equipment 15,071
----------
$5,161,184
</Table>
In summary, total assets increased during the year to $13,803,631
(2000: $11,092,021; 1999: $5,836,061) and stockholders' equity decreased to
$1,573,866 (2000: $3,613,247; 1999: $4,912,533).
We have been able to finance our activities through short-term
borrowings and only a small amount of equity investment. This situation has
aggravated our working capital shortage and imposed high interest payments while
allowing us to meet some of our more pressing current financial needs and
continue our investment in our Rock School Lease Project. Consequently, our
working capital deficit still exceeded $11,740,000 at June 30, 2001. Our ability
to ensure our long-term survival as a going concern continues to be dependent
upon our generating revenues from the production and sale of sodium bicarbonate.
This has been our business plan for several years. In order to accomplish this
plan, we must either:
o Secure funding of up to $50 million to construct our proposed plant to
produce sodium bicarbonate from our Rock School Lease, or
o Conclude negotiations with IMC Global for an agreement to acquire WRNM,
and to obtain the debt and equity funding necessary to complete that
agreement.
We have been attempting to pursue the first aspect of this business
plan for a significant period of time. Construction of our Rock School Project
will not provide any revenues in the near term; we estimate that if everything
is completed successfully, our revenue stream would not commence for 18 or more
months from the time we commence construction. Although our revenue stream would
be generated in a shorter period of time should we acquire WRNM, both cases
require a number of conditions precedent for their success, including
appropriate agreements and a significant amount of necessary financing.
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As WRNM is already in production it is generating operating revenues
and is profitable. We have been engaged in preliminary discussions with our
prospective lender about this possible acquisition and we are ready to undertake
further due diligence investigations. We are also preparing offering documents
to raise equity capital from a limited number of sophisticated or accredited
investors. If we can undertake this transaction the guaranty fees will be
converted into equity in accordance with our guaranty fee agreements. This will
add $1,415,000 to shareholders funds so ensuring continued compliance with
Nasdaq's minimum equity requirement for listing on the Nasdaq SmallCap Market.
If we can complete this transaction, we expect that the level of operating
revenues we can gain through this acquisition and the additional equity we raise
to complete it will ensure a significant improvement in our liquidity and
capital reserves. We are negotiating with prospective investors and financiers
to achieve this financing objective as we await a definitive agreement with IMC
Global and further due diligence investigation.
We reached an agreement with US Filter to provide construction
financing for the development of the Rock School Lease, but US Filter's
agreement is subject to numerous conditions and, to date, US Filter has not
advanced any funds under that agreement. While we have sought the WRNM
acquisition, our plans to build our facility on the Rock School Lease have been
deferred. Whilst we envisage that US Filter would still build our planned
facility on the WRNM property and we already have completed project equipment
currently in storage, this will require a renegotiation of our current contract
with US Filter. US Filter has the right to terminate the existing contract and
if it did, then we would be liable for breakage fees and other costs, which
could be substantial.
Until we receive long-term funding to develop the Rock School Lease
project and/or acquire WRNM, 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.
RESULTS OF OPERATIONS
JUNE 30, 2001 AS COMPARED TO JUNE 30, 2000:
Since we do not receive revenues from operations, any income we receive
is generally derived from interest earned on funds on deposit resulting from
stock subscriptions. Interest income in 2001 was approximately $13,300 compared
with nearly $40,000 in the previous year. General and administrative
expenditures were very similar to last year, 2001: $1,539,607 (2000: $1,523,717
and 1999: $1,910,792). As noted above, we have financed our capital expenditure
program and expenditures using debt finance. Consequently, we have a high level
of interest payments. However, a significant proportion of the debt was used to
fund capital expenditures, hence the interest incurred on that debt has been
capitalised. The remainder of the interest expense this year was $186,000
compared with $357,500 in 2000 and $18,500 in 1999. Depreciation expense is not
significant and comparable to prior years, 2001: $10,882 (2000: $11,225; 1999:
$9,056). While we have invested considerable funds in plant and equipment to be
used in the Rock School Lease Project, those items will not be depreciated until
the plant is operational.
A significant expense this year and last year has been other financing
costs 2001: $700,791 (2000: $435,502; 1999: Nil). This expense is attributable
to the amortization of loan guarantee fees discussed above. These loan guarantee
fees are amortized over the term of the debt derived as a result of the
guaranty. As the guarantee fees will be met through the issue of shares this
substantial expense item remains a non-cash expense. During the year, we met
$152,400 of expenses and outlays through the issuance of shares at an average
price of $1.15 per share.
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It is likely that we will continue to recognize significant operating
losses and negative cash flow until after our 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 we will ever achieve profitable operations or a
positive cash flow. Until we achieve our objective of establishing or acquiring
a plant for the recovery and production of sodium bicarbonate, we will not be
able to generate operating revenues. Whilst we are progressing negotiations for
the acquisition of WRNM with various accredited investors and with our
prospective lenders, we have not reached any definitive agreements to enable us
to build the proposed facilities. We estimate approximately $50 million or more
will be required to fund the development of our plans for the Rock School Lease
and associated working capital requirements until profitable operations are
established. There is no assurance we can obtain this financing and, in the
meantime, we must fund our operating losses from our own resources as discussed
above. Moreover, under our Design/Build agreement with US Filter we are subject
to potentially substantial liquidated damages if we cannot secure suitable
long-term financing.
Impact of Inflation
We believe our activities are not materially affected by inflation.
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.
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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
---------- -------- ---------
Bill H. Gunn Chairman of the Board, 02/84
Age 59 President, & Chief
Executive Officer
Robert van Mourik Director, 09/90
Age 48 Executive Vice President 01/89
Chief Financial Officer,
Secretary & Treasurer
Neil E. Summerson Director 09/90
Age 53(1,2)
Robert A. Cameron Director 09/90
Age 63(2)
John F. Woolard Director, 10/98
Age 61 Executive Vice President 06/98
Geoffrey C. Murphy Director 06/99
Age 60(1,2)
Samuel A. Stern Director 11/00
Age 71 (Resigned August 7, 2001)
Roger Day Vice President of Operations 02/99
Age 51
</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
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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.
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 was elected a director in September 1990.
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.
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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
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, since September 1, 2001 is the Senior Vice President of
Citrico Holdings, Inc. Previously, he was, for more than the past five years, 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.
SAMUEL A. STERN
Mr. Stern is a founding partner in the Washington, D.C. firm of Hills
and Stern and serves as an attorney and advisor for a number of domestic and
international clients. He was a partner in Wilmer Cutler Pickering in
Washington, D.C. from 1962 to 1988 and maintained an office there from 1997 to
1999. He was also, until December 1999, General Counsel, Global Energy
Investors, LLC., a developer of power projects. From July 1994 through February
1997 he was of counsel to Rogers & Wells, another international law firm with
offices in Washington, D.C. Mr. Stern is also a director of several
privately-held companies involved in energy production, software and venture
capital financing. He has extensive experience in project financing in the
United States and abroad. He holds degrees in Economics from the University of
Pennsylvania and in law from Harvard. Mr. Stern resigned as a director on August
7, 2001.
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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
President of Natural Soda, Inc., 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);
(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
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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, 2000 through June 30, 2001, all filing requirements applicable to
officers, directors, and greater-than-10% shareholders were met in accordance
with the requirements of Section 16(a) except that Mr. R. Day's filing on Form 4
reporting his receipt of 16,000 shares in October 2000 was filed in September
2001.
AmerAlia was 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 were 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 our officers during the three fiscal years ended June 30, 2001. Messrs. Gunn,
Woolard, van Mourik and Day were the only executive officers receiving
compensation exceeding $100,000 during fiscal 2001, as shown below. Compensation
to Mr. Gunn is paid to Gunn Development Pty. Ltd., of which Mr. Gunn is a
controlling shareholder. Compensation to Mr. van Mourik is paid to Ahciejay Pty
Ltd, a company in which he has a controlling interest.
We have 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.
We have adopted for our employees a group medical insurance plan that
includes dental coverage. This plan also provides a minimum amount of life
insurance. We have not adopted any other benefit plan for our employees. Prior
to the adoption of that plan, we reimbursed Messrs. Woolard, Gunn, and Day for
certain medical expenses and insurance premiums. We currently have no stock
ownership, other profit-sharing or pension plans, but may adopt such plans in
the future. We have no retirement plans and, therefore, have not made
contributions to any such plan on behalf of the named officers.
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<Table>
<Caption>
Annual Compensation Long Term Compensation
----------------------------------- ----------------------------------
Awards Payout
---------------------- ----------
All
Other
Name and Restricted Options LTIP Comp-
Position Year Salary Bonus Other Awards & SAR's Payout ensation
------------------ ------- -------- ---------- -------------- ----------- --------- ---------- ----------
Bill H. Gunn,
President and 2001 $150,000 -0- $14,000(a) -0- -0- -0- -0-
Chief Executive 2000 $150,000 -0- $14,000(a) -0- -0- -0- -0-
Officer 1999 $125,000 -0- $14,000(a) -0- -0- -0- -0-
John F.
Woolard, 2001 $150,000 -0- $14,000(a,b) -0- -0- -0- -0-
Executive Vice 2000 $150,000 -0- $14,000(a,b) -0- -0- -0- -0-
President 1999 $135,000 -0- $ 9,333(a,b) -0- -0- -0- -0-
Robert
van Mourik, 2001 $133,000 -0- $14,000(a) -0- -0- -0- -0-
Chief Financial 2000 $ 55,000 -0- $14,000(a) -0- -0- -0- -0-
Officer & EVP 1999 $ 55,000 -0- $14,000(a) -0- -0- -0- -0-
Roger L. Day, 2001 $105,000 $20,000 -0- -0- -0- -0- -0-
Vice President 2000 $105,000 -0- -0- -0- -0- -0- -0-
Operations 1999 $ 66,667 -0- -0- -0- -0- -0- -0-
</Table>
----------
Notes: (a) Directors fees
(b) These fees have not been paid but have been accrued
as liabilities.
OPTIONS/SAR GRANTED DURING YEAR ENDED JUNE 30, 2001
In May 2000, as part of an arrangement to compensate directors for
significant services expended on our behalf over an extended period of time, we
granted:
o Mr. Gunn options to purchase 150,000 shares of Common Stock;
o Mr. van Mourik options to purchase 100,000 shares of Common
Stock; and
o Messrs. Cameron and Summerson options to purchase 75,000
shares of Common Stock each.
