Attached files
| file | filename |
|---|---|
| EX-32.2 - EXHIBIT 32.2 - AMERALIA INC | ex32_2.htm |
| EX-31.1 - EXHIBIT 31.1 - AMERALIA INC | ex31_1.htm |
| EX-32.1 - EXHIBIT 32.1 - AMERALIA INC | ex32_1.htm |
| EX-31.2 - EXHIBIT 31.2 - AMERALIA INC | ex31_2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
|
FORM
10-K
|
|
|
T
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the fiscal year ended June 30, 2009
OR
|
|
£
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period
from to
|
Commission file number:
000-15474
|
|
AMERALIA, INC.
|
||
|
(Exact
Name of Registrant as Specified in its Charter)
|
||
|
Utah
|
87-0403973
|
|
|
(State
of other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
|
|
|
|
|
3200
County Road 31
|
|
|
|
Rifle, Colorado
|
81650
|
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
|
(720) 876-2373
|
|
(Registrant’s
Telephone Number, including Area
Code)
|
SECURITIES
REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
|
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF
THE ACT: Common Stock, $0.01 par
value
|
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
|
|
Yes
£ NoT
|
|
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes £ No T
|
|
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 T 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 contained, to the best of the registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to the Form 10-K. £
|
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act (Check one):
|
Large
Accelerated Filer £
|
Accelerated
Filer £
|
|
|
Non-Accelerated Filer £
|
Smaller Reporting Company T
|
|
Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the
Act). Yes £ No T
|
|
State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common
equity, as of the last business day of the registrant’s most recently
completed second fiscal quarter: $8,872,940 as of December 31,
2008, based on the last sale price on the OTCBB of
$0.85.
|
|
The number of shares of the Registrant’s Common
Stock, $0.01 par value, outstanding as of September 21, 2009 was
66,293,696.
|
Cautionary
Note RegardingForward
Looking Statements
The
information in this Annual Report on Form 10-K contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements involve risks and uncertainties regarding
the intent, belief or current expectations of the Company, its directors or its
officers. Any statements contained herein that are not statements of
historical facts may be deemed to be forward-looking statements. In some cases,
you can identify forward-looking statements by terminology such as "may",
"will", "should", "expect", "plan", "intend", "anticipate", "believe",
"estimate", "predict", "potential" or "continue", the negative of such terms or
other comparable terminology. Actual events or results may differ materially. In
evaluating these statements, you should consider various factors, including the
risks we outline from time to time in other reports we file with the Securities
and Exchange Commission (the “SEC”) and under the heading “Risk Factors” in this
Annual Report. These factors may cause our actual results to differ materially
from any forward-looking statement. We disclaim any obligation to publicly
update these forward-looking statements, or disclose any difference between our
actual results and those reflected in these statements, except as required by
law. Given these uncertainties, readers are cautioned not to place undue
reliance on such forward-looking statements.
We
qualify all forward-looking statements in this Annual Report by the foregoing
cautionary note.
Cautionary Note to US
Investors
The
SEC limits disclosure for U.S. reporting purposes to mineral deposits that a
company can economically and legally extract or produce. The reader is cautioned
that the term "resource" is not recognized by SEC guidelines for disclosure of
mineral properties.
Terminology
In
this report “tons” means U.S. Short Tons unless otherwise
specified.
|
Item
|
Page
|
|
|
PART
1
|
||
|
1
|
3 | |
| 5 | ||
| 6 | ||
| 7 | ||
| 9 | ||
| 9 | ||
| 12 | ||
| 16 | ||
| 20 | ||
|
1A
|
21 | |
|
1B
|
24 | |
|
2
|
25 | |
|
3
|
25 | |
|
4
|
25 | |
|
PART
11
|
||
|
5
|
26 | |
|
6
|
27 | |
|
7
|
28 | |
|
8
|
33 | |
|
9
|
33 | |
|
9A(T)
|
34 | |
|
9B
|
34 | |
|
PART
111
|
||
|
10
|
35 | |
|
11
|
39 | |
|
12
|
42 | |
|
13
|
43 | |
|
14
|
47 | |
|
15
|
48 | |
| F-1 | ||
PART
I
|
ITEM 1.
|
DESCRIPTION OF
BUSINESS
|
The
terms “we,” “us,” “our,” “AmerAlia” and the “Company” used in this Annual Report
refer to AmerAlia, Inc. unless otherwise indicated.
AmerAlia,
Inc. was incorporated in Utah on June 7, 1983 as Computer Learning Software,
Inc. and renamed AmerAlia, Inc. in January 1984.
Our
business is to identify and develop natural resource assets. AmerAlia
actively participates in the management and development of the natural sodium
bicarbonate resources and water rights owned by our former direct subsidiary,
Natural Soda Holdings, Inc. (“NSHI”) and NSHI’s wholly-owned subsidiary, Natural
Soda, Inc. (“NSI”).
Currently,
we own 18% of NSHI. We are attempting to acquire some or all of the
outstanding shares of NSHI we do not own from Sentient (defined below) so that
we can secure majority ownership. If we cannot achieve this objective
we shall likely have to register as an investment company or seek alternative
means of complying with the Investment Company Act. We are discussing
this issue with Sentient and the Securities and Exchange
Commission.
NSI
owns various water rights in the Piceance Creek Basin in northwest Colorado, a
part of the Colorado River drainage system. These various rights
allow NSI to draw up to a maximum of 108,812 acre feet (35.46 million gallons)
annually and to store up to 7,980 acre feet of water.
NSHI
and NSI also own the largest Bureau of Land Management (“BLM”) leases in the
Piceance Creek Basin which contains the largest known deposits of nahcolite,
naturally occurring sodium bicarbonate, in the world. NSHI’s and
NSI’s leases are located near the depositional center of the Piceance Creek
Basin where the nahcolite beds are thickest and most
concentrated. Consequently, we believe these deposits are unique and
capable of producing sodium bicarbonate and related sodium products for many
generations.
NSHI
first acquired its interest in a lease known as the Rock School lease in
1989. NSI acquired its operating assets and sodium leases in 2003, an
acquisition financed by loans from a trust and a fund (the “Sentient Entities”)
managed by Sentient Asset Management, an international private equity group
specializing in the development of natural resources.
NSI’s
business is to produce and sell natural sodium bicarbonate, commonly known as
baking soda, for use in a wide variety of products and activities. NSI’s
immediate objectives are, firstly, to be a low cost producer of sodium
bicarbonate and to leverage that low cost advantage to achieve superior profit
margins; and secondly, to profitably utilize its water assets.
Deposits
of oil shale lie below, above and are interspersed within the nahcolite
contained within the sodium leases. We do not have any rights to
recover oil shale but NSHI and NSI plan to apply for leases to exploit all or
part of this oil shale if and when the United States government formulates
procedures for that purpose. Shell Frontier Oil & Gas Co.
(“Shell”) has three research, development and demonstration leases adjacent to
NSI’s sodium leases. A Shell fact sheet, “Shell Exploration &
Production Technology - to secure our energy future – Mahogany Research Project”
reports an estimated potential recovery rate of up to one million barrels of oil
per surface acre. If we obtain the right to exploit all or part of
this oil shale, we plan to independently determine possible recovery rates and
attempt to develop an economically feasible plan to recover oil from the oil
shale resource contained within the area where NSHI’s and
NSI’s sodium leases are located.
Figure
1: Natural Soda’s Plant Operations, Rifle, Colorado
As
discussed more fully below, on September 25, 2008, AmerAlia, NSHI, NSI, Bill H.
Gunn and Robert van Mourik, directors and executive officers of AmerAlia
(collectively the “AmerAlia Parties”) entered into a “Restructuring Agreement”
with the Sentient Entities. Previously, NSHI owned 46.5% of
NSI. Prior to the closing, the Sentient Entities transferred their
various interests to Sentient USA Resources Fund (“Sentient”). As a
result of the restructuring, NSI became a wholly-owned subsidiary of NSHI,
Sentient converted its loans to NSHI into NSHI equity and AmerAlia’s ownership
in NSHI was reduced from 100% to 18%. Sentient converted its loans to
AmerAlia into additional common stock of AmerAlia. All debts
previously owed to Sentient by NSHI and AmerAlia were
cancelled. AmerAlia also received approximately $10 million in cash,
settled approximately $12 million of debt, terminated indemnification rights
relating to the extinguishment of a $9.9 million bank loan and extinguished
other obligations in exchange for the issue of shares of its common stock as
discussed more fully below. As a result after repaying debts and
other obligations, AmerAlia had approximately $4,300,000 in cash at June 30,
2009. Sentient now owns 72.4% of AmerAlia’s common
stock. When combined with its additional purchase rights, Sentient’s
beneficial ownership is 74.5%. Pursuant to the Restructuring
Agreement, Sentient has the right to nominate Peter Cassidy and up to three
additional suitably qualified persons for election by the shareholders as
directors of AmerAlia.
OVERVIEW
OF CORPORATE STRUCTURE
Prior
to May 2007, we owned 100% of the outstanding common stock of NSHI, which in
turn owned 100% of the outstanding common stock of NSI, as shown
below. NSI is an operating company that produces and sells sodium
bicarbonate (baking soda). NSI has several active mineral leases, owns water
rights and a sodium bicarbonate production facility in the Piceance Creek Basin
area of Colorado.
In
2003, the Sentient Entities provided NSHI with short-term financing which was
finalized in 2004. In May 2007, the Sentient Entities converted a
portion of the debt owed by NSHI and NSI into a 53.5% equity interest in
NSI. In August 2007, the Sentient Entities purchased approximately
46% of the equity in AmerAlia from a major shareholder of AmerAlia, and also
acquired additional debt obligations of AmerAlia from the same major
shareholder. These events are reflected in the ownership structure
shown below.
As
part of a restructuring transaction in October 2008:
|
|
·
|
the
Sentient Entities transferred their various interests to
Sentient;
|
|
|
·
|
NSI
became a wholly-owned subsidiary of
NSHI;
|
|
|
·
|
Sentient
converted its loans to NSHI into NSHI equity and AmerAlia’s ownership in
NSHI was reduced from 100% to 18%;
and
|
|
|
·
|
Sentient
converted its loans to AmerAlia into additional common stock of
AmerAlia.
|
This
reorganization resulted in the ownership structure shown below.
In
connection with this restructuring, AmerAlia also received approximately $10
million in cash, settled approximately $12 million of debt, terminated
indemnification rights relating to the extinguishment of a $9.9 million bank
loan and extinguished other obligations in exchange for the issue of 48,961,439
shares of its common stock.
Pursuant
to the Restructuring Agreement, Sentient has the right to nominate Peter
Cassidy, the Chairman of Sentient Group, and up to three additional suitably
qualified persons for election by the shareholders as directors of
AmerAlia.
OUR
PARTICIPATION IN NSHI & NSI
We
have two executive officers, Bill H Gunn, our Chairman and CEO, and Robert van
Mourik, our EVP and CFO. Both officers actively participated in the
development of the Rock School lease and its acquisition, followed by the
negotiations and acquisition of the sodium bicarbonate operations now held by
NSI.
Bill
H. Gunn has been and continues to be the executive chairman of
NSI. He was also a director and president of NSHI until June 2009
when he became vice president. He leads and directs NSI’s management
team including production activities, sales, customer service, distribution, HR,
business planning and budgeting and managing relationships with government
departments and agencies.
Robert
van Mourik is primarily involved in financial functions, internal controls and
procedures, budgeting, planning, reporting and audits. He has been
and continues to be CFO of NSI. He was also the CFO of NSHI until
June 2009. He continues to assist in the oversight of its accounting
functions.
The
board of directors of NSHI comprises Peter Cassidy, Bill H. Gunn, Brad Bunnett,
Stephen Dunn and Johanna Druez. Peter Cassidy is Chairman and also
President of NSHI. Brad Bunnett is President of
NSI. Stephen Dunn and Johanna Druez are Sentient
representatives.
RESTRUCTURING
TRANSACTIONS
On
September 25, 2008, AmerAlia, NSHI, NSI, Bill H. Gunn and Robert van Mourik,
directors and executive officers of AmerAlia (collectively the “AmerAlia
parties”) entered into a Restructuring Agreement with the Sentient
Entities. Previously, NSHI owned 46.5% of NSI.
On
October 31, 2008, the AmerAlia Parties and the Sentient Entities completed an
Amendment to the Restructuring Agreement. As a result of the
amendment, the restructuring transaction was divided into two
closings. In accordance with the amended agreement the first closing
occurred as of October 31, 2008. Prior to the first closing, the
Sentient Entities transferred their various interests to
Sentient. The second closing occurred as of December 31,
2008. In the first and second closings:
|
|
·
|
Sentient
exchanged all its NSHI debentures and all accrued interest thereon, its
one share of NSHI common stock and its 53.5% of the common stock of NSI
for 82% of the issued common stock of
NSHI;
|
|
|
·
|
AmerAlia
exchanged its NSHI debentures and all accrued interest thereon and its
NSHI preferred stock for 12.9% of the issued common stock of NSHI, giving
AmerAlia an aggregate ownership position in NSHI of
18%;
|
|
|
·
|
Intercompany
loans between AmerAlia and NSHI were
extinguished;
|
|
|
·
|
Sentient’s
indemnification rights relating to the extinguishment of a $9.9 million
bank loan were terminated; and
|
|
|
·
|
Sentient
received an aggregate of 40,024,675 shares of AmerAlia common stock as
follows:
|
|
|
o
|
27,427,406
shares of AmerAlia common stock for a total purchase price of
$9,873,866;
|
|
|
o
|
6,619,469
shares in satisfaction of various promissory notes;
and
|
|
|
o
|
5,977,800
shares in satisfaction of debts, rights and obligations acquired from the
Mars Trust in August 2007 at the first
closing.
|
Sentient
no longer holds any debt in either AmerAlia or NSHI. All debentures
issued by NSHI have been cancelled. NSI is now a wholly-owned
subsidiary of NSHI.
AmerAlia
extinguished other obligations in exchange for the issue of shares of our common
stock as discussed more fully below and in our financial
statements. Sentient now owns 72.4% of AmerAlia’s common
stock. When combined with its limited additional purchase rights,
Sentient’s beneficial ownership is 74.5%.
Repayment
of Obligations Due to Officers and Directors
In
September 2008, we issued 495,820 shares of restricted common stock to the Karen
O. Woolard Trust, an affiliate of our director, Robert C. Woolard, in
satisfaction and cancellation of a promissory note and accrued interest with a
total value of $1,175,889.
On
October 31, 2008, in conjunction with the Restructuring Agreement, our officers
and directors and their affiliates subscribed for shares of AmerAlia common
stock in satisfaction of various notes and accrued compensation as
follows:
|
Shareholder
|
Relationship
|
Number of
Shares
|
Consideration
|
|||||||
|
Bill
H Gunn
|
Chairman
& CEO
|
700,000 | $ | 252,000 | ||||||
|
Robert
van Mourik
|
Director,
EVP & CFO
|
250,000 | 90,000 | |||||||
|
James
V Riley Trust
|
Affiliate
of James V. Riley, Director
|
1,583,333 | 570,000 | |||||||
|
J.
Jeffrey Geldermann
|
Director
|
1,003,400 | 361,224 | |||||||
|
Karen
O. Woolard Trust
|
Affiliate
of Robert C. Woolard,
Director
|
925,000 | 333,000 | |||||||
|
Glendower
Investments Pty
Ltd
|
Affiliate
of Neil E. Summerson,
Director
|
153,000 | 55,080 | |||||||
|
Geoffrey C. Murphy
|
Director
|
486,125 | 175,005 | |||||||
|
TOTALS:
|
5,100,858 | $ | 1,836,309 | |||||||
Issues
of Shares to settle Debt Obligations
In
addition to the shares issued to Sentient, our officers and our directors as
described above, we issued 2,433,706 shares to settle promissory notes and
accrued interest valued at $876,134 to unaffiliated accredited
investors.
Uses
of Cash
The
$9,873,866 we received as cash was used to pay outstanding obligations and
provide working capital as set forth in the table below. The working
capital includes a reserve solely to fund AmerAlia’s share of anticipated
capital calls by NSHI, AmerAlia’s share of which is $2,880,000. As
discussed at Item 13, we contributed $450,000 to our share of a capital call in
July 2009.
|
Recipient
|
Relationship
|
Nature
of
Obligation
|
Amount
Paid
|
|||||
|
Karen
O. Woolard Trust
|
Affiliate
of Robert C. Woolard,
Director
|
Balance
of Note &
interest
|
$ | 977,188 | ||||
|
Robert
van Mourik
|
Director,
EVP & CFO
|
Accrued
compensation advances
& expenses (1)
|
920,064 | |||||
|
Bill
H. Gunn
|
Director
& CEO
|
Accrued
compensation advances
& expenses (2)
|
794,657 | |||||
|
Ahciejay
Pty Ltd
|
Affiliate
of Robert
van Mourik
|
Promissory
note &
interest (3)
|
169,816 | |||||
|
James
V Riley Trust
|
Affiliate
of James
V. Riley, Director
|
Promissory
note interest
& directors fees
|
151,524 | |||||
|
J.
Jeffrey Geldermann
|
Director
|
Promissory
note interest
& directors fees
|
95,881 | |||||
|
Neil
E. Summerson
|
Director
|
Director’s
fees &
expenses
|
54,215 | |||||
|
Geoffrey
C. Murphy
|
Director
|
Director’s
fees &
expenses
|
36,550 | |||||
|
Robert
C. Woolard
|
Director
|
Directors
fees
|
23,792 | |||||
|
Note
holders
|
Unrelated
parties
|
Notes
& interest
|
1,983,801 | |||||
|
Various
creditors, taxes and
working capital
|
4,666,378 | |||||||
|
TOTAL:
|
$ | 9,873,866 | ||||||
|
1.
|
Includes
accrued outstanding compensation and related employee withholding taxes,
reimbursement of expenses and advances and current year
compensation.
|
|
2.
|
Includes
accrued outstanding compensation and related employee withholding taxes,
reimbursement of expenses, advances and current year
compensation.
|
|
3.
|
Includes
withholding taxes.
|
Shareholders
Agreement
The
Restructuring Agreement included an undertaking by the AmerAlia Parties and the
Sentient Parties to terminate the existing Securityholders
Agreement. Accordingly, NSHI, AmerAlia and Sentient entered into a
new Shareholders Agreement dated October 31, 2008. The agreement
contains provisions restricting transfers of shares by shareholders and a right
of first refusal on sales to third parties of the shares held by
AmerAlia. Under the agreement, if Sentient decides to sell its NSHI
shares, it can force AmerAlia to sell its NSHI shares on the same terms and
conditions as Sentient, or “drag-along” AmerAlia, subject to any required
approval by the AmerAlia shareholders. The agreement also provides
for additional funding of NSHI on a pro rata basis by AmerAlia and
Sentient. Although Sentient does not have any contractual obligation
to fund any capital contributions, if Sentient does fund its pro rata portion,
it does have the option to fund any pro rata capital contribution that AmerAlia
does not make, which would even further dilute AmerAlia’s ownership of
NSHI.
ACTIVITIES
OF NSHI & NSI
|
1.
|
Sodium Leases
|
Sodium
Leases and Operations
Nahcolite,
a naturally occurring mineral form of sodium bicarbonate, is only known to exist
in large quantities in the Piceance Creek Basin in northwest
Colorado. Access to these deposits is governed by the BLM, a part of
the Department of Interior, which has granted some leases to allow recovery of
the sodium bicarbonate. NSI owns four sodium leases, collectively
known as the Wolf Ridge Mining Unit, and NSHI owns the adjoining Rock School
lease.
The
geology of the Piceance Creek Basin has been described and discussed in two
reports. In March 1983, Rex D. Cole, Ph.D. Consulting Geologist,
Grand Junction, Colorado, issued a report “Geologic Framework of Federal Sodium
Lease C-0118326, Piceance Creek Basin, Colorado”. On Page 3 of
“Summary and Conclusions” the report states “Total nahcolite resources for the
lease area are between 6 and 8 billion tons.” The lease to which Cole
refers (C-0118326) is the
Wolf Ridge lease, one of the four leases comprising the Wolf Ridge Mining Unit
being mined by NSI; therefore, NSI’s holdings extend beyond the particular lease
to which Cole refers.
