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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-15474
AMERALIA, INC.
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(Exact name of Company as specified in its charter)
Utah 87-0403973
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1155 Kelly Johnson Blvd, #111, Colorado Springs, CO 80920
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(Address of Principal Executive Offices)
Company's telephone number, including area code: (719) 260-6011
Securities registered pursuant to Section 12(b) of the Act: None.
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock - $.01 Par Value
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(Title of Class)
Indicate by checkmark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES /X/ NO / /
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein and will not be included herein and will
not be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K: [ ]
Shares of common stock, $.01 par value, outstanding as of September 10, 1998:
5,497,551. Aggregate market value of the voting stock held by non-affiliates of
AmerAlia as of September 10, 1998 was approximately $5,925,000. The estimate is
based on the last sale price per share and 3,646,107 shares estimated to be held
by non-affiliates. Shares of preference stock, $.05 par value, outstanding as of
September 10, 1998: 2,536.
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF THE BUSINESS
AmerAlia, Inc. was originally incorporated as Computer Learning Software,
Inc. under the laws of the State of Utah on June 7, 1983 and renamed AmerAlia in
January, 1984. AmerAlia acquired various investments in Australia which have
since been sold. All dollar amounts in this report are in United States dollars
($) unless specifically referenced as Australian dollars (A$).
Since 1989, AmerAlia has been primarily engaged in attempting to establish
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 will also enable the
production of soda ash and caustic soda, chemicals which are widely used in the
manufacture of glass, detergents and a variety of inorganic and organic
chemicals. Potentially, sodium bicarbonate might be used as an agent for flue
gas desulfurization, a market AmerAlia expects will expand as the requirements
of the 1990 amendments to the Clean Air Act impact more significantly on
industry. It proposes to achieve this objective by:
(a) finalizing Bureau of Land Management approval of a proposal to construct a
plant for the recovery and production of sodium bicarbonate from its sodium
lease; and
(b) raising sufficient capital to construct the plant and commence operations;
or
(c) seeking qualified joint venture partners for the development of the
resource if that is more beneficial to AmerAlia.
AmerAlia has entered into two agreements and one letter of intent to sell
sodium bicarbonate to three long standing distributors of sodium bicarbonate to
the livestock industry. However, none of these distributors has any obligation
to purchase any sodium bicarbonate from AmerAlia. These distributors cover most
of the United States. Animal feed quality sodium bicarbonate is a lower grade
product which has a current market price between $200 and $240 per ton
delivered. Sodium bicarbonate is used in the preparation of animal feed mixes
where it acts as a rumen buffer to increase dairy cow milk production.
AmerAlia has not been involved in any bankruptcy, receivership, or similar
proceedings, except that in September 1996 a secured creditor, NZI Securities
Australia Ltd., declared a default on indebtedness of approximately A$1,200,000
and advised AmerAlia that it intended to immediately
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exercise its power of sale over its collateral. This debt was subsequently
acquired from NZI by the THG Partnership, an AmerAlia affiliate. AmerAlia
then concluded an agreement with THG to settle the debt as discussed more
fully in AmerAlia's filing on Form 10-K for the year ended 30 June 1996.
(See Item 13, "Certain Relationships and Related Party Transactions", below.
The future conduct of AmerAlia is dependent upon a number of factors and
there is no assurance that AmerAlia will be able to conduct its operations as
contemplated in this report. Certain statements contained in this report using
the terms "may", "expects to", and other terms denoting future possibilities,
are forward-looking statements. The accuracy of these statements cannot be
guaranteed as they are subject to a variety of risks which are beyond AmerAlia's
ability to predict or control. These risks may cause actual results to differ
materially from the projections or estimates contained in this report. These
risks include, but are not limited to, the possibility that the described
operations, reserves, or exploration or production activities will not be
completed on economic terms, if at all. The exploration, development and mining
of mineral properties is an enterprise attendant with high risk. Many of these
risks are described in this report and it is important that each person
reviewing this report understands the significant risks which accompany the
establishment of AmerAlia's proposed operations.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
The Company is currently involved in only one industry segment, solution
mining and chemical manufacture, and, therefore, this information is not
material.
(c) NARRATIVE DESCRIPTION OF THE BUSINESS.
GENERAL DISCUSSION
THE PICEANCE CREEK BASIN. The Rock School Lease is one of three federal
leases granted within the Piceance Creek Basin which covers a unique, major
natural resource of nahcolite, a mineral form of naturally occurring sodium
bicarbonate. AmerAlia has performed surface geological investigation of the
1,320 acre lease and has reviewed data assembled by other investigators in the
Piceance Creek Basin, including a 1974 report published by the United States
Geological Survey entitled "Stratigraphy and Nahcolite Resources of the Saline
Facies of the Green River Formation, Rio Blanco County, Colorado." (John R.
Dyni, USGS Report 74-56). This report analyzed the results of a detailed study
of ten core holes from the saline zone, including a core hole known as Dunn 20-1
which is approximately 800 feet to the east of AmerAlia's proposed plant site on
the Rock School lease.
From this core hole, Mr. Dyni estimated the total nahcolite content of the
saline zone in this area at 315 million tons per square mile. Using this figure
translates to a total estimated nahcolite content of the Rock School Lease of
649 million short tons for the 1,320 acre lease. Due to lateral persistence of
this deposit, which allows correlation of beds over distances of many miles, it
is reasonable to assume that the concentrations found in the Dunn 20-1 hole also
exist beneath the Rock School Lease.
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AmerAlia drilled a core hole in 1996 to determine the extent of
mineralization and the strength of the rocks in the proposed solution mining
area. The drill encountered nahcolite in three separate resource intervals
below the lower salt horizon, over 510 feet, averaging 26.4% nahcolite.
AmerAlia engaged Agapito & Associates to supervise the core hole drilling and to
conduct studies on core assays, rock strength and geological evaluation.
Consequently, AmerAlia believes the nahcolite deposit within the Rock
School Lease is of significant size. However, not all of this resource can be
recovered with existing technology and within existing BLM lease conditions.
The economic viability of recovering the sodium bicarbonate cannot be
established until the resource is brought into production, or until substantial
additional engineering work is completed.
AmerAlia's activities in pursuing its operations are set out more fully
below. (See "Exploration and Development Work To Date.")
THE SODIUM BICARBONATE MARKET.
In 1998, AmerAlia commissioned Harriman Chemsult 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 U.S.A. The existing and long established market for
sodium bicarbonate is principally for food grade, animal feed and commercial
usage with delivered sale prices in the range of $200-400 per ton, depending on
grade. This market is dominated by a few suppliers who produce synthetic sodium
bicarbonate from soda ash (sodium carbonate) and sell under well established
brand names. AmerAlia believes that 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.
The animal feed market accounts for approximately 130,000 tons of the
existing annual USA/Canada market for sodium bicarbonate. It is the lower
priced market with delivered prices in the range of $200-240 per ton. Other
markets are at higher prices with pharmaceutical grade selling for approximately
$400 per ton. These markets are mature and stable, experiencing modest growth.
AmerAlia plans to initially supply the animal feed market where its sodium
bicarbonate will be used as a rumen buffer, principally for dairy cows. Small
amounts in feed rations re-establish normal rumen balance thereby controlling
acidotic stress conditions. This increases yields of both milk and butter fat.
AmerAlia has entered into marketing arrangements to sell sodium bicarbonate for
animal feed. However, these arrangements do not impose any obligation to
purchase product if and when it is produced. (see "Marketing Arrangements").
In addition to the animal feed market, there are other potential markets
for sodium bicarbonate such as the pharmaceutical, industrial and food grade
markets. Also, sodium bicarbonate might be used as an agent for flue gas
desulfurization, a market AmerAlia expects will expand as the requirements of
the 1990 amendments to the Clean Air Act impact more significantly on industry.
AmerAlia has not, however, negotiated any relationships with respect to these
markets.
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MARKETING ARRANGEMENTS. AmerAlia has signed agreements with two long
standing distributors of sodium bicarbonate to the livestock industry, although
neither of these distributors has any obligation to purchase sodium bicarbonate
from AmerAlia. If the distributors choose to take production from AmerAlia when
it is available, they will have exclusive arrangements with AmerAlia to supply
the animal feed market and the opportunity to acquire sodium bicarbonate from
AmerAlia at a wholesale price. The contracts will only become effective when
the buyers place their first order after AmerAlia commences production.
AmerAlia has no estimate as to when it will have production for sale. AmerAlia
has also received a letter of intent from a third distributor indicating a
capacity to distribute additional tonnage of sodium bicarbonate. These
distributors cover most of the United States and Canada.
COMPETITION. Any production by AmerAlia or any other person from the Rock
School Lease will be marketed in the traditional sodium bicarbonate market 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.
However, AmerAlia believes that, in the long term, its prospective recovery
of naturally occurring sodium bicarbonate from its lease will enable it to enjoy
a significant cost advantage over competitors which currently dominate the
industry. As AmerAlia believes that these competitors rely on higher cost
synthetic manufacture, this cost advantage should enable AmerAlia to penetrate
the animal feed market.
Two unaffiliated companies hold adjacent or nearby sodium leases issued
by the BLM. The adjacent lease is owned by White River Nahcolite Minerals, a
wholly owned subsidiary of IMC Global, Inc. American Soda, L.L.P. (formerly
NaTrona Resources, Inc.) owns the other lease which was issued January 1,
1992. Although the sodium resource in the Piceance Creek Basin is believed to
be of substantial size, the AmerAlia, White River and American Soda leases
are the only leases currently issued by the BLM. Competition in the long
term is not regarded as being significant since AmerAlia believes the market
can absorb the anticipated production.
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.
The sublease required Denison meet certain requirements sufficient to obtain
an extension of the lease. In June, 1991 the Federal Bureau of Land
Management issued the lease renewal, effective July 1, 1991, for a period of
ten years.
On December 10, 1992 AmerAlia purchased the Rock School Lease from
Kinder; the acquisition terms were amended by Kinder and AmerAlia in January
1996. As amended, the acquisition agreement provided for the following
consideration:
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(i) a cash payment of $600,000;
(ii) the issuance of 50,000 shares of common stock;
(iii) the granting of an option for two years to acquire 50,000 shares
of restricted common stock at $3 per share (this option has
expired);
(iv) commencing July 1, 1994, the reservation of a minimum
annual royalty of $100,000, due and payable on the last day of
the month following the month of production. Commencing January,
1996 the minimum annual royalty was amended to $75,000 and the
production royalty due to Kinder was reduced from $2 to $1.50 per
ton of production. If the minimum royalty exceeds the production
royalty payable then a credit is carried forward and allowed
against any future production royalties; and
(v) also commencing January 1, 1996, the establishment of a
consulting arrangement between Kinder and AmerAlia providing for
a consulting fee of $25,000 per year, payable monthly in arrears.
AmerAlia is negotiating certain adjustments in this contract at
Kinder's request.
As a result of the agreement, Kinder assigned to AmerAlia all of its right,
title and interest in the Rock School Lease. Kinder also agreed to provide all
documentation, files and records in its possession pertaining to the exploration
of and development plans for the Rock School Lease; warranted that it had not
assigned to any third party or dealt in any way with its interest in the Rock
School Lease and granted AmerAlia an option for two years to acquire its royalty
interest for the consideration of $2 million. This option expired without being
exercised. The assignment of the interest in the Rock School Lease was subject
only to approval by the BLM which was granted effective January 1, 1996. As a
result of AmerAlia's obligations to pay the minimum royalty, it has accumulated
a credit of $337,500 as at June 30, 1998 which can be offset against future
production royalties if they exceed the minimum annual royalty.
ROCK SCHOOL LEASE -- TERMS. Under the terms of the Rock School Lease, the
leaseholder has a preferential right to renew the lease at the end of the lease
term under such terms and conditions as may be prescribed by the Secretary of
the Interior, or by applicable law. The lease currently requires, as a
condition to renewal, that sodium must be produced in paying quantities. Rental
is payable annually in advance at the rate of $1 per acre. In addition,
production royalties equal to 5% of the gross value of the output at the point
of shipment to market are payable. Minimum annual production and rental
payments have been agreed upon at the rate of $3 per acre annually.
EXPLORATION AND DEVELOPMENT WORK TO DATE. When AmerAlia acquired 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, AmerAlia has invested a
further $1,525,000 in direct expenditures for further geological and engineering
studies including the drilling of a core hole, legal expenses, technical
consultants, and advances to the Bureau of Land Management to advance the
project's development. These expenditures, which do not include the acquisition
cost of the lease, have been capitalized in the company's financial statements.