Our shareholders approved these options in June 2001. These options
expire April 30, 2003. The exercise price was determined based upon the market
price of our shares during August 2000.
In April 2001, the Board of Directors extended this arrangement to
include additional options to other directors including:
o An option to John F. Woolard (who is also an executive vice
president) to purchase 100,000 options at $1.09 per share,
exercisable through March 31, 2003.
o Options expiring April 30, 2005 to purchase 75,000 shares at
$1.09 per share to each of Samuel A. Stern and Geoffrey C.
Murphy, directors at that time who were not executive
officers.
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25
These options can be exercised on December 21, 2001. The exercise price
was in excess of market price at the time granted, and is equal to the price of
the options granted to the other directors. The shareholders approved each of
these grants in June 2001. If a director ceases to be a member of the Board of
Directors, the options expire three months after the holder is no longer a
director. As a result of his resignation in August 2001, the options granted to
Mr. Stern in April 2001 and July 2001 (under the Directors' Incentive Plan,
discussed below) expire on November 7, 2001.
2001 Directors' Incentive Plan: In March 2001, the Board of Directors
adopted a plan by which each director (who is not an employee or officer) is
granted:
o An option to purchase 75,000 shares at a current market price
when such person joins the Board of Directors; and
o An option to purchase 37,500 shares if such director is a
director at July 1 of each year.
The exercise price for these options is the average market price of our
Common Stock during the month of June preceding each grant date, and the options
have a three-year term. All options granted under this plan are exercisable six
months after the date of grant.
Under this plan, we granted 37,500 options (which first become
exercisable after six months) to acquire shares of Common Stock at $1.45 per
share until June 30, 2004 to each of the following the non-executive directors,
on July 1, 2001:
o Geoffrey C. Murphy;
o Samuel A. Stern;
o Neil E. Summerson; and
o Robert A. Cameron,
Samuel A. Stern resigned as a director on August 7, 2001 and,
therefore, his options will expire on November 7, 2001.
2001 Stock Option Plan: In March 2001, the Board of Directors also
adopted a stock option plan for its officers, employees, and consultants. The
Board of Directors (through its compensation committee) can issue options to
acquire up to 1,000,000 shares to officers, employees and consultants to provide
incentives to attract, retain and motivate eligible persons whose present and
potential contributions are important to our success by offering them an
opportunity to participate in our future performance through awards of stock
options. In each case, the Board of Directors (through its compensation
committee) will determine the price at which options may be issued, the term of
the options, and the number of options to be issued. In no case may the exercise
price be less than the market value of the underlying shares at the time of
grant. Our shareholders approved this plan at the annual meeting of shareholders
held in June 2001. At the present time, we have not granted any options under
this plan.
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. We have not adopted any other stock option or stock appreciation
rights plan.
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26
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUE TABLE.
No officer exercised stock options during the fiscal year ended June
30, 2001, 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, 2001. No other Stock
Appreciation Rights have been granted, or are held by, any such person.
<Table>
<Caption>
Value of
# of unexercised in-the-money
options at FY end options at FY end
Shares acquired Value (exercisable/ (exercisable/
Name on exercise realized unexercisable) unexercisable)
---- --------------- -------- ----------------- -----------------
Bill H. Gunn -0- -0- 290,000 76,000
Robert van Mourik -0- -0- 175,000 49,750
John Woolard -0- -0- 250,000 53,500
Roger Day -0- -0- 60,000 3,000
</Table>
<Table>
<Caption>
Value of
# of unexercised in-the-money
SAR's at FY end SAR's at FY end
Shares acquired Value (exercisable/ (exercisable/
Name on exercise realized unexercisable) unexercisable)
---- --------------- -------- ---------------- --------------
Bill H. Gunn -0- -0- 70,000 3,500
</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.
COMPENSATION OF DIRECTORS
STANDARD ARRANGEMENTS.
Our 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, we
paid or accrued liabilities to an affiliate of Robert A. Cameron $382 for
services rendered during the fiscal year ended June 30, 2001, and $25,972 for
the fiscal year ended June 30, 2000. In addition, we paid Coloney Von Soosten +
Associates Inc. a retainer of $2,500 per month for financial and administrative
services. Hours in excess of 15 per month were paid to Coloney Von Soosten +
Associates Inc. at the rate of $200 per hour. This consulting agreement ended in
September 2000. Geoffrey C. Murphy is a principal of Coloney Von Soosten +
Associates Inc., and had
25
27
primary responsibility for the services it provided to us Mr. Murphy became a
director in June 1999 following the annual meeting of shareholders.
For the period November 2, 2000 through August 7, 2001, Samuel A. Stern
was one of our directors. In March 2001, we issued 8,210 shares to Mr. Stern who
provided legal and other services to us in connection with our efforts to
finance our Rock School Project. Mr Stern billed us $8,702.60 for these
services. We also issued 8,210 shares to Mr. Stern's law partner for services he
performed. In addition, the law firm of Hills & Stern has submitted an invoice
to us in the amount of $75,032.50 for services rendered through June 26, 2001.
We are disputing that invoice.
We also reimburse directors for expenses incurred on behalf of AmerAlia
on a fully accountable basis. As described above, the Board of Directors has
adopted a Directors' Incentive Plan to provide additional incentive to the
directors. The shareholders approved this plan in June 2001.
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.
Our only employment contract is with our Vice President, Operations,
Roger Day. In April 1999, effective November 1998, we entered into a five year
employment agreement with Mr. Day who was employed with the title of Vice
President of Operations. As compensation for services rendered under the
employment agreement, Mr. Day receives a salary of $100,000 per annum, plus
bonuses and salary increases as the Board of Directors may determine in its sole
discretion. We 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. In October 2000 AmerAlia granted Mr.
Day a stock bonus of 16,000 shares of Common Stock.
REPORT ON REPRICING OF OPTIONS/SARS.
Not applicable, as no options or SARs were repriced during the fiscal
year ended June 30, 2001.
ADDITIONAL INFORMATION WITH RESPECT TO COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION.
The Board of Directors held eight formal meetings during the fiscal
year ended June 30, 2001. Each director attended all of the formal meetings
either in person or by telephone, except that Mr. Cameron was
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28
unable to attend one meeting. In addition, regular communications were
maintained throughout the year among all our officers and directors. Directors
acted by unanimous consent twice during fiscal 2001. We have standing audit and
compensation committees. We do not have a standing nomination committee.
Audit Committee. The audit committee comprises Messrs. Summerson,
Murphy and Cameron. Each of the members of the audit committee is independent as
that term is defined in Rule 4400(a)(15) of the Nasdaq listing standards. The
committee held two formal meetings during the fiscal year ended June 30, 2001.
The audit committee fulfilled its responsibilities including the following:
o reviewed and discussed the audited financial statements with
management;
o recommended the appointment of independent accountants;
o reviewed the arrangements and standards for and the scope of
the audit by independent accountants;
o reviewed the independence of the independent accountants;
o considered the adequacy of the system of internal accounting
controls and reviewing any proposed corrective actions;
o reviewed and monitoring our policies regarding business ethics
and conflicts of interest;
o reviewed the activities and recommendations of our accounting
department;
o discussed with the independent auditors the matters required
to be discussed by SAS 60 (Codification of Statements on
Auditing Standards, AU section 380), as may be modified or
supplemented; and
o received the written disclosures and the letter from the
independent accountants required by Independence Standards
Board Standard No. 1 (Independence Standards Board Standard
No.1, Independence Discussions with Audit Committees), as may
be modified or supplemented, and discussed with the
independent accountant the accountant's independence.
Based on those disclosures and discussions, the audit committee advised
the board of directors that it was not aware of any relationship between the
independent auditors and AmerAlia that affects the objectivity or independence
of the independent auditors. Based on the discussions and the audit committee
review discussed above, the audit committee recommended to the board of
directors that the audited financial statements for fiscal 2001 be included in
our 2001 annual report on Form 10-K.
Compensation Committee. A compensation committee comprising the
non-executive directors of the Board of Directors was formed early in 1993 and
determined the management fees payable to Messrs. Gunn, van Mourik and Woolard,
as set out below. The compensation committee now comprises Mr. Summerson and Mr
Murphy, neither has been an officer nor an employee of AmerAlia or any of our
subsidiaries during the fiscal year ended June 30, 2001, or subsequently.
Neither Mr. Summerson nor Mr. Murphy has any other direct or indirect
relationship with AmerAlia requiring disclosure by us 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 that
dealt with compensation paid to any member of our compensation committee, or
with which any other interlocking relationship exists.
The compensation committee held four meetings (including two meetings
by phone) during the fiscal year ended June 30, 2001. The compensation committee
has the authority to review and make recommendations to our Board of Directors
with respect to the compensation of our executive officers.
27
29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
At August 30, 2001, we had one class of outstanding voting securities,
our "Common Stock". The following table sets forth information as of August 30,
2001 with respect to the ownership of the Common 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). At August 30, 2001, we had 12,117,276 shares of Common
Stock issued and outstanding. The following shareholders have sole voting and
investment power with respect to the shares unless indicated otherwise.
<Table>
<Caption>
Name & Address Amount & Nature Percent Percent
of of Beneficial of of Voting
Beneficial Owner Ownership Class Securities
---------------- --------------- ------- ----------
Bill H. Gunn 474,060(1) 3.8% 1.0%
Robert van Mourik 320,384(2) 2.6% 1.2%
John F. Woolard 277,500(3) 2.2% 0.2%
Geoffrey C. Murphy 152,500(4) 1.2% 0.3%
Neil E. Summerson 187,500(5) 1.5% nil
Robert A. Cameron 187,500(6) 1.5% nil
Roger Day 76,000(7) 0.6% 0.1%
OFFICERS & DIRECTORS
AS A GROUP (8 PERSONS) 1,675,444(8) 12.5% 2.8%
Jacqueline Badger Mars 5,397,460(9) 44.5% 44.5%
at the Jacqueline
Badger Mars Trust dated
Feb. 5, 1975 as amended
6885 Elm St., McLean, VA 22101
Charles D. O'Kieffe 736,810(10) 6.1% 5.9%
523 Washington Ave.,
Wilmette, IL 60091
</Table>
----------
(1) Mr. Gunn: Includes 87,935 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); options to
acquire 140,000 shares of Common Stock at $1.50 per share until June
28, 2006; and options to acquire 150,000 shares of Common Stock at
$1.09 per share until April 30, 2005. Mr. Gunn has pledged 107,310
shares to another stockholder as security for a loan. Does not include
70,000 Stock Appreciation Rights issued at $1.50 per share expiring
June 28, 2006.