A
second report by Cole, Daub & Weston entitled “Review of Geology, Mineral
Resources, and Ground-Water Hydrology of the Green River Formation,
North-Central Piceance Creek Basin, Colorado” was published by the Grand
Junction Geological Society, Grand Junction, Colorado, in 1995. The
authors state “…subsequent drilling established that the world’s largest
deposits of naturally occurring sodium bicarbonate (nahcolite) are present in
the Piceance Creek Basin” and “…the estimated in-situ resources of nahcolite and
dawsonite are placed at 29 and 19 billion tons, respectively”. A more
recent USGS Nahcolite and Dawsonite Piceance Creek Basin resource estimate in
2009 placed the nahcolite at 43.3 billion short tons. However, NSHI’s
and NSI’s leases only cover a portion of this resource of which we believe only
a portion will be recoverable.
Figure
2: NSHI’s and NSI’s Sodium Leases are located
about
54 miles northwest of Rifle, Colorado
We
first acquired an interest in the Rock School lease in Rio Blanco County,
Colorado in 1989 and subsequently acquired it in 1992. We have never
produced sodium bicarbonate from the Rock School lease which is now owned by
NSHI and remains an untapped asset.
NSHI’s
and NSI’s leases are located near the depositional center of the Piceance Creek
Basin where the nahcolite beds are thickest with the highest concentration of
nahcolite. The Wolf Ridge Mining Unit leases issued to NSI cover a total of
8,223 acres. When combined with the Rock School lease issued to NSHI,
the leases cover a total of 9,543 acres.
Each
of the four Wolf Ridge leases and the Rock School lease was renewed effective
July 1, 2001 for a ten year term with a preferential right to subsequent
renewals provided that sodium is being produced in paying
quantities. Under the unit agreement, production in paying quantities
from one lease is sufficient to extend all four Wolf Ridge
leases. The leases bear a production royalty payable to the federal
government of 2.0% of the gross value of the production exiting the processing
plant. Each of these leases contains covenants to protect the in situ
oil shale, water, and historical resources. We believe BLM general practice is
that the conduct of NSHI and NSI’s activities will be sufficient to enable lease
renewals. However, there can be no assurance that the conduct of such
activities or additional development will be sufficient for the BLM to grant
further lease renewals. NSHI may have to undertake some additional
development in order to renew the Rock School lease.
Production
Cavities and Solution Mining
The
Wolf Ridge leases contain the unique Boies Bed, the richest and most
economically recoverable bed of nahcolite in the Piceance Creek
Basin. The Boies Bed contains an interval at an approximate depth of
1,900 feet that, while variable, averages approximately 30 feet thick with
nahcolite constituting over 65% of the material in that
interval. Solution mining requires pumping hot water into the
nahcolite-bearing rock zone, the nahcolite dissolves and is pumped to the
surface in near saturated solution known as pregnant liquor and brought into the
plant for the sodium bicarbonate to be crystallized, dried, graded and bagged in
50 pound or 2,000 pound bags or stored for bulk sales. The remaining
underground cavity comprises a honeycomb like rock rubble. The spent
liquor is reheated and recycled underground to continue the solution mining
process. The dried sodium bicarbonate is then screened and stored
Figure
3: Samples of nahcolite
NSI’s
operations to recover sodium products from these leases are governed by a BLM
approved mine plan defining our cavity program to support our solution mining
process. NSI has invested $6,566,202 developing the well field and
its cavities. In the past, as the need for an additional cavity has
arisen, NSI has proposed a new cavity in accordance with the mine plan and after
a period of consultation, the BLM has authorized the recovery of an amount of
additional sodium bicarbonate. Consequently, NSI has been able to
maintain its operations and retain access to this resource. The
following table illustrates this process for the last four
years:
|
Authorized Recovery (tons)
|
||||||
|
Year ending
|
Additions
|
Production
|
Balance
|
|||
|
June
30, 2005
|
467,271
|
|||||
|
June
30, 2006
|
-
|
(90,369)
|
376,902
|
|||
|
June
30, 2007
|
-
|
(98,145)
|
278,757
|
|||
|
June
30, 2008
|
150,000
|
(100,189)
|
328,568
|
|||
|
June
30, 2009
|
(99,293)
|
229,275
|
||||
As
the above table shows, NSI had authority, as of June 30, 2009, to recover up to
229,275 tons of sodium bicarbonate from the three existing connected cavities
denominated as 5H, 6H and 7H. In early September 2009 NSI completed a
new cavity, 10H, at a cost of approximately $2,750,000 that increased NSI’s
authorized recovery by 385,000 tons. However we only expect to
recover approximately 308,000 tons from this new cavity. NSI is
currently embarking on another drilling program at an estimated cost of
$2,400,000 to establish another new well, 11H, and expects to secure a further
increase of approximately 300,000 tons to its authorized recovery to ensure a
reliable supply of feed liquor to its plant for several years. Along
with these wells, NSI has installed an additional pipeline to carry the
recovered liquor to the plant at a cost of approximately
$715,000. This pipeline will support 10H, 11H and an additional
future cavity.
These
activities are part of an exploration and production cavity installation program
which is expected to cost approximately $9 million over time. While NSI is
generating sufficient free cash flow to provide for most of this expenditure,
NSI needed additional financing to fund the initial
investment. Consequently, AmerAlia and Sentient completed a
Contribution Agreement and we advanced $450,000 as our share of $2,500,000 NSHI
raised from ourselves and Sentient in July 2009. See Item 15, Exhibit
10.56.
During
the last year, some occasional, expected and normal partial cavity collapses
occurred in cavities 5H and 6H which had the effect of lowering the brine grade
of the pregnant liquor causing a lowered level of product yield from those two
cavities and a consequent need to increase plant liquor throughput to maintain
the production rate. Brine grade and liquor throughput determine the
production rate of our cavities and these vary from time to
time. The new cavities will assist in safeguarding future
production and provide additional production flexibility to enable NSI to
optimise its production rates.
Figure
4: A general illustration of the solution mining process
Products
& Other Potential Uses
Sodium
bicarbonate is used as a component in animal feed, human food, pharmaceutical
and industrial applications, especially as an environmentally benign cleaning
agent. Sodium bicarbonate can also be used as an agent for flue gas
desulfurization, a market that may expand in the future.
Currently,
the oil shale in the Piceance Creek Basin is the subject of considerable
interest as a result of the increasing recognition of the need for the United
States to become more self sufficient in energy and reduce its reliance on
foreign energy sources. If that interest led to investment in
developing the oil shale resource, NSI’s proximity to the oil shale industry may
allow it to benefit from any increased demand for its water or for additional
sodium bicarbonate products such as those used in cleaning the
environment.
|
2.
|
NSI’s
Sodium Bicarbonate
Business
|
NSI’s
business is to produce and sell natural sodium bicarbonate, commonly known as
baking soda, for use in a wide variety of products and
activities. NSI is a wholly-owned subsidiary of NSHI.
The
Sodium Bicarbonate Market
According
to the 2006 Chemical Economics Handbook – SRI Consulting, the United States
production of sodium bicarbonate in 2005 was 580,000 metric
tons. Further, the Handbook reports “Apparent U.S. consumption of
sodium bicarbonate increased from 331 thousand metric tons in 1989 to an
estimated 534 metric tons in 2005, representing an average annual growth rate of
3.0%. Actual consumption growth is expected to average 2.1% per year
through 2010, reaching a level of 576,000 metric tons.”
In
addition, the Handbook reports U.S. consumption of sodium bicarbonate by end
user (thousands of metric tons) in 2005. For convenience, the
equivalent U.S. Short Tons is also shown:
|
End User
|
Metric Tons
(‘000)
|
Equivalent
U.S. Short
Tons (‘000)
|
|||||
|
Food
|
170 | 187.4 | |||||
|
Animal
Feed
|
134 | 147.7 | |||||
|
Pharmaceuticals
and Personal Care
|
48 | 52.9 | |||||
|
Chemicals
|
46 | 50.7 | |||||
|
Cleaning
Products
|
44 | 48.5 | |||||
|
Water
Treatment
|
33 | 36.4 | |||||
|
Blast
Media
|
19 | 20.9 | |||||
|
Fire
Extinguishers
|
9 | 9.9 | |||||
|
Other
|
17 | 18.7 | |||||
|
Total
|
520 | 573.2 | |||||
The
market use is dominated by the food industry (baking soda) and animal nutrition
(rumen buffer), accounting for a majority of the total market. The
remaining market is split between a variety of uses from pharmaceuticals,
personal care (toothpaste), deodorizers, industrial uses, cleaning products,
chemical, blasting media, etc. Presently, NSI’s share of the animal
feed and food segments is in line with its share of industry production
capacity, however, it is underrepresented in the specialty
segments.
The
Plant
The
26,500 square foot processing plant located on one of the Wolf Ridge leases
consists of a single building with crystallizers, boilers, centrifuge, dryers
and other equipment capable of producing various grades of sodium
bicarbonate. The plant has a name plate capacity of 125,000 tons per
year. In FY2008 it produced 100,189 tons. Until NSI attempts to
obtain higher levels of production it will remain uncertain as to its actual
capacity. However, NSI is increasing production capacity of the plant
by an initial program of drilling more cavities and further improving the
efficiency and output of the surface plant and facilities. NSI
intends to reengineer and expand the production capacity of the plant by a
significant amount when such an expansion can be justified. It is
currently developing designs for expansion and obtaining estimates of costs to
aid in this evaluation. The plant is capable of producing all grades
of sodium bicarbonate except that used for kidney dialysis.
There
are also several other buildings associated with the plant - one building of
approximately 50 feet in diameter used for bulk storage with a storage capacity
of 3,000 tons - and three small sheds (lube storage shed, fire pump house shed
and hazardous materials shed). The plant, the bulk storage facility
and one of the sheds are of metal construction; the other two sheds are of wood
construction, each on concrete pads.
There
is no rail transportation to the plant. Product that is to be shipped
by rail is transported by truck to a rail loading facility in Rifle, Colorado
that is operated by a third party. Water for operations is available
from water wells on NSI’s property (see Water Rights below). Electric
power and gas are provided by local suppliers.
Marketing
Arrangements
NSI
sells animal feed grade product through five independent
distributors. The largest of these is Bunnett & Company of Lago
Vista, Texas which represents the largest part of our animal feed
sales. The principal of Bunnett & Company is Bill Bunnett, father
of Brad Bunnett who is a director of both NSHI and NSI and President of
NSI. The majority of NSI’s industrial and United States
pharmaceutical (“USP”) grade products is distributed by an agent, Vitusa
Products, Inc. of Berkeley Heights, New Jersey. Sales distributed
through Bunnett & Company accounted for 27% of NSI’s sales revenues in the
fiscal year ended June 30, 2009 and sales distributed through Vitusa Products
accounted for 25% of our sales revenues during the same period. A
third distributor, Agri Dealers, Inc. of Louisville, Kentucky, an animal feed
distributor, accounted for 10% of NSI’s sales revenues during the same
period. There are no other significant marketing relationships that
constitute more than 10% of our sales.
Historically,
the plant has shipped up to approximately 55% of its production as bulk product
and the remainder as bagged product. NSI packages product in various
crystal sizes in 50 lb. bags, 2000 lb. “supersacks”, or in bulk and transports
the product to its customers by truck or rail. NSI sells most of its
products throughout the United States, Canada and Mexico.
NSI’s
products have many uses and applications. They include sales to the
animal feed, industrial, food and pharmaceutical grade
markets. Sodium bicarbonate is used in baking products, personal care
products including toothpaste and antacid remedies; household products including
deodorizers, cleaning products, detergents, carpet cleaners, bath salts and cat
litter. Sodium bicarbonate is also used in industrial situations such
as leather tanning, fire extinguishers, blast media and waste water
treatment.
Figure
5: A Finished Product Sample
Competitive
Advantage
There
are five other competitors in the sodium bicarbonate market according to the
2006 Chemical Economics Handbook – SRI Consulting. NSI’s principal
competitors are Church & Dwight, manufacturers of the Arm & Hammer
brand; FMC Corporation and Solvay. Church & Dwight is by far the
largest manufacturer in the United States and NSI’s competitors have far greater
financial resources than NSI. NSI is the only producer of sodium
bicarbonate from nahcolite, the naturally occurring form of sodium
bicarbonate. All other production of sodium bicarbonate utilizes
trona, a mixed form of sodium bicarbonate and sodium carbonate, from Green
River, Wyoming. An alternative method is to produce sodium carbonate
synthetically from sodium chloride in an industrial plant. We believe
that both these production methods are more expensive than the solution mining
and simple re-crystallisation of sodium bicarbonate from naturally occurring
nahcolite NSI employs. We believe that NSI is the lowest cash cost
producer. NSI competes on the basis of service and
price.
In
addition, there are significant barriers to overcome for competitors seeking to
establish solution mining operations on BLM leases in the Piceance Creek
Basin. The only other sodium leases issued by the BLM in the Piceance
Creek Basin are the 4,956 acre Yankee Gulch lease, and the Nielsen-Juhann-Hogle
lease covering 2,186 acres. The Nielsen-Juhann-Hogle lease has not
been permitted and would require a public filing of a mining plan, an
environmental impact study and a series of public meetings to secure extensive
government approvals before it can be brought into production.
We
believe that NSHI and NSI have the largest available resource of nahcolite
in the Piceance Creek Basin that is currently able to be mined.
Sales
and Revenue Performance
Fiscal
year 2004 was the first complete fiscal year of NSI’s ownership of its
processing plant. NSI’s annual sales in tonnages and gross revenues
are shown in the following tables:
|
Fiscal
Year
|
Sales
(tons)
|
%
Change
on prior FY
|
||
|
2004
|
84,103 | |||
|
2005
|
85,038 | + 1.1 | ||
|
2006
|
88,910 | + 4.6 | ||
|
2007
|
101,970 | +14.7 | ||
|
2008
|
101,614 | - 0.4 | ||
|
2009
|
97,729 | -3.8 | ||
|
Fiscal
Year
|
Gross
Revenues
($)
|
%
Change
on prior FY
|
||
|
2004
|
12,609,041 | |||
|
2005
|
14,141,500 | + 12.2 | ||
|
2006
|
15,293,688 | + 8.1 | ||
|
2007
|
16,951,997 | + 10.8 | ||
|
2008
|
17,947,800 | + 5.9 | ||
|
2009
|
19,835,160 | + 10.5 | ||
During
2009, sales were constrained by production interruptions and cavity limitations
as discussed above. NSI now expects that NSI’s new cavities will
improve production and supply capability. NSI’s sales history is
illustrated on a quarterly basis in the following graph.
Environmental
Issues
The
sodium bicarbonate production is licensed under the EPA and BLM as a zero water
emission business. NSI must not allow any water stream from the
production process to enter the environment. All breaches must be
reported.
Waste
water streams are collected in two ponds where the water is evaporated and the
residual salts collected for disposal by an approved method.
During
our fiscal year ended June 30, 2009, NSI did not allow any water stream to enter
the environment and consequently no breaches were reported.
|
3.
|
NSI’s
Water Rights
|
General
NSI
owns numerous water rights in Northwestern Colorado in the Piceance Creek Basin
from the Piceance and Yellow Creeks. These streams flow into the
headwaters of the White River which flows into the Green and Colorado
Rivers. Yellow Creek traverses NSI’s property; Piceance Creek, Yampa
River and the White River are nearby. These water rights incorporate
direct pumping rights, direct flow water rights and pumping rights from the
White River. We also have a reservoir right associated with the White River
pumping rights called the Wolf Ridge Reservoir and NSI owns the Larson Reservoir
at the headwaters of Piceance Creek.
The
Colorado River Basin covers 244,000 square miles and provides water for 30
million people. The river has an average flow of around 14
million acre feet per year which occasionally increases to 18 million in wet
years and decreases to about 12 million in dry years.
On
the basis of the Colorado River Compact of 1922, the Colorado River Basin is
divided into the Upper Colorado River Basin and Lower Colorado River Basin at
Lee’s Ferry just below the confluence of the Paria River and the Colorado River
near the Utah-Arizona border. The upper Basin and the lower Basin
were each apportioned a consumptive use of 7.5 million acre feet of water
annually, based on an assumption of 15 million acre feet of available water for
the Colorado River. The assumption was demonstrated to be an
overestimate and reduced to 12 million acre feet in a hydrologic study by the
U.S. Bureau of Reclamation (CWCB 2004). In the Upper Colorado River
Basin Compact of 1948, the water of the Upper Colorado River Basin was further
allocated among the states of Arizona, Colorado, New Mexico, Utah, and
Wyoming. Arizona has a fixed allocation of 50,000 acre feet
annually. The remainder is shared by Colorado (51.75%), New Mexico
(11.25%), Utah (23%), and Wyoming (14%).
By
treaty, Mexico must get 1.5 million acre feet annually. California
has a right to a minimum of 4.4 million acre feet while the upper Basin where
NSI is located has an accumulated withdrawal allotment of around 3.6 million
acre feet. The Central Arizona Project, a 335 mile canal and
the largest water transfer system ever built, has the capacity to withdraw more
than 2 million acre feet. State by State allotments are shown in the following
table:
|
Water Allocation from The Colorado River
System
|
||||
|
State
|
Allocation
(Acre Feet per year)
|
|||
|
California
|
4,400,000 | |||
|
Colorado
|
3,881,250 | |||
|
Arizona
|
2,800,000 | |||
|
Utah
|
1,725,000 | |||
|
Mexico
|
1,500,000 | |||
|
Wyoming
|
1,050,000 | |||
|
New
Mexico
|
845,750 | |||
|
Nevada
|
300,000 | |||
| 16,502,000 | ||||
In
Colorado the state requires that groundwater removed from an aquifer be
augmented (i.e. replaced) from surface water sources. Thus, new
groundwater pumping rights cannot be used for any length of time without an
approved plan to augment the water removed from the groundwater
wells.
Colorado
operates under the “Prior Appropriation Doctrine” with respect to water
rights. The Prior Appropriation Doctrine essentially provides that
any person or entity that diverts water and applies the water to beneficial use
before another person or entity has the first and prior right to divert water
under the water right. The doctrine is also commonly known as the
“First in Time – First in Right”. To the extent that a water right
was appropriated prior to another water right, the Prior Appropriation Doctrine
provides that a senior water right is entitled to be fully satisfied before the
junior water right is allowed to take any water. The Colorado General
Assembly requires the claimants of a water right to create documentary evidence
by obtaining a decree from a court confirming the existence of the water
right.
NSI’s
water rights were incorporated into a Decree entered by the District Court in
and for Water Division No. 5 in Case No. 88CW420 on August 13, 1991 (the
“Decree”). The Decree is crucial for continued operations of the
sodium mining business. NSI’s water rights were combined in the
Decree to ensure the reliability of the water supply for mining
operations. In addition, since all the water rights are under common
ownership, the ability to maximize the use and value of the water rights is
enhanced if the water rights could be used for any purpose associated with the
mining operations or other purposes. Another factor leading to the
inclusion of all the water rights in the Decree was that some of the water
rights and facilities for the water rights had not been developed, and the
conditional portion of the water rights could be maintained by legally
integrating and attributing work on some of the water rights to other
conditional water rights.
However,
even though all of the water rights were integrated into the Decree, various
water rights may be separated from the water supply required for mining
operations. As discussed below, NSI’s substitution and exchange
rights and augmentation plan provide additional flexibility in how we can manage
access to NSI’s water rights.
Figure
6: Colorado River System
The
Decree also includes a Water Court approved “plan for
augmentation”. This is a plan that can considerably aid operational
flexibility. NSI’s augmentation plan includes rights under Colorado
law of “substitution and exchange”. Substitution and exchange enables
delivering water at one point on a stream and taking water out at another point
on the stream. Water rights may be acquired to enable substitution
and exchange. While this concept may not seem significant,
“substitution and exchange” can save millions of dollars in dam and pipeline
construction costs and pumping costs to a prospective purchaser who might
otherwise have to bring water from a much greater distance than does
NSI.