In addition to these expenditures, there were other direct expenditures incurred
by AmerAlia in negotiating with and meeting prospective joint venture
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partners, investors, financiers, customers and construction contractors.
These amounts have not been precisely determined as they have been written
off in the company's accounts.
Although AmerAlia proposes to carry out further exploration work on the
Rock School Lease, its principal efforts are directed towards obtaining the
necessary permits and meeting the requirements of the permitting agencies.
Because the Piceance Creek Basin is known to contain a substantial amount of
oil shale, the BLM has prohibited mining operations which might adversely
affect oil shale. The federal agency has, however, accepted the proposed
solution mining method and approval of a 50,000 tons per year pilot mining
operation is now expected. The BLM asked AmerAlia to drill a core hole on
the Rock School Lease and obtain site specific underground data prior to the
commencement of operations.
AmerAlia drilled this core hole in early 1996. The drill encountered
nahcolite in three separate resource intervals, below the lower salt horizon,
over a depth of 510 feet, averaging 26.4% nahcolite. AmerAlia engaged
Agapito & Associates to supervise the core hole drilling and to conduct
studies on core assays, rock strength and geological evaluation. Its report
on rock mechanics and cavity design is now complete and provides further
design data. These reports have been submitted to the BLM and will be
submitted to other regulatory agencies of the federal, state and county
administrations. The BLM will consider the reports, the revised plant design
and data from the development proposal submitted in 1989 and will be asked to
come to a finding of no significant environmental impact ("FONSEI"). Upon
receiving this finding, AmerAlia will proceed with a plant to produce 50,000
tons per year, provided that it has satisfactory financial capability
AmerAlia's proposed solution mining process will create underground
cavities. The BLM's principal concern is the assessment of the effect of
these cavities on the geological environment, as well as on any existing
aquifers located above the proposed leaching caverns. While it is AmerAlia's
belief that the BLM is favorably disposed to the proposed development and
that the reports will conclude that the environmental impact will be minimal,
there is no guarantee that a "FONSEI" will be issued. Management will
proceed with its planning in the expectation of approval. Should AmerAlia
wish to expand its production beyond 50,000 tons per year, it will be
required to produce an Environmental Impact Statement. This will be
expensive and time consuming and AmerAlia does not contemplate undertaking
one until operational data is available from the initial 50,000 tons per year
project.
PROPOSED DEVELOPMENT PROGRAM. The plan submitted to the BLM for
approval envisages the development of the resource in stages starting with a
plant to produce 50,000 tons per year and then expanding to 500,000 tons per
year. Production will be from a 500 foot thick zone at a depth of 2,000 feet
to 2,500 feet. Hot water will be injected into the nahcolite bearing rock;
the nahcolite will dissolve and be brought to the surface in solution where
it will be recrystallized and dried prior to despatch. This 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. The company's cash cost of production is expected to be
about $65 per ton, one-half of estimated existing industry average cash costs.
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AmerAlia is currently engaged in securing permits from the Department
of Interior, BLM and the Environmental Protection Agency as well as state
agencies necessary to proceed to recover the sodium bicarbonate. It is
anticipated that the cost to construct the plant and associated facilities on
the property, as anticipated in the preliminary plan submitted to the BLM,
will be in excess of $30 million for a 50,000 ton per year plant. AmerAlia
has had numerous discussions with industry partners and investors or
investment representatives who have expressed interest in financing the
development of the property, but has not reached agreement with any. If
AmerAlia is not able to obtain outside financing for the project, or if it is
unable to obtain all necessary permits, it may not be able to complete the
development of the property and commence production.
ACCESS. The Rock School Lease is accessible by a county maintained
gravel road which is sufficient for the exploration and development work
being accomplished. Access is difficult during the winter and early spring
because of heavy snows in the area. The road will have to be improved to
allow all-weather access when production commences.
AUSTRALIAN ACTIVITIES
AmerAlia previously owned real estate and beef cattle in Australia. The
real estate was sold in 1989 to an unaffiliated, public Australian real
estate investment trust, known as The Rural Investment Trust. AmerAlia
transferred its interest in this trust to the THG Partnership as part of its
settlement of debt referred to in Item 1(a) above and reported in the
Company's filing on Form 10-K for the year ended 30 June 1996, and in Item
13(a) below. As a result of this agreement to settle the debt, THG has an
option until October 18, 1998 to exchange this investment for the issuance
of 450 shares of Series E Preferred Stock, or alternatively, it may subscribe
$450,000 in cash for the issuance of 450 shares of Series E Preferred Stock.
EMPLOYEES
The day to-day business activities of the company are managed by
Mr. Bill H. Gunn, Chairman and President, Mr. Robert van Mourik, Executive Vice
President and Chief Financial Officer, and Mr John F. Woolard, Executive Vice
President. Until the Board of Directors accepted his resignation on June 1,
1998, Mr. Marvin Hudson served as Vice President, Investor Relations. The
services of Mr. Gunn, Mr. van Mourik, Mr. Woolard and Mr. Robert Cameron, a
director who provides mining and geological consulting services, are provided
to the company under management services agreements either directly or with
affiliated entities. See Item 11. - "Executive Compensation".
ITEM 2. PROPERTIES
AmerAlia is a lessee of United States Sodium Lease No. C-0119985 affecting
1,320 acres in Rio Blanco County, Colorado, USA, and described more fully in
Item 1. - "Business", above.
ITEM 3. LEGAL PROCEEDINGS
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AmerAlia is a not a party to any material threatened or pending claims as
of the date of this report except that Mr. Marvin Hudson, formerly a vice
president and employee of AmerAlia has made a claim for an unstated amount of
compensation allegedly due to him in connection with his prior employment and
status as an officer. AmerAlia denies any liability to Mr. Hudson. Mr. Hudson
is also a partner in the THG Partnership and, consequently, continues to be an
affiliate of AmerAlia.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
AmerAlia held a meeting of its shareholders on June 30, 1998. Messrs.
Gunn, van Mourik, Summerson and Cameron were re-elected to the Board of
Directors. The shareholders also approved exchanges of various classes of
stock held by Jacqueline Badger Mars atf The Jacqueline Badger Mars Trust as set
out more fully in Item 13(a) later.
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PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION.
Since August 1987, AmerAlia's Common Stock has been publicly traded under
the symbol "AALA" on The Nasdaq SmallCap Market which is operated by the
National Association of Securities Dealers, Inc. The Nasdaq SmallCap Market is
one of two distinct market tiers comprising the Nasdaq Stock Market which is a
highly regulated electronic securities market utilizing a sophisticated computer
and telecommunications network. Market participants comprise competing Market
Makers, independent dealers who commit capital to stocks and compete with each
other for orders, and Electronic Communications Networks, trading systems
recently integrated into Nasdaq which bring additional orders into the market.
The market structure provides visibility of orders and allows market
participants to compete for order flow. Trading is supported by a
communications network linking the market participants to quotations
dissemination, trade reporting and order execution systems. This market also
provides specialized automation services for screen-based negotiations of
transactions, online comparison of transactions, and a range of information
services tailored to the needs of the securities industry, investors and
issuers.
The average trading prices for the company'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.
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Average
For the Quarter Ended Sale Price
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1996
September 30 $2.00
December 31 $1.00
1997
March 31 $1.40
June 30 $1.87
September 30 $1.25
December 31 $0.75
1998
March 31 $1.65
June 30 $1.50
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(b) HOLDERS.
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(b)(1) The number of record holders of AmerAlia's common stock on
September 10, 1998 was approximately 446. (This does not
include an indeterminate number of shareholders whose shares are
held by brokers in street name.)
(b)(2) Not applicable.
(c) DIVIDENDS
AmerAlia has not paid dividends on its common stock and has no plans to pay
cash dividends in the future. AmerAlia's ability to pay dividends to holders of
its common stock is limited as a result of the issue of its outstanding shares
of Series E Preferred Stock.
ITEM 6. SELECTED FINANCIAL DATA
The following information has been derived from AmerAlia's financial
statements which follow the signature page at the end of this Annual Report.
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SELECTED FINANCIAL DATA
AMOUNTS IN THOUSANDS OF DOLLARS
(EXCEPT PER SHARE DATA)
Year Ended June 30
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Revenues - - - - -
Net Loss (550) (769) (751) (1,007) (569)
Loss per Share (.13) (.26) (28) (.41) (.24)
Total Assets 3,500 3,008 3,608 2,985 3,262
Total Current Assets 725 12 232 338 755
Total Current Liabilities 819 650 1,481 1,539 1,199
Long Term Debt - 4 9 14 24
Shareholders' Equity 2,681 2,354 2,118 1,432 2,039
Weighted Average
No. of Shares 4,313 3,014 2,653 2,463 2,330
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
SUBSEQUENT TO JUNE 30, 1998
Since June 30, 1998 AmerAlia has raised a total of $233,750 through the
sale of common stock and warrants. The warrants are exercisable at $2.00 per
share through March 31, 1999 and at higher prices thereafter. As a result of
the funds made available through this capital raising activity and the funds
raised during the fiscal year, AmerAlia was able to repay a significant portion
of its notes payable including the indebtedness to Raytheon Engineers and
Constructors, Inc.
JUNE 30, 1998 AS COMPARED TO JUNE 30, 1997
AmerAlia does not generate any operating income and, therefore, continues
to be reliant on raising capital from its existing shareholders and from private
offerings of its securities. During the 1998 fiscal year, AmerAlia raised $1.1
million in different offerings for the sale of its common stock, preferred stock
and warrants to accredited and non-United States investors. The outstanding
warrants, if exercised in whole or part, would result in additional capital for
AmerAlia, however, this would require that the market price of the company's
common stock exceed the exercise price of the warrants at the time of exercise.
There are other conditions precedent to the exercise of the warrants including
the availability of an exemption for the exercise.
AmerAlia has historically derived its liquidity from raising new equity
investment or by issuing notes payable. AmerAlia's ability to ensure its long
term survival continues to be dependent upon AmerAlia obtaining all permits
necessary for the proposed plant and financing for its construction, estimated
to be in excess of $30 million. AmerAlia is engaged in discussions with
prospective investors and financiers to achieve this objective, and based upon
consultations with its advisors, AmerAlia believes significant financing will be
available from unaffiliated parties provided that certain conditions are met.
Management is directing its efforts to enabling the fulfilment of these
conditions, although there can be no assurance that the company will be able to
complete this financing.
In order to simplify the presentation of the company's financial
statements, the Board of Directors decided to initiate discussions with holders
of the preferred stockholders to rationalize the various series of preferred
stock. Consequently, as discussed more fully in Item 13(a) later, all of the
outstanding shares of the various series of preferred stock have been exchanged
for common stock or a new Series E Preferred Stock. The rights and preferences
attributable to the Series E Stock are set out in Item 12 later. A total of
356,554 shares of common stock at $1 per share were issued in lieu of dividends
on Series A, B, C, D & E Preferred Stock and a further $36,000 of accrued but
unpaid dividends were included in the exchange of 26,000 shares of Series B
Stock for shares of Series E Stock.
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A net increase in the company's accounts and royalties payable of more than
$100,000 created an additional source of funds. Of these liabilities, $266,667
is due to one creditor for consulting fees and royalties payable on the Rock
School Lease. The payment of minimum annual royalties generates credits which
can be used if a plant is built which can achieve production exceeding 50,000
ton per year. Above this level of output, the credits can be offset against
royalties which exceed the minimum royalty. The total of these credits
accumulated as at June 30, 1998 was $337,500. A further $223,606 was raised
through the issue of notes payable. Funds were applied to funding the operating
loss, $100,183 was used to repay notes payable, $13,051 was capitalized
expenditures on developing the Rock School Lease project and $45,704 was used to
reduce liabilities due to related parties.
As a result of the fund raising throughout the year, total assets increased
to $3,500,143 (1997: $3,007,489; 1996: $3,608,000) and stockholders' equity
increased to $2,680,688 (1997: $2,354,561; 1996: $2,118,000).
AmerAlia does not anticipate any difficulties with its computers and their
systems as the year 2000 approaches because its computers and software are
relatively new systems which are Y2K compliant.