28
30
(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 and options to acquire 100,000 shares of Common Stock at
$1.09 per share expiring April 30, 2005.
(3) Mr. Woolard: Includes 27,500 shares of Common Stock, options to acquire
100,000 shares of Common stock at $1.09 per share exercisable through
March 31, 2003, 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. Also includes
options to acquire 75,000 shares at $1.09 per share expiring April 30,
2005 and options to acquire 37,500 shares at $1.45 expiring June 30,
2005.
(5) Mr. Summerson: Represents options to acquire 75,000 shares of common
stock for $1.50 per share expiring June 28, 2006; options to acquire
75,000 shares of Common Stock at $1.09 per share expiring April 30,
2005 and options to acquire 37,500 shares at $1.45 expiring June 30,
2005. The options are held by Glendower Investments Pty. Ltd. as
trustee for a trust of which Mr. Summerson and his family are
beneficiaries.
(6) Mr. Cameron: Represents options to acquire 75,000 shares of Common
Stock at $1.50 per share expiring on June 28, 2006; options to acquire
75,000 shares of Common Stock at $1.09 per share expiring April 30,
2005 and options to acquire 37,500 shares at $1.45 expiring June 30,
2005. The options are held by Jacinth Pty. Ltd., a company in which Mr.
Cameron is a controlling shareholder.
(7) Mr. Day: Represents 16,000 shares and options to purchase 60,000 shares
of Common Stock at $1.50 per share until December 31, 2003.
(8) All officers and directors: Includes beneficial ownership of Messrs.
Gunn, van Mourik, Woolard, Murphy, Summerson, Cameron, and Day as
described in notes 1, 2, 3, 4, 5, 6, and 7, above. Does not include
options held by Mr. Day to acquire 40,000 shares of Common Stock at
$1.50 per share, which vest through December 31, 2003.
(9) Mars Trust: Includes 5,397,460 shares of Common Stock. See "Certain
Relationships and Related Party Transactions", below.
(10) Mr. O'Kieffe: Includes 604,500 shares of common stock owned by Mr.
O'Kieffe and 107,310 shares pledged by Mr. Gunn as security for a loan.
Also includes options to acquire 25,000 at $1.09 expiring April 30,
2005.
This table does not include the possible effect of issuance of up to
140,000 shares of Common Stock pursuant to the exercise of options at $1.50 per
share until June 28, 2006 and 25,000 options to acquire shares of Common Stock
at $1.09 expiring April 30, 2005, held by persons who are neither officers,
directors, nor significant shareholders of AmerAlia.
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31
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.
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, 2000 and 2001, certain related parties advanced loans to us as detailed in
the Notes to the Financial Statements. This comprised advances to us, as well as
accrued but unpaid compensation and directors fees. The following summarises our
liabilities to related parties:
<Table>
<Caption>
June 30, June 30,
Related Party 2001 2000
------------ ------------
Ahciejay Pty. Ltd. (an affiliate of Robert van Mourik) $ 82,380 $ 51,700
Jacinth Pty. Ltd. (an affiliate of Robert A. Cameron) 29,117 28,729
John F. Woolard 20,071 23,333
Geoffrey C. Murphy 28,000 14,000
Samuel A. Stern 9,380 --
Neil E. Summerson 19,000 14,000
------------ ------------
Total: $ 187,948 $ 131,762
------------ ------------
</Table>
In addition, at June 30, 2000 AmerAlia owed John F. Woolard $50,818 for
reimbursement of expenses paid on behalf of AmerAlia. This liability was
extinguished in July 2000.
Corporate Loans - Loans from AmerAlia. As detailed in Note 2 to the
Financial Statements, we advanced funds to Gunn Development Pty. Ltd., an
associate of Mr. Gunn. The following summarizes these advances during the fiscal
years ended June 30, 2000 and 2001:
<Table>
Balance due from Gunn Development Pty Ltd 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
------------
Advances to Gunn Development during year: 11,649
Repayments received during year: 14,000
Net interest accrued: Nil
------------
Balance due from Gunn Development at June 30, 2001: $ 54,720
------------
</Table>
Compensation Arrangements. We entered into an employment agreement with
Roger Day, our Vice President of Operations, in November 1998, as described
above under "Executive Compensation - Employment contracts, Termination of
Employment and Change-In-Control Arrangements". The Board of
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32
Directors approved this agreement in April 1999. Mr. Day is also President of
Natural Soda, Inc., our wholly owned subsidiary.
For the period November 2, 2000 through August 7, 2001, Samuel A. Stern
was one of our directors. In March 2001, we issued 8,210 shares to Mr. Stern who
provided legal and other services to us in connection with our efforts to
finance our Rock School Project. Mr. Stern billed us $8,702.60 for these
services. We also issued 8,210 shares to Mr. Stern's law partner for services he
performed. In addition, Mr. Stern's law firm, Hills & Stern, has submitted an
invoice to us in the amount of $75,032.50 for services rendered through June 26,
2001, which we are disputing.
Our directors and our other officers are compensated as described above
under "Executive Compensation - Compensation of Directors."
Guaranty Agreement - Mars Trust. We 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. We 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, we 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.
On December 1, 2000 we renegotiated the Mars Trust Guaranty in order to
borrow a further $1.6 million from the Bank of America and to extend the
maturity date for the combined loans to December 1, 2001. The total guaranty fee
has now increased to $1,350,000 and will be met through the issue of a number of
shares to be determined by future events. The fee is not payable until after we
announce that we have secured permanent financing or a strategic alliance for
the development of the Rock School Project. AmerAlia agreed that if, during the
term of the Guaranty, it appeared that arrangements for the development of the
Rock School Project are not reasonably forthcoming, the Board will determine
whether other actions may be in the best interests of AmerAlia stakeholders. We
granted the Trust security over our entire interest in Natural Soda, Inc., a
wholly owned subsidiary formed to acquire our entire interest in the Rock School
Project and the Rock School Lease, as collateral for the repayment of the entire
loan and the Trust's liability under this Guaranty.
Guaranty Agreement - Messrs. C. O'Kieffe & R. Woolard. We entered into
an agreement with a five percent shareholder, Mr. Charles O'Kieffe and another
shareholder, Mr. Robert C. Woolard, on June 6, 2001 for the purpose of
establishing a loan with Harris Bank for $500,000 until June 19, 2002. We will
satisfy the guaranty fee of $65,000 through the issuance of a number of shares
to be determined by future events.
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, 2001,
dividends aggregating $74,650 became payable to the holders of the Series E
Preferred Stock. We have since paid these dividends to the holders of the Series
E Preferred Stock through the issuance of 74,650 shares of our restricted Common
Stock.
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33
Provision has been made for undeclared and unpaid dividends on the remaining
shares of Series E Preferred Stock of $6,304 as at June 30, 2001.
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.
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34
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:
<Table>
<Caption>
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
10.13(i) Second Amended and Restated Guaranty Agreement with the Jacqueline
Badger Mars Trust
10.14(c) AmerAlia, Inc. 2001 Directors' Incentive Plan
10.15(c) AmerAlia, Inc. 2001 Stock Option Plan
21.1 Subsidiaries of the Registrant: Natural Soda, Inc., a Colorado
corporation.
</Table>
(a) Incorporated by reference from AmerAlia's Form 10 General Registration
Statement filed with the Commission on March 5, 1987.
(b) Incorporated by reference from AmerAlia's annual report on Form 10-K
for the year ended June 30, 2000..
33
35
(c) Filed herewith.
(d) Not included.
(e) Incorporated by reference from AmerAlia's Form 10-K for its year ended
June 30, 1993.
(f) Incorporated by reference from AmerAlia's Form 10-K for its year ended
June 30, 1995.
(g) Incorporated by reference from AmerAlia's Form 10-K for its year ended
June 30, 1999.
(b) REPORTS ON FORM 8-K
In November 2000, AmerAlia filed a current report on Form 8-K reporting
the appointment of Mr. Samuel A. Stern as a director. As stated previously, Mr.
Stern resigned from his position of director on August 7, 2001. In June 2001,
AmerAlia filed a current report on Form 8-K reporting the results of its
shareholders meeting held in June 2001.
(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.
34
36
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 28, 2001
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.
<Table>
/s/ Bill H. Gunn Principal Executive Date: 9/28/2001
--------------------------- Officer and Director ---------
Bill H. Gunn
/s/ Robert van Mourik Secretary, Treasurer Date: 9/28/2001
--------------------------- Principal Financial ---------
Robert C. J. van Mourik and Accounting Officer,
and Director
/s/ John F. Woolard Director Date: 9/28/2001
------------------------- ---------
John F. Woolard
/s/ Robert A. Cameron Director Date: 9/28/2001
--------------------------- ----------
Robert A. Cameron
/s/ Neil E. Summerson Director Date: 9/28/2001
--------------------------- ----------
Neil E. Summerson
/s/ Geoffrey C. Murphy Director Date: 9/28/2001
--------------------------- ---------
Geoffrey C. Murphy
</Table>
35
37
AMERALIA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
38
CONTENTS
<Table>
Independent Auditors' Report.................................................................................... 3
Consolidated Balance Sheets..................................................................................... 4
Consolidated Statements of Operations........................................................................... 6
Consolidated Statements of Stockholders' Equity................................................................. 7
Consolidated Statements of Cash Flows.......................................................................... 15
Notes to the Consolidated Financial Statements................................................................. 17
</Table>
39
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders of
AmerAlia, Inc. and Subsidiary
(A Development Stage Company)
Rifle, Colorado
We have audited the accompanying consolidated balance sheets of AmerAlia, Inc.