For
example, under the Decree, NSI may deliver fully consumable agricultural water
rights to Piceance Creek at its headwaters, and “substitute and exchange” this
water depleted from Piceance Creek by the operation of its wells at the plant
site. NSI thereby avoids the necessity to pipe water from the
headwaters of Piceance Creek to its operations. Further, because
Piceance Creek is such a dry stream, the substitution and exchange ability is
limited and at a premium. As a result of the Decree, NSI owns all or
virtually all of the substitution and exchange potential on Piceance Creek and
Yellow Creek. While someone else may acquire the right to operate a substitution
and exchange on the two streams, that use would be subordinate to NSI’s own
substitution and exchange rights. Potentially, other parties
operating in the Piceance Creek Basin who require water may be prepared to pay
NSI to share in its substitution and exchange rights.
Under
current operations, the water supply for the mining operations is provided by a
single well owned by NSI. The pumping of water from the well causes
depletions to Piceance Creek and Yellow Creek. Colorado law requires
that depletions to Piceance Creek and Yellow Creek must be replaced with other
water from the same drainage system. The Decree provides that senior
water rights on Piceance Creek are used to replace the depletions to Piceance
Creek and part of the depletions to Yellow Creek. Hence in order to
protect mining operations, it is necessary to maintain ownership of well water
rights to supply mining operations and senior water rights to replace the
depletions caused to Piceance Creek and Yellow Creek. NSI has several
different sources of water to replace the depletions to the
streams. Currently, NSI’s water requirements for its sodium
operations are less than one cubic foot per second (“CFS”) or 724 acre feet per
year or less than 1% of our total water rights.
There
are other factors independent of the Decree that enhance the value of NSI’s
water rights. First, no other plan for augmentation has been approved
by the Water Court within the Piceance Creek Basin thereby providing NSI a
significant competitive advantage in the water supply available to its
activities. There is also a value associated with having the
augmentation plan approved and NSI’s Decree completed. Litigation is
always an uncertain venture, and any new augmentation plan application that is
filed will be scrutinized by all the other water rights owners in the Piceance
Creek and Yellow Creek drainages, including the major oil companies that have a
presence in these Basins. Potential users of NSI’s water rights may
find that constructing a pipeline for delivery of water may be more reliable and
cheaper than obtaining a judicially approved plan for augmentation.
NSI’s
total water rights exceed more than 100,000 acre feet per year. We
believe that these water rights can generate a future revenue stream and have
increasing value, especially as any prospective development of the oil shale
resources of the Piceance Creek Basin may require very large volumes of
water. It is our objective to develop and further utilize the water
rights NSI owns.
Agreement
with Shell Frontier Oil & Gas, Inc.
NSI
entered into a contract on January 29, 2007 with Shell, effective January 1,
2007, to sell up to 120 acre feet of water per year at a price equal to $8,146
per acre foot. Shell has been awarded three 160 acre oil shale
research, design and development leases by the Bureau of Land Management
contiguous with NSI’s sodium leases. If Shell purchases any water, it
will remove the water using water transport trucks or by constructing a pipeline
at its own expense.
NSI
will provide water to Shell from one of its existing water wells. The
water will be recovered from the geologic formation commonly known as the “A
Groove” and the quality of the water shall be “as is” upon withdrawal from the
geologic formation without any treatment by NSI. The initial term of
the agreement is five years and renewable thereafter with the purchase price
adjusted according to a formula based on movement in the consumer price
index. A condition of the agreement is that NSI may sell water to
other users provided that such delivery is subordinate to the delivery of water
to Shell. Shell did not purchase any water during the year ended June
30, 2009.
The
agreement will be extended automatically for successive periods of five years
although Shell may elect to terminate the agreement by providing written notice
prior to the end of the initial term or each subsequent renewal date. Similarly,
NSI can terminate the agreement by providing written notice on the same
basis. In addition, the agreement terminates if NSI ceases to have an
interest in the sodium leases. See Item 3 “Legal Proceedings” for
additional information.
Appraisals
The
current value of NSI’s water rights is unknown. The most valuable
component relates to the Wolf Ridge Reservoir and Pipeline Water
rights. These rights produce a large quantity of water that may be
used for commercial purposes. They could be separately developed and
are not currently being used for mining purposes. The market value of
the Wolf Ridge Rights is a function of the amount of fully consumable water
available under these water rights.
Water
rights are assets routinely bought and sold in the State of
Colorado.
The
Wolf Ridge Reservoir and Pipeline Water right allows NSI to construct a
reservoir and pipeline for storage of 7,379.70 acre feet of water, fed by the
pipeline at the rate of 100 CFS, equivalent to 44,800 gallons per
minute. A prospective purchaser of these rights could move the points
of diversion or location of the structures to a new location and still take
advantage of the relatively senior priority of the rights on the White
River.
Identification
of Water Rights
Our
water rights can be categorized and summarized as follows:
|
Water
Flow Rights
|
Location
|
Flow
Rate
(CFS)
|
Flow
Rate
(acre ft/yr)
|
Percent
of
Annual Flow
|
|
Direct
pumping
|
13
wells on site
|
45.0
|
32,579
|
30%
|
|
Direct
Flow rights
|
Piceance
Creek
|
5.3
|
3,837
|
3%
|
|
River pumping
|
White River
|
100.0
|
72,397
|
67%
|
|
Total flow
|
150.3
|
108,813
|
100%
|
|
Water
Storage
Right
|
Location
|
Volume
(acre feet)
|
Percent
of
Storage
|
|
Wolf
Ridge Reservoir
|
Plateau
|
7,380
|
92%
|
|
Larson Reservoir
|
Piceance Creek headwaters
|
600
|
8%
|
|
Total flow
|
7,980
|
100%
|
Direct Pumping
Rights - Well Water
NSI
owns thirteen well water rights located adjacent to the sodium bicarbonate
process plant as described in the Decree. These rights have priority
dates from the 1970s so they are very “junior” water rights. Under
Colorado law, the Well Water Rights cannot divert water without having a plan of
augmentation approved by the Water Court. NSI’s Decree includes a
plan for augmentation authorizing, among other things, wells that have a
hydraulic connection to the surface stream to pump water, provided that
depletions to the surface stream caused by well pumping are augmented (i.e.
replaced) with other water supplies. As discussed above, the Well
Water Rights are included within the Decree.
Senior Direct Flow Water
Rights in the Piceance Creek Basin
NSI
owns the following senior direct flow water rights:
|
Name
|
Appropriation Date
|
Decree Date
|
Flow Rate (CFS)
|
|
Morgan
Ditch No. 1
|
April
15, 1883
|
April
28, 1890
|
1.00
|
|
Enlargement
and Extension of Morgan
Ditch No. 1
|
September
27, 1886
|
April
28, 1890
|
0.40
|
|
Morgan
No. 2 Ditch
|
September
27, 1886
|
April
28, 1890
|
0.40
|
|
Home
Supply Ditch
|
September
19, 1886
|
May
10, 1889
|
1.00
|
|
Larson Ditch
|
September 17, 1886
|
May 10, 1889
|
2.50
|
The
direct flow water rights located adjacent to the Larson Reservoir on the upper
reaches of Piceance Creek are among the most senior water rights in the Piceance
Creek Basin. They were originally decreed for agricultural irrigation
however the Water Court in its Decree changed the direct flow water rights for
numerous purposes including commercial and industrial purposes. In
addition, the Water Court imposed certain terms and conditions on the use of the
water, including annual volumetric limitations on the use of the water
rights. The average annual amount of water that may be diverted and
consumed pursuant to the direct flow rights is approximately 234 acre
feet.
Wolf Ridge Reservoir and
Feed Pipeline Water Rights to the White River
The
Wolf Ridge Reservoir and Wolf Ridge Feeder Pipeline water rights were decreed in
the 1970s. However, unlike the Well Water Rights that divert water
from the aquifer tributary to Piceance Creek, the Wolf Ridge Water Rights divert
water primarily from the White River approximately 12 miles from the current
sodium bicarbonate production operations. Piceance Creek has lower
flows in the summer, but the White River is a much larger
stream. Hence a 1970s water right diverting out of the White River
will have water available for diversion on a yearly basis. As
discussed above, the Wolf Ridge Water Rights provide for the construction of a
reservoir originally intended to be adjacent to the current sodium bicarbonate
processing facility to contain a maximum of 7,379.70 acre feet. This
reservoir could be fed by the Wolf Ridge feeder Pipeline at the rate of 100
CFS. (44,800 gallons per minute). This is equivalent to
72,396 acre feet per year.
Larson Reservoir and Larson
Reservoir Enlargement Water Rights
The
Larson Reservoir located on the upper reaches of the Piceance Creek was
originally decreed for 62 acre feet of water storage rights with an
appropriation date of July 20, 1888 and a decree date of May 10,
1889. Hence it is a very “senior” water right. The Water
Court Decree changed the uses of the Larson Reservoir Right to include
industrial and commercial uses and allows the consumption of approximately 39
acre feet of fully consumable water per year.
The
Decree also approved an additional water right referred to as the Larson
Reservoir Enlargement Water Right. It has an appropriation date of
April 5, 1988 and may store up to 600 acre feet of water, with the right to
refill the Larson Reservoir with 600 acre feet of water per
year. This has not been constructed but could be constructed on land
entirely owned by NSI. The Larson Reservoir Enlargement Water Right
could only divert water during the early spring runoff period, so NSI estimates
approximately 300 acre feet of water could be stored annually if a reservoir was
constructed. The Larsen Reservoir presently has a large deposit of
silt. NSI intends to evaluate the possibility of excavating the silt
and extending the reservoir to provide for a greater storage
capacity.
|
4.
|
Oil
Shale Potential
|
The
Energy Policy Act of 2005 directed the Task Force on Strategic Unconventional
Fuels to make recommendations and develop an integrated program to coordinate
and accelerate the development of fuels from domestic unconventional fuels
resources. The Task Force found in February, 2007:
|
“Global
and domestic demand for crude oil and refined products continues to
expand, driven by rapid economic growth in developing economies and
domestic consumer habits. At the same time, finding and
producing oil reserves to meet rising demand is increasingly difficult and
costly. Companies are failing to replace produced reserves,
shrinking the world’s conventional oil reserves base. Excess
production capacity is also shrinking, reducing the ability to supply
disruptions, increasing price volatility, and driving up
prices. Domestic crude oil production is declining as demand
rises, increasing our dependence on imports of oil and refined
products……….Increasingly, oil and refined products must be imported from
nations unfriendly to the United States or threatened by political
instability, reducing the security and reliability of supplies critical to
our economy, our military, and our national security.” (Page
ES-1).
|
|
“Oil
shale is extremely well suited for producing premium quality refinery
feedstocks for diesel and jet fuels. The manufacturing
processes can also yield significant quantities of value-added chemical
by-products…….America’s commercial quality oil shale resources exceed 2
trillion barrels, including about 1.5 trillion barrels of oil equivalent
in high quality shales concentrated in the Green River Formation in
Colorado, Utah and Wyoming.” (Page I-16).
|
The
Cole report described on Page 5 of this Annual Report, states “Shale-Oil
resources for the Saline zone under the lease are between 12 and 14 billion
barrels.” The Saline zone sits under one of NSI’s sodium bicarbonate
leases from the BLM. We have not conducted any additional studies on
oil shale resources on this specific lease nor the Rock School lease or the
other Wolf Ridge leases.
In
2006, the BLM issued five oil shale research leases adjacent to NSI’s sodium
bicarbonate operations in accordance with its regulations at that
time. Three of these leases were issued to Shell, as mentioned
above. It is expected that the US Government will evaluate the
results achieved by existing holders of these research leases before any
commercial leases will be issued.
We
currently do not have the right to evaluate or extract these oil shale resources
and the Department of Interior does not have any current rules for applying for
a lease to evaluate or extract these resources, even on a research
basis. If the Department of Interior issues rules for applying for
oil shale research leases, NSHI and NSI may apply for a lease to evaluate these
oil shale resources to determine whether we can extract the oil shale on a
commercially viable basis. The Department of Interior may never issue
new rules for leases to evaluate or extract oil shale and if they do, we may not
qualify for such a lease.
EMPLOYEES
AmerAlia’s
day to-day business activities are managed by Bill H. Gunn, Chairman
and President; and Robert van Mourik, Executive Vice President and Chief
Financial Officer. See Item 11 “Executive Compensation”.
NSI
has 39 employees in production, sales & marketing, financial, environmental
compliance and human resources roles.
|
ITEM
1A:
|
RISK
FACTORS
|
AmerAlia
is a minority shareholder in NSHI and cannot control NSHI or its wholly-owned
subsidiary NSI.
We
own only 18% of the equity of NSHI which owns all of NSI so we cannot determine
the composition of the boards of directors or management of those companies or
their conduct. Consequently, they may act in a manner that is not in
our best interests. For example, NSHI may make capital calls on its
shareholders when AmerAlia has limited funds such that it could face dilution of
its ownership interests.
We
may have to take certain actions to avoid registration under the Investment
Company Act of 1940.
AmerAlia’s
only asset is its 18% equity interest in NSHI. Generally, a company
must register as an investment company under the Investment Company Act and
comply with significant restrictions on operations and transactions with
affiliates if its interest in securities, other than majority owned
subsidiaries, exceeds 40% of the company's total assets, or if it holds itself
out as being primarily engaged in the business of investing, owning or holding
securities. We have held discussions with the SEC regarding
Investment Company Act compliance and unless we can increase our shareholding in
NSHI to at least 50% ownership or otherwise meet an exemption from registration
under the Investment Company Act, we will need to register as an investment
company and will be subject to the various, extensive provisions of the
Investment Company Act and its regulations. We believe that such
registration would adversely affect our operations and cause us to incur
significant registration and compliance costs. Any violation of this
Act could subject us to material adverse consequences including any contracts
that AmerAlia entered into while an unregistered investment company would be
void.
We
have large accumulated losses, we expect future losses and we may not achieve or
maintain profitability.
We
have incurred substantial losses and used substantial cash to support our
activities through the development stage, complete our acquisition of the
assets, refurbish NSI’s plant, expand NSI’s cavities and our restructuring while
sustaining our activities to date. Our accumulated losses were
approximately $111 million at June 30, 2009. While the restructuring
and additional capital we have received has provided us with approximately
$8,700,000 of shareholders equity at that date, we may continue to lose money
unless we can access any income generated by NSI. As a minority
shareholder of NSHI we do not have any rights to access NSHI’s cash flow and may
not receive any distributions of dividends. Hence we do not have any
source of incoming cash flow. We will continue to lose money unless
we significantly increase our revenues. If we cannot operate
profitably we may not be able to contribute to further capital calls or raise
new capital. We cannot predict when, if ever, we will operate
profitably.
We
rely on key employees in NSI to manage its operations and may have difficulty
replacing them if they were to leave our employ.
While
Bill H. Gunn is intensively involved in NSI’s management, we conduct our
operations with a relatively small management team so the loss of an employee
through an extended illness or resignation could adversely impact our capacity
to successfully fulfill our obligations and thereby impact our sales, margins
and operating profitability.
NSI’s
pricing of its products is determined in a competitive environment in which it
is not generally able to lead prices.
Our
industry is dominated by Church & Dwight, a long time manufacturer of the
Arm & Hammer brand of baking soda and related products. NSI’s
major competitors also include FMC and Solvay, major corporations with
considerable resources, marketing expertise and broader access to customers than
we do. Consequently, if there is a price war with the major companies
that dominate the industry NSI’s margins and profitability may be
threatened. In addition, NSI’s business has high fixed
costs. From time to time, NSI may need to reduce prices for some of
its products to respond to competitive and customer pressures and to maintain
market share. Consequently, NSI’s operating results may suffer.
The
loss of any of NSI’s principal customers could significantly lower its sales and
profitability.
NSI
primarily sells its animal feed grade product through customers who act as
distributors. The largest of these in tonnages and revenues is
Bunnett & Company who account for the majority of NSI’s animal feed
sales. In addition, NSI sells most of its higher grade products
through Vitusa Products, Inc. of Berkeley Heights, New
Jersey. Another customer, Agri Dealers, Inc., represented nearly 10%
of NSI’s sales and together these three constituted approximately 62% of NSI’s
sales through June 30, 2009 and about 63% of NSI’s accounts receivable at June
30, 2009. Consequently, there is also a concentration of credit risk
associated with the continuing successful performance of these
customers. The loss of all or part of their business could be
injurious to NSI’s sales, margins and profitability.
NSI
may not be able to continue to recover sodium bicarbonate economically or at all
from the cavities if there are failures in the underground
operations.
NSI
recovers its sodium bicarbonate from cavities that are about 1,900 feet
underground and does so by pumping hot water through a pipe into the cavity and
then recovering the pregnant liquor through a recovery pipe that is about 8
inches in diameter. If portions of an underground cavity collapse, as
happened last year, or if there are blockages in the wells, NSI’s ability to
recover pregnant liquor can be severely affected. It is possible a
well may become unusable so that NSI would have to drill new a new cavity and
associated injection and recovery wells at considerable expense and delays to
its production. As continuity of production requires having
operational cavities and as it can take some months to drill new cavities and
bring them into production, failure of existing cavities can severely jeopardize
NSI’s production capability.
This
is a high fixed cost business and if there are underground production problems
such as cavity collapses that cause difficulties in recovering product or if NSI
is unable to sell sufficient tonnages, the relatively high fixed operating costs
applied to a low volume of sales may cause the operation to not be
viable. NSI’s resource of naturally occurring sodium bicarbonate has
a zone that contains some sodium chloride. The presence of too much
sodium chloride in the pregnant liquor adversely impacts plant productivity and
potentially may cause a reduction in the amount of sodium bicarbonate that might
be recovered from a cavity.
Increasing
gas, power and fuel costs could erode NSI’s profit margins and harm operating
results.
Energy
costs and transport costs represent a major component of NSI’s cost
structure. It may be difficult to pass on increased costs to its
customers so that NSI’s profitability may be adversely impacted. This
could harm NSI’s financial condition and operating results.
NSI’s
operations are subject to a significant amount of regulatory scrutiny and
regulation from federal and state authorities.
NSI’s
mining and processing operations operate under permits from several state and
federal authorities, including the Environmental Protection Agency, the Bureau
of Land Management, and the Colorado Division of Minerals and Geology. Failure to comply with
government conditions and permitting requirements may cause these permits to be
revoked with material and adverse effects on NSI, NSHI and
AmerAlia. If NSI loses its permits, NSI may have to cease operations
while it seeks their renewal. If NSI cannot do this, it will be out
of business. NSI also requires BLM approval in accordance with NSI’s
approved mine plan to establish new cavities. If this approval is
denied, then NSI will lose its ability to recover sodium bicarbonate from the
lease. In addition, regulatory authorities may suddenly impose
additional compliance obligations which may cause closure of the plant if not
met or may refuse to renew leases.
Under
the Shareholders Agreement, AmerAlia has granted Sentient the right to force the
sale of its economic interests in NSHI and its business operations on the same
terms and conditions agreed to by Sentient for its interests.
If
this occurs and the approval of the AmerAlia shareholders is not required by
Utah law, neither the board of directors nor the AmerAlia shareholders would
have any opportunity to approve the transaction. In this situation,
Sentient could approve a transaction which is not beneficial to the AmerAlia
shareholders or would not otherwise be approved by the AmerAlia
shareholders.
NSHI
and NSI may be unable to obtain a lease to exploit the oil shale resource that
we believe lies below, above and interspersed within the nahcolite contained
within their sodium leases. If they are unable to obtain an oil shale
lease, we shall have expended resources for no gain.
Neither
NSHI nor NSI currently has the right to evaluate or extract these oil shale
resources and the Department of Interior does not have any current rules for
applying for a lease to evaluate or extract these resources, even on a research
basis. If the Department of Interior issues rules for applying for
oil shale research leases, NSHI and NSI may apply for a lease to evaluate these
oil shale resources to determine whether they can extract the oil shale on a
commercially viable basis. The Department of Interior may never issue
new rules for leases to evaluate or extract oil shale and if they do, NSHI and
NSI may not qualify for such a lease. Consequently, NSHI
and NSI may apply a significant amount of time, energy and money investigating
these resources and applying for a lease and still not obtain it.