JUNE 30, 1997 AS COMPARED TO JUNE 30, 1996:
As reported in Note 13 to the Financial Statements, AmerAlia negotiated a
settlement in November 1996 with the THG Partnership, a related party, which had
acquired a debt previously due to a secured creditor, NZI Securities Australia
Ltd. In summary, AmerAlia transferred to THG its interests in the Rural
Investment Trust, two notes receivable, two shareholder receivables and an issue
of 100 shares of Series E Preferred Stock in settlement of the debt, so enabling
AmerAlia to record an additional capital contribution of $116,000 on the value
of the assets transferred to THG. In addition, THG has an option until 18
October 1998 to exchange the RIT units with AmerAlia for the issuance of 450
shares of Series E Preferred Stock or to subscribe $450,000 to purchase 450
shares of Series E Preferred Stock.
AmerAlia received subscription applications for the issue of 293,500 shares
of common stock at $1 per share from two unaffiliated investors. These funds
were used to retire debt. Additional capital of $405,000 was received for the
issue of 405 shares of Series E Preferred Stock pursuant to an agreement between
AmerAlia and the Jacqueline Badger Mars Trust. A total of 233,790 shares of
common stock were issued in lieu of dividends on Series A, B & D Preferred Stock
and 65,000 shares valued at $65,000 were issued as employee compensation.
Finally, $51,000 was received by the company in settlement of an alleged short
swing trading violation.
Further funding of $62,000 was received through an increase in the accounts
and royalties payable to $261,758 of which approximately $227,000 was due to
eight creditors, the largest of whom was owed $166,667. Of this amount,
$129,167 constitute royalties payable for which AmerAlia can receive a credit if
a plant is built which can achieve production exceeding 50,000 ton per year.
Above this level of output, the credits can be offset against royalties payable
which exceed
-13-
the minimum royalty. However, $214,000 of the accounts and royalties payable
was outstanding more than 90 days. Funds were applied to AmerAlia's
operating loss, $20,192 was expended in the development of the Rock School
Lease project and $224,500 was paid in fees in anticipation of a capital
raising.
Total assets decreased during the year to $3,007,489 (1996: $3,608,000;
1995: $2,985,000) while stockholders' equity increased to $2,354,561 (1996:
$2,118,000; 1995: $1,432,000).
RESULTS OF OPERATIONS
JUNE 30, 1998 AS COMPARED TO JUNE 30, 1997:
As the company does not receive revenues from operations, any income it
receives is generally derived from interest earned on funds on deposit resulting
from stock subscriptions. Interest income in 1998 was less than $5,000 and less
than $2,000 in 1997. As the company no longer has Australian operations,
management decided, in consultation with the auditors, to remove the foreign
currency translation adjustment account from the company's balance sheet. This
created a foreign currency gain of $123,211 which has been brought to account
through the income statement.
General and administrative expenditures were significantly lower this
year than for previous years (1998: $629,605; 1997: $690,982 and 1996:
$668,202). However, this was temporary and as management progresses its plans
to obtain funding for the development of the company's lease and construction
of production facilities, the level of these expenditures is expected to
increase. Interest expense has been reduced as a result of reduced debt
(1998: $38,909; 1997: $70,383; and 1996: $124,128). Consequently, the 1998
net loss of $549,817 was significantly less than those of prior years (1997:
$769,185 and 1996: $751,350).
Until AmerAlia achieves its objective of establishing a plant for the
recovery and production of sodium bicarbonate, it will not be able to generate
operating revenues. Whilst management is progressing negotiations with various
prospective investors and financiers, no agreements have been reached which will
enable the company to build its proposed facilities. Management estimates that
more than $30 million will be required to fund construction and the associated
working capital requirements until profitable operations are established. There
is no assurance that AmerAlia can obtain this financing and in the meantime must
fund its operating losses from its own resources as discussed above.
JUNE 30, 1997 AS COMPARED WITH JUNE 30, 1996:
Historically, as the company does not have operations generating revenues,
its income has been derived from income distributions from AmerAlia's investment
in the Rural Investment Trust and from interest received from two notes
receivable. As these assets were deployed early in the year to settle a
substantial debt, AmerAlia no longer received this income. Consequently, other
income was reduced to less than $2,000 (1996: $60,273; 1995: $49,000). General
and administrative
-14-
expenses of $690,982 were comparable to 1996 ($668,202) and less than for
1995 ($919,000) as a result of there being no additional provisions for bad
debts. However, AmerAlia does incur an annual liability of $100,000 as a
result of royalties and consulting fees due to Kinder for the Rock School
Lease. As a result of AmerAlia's substantial reduction in notes payable,
interest expense was reduced to $70,383 compared with 1996 ($124,128) and
1995 ($105,000). As AmerAlia no longer had assets or liabilities in
Australia, there was no foreign currency gain or loss in 1997 compared with
the $6,810 loss in 1996 and $3,000 gain in 1995.
Ultimately, the loss for the year of $769,185 was similar to that for 1996
($751,350) and substantially less than that in 1995 ($989,000).
IMPACT OF INFLATION
AmerAlia believes that its activities are not materially affected by
inflation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements prepared in accordance with Regulation S-X follow the
signature page and are listed in Item 14 of Part IV of this Annual Report on
Form 10-K.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
-15-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
(a)(b) IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS.
The following table shows the names and ages of all Directors and
Executive Officers of the company, positions held, and when each person was
first elected or appointed. The directors each serve until their successors
are duly elected and qualified; officers are appointed by, and serve at the
pleasure of, the Board of Directors.
--------------------------------------------------------------
First
Name & Age Position Elected or
Appointed
--------------------------------------------------------------
Bill H. Gunn Chairman of the Board, 02/84
Age 56 President, & Chief
Executive Officer
Robert van Mourik Director, 09/90
Age 45 Executive Vice President 01/89
Chief Financial Officer,
Secretary & Treasurer
Neil E. Summerson Director 09/90
Age 50
Robert A. Cameron Director 09/90
Age 59
John F. Woolard Executive Vice President 06/98
Age 58
--------------------------------------------------------------
(c) SIGNIFICANT EMPLOYEES.
The Company does not employ anyone who is not an executive officer who
contributes significantly to its business.
(d) FAMILY RELATIONSHIPS.
There are no family relationships among the officers or directors.
-16-
(e) BUSINESS EXPERIENCE.
(e)(1) BACKGROUND. Brief biographical information and an outline of the
business experience of each officer and director of the company is set out
below:
BILL H. GUNN
Mr. Gunn graduated in Commerce from the University of Queensland in
1963, achieving his Accounting Certificate from the University of Queensland
in the same year. Subsequently, he was admitted as a member of the
Australian Society of Accountants, rising to the position of Senior
Associate. He now holds the position of Certified Practising Accountant
(CPA) in Australia, and has successfully completed and passed the
examinations for admittance as a Certified Public Accountant (CPA) in the
USA.
Since March, 1977 Mr. Gunn has been a self-employed investor, CPA, and a
director of several Stock Exchange listed public companies, as well as a
number of majority owned private corporations. These companies have been
active in the field of retailing, hotels, feed mills, mining exploration,
automotive components, securities investment, financing, property development
and numerous related fields.
During his business experience, Mr. Gunn has been exposed to a wide
variety of corporate investments and has been involved in major business
acquisition and development activities. He is particularly knowledgeable on
business activities and investments in the Queensland region of Australia,
which is widely regarded as the major Australian growth state. His principal
activity is now acting as Chairman and President of the Company.
ROBERT VAN MOURIK
Mr. van Mourik graduated in 1974 with a Bachelor of Applied Science
(Applied Chemistry) and worked for six years as an Industrial Chemist in
Quality Control and Production. While completing studies in a Masters Degree
in Business Administration at Newcastle University, he worked in Corporate
Financial Planning for Australian Wire Industries, a subsidiary of Broken
Hill Proprietary Ltd. After completing this degree in 1981, he moved to
Queensland to participate in real estate development and its sales and
marketing. In 1983, he joined United Capital as an Investment Consultant and
became Executive Director of United Capital in April, 1986. In that position,
he was instrumental in United Capital's reconstruction and has since been
heavily involved in the development of AmerAlia's activities. Since January
25, 1989, he has served as Executive Vice President, Chief Financial Officer,
Treasurer and Secretary of the company, and on September 26, 1990 he was
appointed a director of the company.
-17-
NEIL E. SUMMERSON
Mr. Summerson until July 31, 1997 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 areas of taxation, audit procedures and management advisory
services. Mr. Summerson received his Bachelor of Commerce degree from the
University of Queensland in 1968. He is a Fellow of the Institute of Chartered
Accountants, an Associate of the Australian Institute of Credit Management, a
Registered Public Accountant in Queensland, a registered Company Liquidator in
Queensland, an Official Liquidator, and an Officer of the Supreme Court of
Queensland.
On November 17, 1989, Mr. Summerson was appointed Receiver and Manager of
Denison Resources Ltd. He retired from this position on August 28, 1998 and has
no further responsibility or influence regarding Denison's shareholding.
ROBERT A. CAMERON
Mr. Cameron graduated with Honors in Metallurgical and Chemical
Engineering from the University of Adelaide, Australia in April, 1961. Prior
to Mr. Cameron's formation of Denison Resources Ltd in 1983, Mr. Cameron was
employed in both Australia and the United Kingdom accruing approximately 24
years of senior management experience, not only in the Australian mining
industry regarding both large and small companies, but also specific
experience in the exploration for and mining of soda products. This includes
16 years as Chief Executive Officer and director of a number of Australian
public companies. Mr. Cameron has been responsible for developing a number
of mining operations involving such industrial minerals as rutile, zircon,
ilmenite, bentonite clay, calcium carbonate and silver and gold properties.
From 1983, Mr. Cameron was Chairman of the Board of Directors of Denison
Resources Ltd., an Australian stock exchange listed public company formed for
the specific purpose of exploring and developing underground natural soda
resources in Queensland, Australia. In January, 1989 a wholly owned
subsidiary of Denison Resources Ltd., acquired the Rock School Lease. In
early November 1989, the Australian Stock Exchange suspended Denison
Resources Ltd. from quotation of its shares at the request of its directors.
On November 17 & 20, 1989 Mr. Neil E. Summerson was appointed Receiver and
Manager for Denison Resources Ltd. by two creditors as a result of Denison
Resources Ltd. being in default under certain loan agreements which were
secured by an equitable mortgage over Denison Resources Ltd. Under
Australian law, the creditors' action did not require court approval or
supervision, and the receivership continues although Mr. Summerson retired
as Receiver on August 28, 1998.
JOHN 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
-18-
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 firm, Stiffel, Nicolas & Co. for
more than the past five years until taking leave of absence in January 1998.
He is also a director and an investor in a number of privately held companies.
(e)(2) DIRECTORSHIPS. No director of the Company is a director of a
company having securities registered under Section 12 or subject to Section
15(d) of the Securities Exchange Act of 1934 or a company registered under the
Investment Company Act of 1940.
(f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS:
During the past five years, no director or officer of the Company has:
(f)(1) Filed or has had filed against him a petition under the federal
bankruptcy laws or any state insolvency law, nor has a receiver, fiscal agent
or similar officer been appointed by a court for the business or property of
such person, or any partnership in which he was a general partner, or any
corporation or business association of which he was an executive officer at
or within two years before such filings;
(f)(2) Been convicted in a criminal proceeding or is a named subject of
a pending criminal proceeding (excluding traffic violations and other minor
offenses);
(f)(3) Been the subject of any order, judgment, or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining such person from, or
otherwise limiting, the following activities:
(i) Acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator, floor broker,
leverage transaction merchant, any other person regulated by the Commodity
Futures Trading Commission, or an associated person of any of the foregoing,
or as an investment adviser, underwriter, broker or dealer in securities, or
as an affiliated person, director, or employee of any investment company,
bank, savings and loan association or insurance company, or engaging in or
continuing any conduct or practice in connection with such activity;
(ii) Engaging in any type of business practice; or
(iii) Engaging in any activity in connection with the
purchase or sale of any security or commodity or in connection with any
violation of federal or state securities laws or federal commodities laws;
(f)(4) Been the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any federal or state
authority barring, suspending or otherwise limiting for
-19-
more than 60 days the right of such person to engage in any activity
described in paragraph (3)(i) above, or to be associated with persons engaged
in any such activity; or
(f)(5) Been found by a court of competent jurisdiction in a civil action
or by the Securities and Exchange Commission (the "Commission") to have violated
any federal or state securities law, and the judgment in such civil action or
finding by the Commission has not been subsequently reversed, suspended, or
vacated; or
(f)(6) Been found by a court of competent jurisdiction in a civil action
or by the Commodity Futures Trading Commission to have violated any federal
commodities law, and the judgment in such civil action or finding by the
Commodity Futures Trading Commission has not been subsequently reversed,
suspended or vacated.