and Subsidiary (a development stage company) as of June 30, 2001 and 2000, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the years ended June 30, 2001, 2000 and 1999 and from the beginning of
the development stage on July 1, 1992 through June 30, 2001. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AmerAlia, Inc. and
Subsidiary (a development stage company) as of June 30, 2001 and 2000, and the
consolidated results of their operations and their cash flows for the years
ended June 30, 2001, 2000 and 1999 and from the beginning of the development
stage on July 1, 1992 through June 30, 2001 in conformity with accounting
principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 13 to
the consolidated 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
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
HJ & Associates, LLC
Salt Lake City, Utah
September 20, 2001
3
40
AMERALIA, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
<Table>
<Caption>
June 30,
----------------------------------------
2001 2000
--------------- ---------------
CURRENT ASSETS
Cash (Note 1) $ 143,215 $ 4,980
Restricted cash (Note 1) 42,863 --
Related party receivables (Note 2) 54,720 57,071
Prepaid expenses 248,667 30,152
--------------- ---------------
Total Current Assets 489,465 92,203
--------------- ---------------
FIXED ASSETS, net (Notes 1 and 4) 28,712 24,524
--------------- ---------------
OTHER ASSETS
Lease acquisition, exploration and development
costs (Notes 3 and 10) 4,310,432 3,565,267
Plant construction in progress (Note 3) 8,057,108 6,994,642
Deferred financing costs (Note 1) 414,678 247,523
Loan guarantee fees, net (Note 1) 368,707 144,497
Note receivable - related party (Note 2) 15,000 20,000
Interest receivable 3,879 2,713
Deposits and bonds 115,650 650
--------------- ---------------
Total Other Assets 13,285,454 10,975,292
--------------- ---------------
TOTAL ASSETS $ 13,803,631 $ 11,092,019
=============== ===============
</Table>
The accompanying notes are an integral part of these
consolidated financial statements.
4
41
AMERALIA, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<Table>
<Caption>
June 30,
-----------------------------------------
2001 2000
--------------- ---------------
CURRENT LIABILITIES
Accounts payable $ 370,208 $ 727,812
Royalties payable (Note 9) 429,167 354,167
Bank overdraft -- 38,356
Guarantee fees payable (Note 11) 1,415,000 520,000
Accrued expenses (Note 11) 28,689 91,862
Due to related parties (Note 5) 187,948 131,762
Notes payable (Note 6) 9,725,583 5,504,000
Interest payable 73,170 110,815
--------------- ---------------
Total Current Liabilities 12,229,765 7,478,774
--------------- ---------------
COMMITMENTS AND CONTINGENCIES (Note 9) -- --
--------------- ---------------
STOCKHOLDERS' EQUITY
Preferred stock, $0.05 par value; 1,000,000 authorized;
82 and 2,986 issued and outstanding, respectively 4 149
Common stock, $0.01 par value; 100,000,000 shares
authorized; 12,042,276 and 8,765,699 issued and
outstanding, respectively 120,423 87,657
Additional paid-in capital 19,424,422 19,068,338
Prepaid construction costs (Note 3) (1,223,000) (1,300,000)
Accumulated deficit (16,747,983) (14,242,899)
--------------- ---------------
Total Stockholders' Equity 1,573,866 3,613,245
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,803,631 $ 11,092,019
=============== ===============
</Table>
The accompanying notes are an integral part of these
consolidated financial statements.
5
42
AMERALIA, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Operations
<Table>
<Caption>
From the
Beginning
of Development
Stage on
For the Years Ended June 30, July 1, 1992 to
--------------------------------------------------------- June 30,
2001 2000 1999 2001
--------------- --------------- --------------- ---------------
REVENUES $ -- $ -- $ -- $ --
EXPENSES
General and administrative 1,539,607 1,523,717 1,910,792 9,129,436
Depreciation and amortization 10,883 11,225 9,056 92,078
--------------- --------------- --------------- ---------------
Total Expenses 1,550,490 1,534,942 1,919,848 9,221,514
--------------- --------------- --------------- ---------------
LOSS FROM OPERATIONS (1,550,490) (1,534,942) (1,919,848) (9,221,514)
--------------- --------------- --------------- ---------------
OTHER INCOME (EXPENSE)
Other income -- -- -- 29
Investment income -- -- -- 89,760
Interest expense (186,187) (357,535) (18,519) (1,180,770)
Other financing costs (700,791) (435,502) -- (1,136,293)
Interest income 13,334 39,891 36,752 332,741
Gain on settlement of debt -- 53,800 -- 53,800
Foreign currency gain (loss) -- -- 14 (63,572)
--------------- --------------- --------------- ---------------
Total Other Income (Expense) (873,644) (699,346) 18,247 (1,904,305)
--------------- --------------- --------------- ---------------
NET LOSS BEFORE INCOME TAX
EXPENSE (2,424,134) (2,234,288) (1,901,601) (11,125,819)
Income tax expense -- -- -- --
--------------- --------------- --------------- ---------------
NET LOSS $ (2,424,134) $ (2,234,288) $ (1,901,601) $ (11,125,819)
=============== =============== =============== ===============
BASIC NET LOSS PER SHARE $ (0.22) $ (0.27) $ (0.31)
=============== =============== ===============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 10,892,214 8,269,928 6,229,634
=============== =============== ===============
</Table>
The accompanying notes are an integral part of these
consolidated financial statements.
6
43
AMERALIA, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
<Table>
<Caption>
Preferred Stock Common Stock
--------------------------- ---------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
Balance at July 1, 1992
(beginning of development stage) -- $ -- 1,803,627 $ 18,036
Shares issued for cash at $2.99
per share -- -- 421,250 4,213
Shares issued for payment
of obligations at $2.05 per share -- -- 7,312 73
Change in cumulative
adjustment account -- -- -- --
Net loss for the year ended
June 30, 1992 -- -- -- --
------------ ------------ ------------ ------------
Balance at June 30, 1992 -- -- 2,232,189 22,322
Issuance of Series A preferred
stock for cash at $1.50 per share 666,666 33,333 -- --
Issuance of fractional shares
on reverse split -- -- 67 --
Shares issued in acquisition
of Rock School lease at $3.00
per share -- -- 50,000 500
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
------------ ------------ ------------ ------------
<Caption>
Additional Other
Paid-in Subscription Accumulated Comprehensive
Capital Receivable Deficit Income
------------ ------------ ------------ -------------
Balance at July 1, 1992
(beginning of development stage) $ 4,449,738 $ -- $ (3,797,189) $ 22,211
Shares issued for cash at $2.99
per share 1,255,787 -- -- --
Shares issued for payment
of obligations at $2.05 per share 14,927 -- -- --
Change in cumulative
adjustment account -- -- -- 147,000
Net loss for the year ended
June 30, 1992 -- -- (392,712) --
------------ ------------ ------------ ------------
Balance at June 30, 1992 5,720,452 -- (4,189,901) 169,211
Issuance of Series A preferred
stock for cash at $1.50 per share 966,667 -- -- --
Issuance of fractional shares
on reverse split -- -- -- --
Shares issued in acquisition
of Rock School lease at $3.00
per share 149,500 -- -- --
Change in cumulative
adjustment account -- -- -- (3,000)
Net loss for the year ended
June 30, 1993 -- -- (524,482) --
------------ ------------ ------------ ------------
Balance at June 30, 1993 $ 6,836,619 $ -- $ (4,714,383) $ 166,211
------------ ------------ ------------ ------------
</Table>
The accompanying notes are an integral part of these
consolidated financial statements.
7
44
AMERALIA, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<Table>
<Caption>
Preferred Stock Common Stock
----------------------------- -----------------------------
Shares Amount Shares Amount
------------- ------------- ------------- -------------
Balance at June 30, 1993 666,666 $ 33,333 2,282,256 $ 22,822
Shares issued for payment of
obligations at $2.18 per share -- -- 36,250 363
Shares issued in lieu of
dividends at $1.50 per share -- -- 60,000 600
Issuance of Series B preferred
stock for cash at $10.00 per share 51,000 2,550 -- --
Subscriptions receivable on
Series B stock -- -- -- --
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
------------- ------------- ------------- -------------
<Caption>
Additional Other
Paid-in Subscription Accumulated Comprehensive
Capital Receivable Deficit Income
------------- ------------- ------------- -------------
Balance at June 30, 1993 $ 6,836,619 $ -- $ (4,714,383) $ 166,211
Shares issued for payment of
obligations at $2.18 per share 78,650 -- -- --
Shares issued in lieu of
dividends at $1.50 per share 89,400 -- -- --
Issuance of Series B preferred
stock for cash at $10.00 per share 507,550 -- -- --
Subscriptions receivable on
Series B stock -- (77,904) -- --
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 $ 7,512,219 $ (77,904) $ (5,372,716) $ 123,211
------------- ------------- ------------- -------------
</Table>
The accompanying notes are an integral part of these
consolidated financial statements.
8
45
AMERALIA, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<Table>
<Caption>
Preferred Stock Common Stock
----------------------------- -----------------------------
Shares Amount Shares Amount
------------- ------------- ------------- -------------
Balance at June 30, 1994 717,666 $ 35,883 2,378,506 $ 23,785
Shares issued for cash and
extinguishment of debt at $1.64 per
share -- -- 160,000 1,600
Shares issued in lieu of dividends
at $1.57 per share -- -- 71,250 713
Issuance of Series C preferred
for cash at $80.00 per share 750 38 -- --
Dividends paid -- -- -- --
Payment received on Series B
stock subscriptions -- -- -- --
Net loss for the year ended
June 30, 1995 -- -- -- --
------------- ------------- ------------- -------------
Balance, June 30, 1995 718,416 35,921 2,609,756 26,098
Shares issued in lieu of dividends
at $1.00 per share -- -- 107,285 1,072
Issuance of series D preferred
stock for cash at $1,000 per share 1,435 72 -- --
Dividends paid -- -- -- --
Net loss for the year ended
June 30, 1996 -- -- -- --
------------- ------------- ------------- -------------
Balance, June 30, 1996 719,851 $ 35,993 2,717,041 $ 27,170
------------- ------------- ------------- -------------
<Caption>
Additional Other
Paid-in Subscription Accumulated Comprehensive
Capital Receivable Deficit Income
------------- ------------- ------------- -------------
Balance at June 30, 1994 $ 7,512,219 $ (77,904) $ (5,372,716) $ 123,211
Shares issued for cash and
extinguishment of debt at $1.64 per
share 261,031 -- -- --
Shares issued in lieu of dividends
at $1.57 per share 111,287 -- -- --
Issuance of Series C preferred
for cash at $80.00 per share 59,963 -- -- --
Dividends paid -- -- (112,000) --
Payment received on Series B
stock subscriptions -- 77,904 -- --
Net loss for the year ended
June 30, 1995 -- -- (1,009,917) --
------------- ------------- ------------- -------------
Balance, June 30, 1995 7,944,500 -- (6,494,633) 123,211
Shares issued in lieu of dividends
at $1.00 per share 106,182 -- -- --
Issuance of series D preferred
stock for cash at $1,000 per share 1,434,958 -- -- --
Dividends paid -- -- (333,216) --
Net loss for the year ended
June 30, 1996 -- -- (751,350) --
------------- ------------- ------------- -------------
Balance, June 30, 1996 $ 9,485,640 $ -- $ (7,579,199) $ 123,211
------------- ------------- ------------- -------------
</Table>
The accompanying notes are an integral part of these
consolidated financial statements.