The
oil shale industry has attempted to exploit oil shale commercially in the past
and has been unable to do so in an economically feasible manner. Even
if NSHI and/or NSI obtain a research/commercial oil shale lease, the technology
may not exist during the term of the lease to exploit oil shale in an
economically feasible manner. If NSHI and NSI are unable to exploit
their potential oil shale leases the value of their assets would be materially
and adversely affected.
In
the past, the oil industry has attempted to exploit oil shale to produce
commercial quantities of oil. Each time the industry has failed to
develop technology that would allow it to produce commercial quantities of oil
in an economically feasible manner.
Recently,
large volatility in the price of oil has led the oil industry to rethink the
economic feasibility for producing oil from oil shale. However, it is
still uncertain whether production of oil from oil shale is economically viable
even with significant increases in oil prices. It is also unclear
whether new technologies would significantly decrease the cost of recovering oil
from oil shale.
If
NSHI or NSI are unable to cost effectively exploit oil from oil shale, the value
of any potential business opportunity or oil shale leases they may be able to
obtain would be materially and adversely affected.
The
current technology for production of oil from oil shale may require a
significant amount of water.
The
value of NSI’s water rights is partly dependent on the development of commercial
production of oil from oil shale on or near its properties. If such
commercial oil shale market does not develop, the possible value of its water
right assets may be materially and adversely affected.
If
NSHI’s operations require further capital and AmerAlia cannot raise funding to
provide that capital, AmerAlia’s ownership of NSHI will be diluted.
Currently,
AmerAlia owns 18% of NSHI. Pursuant to the Shareholders Agreement, if
NSHI requires more capital for its operations, it will ask its shareholders to
contribute such capital on a pro rata basis. If AmerAlia does not
have the funds to contribute this capital, or cannot raise funding for this
capital contribution, while Sentient invests its pro rata portion of the capital
contribution then AmerAlia’s ownership interest will be diluted. In
addition, if Sentient invests its pro rata portion of the capital contribution
and AmerAlia does not, under the Shareholders Agreement Sentient may also
contribute AmerAlia’s pro rata portion, which would further dilute AmerAlia’s
ownership interest. If AmerAlia’s ownership interest is diluted the
value of its assets will be materially and adversely affected.
Pursuant
to our restructuring agreement with Sentient, Sentient has the option to
purchase and additional 5,500,000 shares of AmerAlia common stock at $.36 per
share to pay for AmerAlia indebtedness that was outstanding as of October 31,
2008. If Sentient exercises this option, AmerAlia shareholders will
have their ownership interest diluted.
In
our restructuring transaction, we were not able to repay all indebtedness of
AmerAlia and NSHI owed to third parties. There are also potentially
claims that we are unaware of currently. If any third party brings a
claim prior to October 31, 2011 for amounts owed by AmerAlia or NSHI prior to
October 31, 2008, Sentient may exercise its option to purchase up to 5,500,000
shares at a purchase price of $.36 to provide AmerAlia with the funds to pay
such claim. If Sentient exercises this option, the percentage
ownership of AmerAlia held by its existing shareholders will be
reduced.
|
ITEM
1B.
|
UNRESOLVED STAFF
COMMENTS
|
We
have held discussions with the SEC regarding Investment Company Act compliance
and unless we can increase our shareholding in NSHI to at least 50% ownership or
otherwise meet an exemption from registration under the Investment Company Act,
we will need to register as an investment company and will be subject to the
various, extensive provisions of the Investment Company Act and its
regulations. We believe that such registration would adversely affect
our operations and cause us to incur significant registration and compliance
costs. Any violation of this Act could subject us to material adverse
consequences including any contracts that AmerAlia entered into while an
unregistered investment company would be void.
|
ITEM
2.
|
PROPERTIES
|
AmerAlia
has no material properties. AmerAlia’s only interests in property are
through NHSI and NHSI’s wholly-owned subsidiary, NSI.
NSI
is a lessee of United States Sodium Mineral Leases C-0118326, C-37474, C-0118327
and C-0119986 covering 8,223 acres and NSHI is a lessee of United States Sodium
Lease No. C-0119985 covering 1,320 acres, all in Rio Blanco County, Colorado,
USA. These are described more fully in Item 1. - "Business",
above.
NSI’s
plant consists of a single building with boilers, centrifuge, and other
equipment capable of producing various grades of sodium bicarbonate at
approximately 100,000 tons per year. There are also several other
buildings associated with the plant which are used for bulk storage (one
building of approximately 50 feet in diameter with a storage capacity of 3,000
tons) and three small sheds (lube storage shed, fire pump house shed, and
hazardous materials shed). The plant, the bulk storage facility and
one of the sheds are of metal construction and the other two sheds are of wood
construction, each on concrete pads. In management’s opinion, the
plant facilities are adequately insured.
NSI
has real property owned in fee simple that is used for the existing water
storage reservoir of about 35.8 acres, about 25 miles east of the
plant. NSI also leases a 21,517 square-foot warehouse in Rifle,
Colorado, from an unaffiliated landlord.
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
AmerAlia
is not subject to any legal proceeding.
NSI
owns water rights located in the Piceance Creek, Yellow Creek and White River
Basins within Colorado. NSI is involved in several cases pending in
the District Court in and for Water Division No. 5 (“Water
Court”). The proceedings in Water Court pertain to applications for
water rights filed by NSI and objections to water rights applications by third
parties. In addition, under Colorado law, the owner of conditional
water rights must periodically file an application for determination of
reasonable diligence in the development of the conditional water
rights. The proceedings pertaining to the conditional water right
must be filed within six years following the determination by the Court
regarding the prior proceeding, or the water right is considered
abandoned.
NSI
is the applicant in the following cases: 1998CW315, 2005CW41,
2006CW135,
2006CW136 and
2007CW91:
NSI
has filed a statement of opposition in the following cases: 2003CW82–Exxon Mobile
Corporation, 2003CW309–Encana Oil &
Gas (USA), Inc., 2003CW318–Encana Oil &
Gas (USA), Inc., 2004CW110–Shell Frontier Oil
& Gas, Inc., 2005CW285–Exxon Mobile Corporation, 2005CW294–Exxon Mobile
Corporation, 2006CW263–Exxon Mobile
Corporation, 2006CW265–Exxon Mobile Corporation, 2007CW242–Puckett Land
Company,
2007CW253–XTO Energy Inc. and 2007CW254–Williams Production RMT
Company.
Of
the cases in which NSI has filed a statement of opposition the principal one is
the objection to Shell Frontier Oil & Gas, Inc.’s application to move a
water right from a tributary of the White River to a point on the White River
lower down river than the off take point for NSI’s White River direct pumping
right. If Shell were to be successful in their application it might adversely
impact the value of our White River water rights. We intend to vigorously oppose
this move.
|
ITEM 4.
|
SUBMISSION OF MATTERS
TO A VOTE OF SECURITY
HOLDERS
|
None.
PART
II
|
ITEM 5.
|
MARKET FOR COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
|
Market
Information.
Our
common stock is publicly traded under the symbol “AALA”. Since August
20, 2002, AmerAlia was listed on the OTC Bulletin Board until its shares were
transferred to the over the counter market in late 2005. On May 18,
2009, AmerAlia regained its listing on the Bulletin Board. The
highest, lowest and average closing prices for AmerAlia's common stock as
provided by an online service for the past two fiscal years up to June 30, 2009
are provided in the table below. These prices reflect
inter-dealer prices and do not include allowance for retail mark-up or
mark-down, commissions or other transaction costs.
|
For the Quarter Ended
|
Highest
Price
For the Quarter ($)
|
Lowest
Price
For the Quarter ($)
|
Average
Reported
Last Sale Price ($)
|
|
September
30, 2007
|
0.75
|
0.30
|
0.34
|
|
December
31, 2007
|
1.01
|
0.27
|
0.45
|
|
March
31, 2008
|
0.75
|
0.35
|
0.47
|
|
June
30, 2008
|
1.10
|
0.50
|
0.80
|
|
September
30, 2008
|
1.00
|
0.60
|
0.73
|
|
December
31, 2008
|
0.87
|
0.30
|
0.57
|
|
March
31, 2009
|
0.59
|
0.20
|
0.39
|
|
June
30, 2009
|
0.55
|
0.21
|
0.33
|
Holders.
The
number of record holders of our Common Stock on June 30, 2009 was approximately
205. This does not include shareholders holding shares in accounts
with brokers.
Dividends.
AmerAlia
has not paid dividends on its Common Stock and has no plans to pay cash
dividends in the future.
Securities
authorized for issuance under equity compensation plans.
The
following is provided with respect to compensation plans (including individual
compensation arrangements) under which equity securities are authorized for
issuance as of the fiscal year ending June 30, 2009.
|
Equity
Compensation Plan Information
|
||||||||||||
|
Plan
Category and
Description
|
Number
of Securities to be issued upon exercise of outstanding options, warrants,
and rights
|
Weighted-average
exercise price of outstanding options, warrants, and
rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|||||||||
|
(a)
|
(b)
|
(c)
|
||||||||||
|
Equity
compensation plans approved by security holders
|
375,000 | $0.64 | 1,000,000 | |||||||||
|
Equity
compensation plans not approved by security holders
|
-0- | -0- | -0- | |||||||||
|
Total
|
375,000 | $0.64 | 1,000,000 | |||||||||
Recent
Sales of Unregistered Securities -- Item 701 Disclosure.
|
Date
of
Issue
|
No.
of
Shares
|
Recipients
|
Consideration
|
Reliance
on
exemptions
|
Conversion
Terms
|
Notes
|
||||||
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
|||||||
|
Sept
2008
|
1,402,200
|
Two
accredited investors
|
Settlement
of debts
|
See
Note 1.
|
None
|
|||||||
|
Oct
2008
|
15,277,778
|
Sentient
|
$5,500,000
cash
|
See
Note 1.
|
None
|
2
|
||||||
|
12,597,269
|
Sentient
|
Settlement
of debts
|
See
Note 1.
|
None
|
2
|
|||||||
|
5,100,858
|
Directors
& affiliates
|
Settlement
of debts
|
See
Note 1.
|
None
|
2
|
|||||||
|
2,433,706
|
Six
accredited investors
|
Settlement
of debts
|
See
Note 1.
|
None
|
2
|
|||||||
|
Dec
2008
|
12,149,628
|
Sentient
|
$4,373,866
cash
|
See
Note 1.
|
None
|
2
|
||||||
|
June
2009
|
33,750
|
Non-executive
directors
|
Option
exercises
|
See
Note 1.
|
None
|
3
|
||||||
|
1.
|
No
underwriters were involved in the transactions. The issuance of
the shares was accomplished pursuant to exemptions from registration
contained in Sections 4(2) and 4(6) of the Securities Act of
1933.
|
|
2.
|
See
Item 1 at Restructuring Transactions,.
|
|
3.
|
Issued
pursuant to the cashless exercise provisions of option agreements they
were issued under the shareholder approved Stock Option
Plan
|
|
ITEM
6.
|
SELECTED FINANCIAL
DATA
|
Not
applicable.
|
ITEM 7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
|
You
should read the following discussion and analysis of our financial condition and
results of operations together with our financial statements and related notes
appearing elsewhere in this Annual Report. This discussion and analysis contains
forward-looking statements that involve risks, uncertainties and assumptions.
Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of many factors, including, but not
limited to, those set forth under “Risk Factors” and elsewhere in this Annual
Report. See “Cautionary Note Regarding Forward-Looking Statements”
above.
Our
business is to identify and develop natural resource assets. AmerAlia
actively participates in the management and development of the natural sodium
bicarbonate resources and water rights owned by our former direct subsidiary,
Natural Soda Holdings, Inc. (“NSHI”) and NSHI’s wholly-owned subsidiary Natural
Soda, Inc. (“NSI”).
Currently,
we own 18% of NSHI. We are attempting to acquire some or all of the
outstanding shares of NSHI we do not own from Sentient so that we can secure
majority ownership. If we can successfully acquire more of NSHI to
increase our ownership to at least 50% we shall, as we discuss below,
consolidate at least 50% of NSHI’s and NSI’s assets and liabilities to our
balance sheet in exchange for an issue of new shares and consolidate at least
50% of NSHI’s and NSI’s income and expenses to our income
statement. If we cannot achieve this objective we shall likely have
to register as an investment company or seek alternative means of complying with
the Investment Company Act. We are discussing this issue with
Sentient and the Securities and Exchange Commission. We are also
considering the possible benefits of acquiring other natural resource
assets.
Previously
NSHI owned 46.5% of NSI. On September 25, 2008, AmerAlia, NSHI and
NSI, entered into a restructuring agreement with the Sentient
Entities. As a result, NSI became a wholly-owned subsidiary of NSHI,
Sentient and AmerAlia converted their loans to NSHI into NSHI equity and
AmerAlia’s ownership in NSHI was reduced from 100% to 18%. Sentient
converted its loans to AmerAlia into additional common stock of
AmerAlia. All debts previously owed to Sentient by NSHI and AmerAlia
were cancelled.
AmerAlia
also received approximately $10 million in cash from Sentient and others,
settled approximately $12 million of debt, terminated indemnification rights
relating to the extinguishment of a $9.9 million bank loan and extinguished
other obligations in exchange for the issue of 48,961,439 shares of its common
stock. As a result after repaying debts and other obligations,
AmerAlia had approximately $4,300,000 in cash at June 30,
2009. Sentient now owns 72.4% of AmerAlia’s common
stock. AmerAlia, NSHI and NSI are now largely debt free.
NSI
owns various water rights in the Piceance Creek Basin in northwest Colorado, a
part of the Colorado River drainage system. These various rights
allow NSI to draw up to a maximum of 108,812 acre feet (35.46 million gallons)
annually and to store up to 7,980 acre feet of water.
NSHI
and NSI also own BLM leases in the Piceance Creek Basin covering very large
deposits of naturally occurring sodium bicarbonate called
nahcolite. NSI’s business is to produce and sell natural sodium
bicarbonate, commonly known as baking soda, for use in a wide variety of
products and activities. NSI’s immediate objectives are, firstly, to be a low
cost producer of sodium bicarbonate and to leverage that low cost advantage to
achieve superior profit margins; and secondly, to profitably utilize its water
assets.
Deposits
of oil shale lie below, above and are interspersed within the nahcolite
contained within the sodium leases. We do not have any rights to
recover oil shale but NSHI and NSI plan to apply for leases to exploit all or
part of this oil shale if and when the United States government formulates
procedures for that purpose. Shell Frontier Oil & Gas Co.
(“Shell”) has three research, development and demonstration leases adjacent to
NSI’s sodium leases. A Shell fact sheet, “Shell Exploration &
Production Technology - to secure our energy future – Mahogany Research Project”
reports an estimated potential recovery rate of up to one million barrels of oil
per surface acre. If we obtain the right to exploit all or part of
this oil shale, we plan to independently determine possible recovery rates and
attempt to develop an economically feasible plan to recover oil from the oil
shale resource contained within the area where NSHI’s and
NSI’s sodium leases are located.
Sales and Revenue
Performance of NSHI and NSI
Fiscal
year 2004 was the first complete fiscal year of NSI’s ownership of its
processing plant. NSI’s annual sales in tonnages and gross revenues
are shown in the following tables:
|
Fiscal
Year
|
Sales (tons)
|
% Change
on prior FY
|
||
|
2004
|
84,103
|
|||
|
2005
|
85,038
|
+
1.1
|
||
|
2006
|
88,910
|
+
4.6
|
||
|
2007
|
101,970
|
+14.7
|
||
|
2008
|
101,614
|
- 0.4
|
||
|
2009
|
97,729
|
-3.8
|
||
|
Fiscal
Year
|
Gross Revenues
($)
|
% Change
on prior FY
|
||
|
2004
|
12,609,041
|
|||
|
2005
|
14,141,500
|
+
12.2
|
||
|
2006
|
15,293,688
|
+ 8.1
|
||
|
2007
|
16,951,997
|
+
10.8
|
||
|
2008
|
17,947,800
|
+ 5.9
|
||
|
2009
|
19,835,160
|
+
10.5
|
||
During
2009, sales were constrained by production interruptions and cavity limitations
as discussed above at Item 1. NSI now expects that NSI’s new cavities
will improve production and supply capability. NSI’s sales history is
illustrated on a quarterly basis in the following graph.
The
following table presents comparative consolidated income statements of NSHI and
NSI:
|
FY2009
|
FY2008
|
Change on
Prior year
|
||||||||||
|
Tonnage
sold
|
97,729 | 101,614 | -3.8 | % | ||||||||
|
Revenues
|
$ | 19,835,160 | $ | 17,947,800 | 10.5 | % | ||||||
|
Cost
of Sales
|
14,783,530 | 16,330,335 | -9.5 | % | ||||||||
|
Gross
Profit
|
5,051,630 | 1,617,465 | 212 | % | ||||||||
|
General
& administrative expenses
|
296,427 | 179,191 | 65.4 | % | ||||||||
|
Depreciation &
amortization
|
2,565,526 | 1,771,884 | 49.9 | % | ||||||||
|
Loss
on impairment
|
1,876,000 | - | ||||||||||
|
Total
expenses
|
4,737,953 | 1,951,075 | 142.8 | % | ||||||||
|
Income
(loss) from operations
|
313,677 | (333,610 | ) | |||||||||
|
Other
income (expense)
|
||||||||||||
|
Other
income
|
11,989 | 206 | ||||||||||
|
Interest
income
|
1,029 | 2,102 | -51.0 | % | ||||||||
|
Interest
expense
|
(7,212,753 | ) | (45,958,214 | ) | -84.3 | % | ||||||
|
Total
other income (expense)
|
(7,199,735 | ) | (45,955,906 | ) | -84.3 | % | ||||||
|
Net
income (loss) before minority interest
|
(6,886,058 | ) | (46,289,516 | ) | -85.1 | % | ||||||
|
Minority
income (loss)
|
(168,274 | ) | 341,837 | -149.2 | % | |||||||
|
Net
income (loss)
|
$ | (7,054,332 | ) | $ | (45,947,679 | ) | -84.6 | % | ||||
This
table shows:
|
|
·
|
While
tonnage sold decreased by 3.8% over the prior year, gross revenues
increased by 10.5% as a result of price increases and cost of sales were
reduced by 9.5% leading to an increase in gross profit of 212% to
$5,051,630 from $1,617,465;
|
|
|
·
|
General
and administrative expenses increased to $296,427 from $179,191 reflecting
restructuring costs;
|
|
|
·
|
As
there is a decreased likelihood of a plant being built on the Rock School
lease, retaining the value of the engineering drawings in NSI’s financial
statements could not be justified so an impairment charge of $1,876,000
was recorded. However, NSI believes the plans can be used if
required and remain useful in developing cavities on the Rock School
lease.
|
|
|
·
|
If
there had been no impairment charge, the income from operations would have
been $2,189,677 compared with the net loss from operations of $333,610 in
the previous year.
|
|
|
·
|
The
reduction in interest expense marks the outcome of the restructuring
agreement in which all loan and interest obligations owed to AmerAlia and
Sentient were exchanged for NSHI
equity.