(g) PROMOTERS AND CONTROL PERSONS:
No promoter or control person of the Company has been involved in any of
the events enumerated in Item 10(f) above.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and officers and persons who own more than ten
percent of the Company's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission (the "SEC").
Directors, officers and greater than ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) reports
filed.
Based solely on its review of the copies of the reports it received from
persons required to file, AmerAlia believes that during the period from July 1,
1996 through September 15, 1998 all filing requirements applicable to its
officers, directors and greater than ten-percent shareholders were complied with
in accordance with the requirements of said Section 16(a) except as follows:
Mr. Marvin Hudson filed Forms 4 in October 1997 reporting transactions
which occurred in November 1996 and July 1997. The Jacqueline Badger Mars Trust
filed a Form 4 in December 1997 reporting transactions which took place since
May 1994. Mr. Neil Summerson filed a Form 4 reporting a transaction which
occurred in January 1998. Mr. John Woolard, who holds shares of Series E
Preferred Stock and receives shares of common stock as dividends, filed a Form 5
in September 1998 reporting his receipt of the dividend shares through June 30,
1998.
-20-
In addition, the THG Partnership, owner of shares of Series E Preferred
Stock, receives shares of AmerAlia's common stock as dividends. This creates
additional filing obligations for Mr. Bill Gunn, Mr. Marvin Hudson and Ms. Mary
Tiscornia, the owners of the THG Partnership. Consequently, in connection with
their participation in THG, Mr. Bill Gunn and Mr. Marvin Hudson each filed a
Form 4 in October 1997 reporting transactions which occurred in November 1996.
Ms. Tiscornia filed a Form 3 in April 1998 reporting transactions which occurred
in November 1996, and a Form 5 in April 1998 reporting subsequent transactions
through March 31, 1998. To report the receipt of the dividend shares by THG
through June 30, 1998 Mr. Gunn, Ms. Tiscornia and THG each filed a Form 5 in
September, 1998.
ITEM 11. EXECUTIVE COMPENSATION
(a) SUMMARY COMPENSATION TABLE.
The following table sets forth information regarding compensation paid to
the officers of the company during the three fiscal years ended June 30, 1998.
Mr. Gunn was the only executive officer who received compensation in excess of
$100,000 during fiscal 1998, as shown below. Compensation to Mr. Gunn is paid
to Gunn Development Pty. Ltd., of which Mr. Gunn is a controlling shareholder.
Annual Compensation ($$) Long Term Compensation
------------------------ ----------------------
Awards Payouts
------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Restricted
Stock Options LTIP
Name and Year Salary Bonus Other Awards & SARs Payouts Other
Position ($$) ($$) ($$) ($$) (##) ($$) ($$) Compensation
-------- ---- ---- ---- ---- ---- ---- ------ ------------
Bill H. Gunn
as President and 1998 100,000 -0- 14,000(1) -0- -0- -0- -0-
Chief Executive 1997 100,000 -0- 8,000(1) -0- -0- -0- -0-
Officer 1996 100,000 -0- 8,000(1) -0- 210,000(2) -0- -0-
Notes: (1) Directors fees
(2) Comprises 140,000 options and 70,000 SAR's (See Item 12.)
AmerAlia has no plans which result in the payment or accrual for payment of
any amounts to any executive officer in connection with his resignation,
retirement, or other termination, or change of control or change in the
executive officer's responsibilities.
AmerAlia has not adopted a medical insurance, life insurance, or other
benefit plan for its employees. AmerAlia currently has no stock ownership or
other profit-sharing or pension plans, but may adopt such plans in the future.
AmerAlia has no retirement plans and, therefore, has made no contributions to
any such plan on behalf of the named officers.
AmerAlia acquired a vehicle during the 1994 year for the use of Mr. Gunn.
-21-
(c) OPTIONS/SAR GRANTED DURING YEAR ENDED JUNE 30, 1998
Mr. Woolard was appointed an Executive Vice President of AmerAlia on
June 1, 1998. Previously, he was employed as a consultant to AmerAlia. In
connection with his consultancy services, Mr. Woolard was granted options to
acquire 100,000 shares of restricted common stock at $1.00 per share until
March 31, 2001 and 150,000 shares at $1.50 per share until March 31, 2003.
AmerAlia has not adopted any other stock option or stock appreciation
rights plan.
(d) AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUE TABLE.
No executive officer exercised any options or stock appreciation rights
during the 1998 fiscal year. The following table sets forth the fiscal
year-end value of the options held by the company's executive officers:
(a) (b) (c) (d) (e)
Value of
Unexercised
Number of In-the-money
options at options at
6/30/98 6/30/98
------- --------
Shares Acquired Value Exercisable Exercisable
on Exercise Realized Not-exercisable Not-exercisable
Name (##) ($$) (##) ($$)
---- ---- ---- ---- ----
Mr. Bill H. Gunn -0- -0- 140,000 -0-*
Mr. Robert van Mourik -0- -0- 75,000 -0-*
Mr. John Woolard -0- -0- 100,000 25,000
Mr. John Woolard -0- -0- 150,000 -0-*
* Based on the last trade price on June 30, 1998, of $1.25 per share. These
options, which are held by Gunn Development Pty. Ltd. and Ahciejay Pty.
Ltd., affiliates of Mr. Gunn and Mr. van Mourik respectively, and Mr.
Woolard, are exercisable at $1.50 per share and were "out of the money" at
6/30/98.
(e) LONG TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
AmerAlia has no long term incentive plans, and consequently has made no
such awards.
(f) DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE
Not applicable since the company has not defined benefit or actuarial
plans.
(g) COMPENSATION OF DIRECTORS
(g)(1) STANDARD ARRANGEMENTS.
The directors of the Company each receive $14,000 cash compensation for
their services per year. In connection with certain consulting services
rendered by them, AmerAlia paid an affiliate of Mr. Cameron $7,007 for services
rendered during the fiscal year ended June 30, 1998. Mr. Cameron was paid
normal consulting rates applicable to his skills. Mr. Cameron was reimbursed for
expenses incurred on behalf of the company on a fully-accountable basis.
(g)(2) OTHER ARRANGEMENTS.
-22-
Except as described herein, no officer or director of the company has been
or is being paid any cash compensation, or is otherwise subject to any deferred
compensation plan, bonus plan or any other arrangement and understanding whereby
such person would obtain any cash compensation for his services for and on
behalf of the company.
(h) EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS.
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 the company. AmerAlia has no plan or arrangement with respect to any such
persons which will result from a change in control of the company or a change in
the individual's responsibilities following a change in control.
(i) REPORT ON REPRICING OF OPTIONS/SARS.
Not applicable, as no options or SARs were repriced during the fiscal year
ended June 30, 1998.
(j) ADDITIONAL INFORMATION WITH RESPECT TO COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION.
A Compensation Committee comprising the non-executive directors of the
Board was formed early in 1993 and determined the management fees payable to
Messrs. Gunn, van Mourik and Woolard, as set out above. The Compensation
Committee is now Mr.. Summerson alone who has not been an officer nor an
employee of the company or any of its subsidiaries during the fiscal year ended
June 30, 1998, or subsequently. Mr. Summerson does not have any other direct or
indirect relationship with AmerAlia requiring disclosure by the company pursuant
to Item 401 of Regulation S-K. Furthermore, no executive officer of the company
served as a member of the Compensation Committee (or similar committee) of
another entity which dealt with compensation paid to any member of AmerAlia's
Compensation Committee, or with which any other interlocking relationship
exists.
(k) BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
As described above, compensation is paid to Messrs. Gunn and van Mourik
under a management services agreement which retains affiliates of Messrs.
Gunn and van Mourik. The compensation comprises amounts determined on the
basis of salary and an additional amount equal to the directors fees paid to
non-executive directors. Mr. Hudson receives his compensation directly as
an employee.
The Compensation Committee intends to relate future salary increases for
the chief executive officer to the Company's financial performance and stock
market performance as compared to other
-23-
companies in the specialty chemicals and mineral exploration industry, as
well as to compensation paid to the chief executive officers of companies
similarly situated.
By the directors comprising the Compensation Committee: NEIL E. SUMMERSON
Notwithstanding anything to the contrary contained in any of the
Company's filings with the SEC under the Securities Act of 1933 or the
Securities Exchange Act of 1934, this section entitled "Board Compensation
Committee Report on Executive Compensation" shall not be incorporated into
any future filings with the SEC.
(l) PERFORMANCE GRAPH
Not applicable.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A capitalization table is helpful in understanding the security
ownership of certain beneficial owners and management of the Company. The
following table sets forth this capitalization information as of
September 10, 1998:
Number of Voting Rights
Description of Class Shares per share
-------------------- ------ ---------
Common Stock 5,497,551 one vote per share
Series E Preferred Stock 2,536 1,000 votes per share
(a) AND (b) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information as of September 10, 1998 with
respect to the ownership of the common stock for each director, all officers and
directors as a group, and all beneficial owners of more than five percent of the
common stock. The following shareholders have sole voting and investment power
with respect to the shares, unless indicated otherwise. (This does not include
shares held in the name of known depositories, such as CEDE & Co., for the
benefit of the underlying beneficial shareholders).
-24-
- ------------------------------------------------------------------------------
Name & Address Amount & Nature Percent Percent
of of Beneficial of of Voting
Beneficial Owner Ownership Class Securities
- ------------------------------------------------------------------------------
Bill H. Gunn 915,600 (1) 14.87% 3.18%
"Codrington"
Bowenville, Qld
Australia
John F. Woolard 273,000 (2) 4.73% 0.29%
Robert van Mourik 220,384 (3) 3.95% 1.81%
127 Central Ave
St Lucia, Qld
Australia
Madeline Ahern 449,919 (4) 7.66% 5.60%
atf The Bromley Family Trust
8th fl, 87 Wickham Tce,
Brisbane, Qld
Australia
Neil E. Summerson 75,000 (5) 1.35% -0-%
Robert A. Cameron 75,000 (6) 1.35% -0-%
OFFICERS & DIRECTORS
AS A GROUP: 1,538,984 22.86% 5.03%
Jacqueline Badger Mars 3,547,460 (7) 47.31% 44.16%
atf the Jacqueline
Badger Mars Trust dated
Feb 5, 1975 as amended
6885 Elm St., McLean, VA
Mary L Tiscornia 779,285 (8) 12.55% 2.08%
448 Ignacio Blvd, #338
Novato, CA 94949
(continued on next page)
-25-
- ------------------------------------------------------------------------------
Name & Address Amount & Nature Percent Percent
of of Beneficial of of Voting
Beneficial Owner Ownership Class Securities
- ------------------------------------------------------------------------------
Marvin H. Hudson 807,953 (9) 13.06% 2.71%
51 Old Broadmoor Road
Colorado Springs, CO 80906
The THG Partnership 566,140 (10) 9.36% 1.45%
c/o M.L. Tiscornia
448 Ignacio Blvd, #338
Novato, CA 94949
Denison Resources Ltd 407,866 (11) 7.42% 7.42%
Level 5, 1 Eagle St
Waterfront Place
Brisbane, Qld, Australia
- ------------------------------------------------------------------------------
(1) Comprises 7,500 shares owned by Bill H. Gunn and 131,960 shares owned by
Gunn Development Pty. Ltd. (of which Mr. Gunn is a controlling
shareholder); options to acquire 140,000 shares at $1.50 up to June 28,
2006; 70,000 Stock Appreciation Rights; and an interest in the THG
Partnership as set forth above.
(2) Comprises 3,000 shares, 20 shares of Series E Preferred Stock and options
to acquire 100,000 shares of common stock at $1.00 per share until March
31, 2001, and options to acquire 150,000 shares of Common Stock at $1.50
per share until March 31, 2003.
(3) Comprises 500 shares held directly by Mr. van Mourik, 90,759 shares owned
by Ahciejay Pty. Ltd. as Trustee for The R.C.J. Trust, and 54,125 shares
owned by the R.C.J. Superannuation Fund, both of which Mr. van Mourik and
his family are beneficiaries as well as options to acquire 75,000 shares of
common stock at $1.50 up to June 28, 2006.