9
46
AMERALIA, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<Table>
<Caption>
Preferred Stock Common Stock
----------------------------- -----------------------------
Shares Amount Shares Amount
------------- ------------- ------------- -------------
Balance, June 30, 1996 719,851 $ 35,993 2,717,041 $ 27,170
Shares issued for cash and
extinguishment of debt at $1.00
per share -- -- 358,500 3,585
Shares issued in lieu of dividends
at $1.00 per share -- -- 233,790 2,338
Issuance of Series D preferred
stock for cash at $1,000.00 per share 405 20 -- --
Issuance of Series D preferred
stock for extinguishment of
debt at $1,000.00 per share 100 5 -- --
Dividends paid -- -- -- --
Additional capital contributed -- -- -- --
Net loss for the year ended
June 30, 1997 -- -- -- --
------------- ------------- ------------- -------------
Balance, June 30, 1997 720,356 $ 36,018 3,309,331 $ 33,093
------------- ------------- ------------- -------------
<Caption>
Additional Other
Paid-in Subscription Accumulated Comprehensive
Capital Receivable Deficit Income
------------- ------------- ------------- -------------
Balance, June 30, 1996 $ 9,485,640 $ -- $ (7,579,199) $ 123,211
Shares issued for cash and
extinguishment of debt at $1.00
per share 354,915 -- -- --
Shares issued in lieu of dividends
at $1.00 per share 231,452 -- -- --
Issuance of Series D preferred
stock for cash at $1,000.00 per share 404,993 -- -- --
Issuance of Series D preferred
stock for extinguishment of
debt at $1,000.00 per share 99,995 -- -- --
Dividends paid -- -- (233,790) --
Additional capital contributed 167,418 -- -- --
Net loss for the year ended
June 30, 1997 -- (769,185) --
------------- ------------- ------------- -------------
Balance, June 30, 1997 $ 10,744,413 $ -- $ (8,582,174) $ 123,211
------------- ------------- ------------- -------------
</Table>
The accompanying notes are an integral part of these
consolidated financial statements.
10
47
AMERALIA, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<Table>
<Caption>
Preferred Stock Common Stock
------------------------------ -----------------------------
Shares Amount Shares Amount
------------- ------------- ------------- -------------
Balance, June 30, 1997 720,356 $ 36,018 3,309,331 $ 33,093
Issuance of Series D preferred
stock for cash at $1,000.00 per share 240 12 -- --
Common stock sold for cash
at $1.00 per share -- -- 865,000 8,650
Offering costs -- -- -- --
Foreign currency translation
adjustment -- -- -- --
Shares issued in lieu of dividends
at $1.00 per share -- -- 356,554 3,566
Conversion of preferred stock (718,060) (35,903) 791,666 7,917
Dividends paid -- -- -- --
Shares canceled -- -- (5,000) (50)
Additional capital contributed -- -- -- --
Net loss for the year ended
June 30, 1998 -- -- -- --
------------- ------------- ------------- -------------
Balance, June 30, 1998 2,536 $ 127 5,317,551 $ 53,176
------------- ------------- ------------- -------------
<Caption>
Additional Other
Paid-in Subscription Accumulated Comprehensive
Capital Receivable Deficit Income
------------- ------------- ------------- -------------
Balance, June 30, 1997 $ 10,744,413 $ -- $ (8,582,174) $ 123,211
Issuance of Series D preferred
stock for cash at $1,000.00 per share 239,988 -- -- --
Common stock sold for cash
at $1.00 per share 856,350 -- -- --
Offering costs (240,800) -- -- --
Foreign currency translation
adjustment -- -- -- (123,211)
Shares issued in lieu of dividends
at $1.00 per share 352,988 -- -- --
Conversion of preferred stock 63,987 -- -- --
Dividends paid -- -- (392,554) --
Shares canceled (4,950) -- -- --
Additional capital contributed 139,954 -- -- --
Net loss for the year ended
June 30, 1998 -- -- (549,817) --
------------- ------------- ------------- -------------
Balance, June 30, 1998 $ 12,151,930 $ -- $ (9,524,545) $ --
------------- ------------- ------------- -------------
</Table>
The accompanying notes are an integral part of these
consolidated financial statements.
11
48
AMERALIA, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<Table>
<Caption>
Preferred Stock Common Stock
----------------------------- -----------------------------
Shares Amount Shares Amount
------------- ------------- ------------- -------------
Balance, June 30, 1998 2,536 $ 127 5,317,551 $ 53,176
Shares issued for cash and
extinguishment of debt at $1.00
per share -- -- 72,500 725
Shares issued for cash and
extinguishment of debt at $1.50
per share -- -- 807,500 8,075
Shares issued in lieu of dividends
at $1.00 per share -- -- 209,215 2,092
Shares issued through exercise
of warrants at $2.00 per share -- -- 1,253,000 12,530
Issuance of Series E preferred
stock through exercise of option
at $929.66 per share 450 22 -- --
Dividends declared -- -- -- --
Net loss for the year ended
June 30, 1999 -- -- -- --
------------- ------------- ------------- -------------
Balance, June 30, 1999 2,986 $ 149 7,659,766 $ 76,598
------------- ------------- ------------- -------------
<Caption>
Additional Other
Paid-in Subscription Accumulated Comprehensive
Capital Receivable Deficit Income
------------- ------------- ------------- -------------
Balance, June 30, 1998 $ 12,151,930 $ -- $ (9,524,545) $ --
Shares issued for cash and
extinguishment of debt at $1.00
per share 71,775 -- -- --
Shares issued for cash and
extinguishment of debt at $1.50
per share 1,203,175 -- -- --
Shares issued in lieu of dividends
at $1.00 per share 207,123 -- -- --
Shares issued through exercise
of warrants at $2.00 per share 2,493,470 -- -- --
Issuance of Series E preferred
stock through exercise of option
at $929.66 per share 418,324 -- -- --
Dividends declared -- -- (283,865) --
Net loss for the year ended
June 30, 1999 -- -- (1,901,601) --
------------- ------------- ------------- -------------
Balance, June 30, 1999 $ 16,545,797 $ -- $ (11,710,011) $ --
------------- ------------- ------------- -------------
</Table>
The accompanying notes are an integral part of these
consolidated financial statements.
12
49
AMERALIA, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<Table>
<Caption>
Preferred Stock Common Stock
----------------------------- -----------------------------
Shares Amount Shares Amount
------------- ------------- ------------- -------------
Balance, June 30, 1999 2,986 $ 149 7,659,766 $ 76,598
Shares issued for cash at $2.50
per share -- -- 250,000 2,500
Shares issued in lieu of loan fees
at $2.50 per share -- -- 24,000 240
Shares issued for cash at $2.50
per share -- -- 100,000 1,000
Shares issued as prepaid
construction costs at $3.00
per share -- -- 433,333 4,333
Shares issued in lieu of dividends
at $1.00 per share -- -- 298,600 2,986
Dividends declared -- -- -- --
Net loss for the year ended
June 30, 2000 -- -- -- --
------------- ------------- ------------- -------------
Balance, June 30, 2000 2,986 $ 149 8,765,699 $ 87,657
------------- ------------- ------------- -------------
<Caption>
Additional Other
Paid-in Subscription Accumulated Comprehensive
Capital Receivable Deficit Income
------------- ------------- ------------- -------------
Balance, June 30, 1999 $ 16,545,797 $ -- $ (11,710,011) $ --
Shares issued for cash at $2.50
per share 622,500 -- -- --
Shares issued in lieu of loan fees
at $2.50 per share 59,760 -- -- --
Shares issued for cash at $2.50
per share 249,000 -- -- --
Shares issued as prepaid
construction costs at $3.00
per share 1,295,667 -- -- --
Shares issued in lieu of dividends
at $1.00 per share 295,614 -- -- --
Dividends declared -- -- (298,600) --
Net loss for the year ended
June 30, 2000 -- -- (2,234,288) --
------------- ------------- ------------- -------------
Balance, June 30, 2000 $ 19,068,338 $ -- $ (14,242,899) $ --
------------- ------------- ------------- -------------
</Table>
The accompanying notes are an integral part of these
consolidated financial statements.