|
The
following table presents comparative consolidated balance sheets for NSHI and
NSI and demonstrates the effect of increases in sale prices being reflected in
increased accounts receivables and the effect of the restructuring agreement on
the exchange of obligations for equity:
|
As of June 30,
2009
|
As of June 30,
2008
|
Change on
Prior year
|
||||||||||
|
ASSETS
|
||||||||||||
|
Cash
|
$ | 156,139 | $ | - | ||||||||
|
Accounts
receivable
|
3,723,426 | 2,898,121 | ||||||||||
|
Inventories
|
930,349 | 742,760 | ||||||||||
|
Prepaid
expenses
|
325,942 | 483,315 | ||||||||||
|
Total
Current Assets
|
5,135,856 | 4,124,196 | 1,011,660 | |||||||||
|
Property,
plant & equipment, net
|
9,462,474 | 9,463,356 | ||||||||||
|
Cavities &
well development, net
|
6,130,745 | 5,862,227 | ||||||||||
|
Mineral
leases
|
4,167,471 | 4,167,471 | ||||||||||
|
Total
Fixed Assets
|
19,760,690 | 19,493,054 | 267,636 | |||||||||
|
Water
rights
|
3,150,582 | 3,150,582 | ||||||||||
|
Equipment
held and not yet in service
|
3,197,842 | 3,197,842 | ||||||||||
|
Rock
School lease & reserves
|
3,300,000 | 3,300,000 | ||||||||||
|
Well
& well development, RSL
|
595,000 | 595,000 | ||||||||||
|
Deferred
financing & acquisition costs, net
|
731,848 | 770,816 | ||||||||||
|
Engineering
drawings
|
- | 1,876,000 | ||||||||||
|
Deposits &
bonds
|
8,000 | 12,000 | ||||||||||
|
Restricted
funds
|
1,267,480 | 1,079,980 | ||||||||||
|
Patents,
net
|
22,886 | 26,238 | ||||||||||
|
Total
Other Assets
|
12,273,638 | 14,008,458 | (1,734,820 | ) | ||||||||
|
TOTAL
ASSETS
|
$ | 37,170,184 | $ | 37,625,708 | ||||||||
|
LIABILITIES
|
||||||||||||
|
Bank
overdraft
|
$ | - | $ | 54,080 | ||||||||
|
Accounts
& royalties payable
|
1,848,778 | 1,888,099 | ||||||||||
|
Accrued
expenses
|
434,590 | 586,036 | ||||||||||
|
Related
party obligations
|
- | 86,720,468 | ||||||||||
|
Notes
payable, current
|
1,612,741 | 1,873,671 | ||||||||||
|
Capital
leases, current
|
10,983 | 64,674 | ||||||||||
|
Total
Current Liabilities
|
3,907,092 | 91,187,028 | (87,279,936 | ) | ||||||||
|
Notes
payable, long term
|
29,784 | 15,561 | ||||||||||
|
Capital
leases, non current portion
|
11,071 | 3,436 | ||||||||||
|
Asset
retirement obligations
|
967,825 | 1,036,640 | ||||||||||
|
Total
Non Current Liabilities
|
1,008,680 | 1,055,637 | (46,957 | ) | ||||||||
|
TOTAL
LIABILITIES
|
4,915,772 | 92,242,665 | (87,326,893 | ) | ||||||||
|
MINORITY
INTEREST IN NSI
|
- | 15,376,985 | (15,376,985 | ) | ||||||||
|
EQUITY
|
||||||||||||
|
Preferred
stock
|
- | 4,949,000 | ||||||||||
|
Common
stock
|
10,000 | 510 | ||||||||||
|
Additional
paid in capital
|
117,701,031 | 3,458,835 | ||||||||||
|
Accumulated
deficit
|
(85,456,619 | ) | (78,402,287 | ) | ||||||||
|
TOTAL
EQUITY
|
32,254,412 | (69,993,942 | ) | 102,248,354 | ||||||||
|
TOTAL
LIABILITIES AND EQUITY
|
$ | 37,170,184 | $ | 37,625,708 | ||||||||
AmerAlia
Similarly,
the restructuring has substantially altered our income and cost
structure. We reported revenues from operations for the four months
beginning July 1, 2008 to October 31, 2008, the effective date of the
restructuring, such that after deducting cost of sales our gross profit for the
four month period was $1,320,183 which compared very favorably with our gross
profit for full fiscal year 2008 of $1,617,465. Depreciation,
amortization and accretion expense likewise reflected costs for the four months
to end October and were 51% lower at $867,710 compared with $1,771,884 for the
prior year in spite of reflecting the higher amortization
costs. General and administrative expenses for the year were 5.6%
higher at $972,572 compared with $921,392 as a result of higher legal,
accounting and other restructuring costs. The loss from operations of
$520,099 compared favorably with the prior year’s loss of
$1,075,811. Since October 31, 2008 we have accounted for our
investment in NSHI using the equity method.
We
recorded gains on settlement of liabilities of $1,874,359 associated with the
restructuring and significantly reduced interest and financing costs, $6,936,607
compared with $45,638,653 in the prior year. All liabilities for
interest expenses were either paid in cash out of funds raised through the
restructuring or exchanged for equity as described in the notes to the financial
statements. The minority interest in the net loss of the subsidiary
was $168,274 for the four months to end October compared with a net gain in the
prior year of $341,837. Our net loss from our equity investment for
the remainder of the current fiscal year was $51,895. The resulting
net loss for the year was $5,788,307 compared with $46,352,377 in the prior
year.
Liquidity
and Capital Resources
NSHI and
NSI
Since
the acquisition of its properties in 2003 through June 30, 2009, NSI has
invested $6,566,202 developing the well field and its cavities. In
recent times sodium bicarbonate has been recovered from three cavities
denominated as 5H, 6H and 7H from which the BLM has authorized NSI to recover
nearly 230,000 tons of sodium bicarbonate under an approved mine plan as at June
30, 2009. In early September 2009, NSI completed a new cavity, 10H,
at a cost of approximately $2,750,000 that increases NSI’s authorized recovery
by 308,000 tons. NSI is currently embarking on another drilling
program at an estimated cost of $2,400,000 to establish another new well, 11H,
and expects to secure a further increase of 300,000 tons to its authorized
recovery to ensure a reliable supply of feed liquor to its plant for several
years. Along with these wells, NSI has installed an additional
pipeline to carry the recovered liquor to the plant at a cost of approximately
$715,000. This pipeline will support three cavities. These
activities are part of an exploration and production cavity installation program
which is expected to cost approximately $9 million over time. While NSI is
generating sufficient free cash flow to provide for most of this expenditure,
NSI needed additional financing to fund the initial
investment. Consequently, AmerAlia and Sentient completed a
Contribution Agreement and we advanced $450,000 as our share of $2,500,000 NSHI
raised from ourselves and Sentient in July 2009.
AmerAlia
The
recent restructuring resulted in NSHI owning all of NSI and AmerAlia owning 18%
of NSHI. Sentient no longer holds any debt in either AmerAlia or
NSHI. All debentures issued by NSHI have been
cancelled. AmerAlia extinguished other obligations in exchange
for the issue of shares of our common stock as discussed more fully above in
Item 1 and in our financial statements. Sentient now owns 72.4% of
AmerAlia’s common stock. When combined with its limited additional
purchase rights, Sentient’s beneficial ownership is 74.5%.
During
the financial year ended June 30, 2009, we received $9,873,866 in cash through
issuing shares of our common stock to Sentient at $0.36 per share. We
also exchanged obligations totaling $5,543,787 due to Sentient and other related
parties for issues of shares. We paid $29,125 of capital lease
payments and invested $122,380 in NSI’s cavities and well development and
$26,743 on its plant and equipment. Upon the closing of the
restructuring agreement we repaid $980,000 of related party debts, repaid other
notes payable of $1,444,150, a bank overdraft of $54,331, accrued expenses of
$1,091,624, interest payable of $378,279 and accounts and royalties payable of
$1,101,340. We sourced $42,863 by releasing restricted funds and $155,647 from
prepaid expenses. We applied $46,614 to increasing NSI’s accounts
receivable and $54,370 to increased inventory prior to the
restructuring.
Consequently,
AmerAlia now holds an investment in NSHI which is unlikely to produce sufficient
distributions of income to meet AmerAlia’s overhead expenses in the short
term. However, as the effect of the restructuring has been to repay
nearly all of AmerAlia’s obligations, AmerAlia expects that the operating costs
of AmerAlia will be reduced to approximately $1,000,000
annually. In addition, NSHI may call on its shareholders for
additional capital. While AmerAlia has reserved $2,880,000 to meet
anticipated capital calls of which we contributed $450,000 in July 2009 as
discussed above, its remaining cash reserves are required to sustain AmerAlia’s
operations and repay obligations.
Under
the Restructuring Agreement, Sentient has the right to purchase up to a total of
5,500,000 additional shares of AmerAlia’s common stock at $0.36 per share until
October 31, 2011. This right can only be exercised to resolve
obligations of AmerAlia that existed at the first closing and have not been
discharged, and only then if the holders of the unpaid obligations pursue or
threaten to pursue claims against AmerAlia or AmerAlia’s
affiliates.
In
view of these conditions, AmerAlia’s ability to continue as a going concern is
dependent upon its ability to obtain additional financing or capital to meet its
ongoing obligations. AmerAlia’s ability to obtain further financing
through the offer and sale of AmerAlia’s securities is subject to market
conditions and other factors beyond AmerAlia’s control. There is no
assurance AmerAlia will be able to obtain financing on favorable terms or at
all. If cash is insufficient to fund its business operations, they
could be adversely affected. Insufficient funds may require
delay, scaling back or eliminating expenses and/or employees.
Potential Effect of
Acquisition of Additional NSHI Shares
Nevertheless,
we wish to acquire some or all the outstanding equity in NSHI and are
investigating acquiring other businesses. If we could acquire all the
shares of NSHI we currently do not own then, on the basis of the June 30, 2009
financial data, we would have total assets of approximately $41.5 million and
total liabilities of approximately $6 million. We would own all of
the operating assets of NSHI and NSI and have access to their cash
flows. We would also assume responsibility for the further
development of the business. We expect that NSHI will have
development capital requirements in addition to those needs discussed
above. Hence we need to further enlarge the equity capital of
AmerAlia and we intend to seek additional capital during the forthcoming year
although we may not be able to obtain additional financing on commercially
reasonable terms, if at all.
While
we are having discussions with Sentient about our need to comply with the
obligations of the Investment Company Act or else take other action so that we
do not have to register as an investment company, we cannot offer any assurance
that we will be able to reach an agreement with Sentient for this
purpose.
Off-Balance
Sheet Arrangements
We
do not have any significant off-balance sheet arrangements for either AmerAlia,
NSHI or NSI that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors. NSI sometimes enters into forward
purchases of natural gas in order to secure supplies at fixed prices for up to
75% of anticipated requirements.
|
ITEM 8.
|
FINANCIAL STATEMENTS
AND SUPPLEMENTAL DATA
|
AmerAlia’s
financial statements are attached at the end of this Annual Report.
|
ITEM
9.
|
CHANGES IN AND
DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
|
ITEM
9A(T).
|
CONTROLS AND
PROCEDURES
|
Disclosure
Control and Procedures
As
required by Rule 13a-15 under the Securities Exchange Act of 1934 and Item 307
of Regulation S-X we carried out an evaluation of the effectiveness of the
design and operation of our disclosure controls and procedures within the 90
days prior to the filing this Annual Report. This evaluation was
carried out under the supervision and with the participation of our Chief
Executive Officer and our Chief Financial Officer who concluded that our
disclosure controls and procedures are effective.
As
defined in Rule 13a-15(e), disclosure controls and procedures are controls and
other procedures that are designed to ensure that information required to be
disclosed in our reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed in our reports
filed under the Exchange Act is accumulated and communicated to management,
including our Chief Executive Officer and our Chief Financial Officer as
appropriate, to allow timely decisions regarding required
disclosure.
Internal
Control over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Securities Exchange Act Rule
13a-15(f). Our internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles. Our internal control over financial reporting
includes those policies and procedures that: (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of our assets; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with U.S. generally accepted accounting principles, and
that our receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of our assets that could have a material effect on the
financial statements.
Our
management, including our Chief Executive Officer and Chief Financial Officer,
assessed the effectiveness of our internal control over financial reporting as
of June 30, 2009. In making our assessment of internal control over
financial reporting, our management used the criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Based on this assessment,
our management concluded that our internal control over financial reporting was
effective.
This
Annual Report does not include an attestation report of our public accounting
firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only management’s report in
this annual report.
Changes
in Internal Control over Financial Reporting
During
the year we addressed and rectified various deficiencies previously
identified. We have retained qualified and experienced accounting
contractors to supervise our staff and maintain our accounting records and have
thereby accessed additional resources sufficient to enable adequate separation
of duties and compliance with generally accepted accounting
principles. There has been no change in our internal control over
financial reporting, except as described above, during the financial year ended
June 30, 2009 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
|
ITEM
9B.
|
OTHER
INFORMATION
|
None.
PART
III
|
ITEM
10.
|
DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE
GOVERNANCE
|
Identification
of Directors and Executive Officers.
The
following table sets forth the names and ages of all the directors and executive
officers of AmerAlia, positions held by each such person, and when such person
was first elected or appointed. The directors each serve until their
successors are duly elected and qualified; officers are appointed by, and serve
at the pleasure of, the Board of Directors.
|
Name & Age
|
Position
|
First Elected
Or Appointed
As Director
|
||
|
Bill
H. Gunn (67)
|
Chairman
of the Board,
|
02/84
|
||
|
President
& CEO of AmerAlia, Inc.
|
09/90
|
|||
|
Robert
C.J. van Mourik (56)
|
Director,
Executive
Vice President & Chief Financial Officer,
Secretary
& Treasurer of AmerAlia, Inc.
|
09/09 | ||
|
Neil
E. Summerson (61)
|
Director
(1)
|
09/90
|
||
|
Geoffrey
C. Murphy (68)
|
Director
(1,2)
|
06/99
|
||
|
James
V. Riley (72)
|
Director
(1,2)
|
10/01
|
||
|
Robert
C. Woolard (72)
|
Director
(2)
|
05/04
|
||
|
J.
Jeffrey Geldermann (59)
|
Director,
President, Credentials, Inc.(2)
|
06/04
|
||
(1) Members
of the Audit
Committee.
(2) Members
of the Compensation Committee
There
are no family relationships among the officers or directors. No
arrangement exists between any of the above officers and directors pursuant to
which any one of those persons was elected to such office or
position.
Directors
hold office until the next annual meeting of shareholders and a successor
is elected and qualified, or until the director’s death, resignation or
removal. Executive officers are elected at annual meetings of the
Board of Directors. Each such officer holds office for one year or
until a successor has been duly elected and qualified or until death,
resignation or removal.
Each
of Mr. Summerson, Mr. Riley, Mr. Murphy, Mr. Woolard and Mr. Geldermann is
independent as that term is defined in Rule 5605(a)(2) of the Nasdaq listing
rules.
During
the year ended June 30, 2009 the board of directors met four times by
telephone. No directors attended less than 75% of the
meetings.
A
brief summary of the business experience of each person who is currently an
officer or director of AmerAlia, and their service with us is as
follows:
BILL H.
GUNN
Mr.
Gunn graduated in Commerce from the University of Queensland, Australia in 1963,
achieving his Accounting Certificate from the University of Queensland in the
same year. Subsequently, he was admitted as a member of the
Australian Society of Certified Practising Accountants and has successfully
completed and passed the examinations for admittance as a Certified Public
Accountant (CPA) in the USA.
Mr.
Gunn has been a self-employed investor, CPA, and a director of several
Australian Stock Exchange listed public companies, as well as a number of
majority owned private corporations. Since February 1984 he has
been Chairman, CEO and President of AmerAlia.
ROBERT VAN
MOURIK
Mr.
van Mourik has served as Executive Vice President, Chief Financial Officer,
Treasurer and Secretary of AmerAlia since 1989 and was elected a director in
September 1990. He graduated in 1974 with a Bachelor of Applied
Science (Applied Chemistry) from the Victoria Institute of Colleges, Australia
and in 1981 with a Master’s Degree in Business Administration from the
University of Newcastle, Australia. He is a Fellow of the Australian
Institute of Company Directors.
NEIL E.
SUMMERSON
Mr.
Summerson is a director of several Australian listed and unlisted public
companies and closely held private companies. He is a director of
Bank of Queensland Ltd, Moore Stephens (Qld) Limited, Pioneer Permanent Building
Society Limited, Home Building Society Limited, PQ Lifestyles Limited and
Australian Made Campaign Limited; Australian public companies. He 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. 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
GEOFFREY C.
MURPHY
In 2009 Mr. Murphy became a
principal of Valor Leadership Partners, LLC, a consulting firm based in
Peachtree City, Georgia. Previously, he was employed as the Senior
Vice President of Citrico Holdings, Inc., a company engaged in the manufacture
of lemon-based products from September 1, 2001 until September 30,
2004. Mr. Murphy graduated with a Bachelor’s degree from
Dartmouth College, and a Master’s of Business Administration from the Amos Tuck
School of Business Administration at Dartmouth College.
JAMES V.
RILEY
In
1975, Mr. Riley founded Transportation Media, Inc. and served as its President
and Chief Executive Officer until the company was sold to Clear Channel
Communications in February 1998. The corporation, now known as Clear
Channel Airports, specializes in the operation, marketing and sales of media
programs at airports. Mr. Riley retired as the Chairman of Clear
Channel Airports in March 2005.
ROBERT C.
WOOLARD
Mr.
Woolard retired in August 2003 after being in the brokerage and investment
banking business for 45 years. His last 5 years were spent at Stifel,
Nicolaus & Company, a member firm of the New York Stock Exchange, as a
Vice-President/Account Supervisor in the Investment Banking
Department.
J. JEFFREY
GELDERMANN
Mr.
Geldermann is and has been since 1997, President of Credentials, Inc., a company
offering computer based electronic academic qualifications verification services
used by colleges and universities.
Identification
of Significant Employees.
In
addition to the executive officers discussed above, NSI employs two significant
employees. They are Bradley (“Brad”) Bunnett, President and Robert
(“Bob”) Warneke, Executive Director of Manufacturing.
Brad
Bunnett was Vice President of Sales & Marketing for Energy Supplements
International in Fullerton, California from July 2002 until he joined NSI in
April 2004. From January 2001 until July 2002, he was Vice
President of Sales and Marketing for Austin-Tetra, Inc. of Irving, Texas and
previously a Vice President of Sales for Computer Associates.
Bob
Warneke joined NSI in August 2007. He has 29 years of manufacturing
experience in industrial, chemical and mineral industries. He was
employed by FMC Corporation for 14 years until 1993 progressing in engineering
and management. In his last assignment with FMC, Bob managed the
start up of a new sodium bicarbonate facility in Green River,
Wyoming. In 1993 he joined North American Chemical Company and its
successor companies as the plant manager of a new sodium bicarbonate plant in
Rifle which is now the NSI plant. Bob transferred from IMC Chemical
Company in 2000 to become plant manager of their soda ash facility in California
until his return to Colorado in early 2007.
Family
Relationships.
There
are no family relationships among the officers or directors.
Involvement
in Certain Legal Proceedings:
During
the past five years, no director or executive officer of AmerAlia
has:
|
|
·
|
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;
|
|
|
·
|
Been
convicted in a criminal proceeding or is a named subject of a pending
criminal proceeding (excluding traffic violations and other minor
offences);
|
|
|
·
|
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, barring, suspending or otherwise
limiting his involvement in any type of business, securities or banking
activities;
|
|
|
·
|
Been
found by a court of competent jurisdiction in a civil action or by the
Securities and Exchange Commission, or by the Commodity Futures Trading
Commission to have violated a federal or state securities or commodities
law, and the judgment has not been reversed, suspended, or
vacated.
|
Audit
Committee Financial Expert.
The
Board of directors has determined that Messrs. Neil E. Summerson and Geoffrey C.
Murphy are both qualified to be and are financial experts on the Audit
Committee, as defined in Item 407(d)(5) of Regulation S-K.
Identification
of the Audit Committee.
Members
of the Audit Committee are Messrs. Neil E. Summerson (Chairman), Geoffrey C.
Murphy and James V. Riley. The purpose of the Audit Committee is to
provide assistance to the corporate directors in fulfilling their responsibility
to the shareholders, potential shareholders and the investment community
relating to corporate accounting, reporting practices and the quality and
integrity of the company’s financial reports. The committee engages
the services of the auditors. Each of the members of the audit
committee is independent as that term is defined in Rule 5605(a)(2) of the
Nasdaq listing rules. The audit committee met formally four times
during the year ended June 30, 2009 and has met three times since.
The
Audit committee is governed by an audit committee charter.