(4) Comprises 73,919 shares and 376 shares of Series E Preferred Stock. The
Bromley Family Trust is a trust for the benefit of relatives of Robert van
Mourik's spouse. Neither Mr. van Mourik nor his wife has any direct or
indirect interest in the Bromley Family Trust, although Mrs. van Mourik is
a contingent, unnamed beneficiary. Neither Mr. nor Mrs. van Mourik has
received any distributions from the Bromley Family Trust and neither
influences nor controls the decisions of the trustee. See Item 13. Certain
Relationships and Related Party Transactions.
-26-
(5) Comprises options to acquire 75,000 shares for $1.50 up to June 28, 2006
held by Glendower Investments Pty. Ltd. as trustee of a trust of which Mr.
Summerson and his family are beneficiaries.
(6) Comprises options held by Jacinth Pty. Ltd. a company in which Robert
Cameron, a director of the company, is a controlling shareholder, to
acquire 75,000 shares at $1.50 up to June 28, 2006.
(7) Comprises 1,547,460 shares of common stock and 2,000 shares of Series E
Preferred Stock.
(8) Comprises 50,645 shares, options to acquire 162,500 shares of common stock
at $2 up to December 31, 1998 and an interest in the THG Partnership as set
forth below.
(9) Comprises 101,813 shares of common stock, options to acquire 140,000
shares at $1.50 up to June 28, 2006 and an interest in the THG Partnership
as set forth below.
(10) Comprises 100 shares of Series E Preferred Stock and an option until 18
October 1998 to acquire 450 shares of Series E Preferred Stock.
(11) Comprises 407,866 shares of common stock.
The foregoing table does not include the possible effect of issuance of up
to 1,182,500 shares pursuant to the exercise of options held by persons who are
neither officers, directors, nor significant shareholders of the Company, which
options are exercisable as follows:
87,500 at $2.00 until December 31, 1998
100,000 at $1.00 until March 1, 1999
995,000 at $2.00 until March 31, 1999 and at higher prices thereafter
The Series E Stock consists of 2,536 shares issued at $1,000 per share.
The stock is entitled to a dividend preference of 10% per year, payable
quarterly in restricted common stock valued at $1 per share through October 31,
2000. The Series E Stock is convertible into common stock at the option of the
holder until October 31, 2000 on the basis of 1,000 shares per share of Series E
Stock. AmerAlia may redeem all or any portion of the outstanding shares of
Series E Stock at any time upon giving six months notice, but only if the holder
fails to exercise its conversion rights.
To the best knowledge of the company, there are no arrangements,
understandings or agreements relative to the disposition of any of AmerAlia's
securities, the operation of which would at a subsequent date result in a
change in control of the company.
(c) 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 the company.
-27-
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
(a) TRANSACTIONS WITH MANAGEMENT AND OTHERS.
The following sets out information regarding transactions between officers,
directors and significant shareholders of the company.
Loans made to AmerAlia by related parties as detailed in Note 6 to the
Financial Statements which states that AmerAlia owed $35,354 to directors and
affiliates of the company at June 30, 1998. This comprised advances to AmerAlia
and accrued but unpaid compensation and directors fees.
As of June 30, 1997 AmerAlia owed $13,377 to Gunn Development Pty. Ltd., an
affiliate of Mr. Bill H. Gunn, an officer of the company. By June 30, 1998
AmerAlia had repaid the balance due and had advanced further funds to Gunn
Development. The following summarizes these advances during the fiscal year
ended June 30, 1998:
Balance due to Gunn Development at June 30, 1997: $ 13,377
Advances to Gunn Development during year: 173,881
Repayments received during year: 142,830
Net interest accrued: Nil
Balance due from Gunn Development at June 30, 1998: $ 17,674
These advances bear no interest, are due on demand, and are not evidenced
by promissory notes.
During the year, dividends of $356,554 became payable on the Series A,
Series B, Series C, Series D and Series E Preferred Stock and AmerAlia, upon the
agreement with the investors, paid this dividend through the issuance of shares
of restricted common stock in accordance with the statements of preferences.
In September 1996, a secured creditor, NZI Securities Australia Ltd.,
declared a default on indebtedness of approximately A$1,200,000 and advised
AmerAlia that NZI intended to immediately exercise its power of sale over the
RIT units NZI held as collateral. This debt was subsequently acquired from NZI
by the THG Partnership, an AmerAlia affiliate, and AmerAlia then concluded an
agreement with THG to settle the debt as discussed more fully in Note 13 to the
Financial Statements which accompany this annual report. As a part of the
settlement AmerAlia agreed to issue to THG 100 shares of its Series E Preferred
Stock. In addition, THG has an option until 18 October, 1998 to exchange the
RIT units for 450 shares of Series E Preferred Stock or to subscribe $450,000 in
cash to purchase 450 shares of Series E Preferred Stock.
As a result of having acquired shares in May 1997 and having sold shares
in August 1997, Ms. Mary Tiscornia generated a short swing profit of $2,340.
Upon becoming aware of this, Ms. Tiscornia brought the matter to the AmerAlia's
attention and voluntarily remitted this amount to the company in June 1998 in
settlement of her Section 16(b) liability.
-28-
CONVERSION OF SERIES OF PREFERRED STOCK INTO COMMON STOCK
Concerning various classes of shares held by Mrs Jacqueline Badger Mars in
her capacity as trustee of the Jacqueline Badger Mars Trust the following
occurred during the year:
(a) 666,666 shares of Series A preferred stock were exchanged by agreement
with AmerAlia for 666,666 shares of common stock;
(b) 25,000 shares of Series B preferred stock were exchanged for 125,000
shares of common stock in accordance with the statement of preferences
which established the Series B stock;
(c) the 2,000 shares of Series D Preferred stock were exchanged by
agreement with AmerAlia for 2,000 shares of Series E Preferred Stock
which hold the same preferences as those attributable to the Series D
stock; and
(d) the exchanges of the Series A for common stock and Series D for Series
E stock were subject to shareholder approval which was granted at a
meeting of the shareholders held June 30, 1998.
AmerAlia reached an agreement with Miss Madeline Ahern who held the
remaining 26,000 shares of Series B stock as trustee for the Bromley Family
Trust, to exchange the outstanding Series B shares, together with accrued but
unpaid dividends due of $36,000, for 296 shares of Series E Stock based on their
respective liquidation values.
AmerAlia negotiated with the holders of the outstanding 750 shares of
Series C stock an exchange, based upon their respective liquidation values, for
60 shares of Series E Stock. One of the holders of the Series C Stock was Mr.
John Woolard who received 20 shares of Series E Stock. Subsequently, he was
appointed an executive officer of AmerAlia.
AmerAlia negotiated with the THG Partnership and the Bromley Family Trust,
the remaining holders of 180 shares of Series D Stock, an exchange for 180
shares of Series E Stock and an exchange of an option to acquire 450 shares of
Series D Stock for an option to acquire 450 shares of Series E Stock.
As a result of these transactions, the shares of Series E Stock are the
only shares of preferred stock outstanding. See Item 12 above.
(b)(1)-(4) CERTAIN BUSINESS RELATIONSHIPS
See Item 13(a), above.
(b)(5) No nominee or director of the company is, or has been, a partner or
executive officer of any investment banking firm that has performed
services for AmerAlia during the last fiscal year or that AmerAlia
proposes to have perform services during the current year.
-29-
(b)(6) AmerAlia is not aware of any other relationship between its directors
and the company that are similar in nature and scope to those
relationships listed in paragraphs (b)(1) through (5) of this Item 13
except as described above.
(c) INDEBTEDNESS OF MANAGEMENT.
No director, executive officer, nominee for election as a director,
any member of the immediate family of any of the foregoing, or any corporation
or organization of which any of the foregoing persons is an executive officer,
partner or beneficial holder of ten percent or more of any class of equity
securities, or any trust or other estate in which any such person has a
substantial beneficial interest or as to which such person serves as a trustee
or in a similar capacity, was indebted to the Company at any time, except as
disclosed in Item 13(a), above.
(d) TRANSACTIONS WITH PROMOTERS: Not applicable.
-30-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) EXHIBITS.
Certain of the following exhibits are hereby incorporated by reference
pursuant to Rule 12b-23 as promulgated under the Securities and Exchange Act of
1934, as amended, from the reports noted below:
Exhibit
Number Description
------ -----------
3.1 (a) Articles of Incorporation and Amendment.
3.2 (a) Bylaws of AmerAlia, Inc.
3.3 (a) Statement of Preferences for Series A Convertible Preferred
Stock.
3.4 (f) Statement of Preferences for Series B Preferred Stock, as
amended.
10.1 (b) Agreement with Eagle Star Nominees Ltd. as trustee for The Rural
Investment Trust for sale of property in consideration for
issuance of vendor units in the Rural Investment Trust.
10.6 (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
21.1 Subsidiaries of the Registrant: None.
(a) INCORPORATED BY REFERENCE FROM THE COMPANY'S FORM 10 GENERAL REGISTRATION
STATEMENT FILED WITH THE COMMISSION ON MARCH 5, 1987.
(b) INCORPORATED BY REFERENCE FROM THE COMPANY'S FORM 10-K FOR ITS YEAR ENDED
JUNE 30, 1989.
(c) INCORPORATED BY REFERENCE FROM THE COMPANY'S FORM 10-K FOR ITS YEAR ENDED
JUNE 30, 1990.
-31-
(d) INCORPORATED BY REFERENCE FROM THE COMPANY'S FORM 10-K FOR ITS YEAR ENDED
JUNE 30, 1992.
(e) INCORPORATED BY REFERENCE FROM THE COMPANY'S FORM 10-K FOR ITS YEAR ENDED
JUNE 30, 1993.
(f) INCORPORATED BY REFERENCE FROM THE COMPANY'S FORM 10-K FOR ITS YEAR ENDED
JUNE 30, 1995.
(b) During the last quarter of the period covered by this report the
Company filed no current reports on Form 8-K.
(c) Required exhibits are attached hereto and are listed in Item 14(a)(3)
of this Report.
(d) Item 14(a)(2) of this Report lists all required financial statement
schedules to be attached hereto.
-32-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Date: September 25, 1998
AMERALIA, INC.
By: /s/ Bill H. Gunn
-----------------------------
Bill H. Gunn, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
AmerAlia and in the capacities and on the dates indicated.
/s/ Bill H. Gunn Principal Executive Date: 9/25/98
- ----------------------------- Officer and Director
Bill H. Gunn
/s/ Robert van Mourik Secretary, Treasurer Date: 9/25/98
- ----------------------------- Principal Financial
Robert C. J. van Mourik and Accounting Officer,
and Director
/s/ Robert A. Cameron Director Date: 9/25/98
- -----------------------------
Robert A. Cameron
/s/ Neil E. Summerson Director Date: 9/25/98
- -----------------------------
Neil E. Summerson
AMERALIA, INC.
(A Development Stage Company)
Financial Statements
June 30, 1998 and 1997
C O N T E N T S
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . 3
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . 6
Statements of Stockholders' Equity . . . . . . . . . . . . . . . . . . 7
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . 12
Notes to the Financial Statements. . . . . . . . . . . . . . . . . . . 14
2
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders of
AmerAlia, Inc.
(A Development Stage Company)
Colorado Springs, Colorado
We have audited the accompanying balance sheets of AmerAlia, Inc. (a development
stage company) as of June 30, 1998 and 1997, and the related statements of
operations, stockholders' equity and cash flows for the years ended June 30,
1998, 1997 and 1996 and from the beginning of the development stage on July 1,
1992 through June 30, 1998. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AmerAlia, Inc. (a development
stage company) as of June 30, 1998 and 1997, and the results of its operations
and its cash flows for the years ended June 30, 1998, 1997 and 1996 and from the
beginning of the development stage on July 1, 1992 through June 30, 1998 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 16 to the
financial statements, the Company has suffered recurring losses and has a
working capital deficit which raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 16. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Jones, Jensen & Company
Salt Lake City, Utah
September 14, 1998
3
AMERALIA, INC.