13
50
AMERALIA, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<Table>
<Caption>
Preferred Stock Common Stock
------------------------------ -----------------------------
Shares Amount Shares Amount
------------- ------------- ------------- -------------
Balance, June 30, 2000 2,986 $ 149 8,765,699 $ 87,657
Shares issued in lieu of dividends
at $1.00 per share -- -- 149,300 1,493
Shares issued for financing costs
at $2.02 per share -- -- 22,291 223
Conversion of preferred stock (2,904) (145) 2,904,000 29,040
Shares issued for services at
$0.75 per share -- -- 16,000 160
Shares issued in lieu of loan fees
at $1.00 per share -- -- 30,000 300
Shares issued for services at
$1.06 per share -- -- 16,420 164
Shares issued for financing costs
at $0.94 per share -- -- 63,566 636
Shares issued for cash at
$1.00 per share -- -- 75,000 750
Dividends declared -- -- -- --
Net loss for the year ended
June 30, 2001 -- -- -- --
------------- ------------- ------------- -------------
Balance, June 30, 2001 82 $ 4 12,042,276 $ 120,423
============= ============= ============= =============
<Caption>
Additional Other
Paid-in Subscription Accumulated Comprehensive
Capital Receivable Deficit Income
------------- ------------- ------------- -------------
Balance, June 30, 2000 $ 19,068,338 $ -- $ (14,242,899) $ --
Shares issued in lieu of dividends
at $1.00 per share 147,807 -- -- --
Shares issued for financing costs
at $2.02 per share 44,777 -- -- --
Conversion of preferred stock (28,895) -- -- --
Shares issued for services at
$0.75 per share 11,840 -- -- --
Shares issued in lieu of loan fees
at $1.00 per share 29,700 -- -- --
Shares issued for services at
$1.06 per share 17,241 -- -- --
Shares issued for financing costs
at $0.94 per share 59,364 -- -- --
Shares issued for cash at
$1.00 per share 74,250 -- -- --
Dividends declared -- -- (80,950) --
Net loss for the year ended
June 30, 2001 -- -- (2,424,134) --
------------- ------------- ------------- -------------
Balance, June 30, 2001 $ 19,424,422 $ -- $ (16,747,983) $ --
============= ============= ============= =============
</Table>
The accompanying notes are an integral part of these
consolidated financial statements.
14
51
AMERALIA, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated 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,
2001 2000 1999 2001
------------ ------------ ------------ ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (2,424,134) $ (2,234,288) $ (1,901,601) $(11,125,819)
Adjustments to reconcile net loss to net cash
(used) by operating activities:
Bad debt -- -- -- 624,798
Stock issued for services rendered 29,405 -- -- 94,405
Depreciation and amortization 10,883 11,225 9,056 101,656
Exchange (gain) -- -- (14) (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 (42,863) 991,305 (991,305) (42,863)
(Increase) in accounts and interest
receivable (1,166) (1,546) (1,167) (3,214)
(Increase) decrease in related party receivables 2,351 (14,063) (25,334) (54,720)
(Increase) in prepaid expenses (218,515) (70) (30,082) (248,667)
(Increase) decrease in deposits and bonds (115,000) 25,256 (25,906) (115,650)
(Increase) decrease in other assets (256,365) (222,020) (110,000) (588,385)
Increase (decrease) in due to related parties 56,186 122,429 (35,354) 106,646
Increase (decrease) in accounts payable and
royalties payable (282,604) 624,595 146,173 790,571
Increase in accrued expenses 5,177 3,643 19,836 28,656
Increase in guarantee fees payable 895,000 520,000 -- 1,415,000
Increase (decrease) in interest payable (37,645) 109,525 860 (45,896)
Increase (decrease) in contingent liabilities -- (303,800) 303,800 --
------------ ------------ ------------ ------------
Net Cash (Used) in Operating Activities (2,379,290) (421,609) (2,641,038) (7,967,341)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Lease acquisition, exploration and development
expenditures (745,165) (541,980) (255,000) (3,465,035)
Plant construction in progress (985,466) (5,744,642) (1,250,000) (7,980,108)
Liquidation of RIT investment -- -- 418,346 418,346
Purchase of property and equipment (15,071) (11,547) (26,261) (118,147)
Cash paid on note receivable related -- -- (25,000) (25,000)
Cash received from notes receivable 5,000 5,000 -- (134,853)
------------ ------------ ------------ ------------
Net Cash (Used) in Investing Activities $ (1,740,702) $ (6,293,169) $ (1,137,915) $(11,304,797)
------------ ------------ ------------ ------------
</Table>
The accompanying notes are an integral part of these
consolidated financial statements.
15
52
AMERALIA, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated 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,
2001 2000 1999 2001
------------- ------------- ------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash received from issuance of stock $ 75,000 $ 875,000 $ 3,574,000 $ 9,241,596
Increase (decrease) in bank overdraft (38,356) 32,654 1,116 --
Cash received from notes 4,221,583 5,500,000 198,217 10,478,805
Payments on note payable -- -- (389,475) (612,658)
Additional capital contributed -- -- -- 307,372
------------- ------------- ------------- -------------
Net Cash Provided by Financing Activities 4,258,227 6,407,654 3,383,858 19,415,115
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH 138,235 (307,124) (395,095) 142,977
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 4,980 312,104 707,199 238
------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 143,215 $ 4,980 $ 312,104 $ 143,215
============= ============= ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Income taxes $ -- $ -- $ -- $ --
Interest $ 223,832 $ 248,010 $ 17,659 $ 751,215
NON-CASH FINANCING ACTIVITIES
Common stock issued for payment of
obligations $ 30,000 $ 60,000 $ 215,750 $ 698,781
Common stock issued for services rendered $ 29,405 $ -- $ -- $ 94,405
Common stock issued for financing costs $ 105,000 $ -- $ -- $ 105,000
Payment of preferred stock dividends through
the issuance of additional common and
preferred stock $ 149,300 $ 298,600 $ 209,215 $ 1,592,713
Common stock issued as prepaid construction
costs $ -- $ 1,300,000 $ -- $ 1,300,000
</Table>
The accompanying notes are an integral part of these
consolidated financial statements.
16
53
AMERALIA, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
(A Development Stage Company)
June 30, 2001 and 2000
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.
During October 2000, AmerAlia formed a wholly-owned subsidiary, Natural
Soda, Inc. (NSI), to hold AmerAlia's soda assets and conduct its soda
business. The consolidated financial statements present the
consolidated financial statements of Ameralia, Inc. and its subsidiary,
Natural Soda, Inc. Collectively they are referred to herein as the
"Company".
b. Accounting Method
The Company's consolidated financial statements are prepared using the
accrual method of accounting. The Company has elected a June 30,
year-end.
c. Cash and Restricted Cash
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
The Company had $42,863 in restricted cash at June 30, 2001 held in a
certificate of deposit with a bank to cover costs associated with the
water monitoring wells and the restoration of the land.
17
54
AMERALIA, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
(A Development Stage Company)
June 30, 2001 and 2000
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
d. 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.
e. Income Taxes
At June 30, 2001, the Company had net operating loss carryforwards of
approximately $11,000,000 that may be offset against future taxable
income from the year 2000 through 2021. No tax benefit has been
reported in the June 30, 2001 consolidated financial statements since
the potential tax benefit is offset by a valuation allowance of the
same amount.
The income tax benefit differs from the amount computed at federal
statutory rates of approximately 38% as follows:
<Table>
<Caption>
For the Years Ended
June 30,
----------------------------------------------
2001 2000 1999
------------ ------------ ------------
Income tax benefit at statutory rate $ 921,000 $ 849,000 $ 722,600
Change in valuation allowance (921,000) (849,000) (722,600)
------------ ------------ ------------
$ -- $ -- $ --
============ ============ ============
</Table>
Deferred tax assets are comprised of the following:
<Table>
<Caption>
June 30,
---------------------------
2001 2000
----------- -----------
Income tax benefit at statutory rate $ 4,189,000 $ 3,268,000
Valuation allowance (4,189,000) (3,268,000)
----------- -----------
$ -- $ --
=========== ===========
</Table>
Due to the change in ownership provisions of the Tax Reform Act of
1986, net operating loss carryforwards for Federal income tax reporting
purposes are subject to annual limitations. Should a change in
ownership occur, net operating loss carryforwards may be limited as to
use in future years.
18
55
AMERALIA, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
(A Development Stage Company)
June 30, 2001 and 2000
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
f. Use of Estimates
The preparation of consolidated 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.
g. 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 consolidated financial statements as follows:
<Table>
<Caption>
For the Years Ended
June 30,
----------------------------------------------
2001 2000 1999
------------ ------------ ------------
Loss (numerator) $ (2,424,134) $ (2,234,288) $ (1,901,601)
Shares (denominator) 10,892,214 8,269,928 6,229,634
Per share amount $ (0.22) $ (0.27) $ (0.31)
</Table>
The Company's outstanding stock purchase warrants and options have been
excluded from the basic net loss per share calculation as they are
anti-dilutive.
h. Concentrations of Risk
The Company 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.
Credit losses, if any, have been provided for in the consolidated
financial statements and are based on management's expectations. The
Company's accounts receivable are subject to potential concentrations
of credit risk. The Company does not believe that it is subject to any
unusual risks, or significant risks in the normal course of its
business.
19
56
AMERALIA, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
(A Development Stage Company)
June 30, 2001 and 2000
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
i. Deferred Financing Costs and Loan Guarantee Fees
The Company has incurred costs of $368,707 and $144,497 as of June 30,
2001 and 2000, respectively, as loan guarantee fees. These costs are
being amortized over the remaining term of the loan. In addition, the
Company has incurred costs of $414,678 and $247,523 as of June 30, 2001
and 2000, respectively, 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.
j. Change in Accounting Principles
The Company has adopted the provisions of FASB Statement No. 138
"Accounting for Certain Derivative Instruments and Hedging Activities,
(an amendment of FASB Statement No. 133.)" Because the Company had
adopted the provisions of FASB Statement No. 133, prior to June 15,
2000, this statement is effective for all fiscal quarters beginning
after June 15, 2000. The adoption of this principle had no material
effect on the Company's consolidated financial statements.
The Company has adopted the provisions of FASB Statement No. 140
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities (a replacement of FASB Statement No.
125.)" This statement provides accounting and reporting standard for
transfers and servicing of financial assets and extinguishments of
liabilities. Those standards are based on consistent application of a
financial-components approach that focuses on control. Under that
approach, the transfer of financial assets, the Company recognized the
financial and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. This
statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured
borrowings. This statement is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after
March 31, 2001. This statement is effective for recognition and
reclassification of collateral and for disclosures relating to
securitization transactions and collateral for fiscal years ending
after December 15, 2000. The adoption of this principle had no material
effect on the Company's consolidated financial statements.
The Company has adopted the provisions of FIN 44 "Accounting for
Certain Transactions Involving Stock Compensation (an interpretation of
APB Opinion No. 25.)" This interpretation is effective July 1, 2000.
FIN 44 clarifies the application of Opinion No. 25 for only certain
issues. It does not address any issues related to the application of
the fair value method in Statement No. 123. Among other issues, FIN 44
clarifies the definition of employee for purposes of applying Opinion
25, the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequence of various
modifications to the terms of a previously fixed stock option or award,
and accounting for an exchange of stock compensation awards in a
business combination. The adoption of this principle had no material
effect on the Company's consolidated financial statements.