Compensation
Committee.
A
compensation committee comprising the non-executive directors of the Board of
Directors was first formed early in 1993 and determined the compensation payable
to Messrs. Gunn and van Mourik, as set out below. The compensation
committee now comprises Messrs. Murphy, Riley, Woolard and Geldermann; none has
been an officer nor an employee of AmerAlia or any of our subsidiaries during
the fiscal year ended June 30, 2009, or subsequently. None of Mr.
Murphy, Mr. Riley, Mr. Woolard or Mr. Geldermann has any other direct or
indirect relationship with AmerAlia requiring disclosure by us pursuant to Item
401 of Regulation S-K. Furthermore, no executive officer of AmerAlia
served as a member of the compensation committee (or similar committee) of
another entity that dealt with compensation paid to any member of our
compensation committee, or with which any other interlocking relationship
exists.
The
compensation committee did not meet during fiscal year ended June 30, 2009 or
since. The compensation committee has the authority to review and
make recommendations to our Board of Directors with respect to the compensation
of our executive officers.
Appointment
of directors
At
each annual meeting of our shareholders the current board proposes nominees for
election as directors. We do not have any procedure by which
shareholders can nominate candidates other than through an approach to the
board.
Under
the Restructuring Agreement, discussed in Item 1, Sentient also has the right to
nominate Peter Cassidy, Chairman and CEO of Sentient, and up to three additional
suitably qualified persons for election by AmerAlia’s shareholders as directors
of AmerAlia.
The
board of directors of AmerAlia does not have a nominating committee because we
were not focused on recruiting additional directors until the completion of the
recent restructuring. However, our board intends to establish a
committee and seek new directors, particularly if we compete the restructuring
of our holdings in NSHI with Sentient.
Code
of Ethics
We
have not yet adopted a code of ethics that applies to our principal executive,
financial and accounting officers because our limited resources have been
applied to negotiating and closing our restructuring transaction.
Section
16(a) Beneficial Ownership Reporting Compliance.
Section
16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires
AmerAlia’s directors and officers and persons who own more than 10% of
AmerAlia’s equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the
“SEC”). Directors, officers, and greater-than-10% shareholders are
required by SEC regulation to furnish AmerAlia with copies of all Section 16(a)
reports filed.
Based
solely on its review of the copies of the reports it received from persons
required to file, AmerAlia believes that during the period from July 1, 2008
through June 30, 2009, all filing requirements applicable to officers,
directors, and greater-than-10% shareholders have been met in accordance with
the requirements of Section 16(a).
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
Summary
Compensation Table
The
following table sets forth information regarding compensation paid to our
executive officers during the two fiscal years ended June 30,
2009. Messrs. Gunn and van Mourik were the only executive officers
receiving or accruing compensation exceeding $100,000 during fiscal year 2009,
as shown below. None of our executive officers are subject to
employment agreements. The compensation of our executive officers is
determined by the compensation committee of the board of
directors. Mr. Gunn receives a salary of $100,000 per year from NSI
that is paid directly by NSI. During the fiscal year ended June 30,
2009 we were able to pay nearly all the outstanding compensation due to Mr. Gunn
and all the outstanding compensation due to Mr. van Mourik as described in Item
13. They are now paid regularly.
|
Name
and
Principal
Position
(a)
|
Year
(b)
|
Salary
(1)
$
(c)
|
Bonus
$
(d)
|
Stock
Awards
$
(e)
|
Option
Awards
$
(f)
|
Non-equity
incentive
plan
compensation
$
(g)
|
Non-qualified
deferred
compensation
earnings
$
(h)
|
All
other
compensation
$
(i)
|
Total
$
(j)
|
|||||||||
|
Bill
H. Gunn
President
&
|
2009
|
114,000
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
114,000
|
|||||||||
|
Chief Executive
Officer
|
2008
|
114,000
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
114,000
|
|||||||||
|
Robert van Mourik
Chief
Financial
|
2009
|
164,000
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
164,000
|
|||||||||
|
Officer &
Executive
Vice President
|
2008
|
164,000
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
164,000
|
|
|
(1)
|
At
June 30, 2009 accrued unpaid compensation, interest, expenses and advances
to the company of $48,769 and $1,132 were due to Bill H. Gunn and Robert
van Mourik respectively (at June 30, 2008: $219,065 and $616,342,
respectively). These amounts also include $14,000 director’s
fees due annually. In addition, Bill H. Gunn is paid a
salary of $100,000 by NSI.
|
AmerAlia
does not have a group medical insurance plan for its executive officers although
Mr. Gunn participates in a comprehensive group medical insurance plan that NSI
provides for its employees. While AmerAlia has no retirement plans,
NSI contributes matching contributions to a 401(k) plan for Mr.
Gunn.
We
have no plans for the payment or accrual for payment of any amounts to any
executive officer in connection with his resignation, retirement, or other
termination, or change of control or change in the executive officer's
responsibilities. We have no long term incentive compensation plans,
defined benefit plans, or actuarial plans. There are no plans to pay
bonuses or deferred compensation to employees of AmerAlia.
2001 Stock Option
Plan
In
March 2001, the Board of Directors adopted a stock option plan for its officers,
employees, and consultants. The Board of Directors (through its
compensation committee) can issue options under this plan to acquire up to
1,000,000 shares to officers, employees and consultants. The Plan is
intended to provide incentives to attract, retain and motivate eligible persons
whose present and potential contributions are important to our success by
offering them an opportunity to participate in our future performance through
awards of stock options. In each case, the Board of Directors
(through its compensation committee) will determine the price at which options
may be issued, the term of the options, and the number of options to be
issued. In no case may the exercise price be less than the market
value of the underlying shares at the time of grant. Our shareholders approved
this plan at the annual meeting of shareholders held in June 2001. No
officer exercised stock options during the fiscal year ended June 30,
2009. There are no outstanding stock options at June 30, 2009 held by
either officer.
Compensation
of Directors
Our
directors are authorized to receive $14,000 cash compensation per year for their
services as directors. In addition, the Chairman of the Audit
Committee receives $6,000 per year and other Audit Committee members $4,000 per
year; the Chairman of the Compensation Committee receives an additional $2,000
per year. These arrangements were approved September 10, 2002 as of
July 1, 2002. We also reimburse directors for expenses incurred on
behalf of AmerAlia. The option awards data represent the dollar
amount recognized for financial statement reporting purposes for the fair value
of stock options granted to each of the named directors in accordance with SFAS
123R.
|
|
Fees
earned
or
paid
in
cash
|
Stock
Awards
|
Option
Awards
|
Non-equity
incentive
plan
compensation
|
Non-qualified
deferred
compensation
earnings
|
All
other
compensation
|
Total
|
|||||||||
| Name |
$
|
$
|
$
|
$
|
$
|
$
|
$
|
|||||||||
|
(a)
|
Year
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
||||||||
|
Neil
E.
Summerson
|
2009
|
20,000
|
-0-
|
27,657
|
-0-
|
-0-
|
-0-
|
47,657
|
||||||||
|
Geoffrey
C.
Murphy
|
2009
|
20,000
|
-0-
|
27,657
|
-0-
|
-0-
|
-0-
|
47,657
|
||||||||
|
James
V.
Riley
|
2009
|
18,000
|
-0-
|
27,657
|
-0-
|
-0-
|
-0-
|
45,657
|
||||||||
|
Robert
C.
Woolard
|
2009
|
14,000
|
-0-
|
27,657
|
-0-
|
-0-
|
-0-
|
41,657
|
||||||||
|
J.
Jeffrey
Geldermann
|
2009
|
14,000
|
-0-
|
27,657
|
-0-
|
-0-
|
-0-
|
41,657
|
||||||||
2001 Directors’ Incentive
Plan
In
March 2001, the Board of Directors adopted a plan by which each director (who is
not an employee or officer) is granted:
|
|
·
|
an
option to purchase 75,000 shares at a current market price upon joining
the Board of Directors; and
|
|
|
·
|
an
option to purchase 37,500 shares on July 1 of each year he remains a
director.
|
The
exercise price for these options is the average market price of our Common Stock
during the month of June preceding each grant date, and the options have a
three-year term. All options granted under this plan are exercisable six months
after the date of grant.
The
following table summarizes information with respect to each non-executive
director’s outstanding stock options at June 30, 2009.
|
Option Awards
|
||||||||
|
Name
|
Number of
securities
underlying
unexercised options
# Exercisable
|
Number of securities
underlying
unexercised options
# Unexercisable
|
Option
exercise price
$
|
Option
expiration date
|
||||
|
(a)
|
(b)
|
(c)
|
(e)
|
(f)
|
||||
|
Neil
E. Summerson
|
37,500
|
-
|
0.40
|
6/30/10
|
||||
|
37,500
|
-
|
0.88
|
6/30/11
|
|||||
|
Geoffrey
C. Murphy
|
37,500
|
-
|
0.40
|
6/30/10
|
||||
|
37,500
|
-
|
0.88
|
6/30/11
|
|||||
|
James
V. Riley
|
37,500
|
-
|
0.40
|
6/30/10
|
||||
|
37,500
|
-
|
0.88
|
6/30/11
|
|||||
|
Robert
C. Woolard
|
37,500
|
-
|
0.40
|
6/30/10
|
||||
|
37,500
|
-
|
0.88
|
6/30/11
|
|||||
|
J. Jeffrey Geldermann
|
37,500
|
-
|
0.40
|
6/30/10
|
||||
|
37,500
|
-
|
0.88
|
6/30/11
|
|||||
On
July 1, 2007, we granted 37,500 options to acquire shares of Common Stock at
$0.40 per share exercisable until June 30, 2010 to each of the following
non-executive directors:
|
|
·
|
Geoffrey
C. Murphy
|
|
|
·
|
Neil
E. Summerson
|
|
|
·
|
James
V Riley
|
|
|
·
|
Robert
C. Woolard and
|
|
|
·
|
J.
Jeffrey Geldermann.
|
During
the fiscal year ended June 30, 2009, Messrs. Summerson, Murphy, Riley, Woolard
and Geldermann each exercised these options to acquire 6,750 shares utilising
the cash less exercise provisions of the option agreements.
On
July 1, 2008, we granted 37,500 options to acquire shares of Common Stock at
$0.88 per share exercisable until June 30, 2011 to each of the following
non-executive directors:
|
|
·
|
Geoffrey
C. Murphy
|
|
|
·
|
Neil
E. Summerson
|
|
|
·
|
James
V Riley
|
|
|
·
|
Robert
C. Woolard and
|
|
|
·
|
J.
Jeffrey Geldermann.
|
On
July 1, 2009, we granted 37,500 options to acquire shares of Common Stock at
$0.29 per share exercisable until June 30, 2012 to each of the following
non-executive directors:
|
|
·
|
Geoffrey
C. Murphy
|
|
|
·
|
Neil
E. Summerson
|
|
|
·
|
James
V Riley
|
|
|
·
|
Robert
C. Woolard and
|
|
|
·
|
J.
Jeffrey Geldermann.
|
These
options vest on January 2, 2010.
Other
Arrangements
Except
as described herein, no officer or director of AmerAlia has been or is being
paid any cash compensation, or is otherwise subject to any deferred compensation
plan, bonus plan or any other arrangement and understanding whereby such person
would obtain any cash compensation for his services for and on behalf of
AmerAlia except that for the financial years ended June 30, 2009 and 2008 an
allowance for interest on unpaid outstanding compensation, directors fees and
expenses reimbursement was accrued as follows:
|
Director
|
Fiscal year ended
June 30,
|
|||||||
|
2009
|
2008
|
|||||||
|
Robert
van Mourik
|
$ | 32,806 | $ | 61,545 | ||||
|
Bill
H. Gunn
|
13,878 | 26,959 | ||||||
|
Geoffrey
C. Murphy
|
7,717 | 19,697 | ||||||
|
Neil
E. Summerson
|
3,727 | 8,294 | ||||||
|
James
V. Riley
|
3,337 | 7,794 | ||||||
|
Robert
C. Woolard
|
3,011 | 7,203 | ||||||
|
J.
Jeffrey Geldermann
|
2,902 | 6,904 | ||||||
|
Total:
|
$ | 67,378 | $ | 138,396 | ||||
Employment
Contracts and Termination of Employment and Change-in-Control
Arrangements.
AmerAlia
has no compensation plan or arrangement with respect to any executive officer
which plan or arrangement results or will result from the resignation,
retirement or any other termination of such individual's employment with
AmerAlia. AmerAlia has no plan or arrangement with respect to any
such persons which will result from a change in control or a change in the
individual's responsibilities following a change in
control.
|
ITEM
12.
|
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
|
At
September 21, 2009, we had one class of outstanding voting securities, our
common stock (referred to herein as the “Common Stock”). The
following table sets forth information as of September 20, 2009 on the ownership
of the Common Stock for all directors, individually, all executive officers
named in the compensation table, all executive officers and directors as a
group, and all beneficial owners of more than five percent of the Common
Stock. The following shareholders have sole voting and investment
power with respect to the shares unless indicated otherwise.
|
Name
& Address
of Beneficial Owner
|
Amount
& Nature
of Beneficial Ownership
|
Percent
of
Common Stock*
|
|||||
|
Robert
C. Woolard
|
2,269,225 | (1) | 3.4% | ||||
|
219
Eagle Pointe Drive, Branson, MO
|
|||||||
|
James
V. Riley
|
2,083,733 | (2) | 3.1% | ||||
|
414
N. Orleans, Suite 405, Chicago IL
|
|||||||
|
J.
Jeffrey Geldermann
|
1,210,500 | (3) | 1.8% | ||||
|
535
Kenilworth Ave, Kenilworth IL
|
|||||||
|
Bill
H. Gunn
|
1,064,445 | (4) | 1.6% | ||||
|
Aspen,
Colorado
|
|||||||
|
Geoffrey
C. Murphy
|
776,993 | (5) | 1.2% | ||||
|
514
Meadow Rd, Winnetka IL
|
|||||||
|
Robert
van Mourik
|
545,385 | (6) | 0.8% | ||||
|
St
Lucia, Queensland, Australia
|
|||||||
|
Neil
E. Summerson
|
516,417 | (7) | 0.8% | ||||
|
Yeronga,
Queensland, Australia
|
|||||||
|
Officers
& Directors as a Group (7 persons)
|
8,466,698 | (8) | 12.7% | ||||
|
Sentient
USA Resources Fund, LP
|
53,454,495 | (9) | 74.5% | ||||
|
George
Town, Grand Cayman, Cayman Islands
|
|||||||
|
·
|
Percent
of common stock is calculated individually (or as a group) assuming an
individual (or all members of a group) exercises its options or any other
rights it might have to take up additional common stock. The
calculations assume that other holders of equity interests do not exercise
their rights unless they are part of the same group. The
calculation is based on a total of 66,293,696 shares plus the number of
applicable options or rights in each
case.
|
|
|
(1)
|
Includes
21,932 shares held in Mr. Woolard's IRA account, options to acquire 37,500
shares at $0.40 until June 30, 2010, options to acquire 37,500 shares at
$0.88 until June 30, 2011 and options to acquire 37,500 shares at $0.29
until June 30, 2012. Also includes the following shares in which Mr.
Woolard disclaims any beneficial interest: 21,937 shares held
in an IRA account for Karen O Woolard and 2,112,856 shares held by the
Karen O Woolard Trust.
|
|
|
(2)
|
Includes
1,971,233 shares of Common Stock held by the James V. Riley Revocable
Trust, options held directly to acquire 37,500 shares of Common Stock at
$0.40 per share exercisable through June 30, 2010, options to acquire
37,500 shares at $0.88 until June 30, 2011 and options to acquire 37,500
shares of Common Stock at $0.29 per share exercisable through June 30,
2012.
|
|
|
(3)
|
Includes
options to acquire 37,500 shares at $0.40 until June 30, 2010, options to
acquire 37,500 shares at $0.88 until June 30, 2011 and options to acquire
37,500 shares at $0.29 until June 30,
2012.
|
|
|
(4)
|
Includes
131,960 shares of Common Stock owned by Gunn Development Pty. Ltd. (of
which Mr. Gunn is a controlling
shareholder).
|
|
|
(5)
|
Includes
options to acquire 37,500 shares at $0.40 until June 30, 2010, options to
acquire 37,500 shares at $0.88 until June 30, 2011 and options to acquire
37,500 shares at $0.29 until June 30,
2012.
|
|
|
(6)
|
Includes
240,760 shares of Common Stock owned by Ahciejay Pty. Ltd. as trustee for
The R.C.J. Trust, and 304,125 shares of Common Stock held in trust for the
R.C.J. Superannuation Fund, as to both of which Mr. van Mourik and his
family are beneficiaries.
|
|
|
(7)
|
Includes
400,167 shares held by held by Glendower Investments Pty Ltd as trustee
for a trust of which Mr. Summerson and his family are beneficiaries; 3,750
shares held by held by Glendower Properties Pty Ltd as trustee for a trust
of which Mr. Summerson and his family are beneficiaries; and options held
directly to acquire 37,500 shares at $0.40 until June 30, 2010, options to
acquire 37,500 shares at $0.88 until June 30, 2011 and options to acquire
37,500 shares at $0.29 until June 30,
2012.
|
|
|
(8)
|
Includes
beneficial ownership of Messrs. Woolard, Riley, Geldermann, Gunn, Murphy,
van Mourik and
Summerson, as described in notes 1, 2, 3, 4, 5, 6 and 7,
above.
|
|
|
(9)
|
Includes
the right to purchase 5,500,000 shares for $0.36 each subject to certain
conditions as discussed in Item 1.
|
To
the best of our knowledge, there are no arrangements, understandings or
agreements relative to the disposition of any of our securities, the operation
of which would at a subsequent date result in a change in control of
AmerAlia.
Changes
in Control.
None.
|
ITEM
13.
|
CERTAIN RELATIONSHIPS
AND RELATED PARTY TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Transactions
with Management and Others
The
following sets out information regarding transactions between officers,
directors and significant shareholders of AmerAlia during the most recent fiscal
year and subsequently.
Sentient
Entities
On
September 25, 2008, AmerAlia, NSHI, NSI, Bill H. Gunn and Robert van Mourik,
directors and executive officers of AmerAlia (collectively the “AmerAlia
parties”) entered into a Restructuring Agreement with the Sentient
Entities. Previously, NSHI owned 46.5% of NSI.
On
October 31, 2008, the AmerAlia Parties and the Sentient Entities completed an
Amendment to the Restructuring Agreement. As a result of the
amendment, the restructuring transaction was divided into two
closings. In accordance with the amended agreement the first closing
occurred as of October 31, 2008. Prior to the first closing, the
Sentient Entities transferred their various interests to
Sentient. The second closing occurred as of December 31,
2008. In the first and second closings:
|
|
·
|
Sentient
exchanged all its NSHI debentures and all accrued interest thereon, its
one share of NSHI common stock and its 53.5% of the common stock of NSI
for 82% of the issued common stock of
NSHI;
|
|
|
·
|
AmerAlia
exchanged its NSHI debentures and all accrued interest thereon and its
NSHI preferred stock for 12.9% of the issued common stock of NSHI, giving
AmerAlia an aggregate ownership position in NSHI of
18%;
|
|
|
·
|
Intercompany
loans between AmerAlia and NSHI were
extinguished;
|
|
|
·
|
Sentient’s
indemnification rights relating to the extinguishment of a $9.9 million
bank loan were terminated; and
|
|
|
·
|
Sentient
received an aggregate of 40,024,675 shares of AmerAlia common stock as
follows:
|
|
|
o
|
27,427,406
shares of AmerAlia common stock for a total purchase price of
$9,873,866;
|
|
|
o
|
6,619,469
shares in satisfaction of various promissory notes;
and
|
|
|
o
|
5,977,800
shares in satisfaction of debts, rights and obligations acquired from the
Mars Trust in August 2007 at the first
closing.
|
Sentient
no longer holds any debt in either AmerAlia or NSHI. All debentures
issued by NSHI have been cancelled. NSI is now a wholly-owned
subsidiary of NSHI.