(A Development Stage Company)
Balance Sheets
ASSETS
June 30,
-----------------------
1998 1997
---------- ----------
CURRENT ASSETS
Cash (Note 1) $ 707,199 $ 2,088
Related party receivables (Note 2) 17,674 10,064
---------- ----------
Total Current Assets 724,873 12,152
---------- ----------
FIXED ASSETS, net (Note 5) 6,983 15,601
---------- ----------
OTHER ASSETS
Lease acquisition, exploration and
development costs (Notes 3 and 11) 2,768,287 2,755,236
Deferred stock offering costs (Note 1) - 224,500
---------- ----------
Total Other Assets 2,768,287 2,979,736
---------- ----------
TOTAL ASSETS $3,500,143 $3,007,489
---------- ----------
---------- ----------
The accompanying notes are an integral part of these financial statements.
4
AMERALIA, INC.
(A Development Stage Company)
Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30,
------------------------
1998 1997
----------- -----------
CURRENT LIABILITIES
Accounts payable $ 163,910 $ 132,591
Royalties payable (Note 10) 204,167 129,167
Bank overdraft 4,586 -
Due to related parties (Note 6) 35,354 81,058
Notes payable - current portion (Note 7) 411,008 283,586
Interest payable 430 22,526
----------- -----------
Total Current Liabilities 819,455 648,928
----------- -----------
LONG-TERM LIABILITIES
Notes payable (Note 7) - 4,000
----------- -----------
Total Long-Term Liabilities - 4,000
----------- -----------
Total Liabilities 819,455 652,928
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY
Preferred stock, $0.05 par value; 1,000,000
authorized; 2,536 and 720,356 issued and
outstanding, respectively 127 36,018
Common stock, $0.01 par value; 100,000,000
shares authorized; 5,317,551 and 3,309,331
issued and outstanding, respectively 53,176 33,093
Additional paid-in capital 12,151,930 10,744,413
Accumulated deficit (9,524,545) (8,582,174)
Foreign currency translation adjustment
(Note 1) - 123,211
----------- -----------
Total Stockholders' Equity 2,680,688 2,354,561
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,500,143 $ 3,007,489
----------- -----------
----------- -----------
The accompanying notes are an integral part of these financial statements.
5
AMERALIA, INC.
(A Development Stage Company)
Statements of Operations
From the
Beginning
of Development
Stage on
July 1, 1992 to
For the Years Ended June 30, June 30,
---------------------------------------- ----------------
1998 1997 1996 1998
--------- ---------- ---------- -------------
REVENUES $ - $ - $ - $ -
EXPENSES
General and administrative 629,605 690,982 668,202 4,155,320
Depreciation and amortization 8,618 9,389 12,483 60,914
---------- ---------- ---------- ------------
Total Expenses 638,223 700,371 680,685 4,216,234
---------- ---------- ---------- ------------
LOSS FROM OPERATIONS (638,223) (700,371) (680,685) (4,216,234)
---------- ---------- ---------- ------------
OTHER INCOME (EXPENSE)
Other income 29 - - 29
Investment income - - 16,966 89,760
Interest expense (38,909) (70,383) (124,128) (618,529)
Interest income 4,075 1,569 43,307 242,764
Foreign currency gain (loss) 123,211 - (6,810) (63,586)
---------- ---------- ---------- ------------
Total Other Income (Expense) 88,406 (68,814) (70,665) (349,562)
---------- ---------- ---------- ------------
NET LOSS BEFORE INCOME TAX
EXPENSE (549,817) (769,185) (751,350) (4,565,796)
Income tax expense - - - -
---------- ---------- ---------- ------------
NET LOSS $ (549,817) $ (769,185) $ (751,350) $ (4,565,796)
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
BASIC NET LOSS PER SHARE $ (0.13) $ (0.26) $ (0.28)
---------- ---------- ----------
---------- ---------- ----------
DILUTED NET LOSS PER SHARE $ (0.06) $ (0.11) $ (0.12)
---------- ---------- ----------
---------- ---------- ----------
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 4,313,400 3,014,000 2,653,000
---------- ---------- ----------
---------- ---------- ----------
FULLY DILUTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 8,852,733 7,080,324 6,354,907
---------- ---------- ----------
---------- ---------- ----------
The accompanying notes are an integral part of these financial statements.
6
AMERALIA, INC.
(A Development Stage Company)
Statements of Stockholders' Equity
Foreign
Preferred Stock Common Stock Additional Currency
---------------- ------------------- Paid-in Subscription Accumulated Translation
Shares Amount Shares Amount Capital Receivable Deficit Adjustment
------ ------ ------ ------ ------- ---------- ------- ----------
Balance at July 1, 1992
(beginning of development
stage) - $ - 1,803,627 $18,036 $4,449,738 $ - $(3,797,189) $ 22,211
Shares issued for cash at
$2.99 per share - - 421,250 4,213 1,255,787 - - -
Shares issued for payment
of obligations at $2.05
per share - - 7,312 73 14,927 - - -
Change in cumulative
adjustment account - - - - - - - 147,000
Net loss for the year ended
June 30, 1992 - - - - - - (392,712) -
------- ------- --------- ------- ---------- --- ----------- --------
Balance at June 30, 1992 - - 2,232,189 22,322 5,720,452 - (4,189,901) 169,211
Issuance of Series A preferred
stock for cash at $1.50
per share 666,666 33,333 - - 966,667 - - -
Issuance of fractional shares
on reverse split - - 67 - - - - -
Shares issued in acquisition
of Rock School lease at $3.00
per share - - 50,000 500 149,500 - - -
Change in cumulative
adjustment account - - - - - - - (3,000)
Net loss for the year ended
June 30, 1993 - - - - - - (524,482) -
------- ------- --------- ------- ---------- --- ----------- --------
Balance at June 30, 1993 666,666 $33,333 2,282,256 $22,822 $6,836,619 $ - $(4,714,383) $166,211
------- ------- --------- ------- ---------- --- ----------- --------
The accompanying notes are an integral part of these financial statements.
7
AMERALIA, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Continued)
Foreign
Preferred Stock Common Stock Additional Currency
----------------- --------------------- Paid-in Subscription Accumulated Translation
Shares Amount Shares Amount Capital Receivable Deficit Adjustment
------ ------ ------ ------ ------- ---------- ----------- ----------
Balance at June 30, 1993 666,666 $33,333 2,282,256 $22,822 $6,836,619 $ - $(4,714,383) $166,211
Shares issued for payment of
obligations at $2.18 per
share - - 36,250 363 78,650 - - -
Shares issued in lieu of
dividends at $1.50 per share - - 60,000 600 89,400 - - -
Issuance of Series B preferred
stock for cash at $10.00 per
share 51,000 2,550 - - 507,550 - - -
Subscriptions receivable on
Series B stock - - - - - (77,904) - -
Dividends paid - - - - - - (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 717,666 $35,883 2,378,506 $23,785 $7,512,219 $ (77,904) $(5,372,716) $123,211
------- ------- --------- ------- ---------- --------- ----------- --------
The accompanying notes are an integral part of these financial statements.
8
AMERALIA, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Continued)
Foreign
Preferred Stock Common Stock Additional Currency
------------------ -------------------- Paid-in Subscription Accumulated Translation
Shares Amount Shares Amount Capital Receivable Deficit Adjustment
------- -------- --------- --------- ----------- ------------ -------------- -----------
Balance at June 30,1994 717,666 $ 35,883 2,378,506 $ 23,785 $ 7,512,219 $(77,904) $ (5,372,716) $ 123,211
Shares issued for cash and
extinguishment of debt at
$1.64 per share - - 160,000 1,600 261,031 - - -
Shares issued in lieu of
dividends at $1.57 per share - - 71,250 713 111,287 - - -
Issuance of Series C preferred
for cash at $80.00 per share 750 38 - - 59,963 - - -
Dividends paid - - - - - - (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 718,416 35,921 2,609,756 26,098 7,944,500 - (6,494,633) 123,211
Shares issued in lieu of
dividends at $1.00 per
share - - 107,285 1,072 106,182 - - -
Issuance of series D
preferred stock for
cash at $1,000.00
per share 1,435 72 - - 1,434,958 - - -
Dividends paid - - - - - - (333,216) -
Net loss for the year
ended June 30, 1996 - - - - - - (751,350) -
-------- ------- ---------- ------- ---------- -------- ----------- ----------
Balance, June 30, 1996 719,851 $35,993 2,717,041 $27,170 $ 9,485,640 $ - $(7,579,199) $ 123,211
-------- ------- ---------- ------- ---------- -------- ----------- ----------
-------- ------- ---------- ------- ---------- -------- ----------- ----------
The accompanying notes are an integral part of these financial statements.
9
AMERALIA, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Continued)
Foreign
Preferred Stock Common Stock Additional Currency
------------------- -------------------- Paid-in Subscription Accumulated Translation
Shares Amount Shares Amount Capital Receivable Deficit Adjustment
------ ------ ------ ------ ------- ---------- ------- ----------
Balance, June 30, 1996 719,851 $35,993 2,717,041 $27,170 $ 9,485,640 $ - $(7,579,199) $123,211
Shares issued for cash and
extinguishment of debt
at $1.00 per share - - 358,500 3,585 354,915 - - -
Shares issued in lieu of
dividends at $1.00 per
share - - 233,790 2,338 231,452 - - -
Issuance of Series D preferred
stock for cash at $1,000.00
per share 405 20 - - 404,993 - - -
Issuance of Series D preferred
stock for extinguishment of
debt at $1,000.00 per share 100 5 - - 99,995 - - -
Dividends paid - - - - - - (233,790) -
Additional capital contributed - - - - 167,418 - - -
Net loss for the year ended
June 30, 1997 - - - - - (769,185) -
------- ------- --------- ------- ----------- --- ----------- --------
Balance, June 30, 1997 720,356 $36,018 3,309,331 $33,093 $10,744,413 $ - $(8,582,174) $123,211
------- ------- --------- ------- ----------- --- ----------- --------
The accompanying notes are an integral part of these financial statements.
10
AMERALIA, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Continued)
Foreign
Preferred Stock Common Stock Additional Currency
------------------ ------------------- Paid-in Subscription Accumulated Translation
Shares Amount Shares Amount Capital Receivable Deficit Adjustment
------ ------ ------ ------ ------- ---------- ------- ----------
Balance, June 30, 1997 720,356 $ 36,018 3,309,331 $33,093 $10,744,413 $ - $(8,582,174) $ 123,211
Issuance of Series D
preferred stock for cash
at $1,000.00 per share 240 12 - - 239,988 - - -
Common stock sold for cash
at $1.00 per share - - 865,000 8,650 856,350 - - -
Offering costs - - - - (240,800) - - -
Foreign currency translation
adjustment - - - - - - - (123,211)
Shares issued in lieu of
dividends at $1.00 per
share - - 356,554 3,566 352,988 - - -
Conversion of preferred stock (718,060) (35,903) 791,666 7,917 63,987 - - -
Dividends paid - - - - - - (392,554) -
Shares canceled - - (5,000) (50) (4,950) - - -
Additional capital contributed - - - - 139,954 - - -
Net loss for the year ended
June 30, 1998 - - - - - - (549,817) -
-------- -------- --------- ------- ----------- ---- ----------- ---------
Balance, June 30, 1998 2,536 $ 127 5,317,551 $53,176 $12,151,930 $ - $(9,524,545) $ -
-------- -------- --------- ------- ----------- ---- ----------- ---------
-------- -------- --------- ------- ----------- ---- ----------- ---------
The accompanying notes are an integral part of these financial statements.
11
AMERALIA, INC.
(A Development Stage Company)
Statements of Cash Flows
From the
Beginning of
Development
Stage on
July 1, 1992
For the Years Ended June 30, Through
---------------------------------- June 30,
1998 1997 1996 1998
---------- --------- ---------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(549,817) $(769,185) $(751,350) $(4,565,796)
Adjustments to reconcile net loss to
net cash (used) by operating activities:
Bad debt - - 61,581 624,798
Stock issued for services rendered - 65,000 - 65,000
Expenses paid with note receivable and note
payable - - 136,000 -
Depreciation and amortization 8,618 9,389 12,485 70,492
Exchange (gain) loss (123,211) (6,810) (6,515) (168,542)
Change in Operating Assets and Liabilities:
(Increase) decrease in prepayments - - - 18,000
(Increase) decrease in notes receivable - - - 1,300,497
(Increase) decrease in accounts and interest
receivable - 38,086 (76,124) 665
(Increase) decrease in related party
receivables (7,610) 59,466 (40,460) (17,674)
(Increase) decrease in other assets 224,500 (224,500) - -
Increase (decrease) in bank overdraft 4,586 - - 4,586
Increase (decrease) in due to related parties (45,704) 1,541 - (36,615)
Increase (decrease) in accounts payable and
royalties payable 106,319 (122,974) (112,974) 302,407
Increase (decrease) in interest payable (22,096) 229,463 7,918 (118,636)
--------- -------- --------- -----------
Net Cash (Used) in Operating Activities (404,415) (720,524) (779,439) (2,520,818)
--------- -------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Lease acquisition, exploration and development
expenditure (13,051) (20,192) (675,099) (1,922,890)
Purchase of property and equipment - - (2,658) (65,268)
Cash received from notes receivable - - 115,000 (144,853)
--------- -------- --------- -----------
Net Cash (Used) in Investing Activities $ (13,051) $(20,192) $(562,757) $(2,133,011)
--------- -------- --------- -----------
The accompanying notes are an integral part of these financial statements.