20
57
AMERALIA, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
(A Development Stage Company)
June 30, 2001 and 2000
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
k. Pronouncements Issued Not Yet Adopted
In July, 2001, the Financial Accounting Standards Board issued two
statements - Statement 141, Business Combinations, and Statement 142,
Goodwill and Other Intangible Assets, which will potentially impact the
Company's accounting for its intangible assets.
Statement 141:
o Eliminates the pooling method for accounting for business
combinations.
o Requires that intangible assets that meet certain criteria be
reported separately from goodwill.
o Requires negative goodwill arising from a business combination
to be recorded as an extraordinary gain.
Statement 142:
o Eliminates the amortization of goodwill and other intangibles
that are determined to have an indefinite life.
o Requires, at a minimum, annual impairment tests for goodwill
an other intangible assets that are determined to have an
indefinite life.
Upon adoption of these Statements, the Company is required to:
o Re-evaluate goodwill and other intangible assets that arose
from business combinations entered into before July 1, 2001.
If the recorded other intangibles assets do not meet the
criteria for recognition, they should be reclassified to
goodwill. Similarly, if there are other intangible assets that
meet the criteria for recognition but were not separately
recorded from goodwill, they should be reclassified from
goodwill.
o Reassess the useful lives of intangible assets and adjust the
remaining amortization periods accordingly.
o Write-off any remaining negative goodwill.
The Company has not yet completed its full assessment of the effects of
these new pronouncements on its financial statements and so is
uncertain as to the impact. The standards generally are required to be
implemented by the Company in its 2002 consolidated financial
statements.
21
58
AMERALIA, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
(A Development Stage Company)
June 30, 2001 and 2000
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
l. Principles of Consolidation
The consolidated financial statements include those of AmerAlia, Inc.
and its wholly-owned subsidiary, Natural Soda, Inc.
All material intercompany accounts and transactions have been
eliminated.
m. Equity Securities
Equity securities issued for services rendered have been accounted for
at the fair market value of the securities on the date of issuance.
n. Stock Options
The Company applies Accounting Principles Board ("APB") 25, "Accounting
for Stock Issued to Employees," and related interpretations in
accounting for all stock option plans. Under APB 25, compensation cost
is recognized for stock options granted to employees when the option
price is less than the market price of the underlying common stock on
the date of grant.
FASB Statement 123, "Accounting for Stock-Based Compensation" (SFAS No.
123"), requires the Company to provide proforma information regarding
net income (loss) and net income (loss) per share as if compensation
costs for the Company's stock option plans and other stock awards had
been determined in accordance with the fair value based method
prescribed in SFAS No. 123. The Company estimates the fair value of
each stock award at the grant date by using the Black-Scholes options
pricing model using the following assumptions. The U.S. Treasury rate
for the period equal to the expected life of the options was used as
the risk-free interest rate. The expected life of the options is one to
five years. The volatility used was 1.312% based upon the historical
price per share of shares sold. There are no expected dividends.
Under the accounting provisions of SFAS No. 123, the Company's net loss
for the years ended June 30, 2001, 2000 and 1999 would have changed
from the reported net loss as follows:
<Table>
<Caption>
2001 2000 1999
------------- ------------- -------------
Net loss:
As reported $ (2,424,134) $ (2,234,288) $ (1,901,601)
Pro forma (2,444,936) (2,234,288) (1,901,601)
Net loss per share:
As reported $ (0.22) $ (0.27) $ (0.31)
Pro forma (0.22) (0.27) (0.31)
</Table>
22
59
AMERALIA, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
(A Development Stage Company)
June 30, 2001 and 2000
NOTE 2 - RELATED PARTY RECEIVABLES
The Company occasionally issues advances to related parties who have
supported the Company over the years. The balance due from related
parties at June 30, 2001 and 2000 totals $54,720 and $57,071,
respectively. These advances are non-interest bearing and are due on
demand.
The Company 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, 2001 and 2000 was $3,879 and $2,713,
respectively. As part of the agreement, the Company 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,
2001 and 2000 was $15,000 and $20,000, respectively.
NOTE 3 - LEASE ACQUISITION, EXPLORATION AND DEVELOPMENT COSTS
In December 1992, the Company acquired from an unrelated party
("Kinder"), BLM Sodium Lease C-0119985 known as the Rock School Lease,
including 1,320 acres, in Rio Blanco County, Colorado, USA. The Company
acquired the Rock School Lease 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 the Company. Kinder also agreed to
provide all documentation, files and records in its possession
pertaining to the exploration of and development plans for the Rock
School Lease; warranted that it had not assigned to any third party or
dealt in any way with its interest in the Rock School Lease and granted
the Company an option to acquire its royalty interest. The assignment
of the interest in the Rock School Lease from Kinder was approved by
the BLM on January 1, 1996.
The Rock School Lease was renewed July 1, 2001 for a period of ten
years and is renewable under terms and conditions prescribed by the
Secretary of the Interior. The lease is currently undeveloped, although
the adjoining lease has been brought into production. The Company has
the permits to construct the mining facilities. The Company is required
to provide an approximate $1,400,000 reclamation bond on the site prior
to full commencement.
23
60
AMERALIA, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
(A Development Stage Company)
June 30, 2001 and 2000
NOTE 3 - LEASE ACQUISITION, EXPLORATION AND DEVELOPMENT COSTS (Continued)
The Company 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, 2001 and 2000, the Company had advanced a total of $6,902,803
and $6,384,397, respectively, to U.S. Filter for the construction of
the plant. Field construction will begin once long-term financing is
available. The Company has also capitalized certain costs related to
the construction of the plant totaling $1,154,305 and $610,245 for the
years ended June 30, 2001 and 2000, respectively, bringing the total
capitalized costs at June 30, 2001 and 2000 to $8,057,108 and
$6,994,642, respectively.
In addition, during the year ended June 30, 2000, the Company 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 are reclassified as plant
construction costs as the services are performed. During the year ended
June 30, 2001, $77,000 of the costs were reclassified as plant
construction costs for services performed on the development of the
plant during the year. 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, 2001 and 2000.
Subject to the Company obtaining satisfactory long-term financing, US
Filter will complete the design and construction of the mine and
processing plant for the Company, guarantee the plant's performance and
advance the costs of construction to Company.
While the Company has executed a non-binding statement of terms with a
major, international financial institution to provide credit support
for a $32 million loan facility which would be used to repay US Filter,
the proposed financing was subject to the Company meeting certain
conditions by June 30, 2001. In order for the proposed financing to
become binding, these and other requirements would need to be met
before the issue of a commitment letter.
If the Company 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 the Company. As a result of an amendment to the agreement
with U.S. Filter, U.S. Filter holds a security interest in the
Company's Rock School Lease.
The Company is one of three companies holding federal leases which
cover a unique, major natural resource of nahcolite (naturally
occurring sodium bicarbonate). The Company has performed surface
geological investigation of the 1,320 acre lease and has reviewed data
assembled by other investigators in the Piceance Creek Basin, including
a 1974 report published by the United States Geological Survey entitled
"Stratigraphy and Nahcolite Resources of the Saline Facies of the Green
River Formation, Rio Blanco County, Colorado." (John R. Dyni, USGS
Report 74-56). This report analyzed the results of a detailed study of
ten core holes from the saline zone, including a core hole known as
Dunn 20-1 which is approximately 800 feet to the east of the Company's
proposed initial mine site on the Rock School lease.
24
61
AMERALIA, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
(A Development Stage Company)
June 30, 2001 and 2000
NOTE 3 - LEASE ACQUISITION, EXPLORATION AND DEVELOPMENT 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, the Company believes that the
nahcolite deposit within the Rock School Lease is of significant size.
However, not all of this resource can be recovered with existing
technology. Until the resource is brought into production or until
substantial additional engineering work is accomplished, the viability
of economic recoverability cannot be established.
The Company has capitalized costs associated with the acquisition of
the lease site and certain other costs associated with the development
of the resource. The Company has installed five water monitoring wells
and have collected base line data required by the Division of Minerals
and Geology. The last data was collected in February 2001, completing
the regulatory requirements necessary to begin solution mining
activities. Total costs capitalized as of June 30, 2001 and 2000 were
$4,310,432 and $3,565,267, respectively. All other costs incurred in
developing the resource are expensed as period costs.
NOTE 4 - FIXED ASSETS
Fixed assets at June 30, 2001 and 2000 are as follows:
<Table>
<Caption>
June 30,
-----------------------------
2001 2000
------------ ------------
Vehicle $ -- $ 31,960
Equipment 52,838 61,916
Less accumulated depreciation (24,126) (69,352)
------------ ------------
$ 28,712 $ 24,524
============ ============
</Table>
Depreciation expense for the years ended June 30, 2001, 2000 and 1999
was $10,883, $11,225 and $9,056, respectively.
NOTE 5 - DUE TO RELATED PARTIES
The Company owed $187,948 and $131,762 to affiliates of the Company at
June 30, 2001 and 2000, respectively. This liability is comprised of
advances to the Company, accrued compensation and unpaid directors
fees.
25
62
AMERALIA, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
(A Development Stage Company)
June 30, 2001 and 2000
NOTE 6 - NOTES PAYABLE
<Table>
<Caption>
June 30,
------------------------
2001 2000
---------- ----------
Notes payable consist of the following amounts:
Note payable to investor; unsecured, due on demand;
at 10% interest $ 4,000 $ 4,000
Note payable to an individual; unsecured, due on July 1, 2001;
interest at the prime rate (8.50% at June 30, 2001) 300,000 300,000
Note payable to a financial institution, principal and interest
due June 19, 2002, interest at prime plus 1% (floating), secured
by related party guarantee agreements 500,000 --
Note payable to financial institution; principal and interest due
December 1, 2001; interest at 6.75% at June 30, 2001; secured by
a related party guarantee agreement 8,921,583 5,200,000
---------- ----------
Total Notes Payable $9,725,583 $5,504,000
========== ==========
</Table>
NOTE 7 - OFFICER COMPENSATION
The Company paid $150,000 and $150,000 to Gunn Development Pty. Ltd.
and has paid or accrued $133,000 and $55,000 to Ahciejay Pty. for
management fees during the years ended June 30, 2001 and 2000,
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, the Company appointed Mr. John Woolard as
an Executive Vice President. Previously, Mr. Woolard had been employed
as a consultant under a consulting agreement. The Company paid $150,000
and $150,000 in total compensation to Mr. Woolard during the years
ended June 30, 2001 and 2000, respectively. Additional fees totaling
$382 and $25,972 have been paid to Jacinth Pty. Ltd., an affiliate of
Robert Cameron, a director of the Company for the years ended June 30,
2001 and 2000, respectively. In addition, directors earned fees of
$14,000 each. The liabilities to related parties include these fees
(See Note 5).