AmerAlia
extinguished other obligations in exchange for the issue of shares of our common
stock as discussed more fully below and in our financial
statements. Sentient now owns 72.4% of AmerAlia’s common
stock. When combined with its limited additional purchase rights,
Sentient’s beneficial ownership is 74.5%.
Repayment
of obligations due to Officers and Directors
In
September 2008, we issued 495,820 shares of restricted common stock to the Karen
O. Woolard Trust, an affiliate of our director, Robert C. Woolard, in
satisfaction and cancellation of a promissory note and accrued interest with a
total value of $1,175,889.
On
October 31, 2008, our officers, our directors and their affiliates subscribed
for shares of AmerAlia Common Stock in satisfaction of various notes and accrued
compensation as follows:
|
Shareholder
|
Relationship
|
Number of
Shares
|
Consideration
|
||||||
|
Bill
H Gunn
|
Chairman
& CEO
|
700,000 | $ | 252,000 | |||||
|
Robert
van Mourik
|
Director,
EVP & CFO
|
250,000 | 90,000 | ||||||
|
James
V Riley Trust
|
Affiliate
of James
V. Riley, Director
|
1,583,333 | 570,000 | ||||||
|
J.
Jeffrey Geldermann
|
Director
|
1,003,400 | 361,224 | ||||||
|
Karen
O. Woolard Trust
|
Affiliate
of Robert C. Woolard,
Director
|
925,000 | 333,000 | ||||||
|
Glendower
Investments Pty
Ltd
|
Affiliate
of Neil E. Summerson,
Director
|
153,000 | 55,080 | ||||||
|
Geoffrey C. Murphy
|
Director
|
486,125 | 175,005 | ||||||
|
TOTALS:
|
5,100,858 | $ | 1,836,309 | ||||||
The
$9,873,866 of cash received was used to pay outstanding obligations and provide
working capital as set forth in the table below. The working capital
includes a reserve solely to fund AmerAlia’s share of anticipated capital calls
by NSHI, AmerAlia’s share of which is $2,880,000. As discussed below,
we made our first contribution of $450,000 to NSHI in July 2009.
|
Recipient
|
Relationship
|
Nature of
Obligation
|
Amount
|
|||||
|
Karen
O. Woolard Trust
|
Affiliate
of Robert C. Woolard,
Director
|
Balance
of Note &
interest
|
$ | 977,188 | ||||
|
Robert
van Mourik
|
Director,
EVP & CFO
|
Accrued
compensation advances
& expenses (1)
|
920,064 | |||||
|
Bill
H. Gunn
|
Director &CEO
|
Accrued
compensation advances & expenses (2)
|
794,657 | |||||
|
Ahciejay
Pty Ltd
|
Affiliate
of Robert
van Mourik
|
Promissory
note &
interest (3)
|
169,816 | |||||
|
James
V Riley Trust
|
Affiliate
of James
V. Riley, Director
|
Promissory
note interest
& directors fees
|
151,524 | |||||
|
J.
Jeffrey Geldermann
|
Director
|
Promissory
note interest
& directors fees
|
95,881 | |||||
|
Neil
E. Summerson
|
Director
|
Director’s
fees &
expenses
|
54,215 | |||||
|
Geoffrey
C. Murphy
|
Director
|
Director’s
fees &
expenses
|
36,550 | |||||
|
Robert
C. Woolard
|
Director
|
Directors
fees
|
23,792 | |||||
|
Note
holders
|
Unrelated
parties
|
Notes
& interest
|
1,983,801 | |||||
|
Various
creditors, taxes and
working capital
|
4,666,378 | |||||||
|
TOTAL:
|
$ | 9,873,866 | ||||||
|
|
1.
|
Includes
accrued outstanding compensation and related employee withholding taxes,
reimbursement of expenses and advances and current year
compensation.
|
|
|
2.
|
Includes
accrued outstanding compensation and related employee withholding taxes,
$100,000 salary paid by NSI, reimbursement of expenses and advances and
current year compensation.
|
|
|
3.
|
Includes
withholding taxes.
|
Corporate
Loans – Loans to AmerAlia
Over
several years, officers and directors advanced loans to AmerAlia as detailed in
the Notes to the Financial Statements. These comprised advances to us, as well
as accrued but unpaid compensation, directors’ fees and interest. The following
summarises our remaining liabilities to related parties as at June 30,
2009:
|
Director
|
June 30, 2009
|
|||
|
Bill
H. Gunn
|
$ | 48,769 | ||
|
Robert
van Mourik
|
1,132 | |||
|
Neil
E Summerson
|
5,000 | |||
|
Geoffrey
C Murphy
|
5,000 | |||
|
James
V Riley
|
4,500 | |||
|
Robert
C Woolard
|
4,500 | |||
|
J.
Jeffrey Geldermann
|
3,500 | |||
|
Total:
|
$ | 71,401 | ||
Natural
Soda Holdings, Inc.
We
have two executive officers, Bill H Gunn, our Chairman and CEO, and Robert van
Mourik, our EVP and CFO. Both officers actively participated in the
development of the Rock School lease and its acquisition, followed by the
negotiations and acquisition of the sodium bicarbonate operations now held by
NSI.
Bill
H. Gunn has been and continues to be the executive chairman of
NSI. He was also a director and president of NSHI until June 2009
when he became vice president. Mr. Gunn leads and directs NSI’s
management team including production activities, sales, customer service,
distribution, HR, business planning and budgeting and managed relationships with
government departments and agencies.
Robert
van Mourik is primarily involved in financial functions, internal controls and
procedures, budgeting, planning and reporting and audits. He has been
and continues to be CFO of NSI. He was also the CFO of NSHI until
June 2009. He continues to assist in the company’s oversight of its
accounting functions.
The
board of directors of NSHI comprises Peter Cassidy, Bill H. Gunn, Brad Bunnett,
Stephen Dunn and Johanna Druez. Peter Cassidy is Chairman and also
President of NSHI. Brad Bunnett is President of
NSI. Stephen Dunn and Johanna Druez are Sentient
representatives.
Mr.
Cassidy is also Chairman and CEO of Sentient, our largest
shareholder. Pursuant to the Restructuring Agreement, Sentient has
the right to nominate Peter Cassidy and up to three additional suitably
qualified persons for election by the shareholders as directors of
AmerAlia.
As
discussed above, the Company and Sentient are parties to a shareholder agreement
governing our conduct as shareholders of NSHI. Pursuant to Section 3.1
of this agreement, we received a notice to participate in additional funding of
NSHI in the amount of $2,500,000. The additional financing allows
NSHI to fund the expansion of NSI’s nahcolite resources, explore further
utilization of NSI’s water rights and potential oil shale. Our
proportionate contribution to this additional financing was
$450,000. Under the recapitalization agreement completed with
Sentient and other parties in October 2008, we had reserved $2,880,000 for NSHI
capital calls.
NSHI’s
subsidiary, NSI, is currently engaged in an exploration and production cavity
installation program which is expected to cost approximately $9 million over
time. While NSI is generating sufficient free cash flow to provide for most of
this expenditure, NSI needed the additional financing to fund the initial
investment.
Consequently,
AmerAlia and Sentient completed the Contribution Agreement referenced herein as
Exhibit 10.56 and advanced the required funding to NSHI in July
2009.
Natural
Soda, Inc.
Mr.
Brad Bunnett is a director of both NSHI and NSI and President of
NSI. As discussed above, Bunnett & Company is NSI’s largest
customer representing 26.9% of NSI’s sales by revenue in FY2009. The
principal of Bunnett & Company is Mr. Bill Bunnett, Brad Bunnett’s
father.
As
discussed in Item 11, Executive Compensation, Mr. Gunn receives $100,000 in
salary paid directly by NSI.
No
Other Relationships
No
nominee or director of AmerAlia is, or has been, a partner or executive officer
of any investment banking firm that has performed services for AmerAlia during
the last fiscal year or that AmerAlia proposes to have perform services during
the current year.
List
All Parents of the Company
Under
Rule 405 of Regulation C, the term “parent” when used with respect to AmerAlia
means an affiliate controlling AmerAlia directly or indirectly through one or
more intermediaries. One entity that has the ability to potentially
control AmerAlia (other than its board of directors and shareholders generally)
is Sentient through its beneficial ownership of 74.5% of our outstanding common
stock. As discussed above in Item 1B “Risk Factors”, under the
Shareholders Agreement, AmerAlia has granted Sentient the right to force the
sale of its economic interests in NSHI and its business operations on the same
terms and conditions agreed to by Sentient for its interests, subject to any
required approval by the AmerAlia shareholders. If this occurs
and the approval of the AmerAlia shareholders is not required by Utah law,
neither the board of directors nor the AmerAlia shareholders would have any
opportunity to approve the transaction. In this situation, Sentient
could approve a transaction which is not beneficial to the AmerAlia shareholders
or would not otherwise be approved by the AmerAlia shareholders.
Transactions
with Promoters
Not
applicable.
|
ITEM
14.
|
PRINCIPAL ACCOUNTANT
FEES AND SERVICES
|
HJ
& Associates, LLC, Certified Public Accountants, are the Company’s
independent auditors. For the fiscal years ended June 30, 2009 and
2008 HJ & Associates has billed the Company the following amounts for
services provided.
|
Year
ended June 30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Audit
fees
|
$ | 131,800 | $ | 114,900 | ||||
|
Audit
related fees
|
- | - | ||||||
|
Tax
fees
|
21,150 | 12,980 | ||||||
|
All other fees
|
- | - | ||||||
| $ | 152,950 | $ | 127,880 | |||||
The
Board of Directors has adopted an Audit Committee Charter which is reviewed
annually and amended if considered necessary. It was last amended
September 9, 2002. The Audit Committee’s responsibilities include
responsibility to:
|
|
·
|
Pre-approve
all audit services that the auditor may provide to AmerAlia or any
subsidiary (including, without limitation, providing comfort letters in
connection with securities underwritings or statutory audits) as required
by §10A(i)(1)(A) of the Securities Exchange Act of 1934 (as amended by the
Sarbanes-Oxley Act of 2002).
|
|
|
·
|
Pre-approve
all non-audit services (other than certain de minimis services
described in §10A(i)(1)(B) of the Securities Exchange Act of 1934 (as
amended by the Sarbanes-Oxley Act of 2002) that the auditors propose to
provide to AmerAlia or any of its
subsidiaries.
|
The
independent auditors are engaged by the Audit Committee subject to the auditors
providing an estimate of their fees for their services. The Audit
Committee subjects all audit related services to this pre-approval
policy.
PART
IV
|
ITEM
15.
|
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
(b)
|
Restated
Articles of Incorporation
|
|
3.2
(a)
|
Bylaws
of AmerAlia, Inc.
|
|
10.8
(f)
|
First
Amendment to Special Warranty Assignment, Royalty Reservation, and Minimum
Royalty Payment between AmerAlia and E.E. Kinder
Co.
|
|
10.9
(f)
|
Consulting
Agreement between AmerAlia and E.E. Kinder
Co.
|
|
10.10
(f)
|
U.S.
Government Sodium Lease
|
|
10.11
(g)
|
Design/Build
Contract with U.S. Filter Corp.
|
|
10.12
(b)
|
Amended
and Restated Guaranty Agreement with the Jacqueline Badger Mars
Trust
|
|
10.13
(d)
|
Second
Amended and Restated Guaranty Agreement with the Jacqueline Badger Mars
Trust
|
|
10.14
(c)
|
AmerAlia,
Inc. 2001 Directors’ Incentive Plan
|
|
10.15
(c)
|
AmerAlia,
Inc. 2001 Stock Option Plan
|
|
10.16
(h)
|
Third
Amended and Restated Guaranty Agreement with the Jacqueline Badger Mars
Trust
|
|
10.17
(i)
|
Fourth
Amended and Restated Guaranty Agreement with the Jacqueline Badger Mars
Trust
|
|
10.18
(i)
|
Guaranty
Agreement – Messrs Woolard and
O’Kieffe.
|
|
10.19
(j)
|
Asset
Purchase Agreement between AmerAlia, Inc., Natural Soda, Inc., White River
Nahcolite Minerals, LLC., and IMC Global, Inc. dated January 9,
2003.
|
|
10.19
(j)
|
Amendment
dated February 10, 2003 to the Asset Purchase
Agreement.
|
|
10.20
(j)
|
Closing
Agreement dated February 20, 2003, between AmerAlia, Inc., Natural Soda
Holdings, Inc., Sentient Global Resources Fund I, LP and Sentient Global
Resources Trust No. 1; Promissory note from Natural Soda Holdings, Inc. to
Sentient Global Resource Fund I, LP and Sentient Global Resource Trust No.
1; and Pledge Agreement from Natural Soda Holdings, Inc. to Sentient
Global Resources Fund I, LP and Sentient Global Resources Trust No.
1.
|
|
10.21
(k)
|
Extension
Agreement dated March 24, 2003 between AmerAlia, Inc., Natural Soda
Holdings, Inc., Sentient Global Resource Fund I, LP and Sentient Global
Resource Trust No. 1.
|
|
10.22
(l)
|
Second
Extension Agreement dated April 22, 2003 between AmerAlia, Inc., Natural
Soda Holdings, Inc., Sentient Global Resource Fund I, LP and Sentient
Global Resource Trust No. 1.
|
|
10.23
(m)
|
Third
Extension Agreement dated May 31, 2003 between AmerAlia, Inc., Natural
Soda Holdings, Inc., Sentient Global Resource Fund I, LP and Sentient
Global Resource Trust No. 1.
|
|
10.24
(n)
|
Fourth
Extension Agreement dated June 30, 2003 between AmerAlia, Inc., Natural
Soda Holdings, Inc., Sentient Global Resource Fund I, LP and Sentient
Global Resource Trust No. 1.
|
|
10.25
(o)
|
Fifth
Extension Agreement dated July 31, 2003 between AmerAlia, Inc., Natural
Soda Holdings, Inc., Sentient Global Resource Fund I, LP and Sentient
Global Resource Trust No. 1.
|
|
10.27
(p)
|
Sixth
Extension Agreement dated August 31, 2003 between AmerAlia, Inc., Natural
Soda Holdings, Inc., Sentient Global Resource Fund I, LP and Sentient
Global Resource Trust No. 1.
|
|
10.28
(q)
|
Seventh
Extension Agreement dated September 30, 2003 between AmerAlia, Inc.,
Natural Soda Holdings, Inc., Sentient Global Resource Fund I, LP and
Sentient Global Resource Trust No.
1.
|
|
10.29
(r)
|
Eighth
Extension Agreement dated October 31, 2003 between AmerAlia, Inc., Natural
Soda Holdings, Inc., Sentient Global Resource Fund I, LP and Sentient
Global Resource Trust No. 1.
|
|
10.30
(s)
|
Ninth
Extension Agreement dated November 30, 2003 between AmerAlia, Inc.,
Natural Soda Holdings, Inc., Sentient Global Resource Fund I, LP and
Sentient Global Resource Trust No.
1.
|
|
10.33
(t)
|
Debenture
Purchase Agreement executed March 19, 2004 by and among Natural Soda
Holdings, Inc., Natural Soda, Inc., AmerAlia, Inc. and Sentient Executive
GP I, Limited, acting on behalf of the General Partner of Sentient Global
Resources Fund I, L.P. and Sentient (Aust) Pty Limited, Acting on behalf
of Sentient Global Resources Trust No.
1.
|
|
10.34
(t)
|
Securityholder
Agreement dated March 19, 2004 among AmerAlia, Inc., Natural Soda, Inc.,
Sentient Executive GP I, Limited, acting on behalf of the General Partner
of Sentient Global Resources Fund I, L.P. and Sentient (Aust.) Pty
Limited, Acting on behalf of Sentient Global Resources Trust No. 1 and
Natural Soda Holdings, Inc.
|
|
10.35
(t)
|
Management
& Cost Reimbursement Agreement dated March 19, 2004 among AmerAlia,
Inc., Sentient Executive GP I, Limited, acting on behalf of the General
Partner of Sentient Global Resources Fund I, L.P. and Sentient (Aust.) Pty
Limited, Acting on behalf of Sentient Global Resources Trust No. 1,
Natural Soda Holdings, Inc. and Natural Soda,
Inc.
|
|
10.36
(t)
|
Form
of Secured Series A 10% Debenture Due September 30,
2005.
|
|
10.37
(t)
|
Form
of Secured Subordinated Series B1 Debenture Due February 19,
2008.
|
|
10.38
(t)
|
Form
of Secured Subordinated Series B2 Convertible Debenture Due February 19,
2008.
|
|
10.39
(t)
|
Form
of Unsecured Subordinated Series C Debenture Due February 19,
2008
|
|
10.40
(t)
|
Addendum
to the Third and Fourth Amended and Restated Guaranty Agreements entered
into March 19, 2004 by and between AmerAlia, Inc. and Jacqueline B. Mars,
as Trustee of the Jacqueline B. Mars Trust dated February 5, 1975, as
amended.
|
|
10.42
(v)
|
Form
of Secured Promissory Note Due
6-30-06.
|
|
10.43
(v)
|
Memorandum
of Understanding AmerAlia, Inc. and Series C Security
Holders.
|
|
10.44
(v)
|
Account
Purchase Agreement with Wells Fargo Bank
NA.
|
|
10.45
(v)
|
Amendment
to Account Purchase Agreement with Wells Fargo Bank
NA.
|
|
10.46
(w)
|
Water
Purchase Contract with Shell Frontier Oil & Gas,
Inc.
|
|
10.47
(x)
|
Promissory
Note for $350,000 issued to Sentient USA Resources Fund II,
LP.
|
|
10.49
(y)
|
Debenture
Purchase Agreement executed May 27, 2008, to be effective as of October
31, 2007, by and among Natural Soda Holdings, Inc., Natural Soda, Inc.,
AmerAlia, Inc. and Sentient USA Resources Fund.