12
AMERALIA, INC.
(A Development Stage Company)
Statements of Cash Flows (Continued)
From the
Beginning of
Development
Stage on
July 1, 1992
For the Years Ended June 30, Through
---------- -------- ---------- June 30,
1998 1997 1996 1998
---------- -------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash received from issuance of stock $ 859,200 $404,013 $1,412,068 $4,717,596
Cash received from notes 223,606 320,400 15,000 559,005
Payments on note payable (100,183) (55,000) (68,000) (223,183)
Additional capital contributed 139,954 51,727 - 307,372
---------- -------- ---------- ----------
Net Cash Provided by Financing Activities 1,122,577 721,140 1,359,068 5,360,790
---------- -------- ---------- ----------
NET INCREASE (DECREASE) IN CASH 705,111 (19,576) 16,872 706,961
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 2,088 21,664 4,792 238
---------- -------- ---------- ----------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 707,199 $ 2,088 $ 21,664 $ 707,199
---------- -------- ---------- ----------
---------- -------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Income taxes $ - $ - $ - $ -
Interest $ 38,479 $ 70,382 $ 81,569 $ 261,714
NON-CASH FINANCING ACTIVITIES
Common stock issued for payment of obligations $ - $393,031 $ - $ 393,031
Common stock issued for services rendered $ - $ 65,000 $ - $ 65,000
Payment of preferred stock dividends through
the issuance of additional common and
preferred stock $ 392,554 $233,790 $ 107,254 $ 935,598
The accompanying notes are an integral part of these financial statements.
13
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 1998 and 1997
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 will also enable the production of soda ash and caustic
soda, chemicals which are widely used in the manufacture of glass,
detergents and a variety of inorganic and organic chemicals.
Potentially, sodium bicarbonate might be used as an agent for flue gas
desulfurization, a market AmerAlia expects will expand as the
requirements of the 1990 amendments to the Clean Air Act impact more
significantly on industry. It proposes to achieve this objective by:
1. finalizing Bureau of Land Management approval of a proposal
to construct a plant for the recovery and production of
sodium bicarbonate; and
2. raising sufficient capital to construct the plant and
commence operations; or
3. seeking qualified joint venture partners for the development
of the resource if that is more beneficial to AmerAlia.
AmerAlia has entered into two agreements and one letter of intent to
sell sodium bicarbonate to three long standing distributors of sodium
bicarbonate to the livestock industry. However, none of these
distributors has any obligation to purchase any sodium bicarbonate
from AmerAlia. These distributors cover most of the United States.
Animal feed quality sodium bicarbonate has a current market price
between $200 and $240 per ton delivered. Sodium bicarbonate is used
in the preparation of animal feed mixes where it acts as a rumen
buffer to increase dairy cow milk production.
14
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 1998 and 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
b. Accounting Method
AmerAlia's financial statements are prepared using the accrual method
of accounting. AmerAlia has elected a June 30, year-end.
c. Cash
The AmerAlia considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
d. Reporting Currency and Remeasurement
AmerAlia's financial statements are reported in its reporting
currency, the United States dollar. Remeasurement of Australian
assets, liabilities and operations into United States dollars results
in foreign currency gains and losses which are reflected in the
statements of operations. During the year ended June 30, 1998,
management decided that the foreign currency translation adjustment
was no longer valid because the Australian operations had ceased.
Therefore, the amount was removed from the balance sheet and recorded
through the current year statement of operations.
e. Office Furniture and Equipment
Office furniture and equipment are stated at cost, less accumulated
depreciation. Depreciation is determined using the straight-line
method over the estimated useful lives of the assets ranging from 3 to
7 years. Expenditures for property additions and betterments are
capitalized at cost. Maintenance and repairs are charged to expense
when incurred.
f. Income Taxes
At June 30, 1998, AmerAlia had net operating loss carryforwards of
approximately $2,925,000 that may be offset against future taxable
income from the year 2000 through 2013. No tax benefit has been
reported in the June 30, 1998 financial statements because AmerAlia
believes that the carryforwards are more likely than not to expire
unused. Accordingly, the potential tax benefit is offset by a
valuation allowance of the same amount.
g. Basic Net Loss Per Share
Basic net loss per share is computed using the weighted average number
of common shares outstanding during the applicable period. AmerAlia's
outstanding stock purchase warrants and options have been excluded
from the basic net loss per share calculation as they are
anti-dilutive. The outstanding stock purchase warrants and options
have been included in the fully diluted loss per share.
15
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 1998 and 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
h. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
i. Concentrations of Risk
AmerAlia records receivables from advances to related parties and from
uncollected investment revenues.
The Company maintains a savings account at a financial institution.
The account is insured by the Federal Deposit Insurance Corporation up
to $100,000. The Company's balances occasionally exceed that amount.
The Company also maintains a cash account with a brokerage firm. This
account is not insured by the Federal Deposit Insurance Corporation.
At June 30, 1998, the amount of uninsured cash was $629,075.
Credit losses, if any, have been provided for in the financial
statements and are based on management's expectations. AmerAlia's
accounts receivable are subject to potential concentrations of credit
risk. AmerAlia does not believe that it is subject to any unusual
risks, or significant risks in the normal course of its business.
j. Deferred Stock Offering Costs
AmerAlia has incurred costs of $240,800 in connection with a proposed
stock and debt offering of up to $35 million. The fund raising
agreement is still in effect although funds raised to June 30, 1998 as
a result of this agreement total $815,000 and additional funds raised
to the date of this report total $233,750 (see Note 17.) Stock
offering costs were netted against the proceeds during the year ended
June 30, 1998.
NOTE 2 - RELATED PARTY RECEIVABLES
AmerAlia occasionally issues advances to related parties who have
supported AmerAlia over the years. The balance due from related
parties at June 30, 1998 and 1997 totals $17,674 and $10,064,
respectively.
16
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 1998 and 1997
NOTE 3 - LEASE ACQUISITION, EXPLORATION AND DEVELOPMENT COSTS
In December 1992, AmerAlia acquired from an unrelated party
("Kinder"), BLM Sodium Lease C-0119985 known as the Rock School Lease,
including 1,320 acres, in Rio Blanco County, Colorado, USA. AmerAlia
acquired the Rock School Lease for consideration comprising (I) a cash
payment of $600,000; (ii) the issuance of 50,000 shares of common
stock; and (iii) commencing July 1, 1994, the reservation of a
production royalty of $2 per ton which was amended January 1, 1996 to
$1.50 per ton for all production, due and payable on the last day of
the month following the month of production provided that a minimum
annual royalty of $100,000 (which was changed to $75,000 on January 1,
1996) be paid monthly in arrears. A further condition of the lease
acquisition agreement with Kinder is that all minimum royalty payments
will be credited against any future liability which exceeds the
minimum royalty (see Note 10). Kinder assigned all of its rights,
title and interest in the federal lease to AmerAlia. Kinder also
agreed to provide all documentation, files and records in its
possession pertaining to the exploration of and development plans for
the Rock School Lease; warranted that it had not assigned to any third
party or dealt in any way with its interest in the Rock School Lease
and granted AmerAlia an option to acquire its royalty interest. The
assignment of the interest in the Rock School Lease from Kinder was
approved by the BLM on January 1, 1996.
The Rock School Lease was renewed July 1, 1991 for a period of ten
years and is renewable under terms and conditions prescribed by the
Secretary of the Interior. The lease is currently undeveloped,
although the adjoining lease has been brought into production.
AmerAlia has obtained the necessary permits from the appropriate
regulatory authorities to mine its lease. As a part of obtaining the
approval of the Bureau of Land Management to solution mine the
property, AmerAlia drilled its first core hole during 1996. The
completed core hole has provided specific data which prove the
existence and continuity of the nahcolite beds through the Rock School
Lease as described below.
AmerAlia has engaged engineering consultants to form preliminary
estimates of the cost of constructing a 50,000,000 ton per year plant.
AmerAlia estimates that $30,000,000 or more will be required for
construction and annual operating costs will be up to $5,000,000 for
mining operations. AmerAlia is seeking potential investors that would
provide the necessary funds to construct a plant. The decision as to
when these funds will be available rests with the prospective
investors and lenders.
The lease is one of three federal leases which cover a unique, major
natural resource of nahcolite (naturally occurring sodium
bicarbonate). AmerAlia has performed surface geological investigation
of the 1,320 acre lease and has reviewed data assembled by other
investigators in the Piceance Creek Basin, including a 1974 report
published by the United States Geological Survey entitled
"Stratigraphy and Nahcolite Resources of the Saline Facles of the
Green River Formation, Rio Blanco County, Colorado." (John R. Dyni,
USGS Report 74-56). This report analyzed the results of a detailed
study of ten core holes from the saline zone, including a core hole
known as Dunn 209-1 which is approximately 800 feet to the east of
AmerAlia's proposed initial mine site on the Rock School lease.
17
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 1998 and 1997
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, AmerAlia believes that the
nahcolite deposit within the Rock School Lease is of significant size.
However, not all of this resource can be recovered with existing
technology. Until the resource is brought into production or until
substantial additional engineering work is accomplished, the viability
of economic recoverability cannot be established.
AmerAlia has capitalized costs associated with the acquisition of the
lease site and certain other costs associated with the development of
the resource. All other costs incurred in developing the resource are
expensed as period costs (Note 11).
NOTE 4 - INVESTMENT IN THE RURAL INVESTMENT TRUST
On November 16, 1988, AmerAlia acquired 1,059,459 units valued at
$790,000 in The Rural Investment Trust ("RIT") as a result of the sale
of property to the Trust. The RIT is an Australian public, unlisted
real estate investment trust which invests in agriculturally oriented
properties. It is managed by a wholly-owned subsidiary of National
Mutual Life, a large life insurance company in Australia.
As discussed in Note 13, AmerAlia transferred all of its rights and
ownership in the investment trust to an affiliate in payment of an
outstanding debt. This transaction occurred prior to June 30, 1997.
NOTE 5 - FIXED ASSETS
Fixed assets consist of office furniture and equipment as follows:
June 30,
------------------------
1998 1997
--------- ---------
Vehicle $ 31,960 $ 31,960
Equipment 35,081 35,081
Less accumulated depreciation (60,058) (51,440)
--------- ---------
$ 6,983 $ 15,601
--------- ---------
--------- ---------
Depreciation expense for the years ended June 30, 1998, 1997 and 1996
was $8,618, $9,389 and $12,483, respectively.
18
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 1998 and 1997
NOTE 6 - DUE TO RELATED PARTIES
AmerAlia owed $35,354 and $81,058 to affiliates of AmerAlia at June
30, 1998 and 1997, respectively. This liability is comprised of
advances to AmerAlia, accrued compensation and unpaid directors fees.