In June 1996, the Company 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 the Company
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 the Company prior to the conversion of all its SAR's, then
the remaining SAR's are canceled.
26
63
AMERALIA, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
(A Development Stage Company)
June 30, 2001 and 2000
NOTE 8 - OUTSTANDING STOCK OPTIONS AND PURCHASE WARRANTS
During the year ended June 30, 2001, the Board of Directors of the
Company approved the 2001 Stock Option Plan, under which employees,
consultants, officers and directors may be granted stock options. The
total number of shares of common stock as to which options may be
granted under the plan is 1,000,000. The Company has not granted any
options under this plan.
The Board of Directors also approved the 2001 Directors' Incentive Plan
whereby each director (who is not an employee or officer) is granted an
option to purchase 75,000 shares at a current market price when a
person joins the Board of Directors. In addition, options to purchase
37,500 shares are granted to each such director sitting at July 1 of
each year. The exercise price for these options is the average market
price during the month of June preceding each grant date, and the
options have a three-year term. All options under this plan are
exercisable six months after the date of grant.
A summary of the status of the Company's stock options and warrants as
of June 30, 2001 and changes during the year ended June 30, 2001 are
presented below:
<Table>
<Caption>
Weighted Weighted
Options, Average Average
Warrants Exercise Grant Date
and SAR's Price Fair Value
------------ ------------ ------------
Outstanding, June 30, 2000 1,307,000 $ 2.98 $ 0.00
Granted 720,000 1.10 0.06
Expired/Canceled (542,000) 5.08 0.00
Exercised -- -- --
------------ ------------ ------------
Outstanding, June 30, 2001 1,485,000 $ 1.31 $ 0.03
============ ============ ============
Exercisable, June 30, 2001 1,485,000 $ 1.31 $ 0.03
============ ============ ============
</Table>
The following summarizes the exercise price per share and expiration
date of the Company's outstanding options and warrants to purchase
preferred and common stock at June 30, 2001:
<Table>
<Caption>
Expiration Date Price Number
-------------------------- --------- ---------
March 31, 2002 $1.09 100,000
March 31, 2003 $1.50 150,000
December 31, 2003 $1.50 60,000 (See Note 9)
April 30, 2005 $1.09 550,000
April 30, 2006 $1.09 12,500
April 30, 2007 $1.09 12,500
April 30, 2008 $1.09 25,000
June 28, 2006 $1.50 505,000
June 28, 2006 (SAR's) $1.50 70,000 (See Note 7)
---------
1,485,000
=========
</Table>
27
64
AMERALIA, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
(A Development Stage Company)
June 30, 2001 and 2000
NOTE 8 - OUTSTANDING STOCK OPTIONS AND PURCHASE WARRANTS (Continued)
During the year ended June 30, 2001, 720,000 options were granted
pursuant to the 2001 Directors' Incentive Plan, no options were
exercised and 542,000 expired.
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.
NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a party to certain claims and lawsuits arising from its
business activities.
In 1993, the Company entered into an engineering contract with Raytheon
Engineering (Raytheon) for the design and construction of a processing
plant for the Rock School Lease. The Company 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 the Company has alleged
that the Company breached an employment agreement. The Company claims
that the agreement was fraudulent and void and intends on vigorously
contesting the claim. The litigation is scheduled for trial in April
2002 and the Company believes it has a valid defense and intends to
defend its case vigorously. The outcome or potential loss cannot
currently be reasonably determined.
On December 10, 1992, the Company acquired the Rock School Lease from
Kinder; the acquisition terms were amended by Kinder and the Company on
January 1, 1996. As amended, the acquisition agreement provides for the
following consideration:
1. Commencing January 1, 1996, the reservation of a production
royalty of $1.50 per ton for all production, due and payable
on the last day of the month following the month of production
subject to a minimum annual royalty of $75,000 in arrears;
2. Starting January 1, 1996, the establishment of a consulting
arrangement between Kinder and the Company providing for an
annual consulting fee of $25,000 payable monthly in arrears.
Minimum amounts due are as follows:
<Table>
2002 $ 100,000
2003 100,000
-----------------
Total $ 200,000
=================
</Table>
28
65
AMERALIA, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
(A Development Stage Company)
June 30, 2001 and 2000
NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
These payments will continue while the Company holds the Rock School
Lease. Royalties payable as of June 30, 2001 and 2000 were $429,167 and
$354,167, respectively.
As discussed in Note 3, the payment of the minimum annual royalties
accrues credits which the Company can offset against future royalty
liabilities if they exceed the minimum annual royalty due. The total of
these credits at June 30, 2001 was $562,500.
In April 1999 (effective November 1998), the Company 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. The Company 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 the Company
developing mining operations on the lease so that the profitability of
mining operations, or prospective mining operations, is sufficient to
enable the Company to be able to sell its investment and recover the
lease acquisition and exploration costs, as well as any subsequent
capitalized expenditures.
NOTE 11 - ACCRUED EXPENSES
Accrued expenses consist of the following at June 30, 2001 and 2000,
respectively:
<Table>
<Caption>
2001 2000
----------------- -----------------
Accrued dividends $ 6,304 $ 74,650
Payroll taxes 22,385 12,495
Other -- 4,717
----------------- -----------------
Total $ 28,689 $ 91,862
================= =================
</Table>
The Company 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. (Note 6). The Company 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, the Company agreed to pay an amount equal to 10%
per year of the amount guaranteed, payable in shares of the Company's
restricted common stock valued according to a formula based on future
market prices of the Company'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, the Company 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.
29
66
AMERALIA, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
(A Development Stage Company)
June 30, 2001 and 2000
NOTE 11 - ACCRUED EXPENSES (Continued)
On December 1, 2000, the Company renegotiated the Mars Trust Guaranty
in order to borrow a further $1.6 million from the Bank of America and
to extend the maturity date for the combined loans to December 1, 2001.
The total guaranty fee has now increased to $1,350,000 and will be met
through the issue of a number of shares to be determined by future
events. The fee is not payable until after the Company announces its
permanent financing or a strategic alliance for the development of the
Rock School Project. The Company agreed that if, during the term of the
Guaranty, it appeared that arrangements for the development of the Rock
School Project are not reasonably forthcoming, the Board will determine
whether other actions may be in the best interest of the Company's
shareholders. The Company granted the Trust security over the Company's
entire interest in Natural Soda, Inc., a wholly-owned subsidiary formed
to acquire the Company's entire interest in the Rock School Project and
the Rock School Lease, as collateral for the repayment of the entire
loan and the Trust's liability under this Guaranty.
The Company also entered into a Guarantee Agreement on June 6, 2001
with two individuals to guarantee the repayment of the $500,000 note
payable with Harris Bank (Note 6) in the event of default. The Company
has agreed to pay the individuals a guarantee fee equal to 13% of the
loan proceeds ($65,000), payable in restricted shares of common stock
with the number of shares determined by future market prices but not to
exceed $2.50 per share.
NOTE 12 - PREFERRED STOCK
There are 82 shares of Series E preferred stock outstanding at June 30,
2001 which carry a 10% dividend payable quarterly when declared by the
directors of the Company. Each share of the preferred stock was
convertible into 1,000 shares of common stock until October 31, 2000.
After October 31, 2000, the 82 shares are no longer convertible into
common stock and have no voting rights.
NOTE 13 - GOING CONCERN
The Company's consolidated 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, the Company 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 the
Company to generate revenue through the manufacture and sales of its
sodium bicarbonate products. However, the Company cannot begin mining
the product until long-term financing for the construction of the plant
is obtained and the plant completed.
30
67
AMERALIA, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
(A Development Stage Company)
June 30, 2001 and 2000
NOTE 14 - SUBSEQUENT EVENTS
In July 2001, the Company raised $75,000 through the issue of 75,000
shares to an accredited investor. During 2001, the Company entered into
negotiations to acquire White River Nahcolite Minerals LLC ("WRNM"),
the company that owns and operates the BLM leases adjoining the Rock
School Lease. During July 2001, after consulting the prospective
financier of the Rock School Lease development, the Company submitted a
definitive offer for the purchase and has since been engaged in
discussions with senior management of IMC Global, Inc., the company
that owns WRNM. However, the Company has not (and may not) concluded an
agreement for its purchase nor secured a definitive commitment for
finance from its lender. Therefore, the Company cannot offer any
assurance that it will be able to complete this transaction. If the
Company can acquire WRNM, it proposes to refurbish the WRNM facilities
and then expand production capability by utilizing the equipment and
engineering already undertaken on the Rock School Lease project.
31
68
INDEX TO EXHIBITS
<Table>
<Caption>
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
10.13(i) Second Amended and Restated Guaranty Agreement with the Jacqueline
Badger Mars Trust
10.14(c) AmerAlia, Inc. 2001 Directors' Incentive Plan
10.15(c) AmerAlia, Inc. 2001 Stock Option Plan
21.1 Subsidiaries of the Registrant: Natural Soda, Inc., a Colorado
corporation.
(a) Incorporated by reference from AmerAlia's Form 10 General Registration
Statement filed with the Commission on March 5, 1987.
(b) Incorporated by reference from AmerAlia's annual report on Form 10-K
for the year ended June 30, 2000.
(c) Filed herewith.
(d) Not included.
(e) Incorporated by reference from AmerAlia's Form 10-K for its year ended
June 30, 1993.
(f) Incorporated by reference from AmerAlia's Form 10-K for its year ended
June 30, 1995.
(g) Incorporated by reference from AmerAlia's Form 10-K for its year ended
June 30, 1999.
</Table>