NOTE 7 - NOTES PAYABLE - LONG TERM
June 30,
-------------------------
1998 1997
----------- -----------
Notes payable consist of the following amounts:
Note payable to investors; unsecured, due on
demand; at 10% interest. $ 4,000 $ 4,000
Note payable to investor; unsecured, due on
April 23, 1999; at 12% interest. 197,000 -
Note payable to financial institution; principal
and interest payment of $568 due monthly;
at 9.5% interest; secured by vehicle. 5,878 10,033
Note payable to an investor; unsecured, due
on demand; at 20% interest. - 1,500
Note payable to an employee; unsecured,
due on demand; interest free. 18,533 -
Note payable Raytheon Engineers & Constructors,
Inc; unsecured, due upon a 90 day demand; at
12% interest. 185,597 272,053
----------- -----------
411,008 287,586
Less current portion (411,008) (283,586)
----------- -----------
Total Long-Term Notes Payable $ - $ 4,000
----------- -----------
----------- -----------
Principal maturities are as follows:
1999 $ 411,008
2000 -
2001 and thereafter -
-----------
$ 411,008
-----------
-----------
19
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 1998 and 1997
NOTE 8 - OFFICER COMPENSATION
AmerAlia paid $100,000 to Gunn Development Pty. Ltd. and $55,000 to
Ahciejay Pty. for management fees. These companies are affiliates of
Mr. Bill H. Gunn, Chairman and President of AmerAlia, and Mr. Robert
van Mourik, Executive Vice President, Secretary & Treasurer. On June
1, 1998, AmerAlia appointed Mr. John Woolard as an Executive Vice
President. Previously, Mr. Woolard had been employed as a consultant
under a consulting agreement. AmerAlia paid $65,315 in total
compensation to Mr. Woolard. Additional fees totaling $7,007 have
been paid to Jacinth Pty. Ltd., an affiliate of Robert Cameron, a
director of AmerAlia. In addition, all directors received $14,000 for
directors fees.
In June 1996, AmerAlia agreed to grant 70,000 Stock Appreciation
Rights ("SAR's") to Mr. Bill Gunn. At any time after the share price
has sustained an average bid price of more than $3.50 for a six month
period before June 28, 2006, a holder of SAR's may require AmerAlia
to exchange its SAR's, in whole or in part at the holder's option, for
an issuance of restricted common stock at $1.50 per share on a
one-for-one basis. If a holder of a SAR ceases to be a director or
employee of AmerAlia prior to the conversion of all its SAR's, then
the remaining SAR's are canceled.
NOTE 9 - OUTSTANDING STOCK OPTIONS AND PURCHASE WARRANTS
The following summarizes the exercise price per share and expiration
date of AmerAlia's outstanding options and warrants to purchase
preferred and common stock at June 30, 1998:
Expiration Date Price Number
--------------- ----- ------
July 31, 1998 $1.50 13,333
December 31, 1998 $2.00 250,000
March 1, 1999 $1.00 100,000
March 31, 1999 $2.00 815,000 *See note (a)
March 31, 2001 $1.00 100,000
March 31, 2003 $1.50 150,000
June 28, 2006 $1.50 505,000
June 28, 2006 (SAR's) $1.50 70,000 (See Note 8)
---------
2,003,333
---------
---------
Note (a): If unexercised, these options are exercisable at $4.00 until
March 31, 2000 and thereafter at $6.00 until expiring on
April 1, 2001.
20
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 1998 and 1997
NOTE 9 - OUTSTANDING STOCK OPTIONS AND PURCHASE WARRANTS (Continued)
In addition, there is an option expiring October 18, 1998 to acquire
450 shares of Series E Convertible preferred stock for $1,000 per
share or to exchange the RIT investment for 450 shares of the
preferred stock (see Note 13).
During the years ended June 30, 1998 and 1997, no options expired.
During the year ended June 30, 1996, options to acquire 260,000
shares, at up to $4.00 per share expired or were surrendered.
NOTE 10 - COMMITMENTS AND CONTINGENCIES LIABILITIES
AmerAlia is a party to certain claims and lawsuits arising from its
business activities. Management, after consultation with counsel, is
of the opinion that these actions will not have a materially adverse
effect on the financial condition or results of operations of
AmerAlia.
On December 10, 1992, AmerAlia acquired the Rock School Lease from
Kinder; the acquisition terms were amended by Kinder and AmerAlia on
January 1, 1996. As amended, the acquisition agreement provides for
the following consideration:
1. Commencing January 1, 1996, the reservation of a production
royalty of $1.50 per ton for all production, due and payable on
the last day of the month following the month of production
subject to a minimum annual royalty of $75,000 in arrears;
2. Starting January 1, 1996, the establishment of a consulting
arrangement between Kinder and AmerAlia providing for an annual
consulting fee of $25,000 payable monthly in arrears.
Minimum amounts due are as follows:
1999 $ 100,000
2000 100,000
2001 100,000
2002 100,000
----------
Total $ 400,000
----------
----------
These payments will continue while AmerAlia holds the Rock School
Lease. Royalties payable as of June 30, 1998 and 1997 were $204,167
and $129,167, respectively.
As discussed in Note 3, the payment of the minimum annual royalties
accrues credits which AmerAlia can offset against future royalty
liabilities if they exceed the minimum annual royalty due. The total
of these credits at June 30, 1998 was $337,500.
21
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 1998 and 1997
NOTE 10 - COMMITMENTS AND CONTINGENCIES LIABILITIES (Continued)
Marvin Hudson, formerly a vice president and employee of AmerAlia has
made a claim for compensation allegedly due him in connection with his
resignation and termination of employment and status as an officer.
Mr. Hudson had made no formal claim for compensation, but had done so
orally. AmerAlia denies any liability to Mr. Hudson.
NOTE 11 - RECOVERABILITY OF LEASE ACQUISITION, EXPLORATION AND
DEVELOPMENT COSTS
The recoverability of this investment is dependent upon AmerAlia
developing mining operations on the lease so that the profitability of
mining operations, or prospective mining operations, is sufficient to
enable AmerAlia to be able to sell its investment and recover the
lease acquisition, exploration and development costs, as well as any
subsequent capitalized expenditures.
NOTE 12 - STOCK TRANSACTIONS
During the year ended June 30, 1998, the following stock transactions
occurred:
a. On October 10, 1995, the Jacqueline Badger Mars Trust entered
into an agreement with AmerAlia to subscribe for 2,000 shares of
Series D preferred stock with the funds being held in an escrow
account until its transfer to the company. At July 1, 1997,
1,760 shares of the preferred stock had been issued and following
the receipt of the balance $240,000 in September 1997, the
remaining 240 shares were issued.
b. AmerAlia issued 50,000 shares of its common stock for $50,000.
In addition, AmerAlia raised $815,000 through the offer of units
for $5,000 each comprising 5,000 shares of common stock and 5,000
warrants to acquire common stock at $2 until March 31, 1999 and
at higher prices thereafter (see Note 9).
c. 356,554 shares of common stock were issued in lieu of dividends
on outstanding shares of preferred stock.
22
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 1998 and 1997
NOTE 12 - STOCK TRANSACTIONS (Continued)
d. Concerning various classes of stock held by the Jacqueline Badger
Mars Trust:
(1) 666,666 shares of Series A preferred stock were exchanged by
agreement with AmerAlia for 666,666 shares of common stock;
(2) 25,000 shares of Series B preferred stock were exchanged for
125,000 shares of common stock in accordance with the
requirements of the statement of preferences which
established the Series B stock;
(3) the 2,000 shares of Series D preferred stock were exchanged
by agreement with AmerAlia for 2,000 shares of Series E
preferred stock which hold the same preferences as those
attributable to the Series D stock; and
(4) the exchanges of the Series A for common stock and the
Series D for Series E preferred stock were subject to
shareholder approval which was granted at a meeting held
June 30, 1998.
e. AmerAlia negotiated with the holder of the remaining 26,000
shares of Series B Preferred Stock an exchange of its stock,
together with its accrued but unpaid dividends of $36,000
thereon, an exchange for 296 shares of Series E preferred stock,
based on their respective liquidation values.
f. AmerAlia negotiated with the holders of 750 shares of Series C
preferred stock an exchange, based on their respective
liquidation values, for 60 shares of Series E preferred stock.
g. AmerAlia negotiated with the remaining holders of 180 shares of
Series D preferred stock an exchange for 180 shares of Series E
preferred stock, and an exchange of an option to acquire 450
shares of Series D preferred stock for an option to acquire 450
shares of Series E preferred stock.
NOTE 13 - DEBT SETTLEMENT
In early 1994, NZI Securities Australia Ltd. ("NZI") threatened to sue
AmerAlia based on the principal and interest outstanding on the note
payable, secured by AmerAlia's investment in the Rural Investment
Trust. In view of AmerAlia's capital requirements for other purposes,
management was unable to resolve the situation with NZI, but (at
AmerAlia's suggestion) a significant shareholder, Miss Mary L.
Tiscornia, agreed to attempt to do so provided that appropriate
arrangements for satisfaction of the debt could be achieved, including
among other things, payment in shares of AmerAlia's stock. In October
1994, Miss Tiscornia, through a partnership consisting of herself and
Mr. Bill H. Gunn and Mr. Marvin Hudson, executive officers of
Ameralia, (THG Partnership, "THG") entered into an agreement with NZI
to assign the indebtedness from NZI to THG. This assignment was
completed on October 5, 1996.
23
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 1998 and 1997
NOTE 13 - DEBT SETTLEMENT (Continued)
Once the note was assigned, AmerAlia's directors engaged in
negotiations with THG which in November 1996 resulted in an agreement
to fully satisfy the full NZI debt effective November 21, 1996 by
transferring and issuing to THG the following:
Note receivable South Pacific Grazing $103,000
Note receivable Wood Rural Finance 131,000
Two shareholder receivables
(Tiscornia and Hudson) 36,000
Investment in Rural Investment
Trust (present value) 450,000
100 shares of Series D Convertible
Preferred Stock 100,000
In addition, THG has an option until October 18, 1998 to exchange the
RIT units for the issuance of 450 shares of Series E preferred stock
or to pay $450,000 in cash for the issue of 450 shares of Series E
preferred stock.
The net effect of this settlement was to record an additional capital
contribution of $116,000 on the recovery of the assets assigned to
THG.
NOTE 14 - CONSULTING AGREEMENT
On December 21, 1994, AmerAlia entered into a non-exclusive consulting
agreement with an engineering firm for a term of five years. The
agreement requires AmerAlia to pay a consulting fee equal to 2.5 times
the standard rates of the engineering firm's employees for its
services provided to AmerAlia. AmerAlia has the option to pay for
these services by issuing convertible preferred stock.
NOTE 15 - PREFERRED STOCK
The following are terms of the various series of preferred stock:
1. AmerAlia issued 666,666 shares of Series A Convertible Preferred
Stock at $1.50 per share. The shares were convertible into
666,666 shares of common stock until December 10, 1996 and
carried a 9% dividend payable annually in restricted common
stock. The shares were converted into common shares during the
year ended June 30, 1998.
2. There were 51,000 shares of Series B Preferred Stock issued at
$10 per share. Each share was convertible into 5 shares of
common stock until October 29, 1997 and carried a 9% dividend
payable annually at the option of the stockholder in restricted
common stock at $2 per share. The shares were converted to
common shares or Series E Preferred during the year ended June
30, 1998.
3. Series C Convertible Preferred Stock consisted of 750 shares
issued at $80 per share. Each share was convertible into common
stock until April 22, 2005 on the basis of 53 shares of common
stock for each share of Series C and carried a 5% dividend
payable annually in cash. The Series C stock was converted to
Series E Preferred during the year ended June 30, 1998.
24
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 1998 and 1997
NOTE 15 - PREFERRED STOCK (Continued)
4. There are 2,536 shares of Series E preferred stock which carry a
10% dividend payable quarterly in restricted common stock at
$1.00 per share. Each share of the preferred stock is
convertible into 1,000 shares of common stock until October 31,
2000.
NOTE 16 - GOING CONCERN
AmerAlia's financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates
the realization of assets and liquidation of liabilities in the normal
course of business. However, AmerAlia does not have significant cash
or other material assets, nor does it have an established source of
revenues sufficient to cover its operating costs and to allow it to
continue as a going concern. It is the intent of AmerAlia to generate
revenue through the manufacture and sales of its sodium bicarbonate
products. However, AmerAlia cannot begin mining the product until a
substantial amount of money is raised and funded to AmerAlia.
AmerAlia is in the process of trying to raise $35,000,000 through an
investment broker, although these funds have not been raised as of the
date of this audit report.
NOTE 17 - SUBSEQUENT EVENTS
Since June 30, 1998 AmerAlia has raised a total of $233,750 through
the sale of common stock and warrants. The warrants are exercisable
at $2.00 per share through March 31, 1999 and at higher prices
thereafter. As a result of the funds made available through this
capital raising activity and the funds raised during the fiscal year,
AmerAlia was able to repay a significant portion of its notes payable
including the indebtedness to Raytheon Engineers and Constructors,
Inc.
25