LP.
|
|
10.50
(y)
|
Interest
Purchase Agreement executed May 27, 2008, to be effective as of March 31,
2008, by and among Natural Soda Holdings, Inc., Natural Soda, Inc.,
AmerAlia, Inc., Sentient USA Resources Fund. LP and Sentient Global
Resources Fund III LP.
|
|
10.51
(z)
|
Promissory
note for $300,000 issued to Sentient Global Resources Fund III,
L.P.
|
|
10.52
(aa)
|
Restructuring
Agreement between AmerAlia Parties and Sentient Entities dated September
25, 2008.
|
|
10.53
(bb)
|
Form
of Letter Offer of Shares.
|
|
10.54
(cc)
|
Amendment
to Restructuring Agreement between AmerAlia Parties and Sentient Entities
dated October 31, 2008
|
|
10.55
(cc)
|
Shareholders
Agreement between Natural Soda Holdings, Inc., AmerAlia, Inc. and Sentient
USA Resources Fund L.P.
|
|
10.56
(dd)
|
Contribution
Agreement made and entered into July 15, 2009, by and between Natural Soda
Holdings, Inc., Sentient USA Resources Fund, LP, and AmerAlia,
Inc.
|
|
21.1
|
Subsidiaries
of the Registrant: Natural Soda Holdings, Inc., a Colorado
corporation and its wholly owned subsidiary, Natural Soda, Inc., a
Colorado corporation. Since November 2008, AmerAlia’s ownership
of NSHI has been 18%.
|
|
23.1(y)
|
Report
of Independent Registered Public Accounting Firm, dated June 2, 2008,
related to the restated financial statements for the fiscal year ended
June 30, 2005,
|
|
Certification
of Chief Executive Officer filed pursuant to Rule 13a-14(a) of the
Exchange Act
|
|
Certification
of Chief Financial Officer filed pursuant to Rule 13a-14(a) of the
Exchange Act
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (filed
herewith).
|
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (filed
herewith).
|
|
(a)
|
Incorporated
by reference from AmerAlia's Form 10 General Registration Statement filed
with the Commission on March 5,
1987.
|
|
(b)
|
Incorporated
by reference from AmerAlia’s annual report on Form 10-K for the year ended
June 30, 2000.
|
|
(c)
|
Incorporated
by reference from AmerAlia’s Form 10-K for its year ended June 30,
2001.
|
|
(d)
|
Incorporated
by reference from AmerAlia’s Form 8-K reporting an event of December 1,
2000.
|
|
(f)
|
Incorporated
by reference from AmerAlia's Form 10-K for its year ended June 30,
1995.
|
|
(g)
|
Incorporated
by reference from AmerAlia’s Form 10-K for its year ended June 30,
1999.
|
|
(h)
|
Incorporated
by reference from AmerAlia’s Form 8-K reporting an event of December 17,
2001.
|
|
(i)
|
Incorporated
by reference from AmerAlia’s Form 8-K reporting an event of March 29,
2002.
|
|
(j)
|
Incorporated
by reference from AmerAlia’s Form 8-K reporting an event of February 20,
2003.
|
|
(k)
|
Incorporated
by reference from AmerAlia’s Form 8-K reporting an event of March 24,
2003.
|
|
(l)
|
Incorporated
by reference from AmerAlia’s Form 8-K reporting an event of April 22,
2003.
|
|
(m)
|
Incorporated
by reference from AmerAlia’s Form 8-K reporting an event of May 31,
2003.
|
|
(n)
|
Incorporated
by reference from AmerAlia’s Form 8-K reporting an event of June 30,
2003.
|
|
(o)
|
Incorporated
by reference from AmerAlia’s Form 8-K reporting an event of July 31,
2003.
|
|
(p)
|
Incorporated
by reference from AmerAlia’s Form 8-K reporting an event of August 31,
2003.
|
|
(q)
|
Incorporated
by reference from AmerAlia’s Form 8-K reporting an event of September 30,
2003.
|
|
(r)
|
Incorporated
by reference from AmerAlia’s Form 8-K reporting an event of October 31,
2003.
|
|
(s)
|
Incorporated
by reference from AmerAlia’s Form 8-K reporting an event of November 30,
2003.
|
|
(t)
|
Incorporated
by reference from AmerAlia’s Form 10-QSB for its quarter ended December
31, 2003.
|
|
(v)
|
Incorporated
by reference from AmerAlia's Form 10-KSB for its year ended June 30,
2005.
|
|
(w)
|
Incorporated
by reference from AmerAlia’s Form 8-K reporting an event of January 29,
2007.
|
|
(x)
|
Incorporated
by reference from AmerAlia’s Form 8-K reporting an event of August 22,
2007.
|
|
(y)
|
Incorporated
by reference from AmerAlia’s Form 10-KSB for its year ended June 30,
2006.
|
|
(z)
|
Incorporated
by reference from AmerAlia’s Form 8-K reporting an event of June 24,
2008.
|
|
(aa)
|
Incorporated by reference from
AmerAlia’s Form 8-K reporting an event of September 25,
2008.
|
|
(bb)
|
Incorporated by reference from
AmerAlia’s Form 8-K reporting an event of October 13,
2008.
|
|
(cc)
|
Incorporated by reference from
AmerAlia’s Form 8-K reporting an event of October 31,
2008.
|
|
(dd)
|
Incorporated
by reference from AmerAlia’s Form 8-K reporting an event of July 15,
2009.
|
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.
|
AMERALIA,
INC.
|
||
|
By: /s/ Bill
H. Gunn
|
Date:
October 8, 2009
|
|
|
Bill
H. Gunn, President
|
KNOW
ALL PEOPLE BY THESE PRESENTS, that each of the persons whose signature appears
below hereby constitutes and appoints Bill H. Gunn and Robert van Mourik, each
acting individually, as his attorney-in-fact, each with the full power of
substitution, for him in any and all capacities, to sign any and all amendments
to this Annual Return on Form 10-K, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact, and each of them, full power
and authority to do and perform each and every act and things requisite and
necessary to be done in and about the premises as fully as to all intents and
purposes as he might or could do in person, hereby ratifying and confirming our
signatures as they may be signed by our said attorney-in-fact and any and all
amendments to this Annual Report on Form 10-K.
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
|
Chairman,
President and Director
|
Date:
October 8, 2009
|
||
|
Bill
H. Gunn
|
(Principal
Executive Officer)
|
|||
|
/s/ Robert van Mourik
|
Executive
Vice President, Chief Financial
|
Date:
October 8, 2009
|
||
|
Robert
C. J. van Mourik
|
Officer,
Secretary, Treasurer and Director
|
|||
|
(Principal
Financial and Accounting Officer)
|
||||
|
/s/ Neil E.
Summerson
|
Director
|
Date:
October 8, 2009
|
||
|
Neil
E. Summerson
|
||||
|
/s/ Geoffrey C.
Murphy
|
Director
|
Date:
October 8, 2009
|
||
|
Geoffrey
C. Murphy
|
||||
|
/s/ James V.
Riley
|
Director
|
Date:
October 8, 2009
|
||
|
James
V. Riley
|
||||
|
/s/ Robert C.
Woolard
|
Director
|
Date:
October 8, 2009
|
||
|
Robert
C. Woolard
|
||||
|
/s/ J. Jeffrey
Geldermann
|
Director
|
Date:
October 8, 2009
|
||
|
J.
Jeffrey Geldermann
|
AMERALIA, INC.
CONSOLIDATED
FINANCIAL STATEMENTS
June
30, 2009
C
O N T E N T S
|
Report
of Independent Registered Public Accounting Firm
|
F-3 |
|
Consolidated
Balance Sheets
|
F-4 |
|
Consolidated
Statements of Operations
|
F-6 |
|
Consolidated
Statements of Stockholders’ Equity (Deficit)
|
F-7 |
|
Consolidated
Statements of Cash Flows
|
F-8 |
|
Notes
to the Consolidated Financial Statements
|
F-9 |
Report of Independent
Registered Public Accounting Firm
To
the Board of Directors and Shareholders of
AmerAlia,
Inc.
Rifle,
Colorado
We
have audited the accompanying consolidated balance sheets of AmerAlia, Inc. as
of June 30, 2009 and 2008, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for each of the two
years in the period ended June 30, 2009. These consolidated financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AmerAlia, Inc. as of
June 30, 2009 and 2008, and the results of its operations and its cash flows for
each of the two years in the period ended June 30, 2009, in conformity with U.S.
generally accepted accounting principles.
We
were not engaged to examine management's assessment of the effectiveness of
AmerAlia, Inc.'s internal control over financial reporting as of June 30, 2009
and, accordingly, we do not express an opinion thereon.
/s/
HJ & Associates, LLC
Salt
Lake City, Utah
October
8, 2009
AMERALIA,
INC.
Consolidated
Balance Sheets
ASSETS
|
As of June 30,
|
||||||||
|
2009
|
2008
|
|||||||
|
CURRENT
ASSETS
|
||||||||
|
Cash
|
$ | 4,346,065 | $ | 43,374 | ||||
|
Accounts
receivable, net (Note 1)
|
- | 2,898,121 | ||||||
|
Inventories
(Notes 1 and 4)
|
- | 742,760 | ||||||
|
Prepaid
expenses (Note 5)
|
- | 494,498 | ||||||
|
Total
Current Assets
|
4,346,065 | 4,178,753 | ||||||
|
FIXED
ASSETS
|
||||||||
|
Property,
plant & equipment, net (Notes 1 and 6)
|
- | 9,463,356 | ||||||
|
Cavities
and well development, net (Note 6)
|
- | 5,862,227 | ||||||
|
Mineral
leases (Note 6)
|
- | 4,167,471 | ||||||
|
Total
Fixed Assets
|
- | 19,493,054 | ||||||
|
OTHER
ASSETS
|
||||||||
|
Investment
in Natural Soda Holdings, Inc. (Note 3)
|
5,805,793 | - | ||||||
|
Water
rights
|
- | 3,150,582 | ||||||
|
Patents
(Note 7)
|
- | 26,238 | ||||||
|
Well
and well development RSL (Note 8)
|
- | 595,000 | ||||||
|
Engineering
drawings (Note 9)
|
- | 1,876,000 | ||||||
|
Equipment
held and not yet in service (Note 9)
|
- | 3,197,842 | ||||||
|
Deferred
financing and acquisition costs, net (Note 1)
|
- | 770,816 | ||||||
|
Rock
School lease and reserves (Note 8)
|
- | 3,300,000 | ||||||
|
Deposits
and bonds
|
- | 12,000 | ||||||
|
Restricted
funds (Note 1)
|
- | 1,122,843 | ||||||
|
Total
Other Assets
|
5,805,793 | 14,051,321 | ||||||
|
TOTAL
ASSETS
|
$ | 10,151,858 | $ | 37,723,128 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
AMERALIA,
INC.
Consolidated
Balance Sheet (Continued)
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
|
As of June 30,
|
||||||||
|
2009
|
2008
|
|||||||
|
CURRENT
LIABILITIES
|
||||||||
|
Accounts
payable
|
$ | 357,042 | $ | 2,594,453 | ||||
|
Bank
overdraft
|
- | 54,331 | ||||||
|
Royalties
payable (Note 10)
|
975,000 | 971,760 | ||||||
|
Accrued
expenses (Note 11)
|
44,211 | 1,602,315 | ||||||
|
Accrued
expenses due to related parties (Note 12)
|
71,401 | 51,952,899 | ||||||
|
Current
portion of notes payable to related parties (Note 13)
|
- | 24,392,339 | ||||||
|
Current
portion of notes payable (Note 14)
|
- | 5,709,963 | ||||||
|
Current
portion of capital lease obligations (Note 15)
|
- | 64,674 | ||||||
|
Interest
payable
|
- | 1,007,274 | ||||||
|
Total
Current Liabilities
|
1,447,654 | 88,350,008 | ||||||
|
LONG
TERM LIABILITIES
|
||||||||
|
Notes
Payable (Note 14)
|
- | 15,561 | ||||||
|
Capital
lease obligations (Note 15)
|
- | 3,436 | ||||||
|
Asset
retirement obligations (Note 16)
|
- | 1,036,640 | ||||||
|
Total
Long Term Liabilities
|
- | 1,055,637 | ||||||
|
TOTAL
LIABILITIES
|
1,447,654 | 89,405,645 | ||||||
|
COMMITMENTS
AND CONTINGENT LIABILITIES (Note 19)
|
||||||||
|
MINORITY
INTEREST
|
- | 15,376,985 | ||||||
|
STOCKHOLDERS’
EQUITY (DEFICIT)
|
||||||||
|
Preferred
stock, $0.05 par value; 1,000,000 authorized;
|
||||||||
|
82
issued and outstanding (Note 20)
|
4 | 4 | ||||||
|
Common
stock, $0.01 par value; 100,000,000 shares
|
||||||||
|
authorized;
66,293,696 and 17,298,507 issued and outstanding
|
662,937 | 172,985 | ||||||
|
Additional
paid in capital
|
119,221,803 | 38,159,742 | ||||||
|
Accumulated
deficit
|
(111,180,540 | ) | (105,392,233 | ) | ||||
|
Total
Stockholders’ Equity (Deficit)
|
8,704,204 | (67,059,502 | ) | |||||
|
TOTAL
LIABILITIES & STOCKHOLDERS’ EQUITY (DEFICIT)
|
$ | 10,151,858 | $ | 37,723,128 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
AMERALIA,
INC.
Consolidated
Statements of Operations
|
For the years ended
June 30,
|
||||||||
|
2009
|
2008
|
|||||||
|
REVENUES
|
$ | 6,526,895 | $ | 17,947,800 | ||||
|
COST
OF GOODS SOLD
|
5,206,712 | 16,330,335 | ||||||
|
GROSS
PROFIT (DEFICIT)
|
1,320,183 | 1,617,465 | ||||||
|
EXPENSES
|
||||||||
|
General
and administrative
|
972,572 | 921,392 | ||||||
|
Depreciation,
amortization and accretion expense
|
867,710 | 1,771,884 | ||||||
|
Total
Expenses
|
1,840,282 | 2,693,276 | ||||||
|
LOSS
FROM OPERATIONS
|
(520,099 | ) | (1,075,811 | ) | ||||
|
OTHER
INCOME (EXPENSE)
|
||||||||
|
Interest
income
|
2,220 | 4,044 | ||||||
|
Gain
on settlement of liabilities
|
1,874,359 | - | ||||||
|
Other
income
|
11,989 | 16,206 | ||||||
|
Interest
expense
|
(6,727,158 | ) | (45,408,935 | ) | ||||
|
Other
financing costs
|
(209,449 | ) | (229,718 | ) | ||||
|
Total
Other Income (Expense)
|
(5,048,039 | ) | (45,618,403 | ) | ||||
|
LOSS
BEFORE MINORITY INTEREST AND INCOME TAX EXPENSE
|
(5,568,138 | ) | (46,694,214 | ) | ||||
|
Net
loss from equity investment
|
(51,895 | ) | - | |||||
|
Minority
interest in net loss of subsidiary
|
(168,274 | ) | 341,837 | |||||
|
LOSS
BEFORE INCOME TAX EXPENSE
|
(5,788,307 | ) | (46,352,377 | ) | ||||
|
Income
tax expense
|
- | - | ||||||
|
NET
LOSS
|
$ | (5,788,307 | ) | $ | (46,352,377 | ) | ||
|
BASIC
LOSS PER SHARE
|
$ | (0.12 | ) | $ | (2.69 | ) | ||
|
WEIGHTED
AVERAGE NUMBER OF SHARES OUTSTANDING
|
47,899,158 | 17,239,437 | ||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
AMERALIA,
INC.
Consolidated
Statements of Stockholders' Equity (Deficit)
|
Additional
|
||||||||||||||||||||||||||||
|
Preferred Stock
|
Common Stock
|
Paid-In
|
Accumulated
|
|||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
Total
|
||||||||||||||||||||||
|
Balance,
June 30, 2007
|
82 | $ | 4 | 17,239,437 | $ | 172,394 | $ | 27,716,551 | $ | (59,039,856 | ) | $ | (31,150,907 | ) | ||||||||||||||
|
Options
granted
|
- | - | - | - | 66,593 | - | 66,593 | |||||||||||||||||||||
|
Premium
on convertible note
|
- | - | - | - | 439,168 | - | 439,168 | |||||||||||||||||||||
|
Related
party contribution to capital on debt settlement
|
- | - | - | - | 9,938,021 | - | 9,938,021 | |||||||||||||||||||||
|
Issue
of shares on settlement of options
|
- | - | 59,070 | 591 | (591 | ) | - | - | ||||||||||||||||||||
|
Net
loss for the year ended June 30, 2008
|
- | - | - | - | - | (46,352,377 | ) | (46,532,377 | ) | |||||||||||||||||||
|
Balance,
June 30, 2008
|
82 | 4 | 17,298,507 | 172,985 | 38,159,742 | (105,392,233 | ) | (67,059,502 | ) | |||||||||||||||||||
|
Fair
value of options granted
|
- | - | - | - | 138,285 | - | 138,285 | |||||||||||||||||||||
|
Shares
issued to settle related party debts
|
- | - | 18,193,947 | 181,939 | 8,964,616 | - | 9,146,555 | |||||||||||||||||||||
|
Related
party contributions to capital on debt settlement
|
- | - | - | - | (361,529 | ) | - | (361,529 | ) | |||||||||||||||||||
|
Shares
issued to settle debt obligations
|
- | - | 3,340,086 | 33,401 | 1,727,280 | - | 1,760,681 | |||||||||||||||||||||
|
Share
issues to related parties for cash
|
- | - | 27,427,406 | 274,274 | 9,599,592 | - | 9,873,866 | |||||||||||||||||||||
|
Elimination
of the NSHI additional paid in capital
|
- | - | - | - | (2,574,244 | ) | - | (2,574,244 | ) | |||||||||||||||||||
|
Deconsolidation
of investment in NSHI and NSI to equity investment
|
- | - | - | - | 63,568,399 | - | 63,568,399 | |||||||||||||||||||||
|
Issue
of shares on settlement of options
|
- | - | 33,750 | 338 | (338 | ) | - | - | ||||||||||||||||||||
|
Net
loss for the year ended June 30, 2009
|
- | - | - | - | - | (5,788,307 | ) | (5,788,307 | ) | |||||||||||||||||||
|
Balance,
June 30, 2009
|
82 | $ | 4 | 66,293,696 | $ | 662,937 | $ | 119,221,803 | $ | (111,180,540 | ) | $ | 8,704,204 | |||||||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
AMERALIA,
INC.
Consolidated
Statements of Cash Flows
|
For the Years ended
June 30,
|
||||||||
|
2009
|
2008
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
|
Net
loss
|
$ | (5,788,307 | ) | $ | (46,352,377 | ) | ||
|
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
||||||||
|
Options
granted
|
138,285 | 66,593 | ||||||
|
Depreciation,
amortization and accretion expense
|
867,708 | 1,771,884 | ||||||
|
Amortization
of debt discount
|
209,448 | 229,719 | ||||||
|
Gain
on settlement of liabilities
|
(1,874,359 | ) | - | |||||
|
Net
loss from equity investment
|
51,895 | - | ||||||
|
Minority
interest – Net income
|
168,274 | (341,837 | ) | |||||
|
Change
in Operating Assets and Liabilities:
|
||||||||
|
Restricted
funds
|
42,863 | (987,980 | ) | |||||
|
Accounts
receivable
|
(46,614 | ) | (350,652 | ) | ||||
|
Inventory
|
(54,370 | ) | 127,912 | |||||
|
Prepaid
expenses
|
155,647 | (199,607 | ) | |||||
|
Accounts
and royalties payable
|
(1,101,340 | ) | (1,139,712 | ) | ||||
|
Accrued
expenses due to related parties
|
5,543,787 | 43,674,337 | ||||||
|
Accrued
expenses
|
(1,091,624 | ) | (23,677 | ) | ||||
|
Interest
payable
|
(378,279 | ) | (64,332 | ) | ||||
|
Net
Cash Used in Operating Activities
|
(3,156,986 | ) | (3,589,729 | ) | ||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
|
Cavities
and well development
|
(122,380 | ) | (1,009,346 | ) | ||||
|
Purchase
of property and equipment
|
(26,743 | ) | (171,037 | ) | ||||
|
Net
Cash Used in Investing Activities
|
(149,123 | ) | (1,180,383 | ) | ||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
|
Bank
overdraft
|
(54,331 | ) | 51,314 | |||||
|
Proceeds
from issuance of common stock
|
9,873,866 | - | ||||||
|
Payments
on capital leases
|
(29,125 | ) | (51,795 | ) | ||||
|
Proceeds
from notes payable
|
- | 960,480 | ||||||
|
Proceeds
from sale of debenture and interest
|
- | 2,428,091 | ||||||
|
Capital
contribution from majority interest
|
- | 535,000 | ||||||
|
Payments
on debt
|
(1,444,150 | ) | (35,277 | ) | ||||
|
Payments
on related party debt
|
(980,000 | ) | - | |||||
|
Proceeds
from related party notes payable
|
260,000 | 914,705 | ||||||
|
Net
Cash Provided by Financing Activities
|
7,626,260 | 4,802,518 | ||||||
|
NET
INCREASE IN CASH
|
4,320,151 | 32,406 | ||||||
|
NET
CASH OF DECONSOLIDATED SUBSIDIARY
|
(17,460 | ) | - | |||||
|
CASH
AT BEGINNING OF YEAR
|
43,374 | 10,968 | ||||||
|
CASH
AT END OF YEAR
|
$ | 4,346,065 | $ | 43,374 | ||||
|
SUPPLEMENTAL
DISCLOSURE OF CASH
|
||||||||
|
FLOW
INFORMATION
|
||||||||
|
Income
taxes
|
$ | - | $ | - | ||||
|
Interest
|
$ | 1,203,990 | $ | 526,512 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
AMERALIA,
INC.
Notes
to the Consolidated Financial Statements
June
30, 2009 and 2008
|
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. Until October 31, 2008, AmerAlia owned 100% of
Natural Soda Holdings, Inc. (“NSHI”) and NSHI owned 46.5% of Natural Soda, Inc.
(“NSI”). On October 31, 2008 AmerAlia completed a restructuring
agreement as discussed in Note 2 wherein AmerAlia and NSHI issued new equity in
exchange for cash, settlement of various debt obligations and to enable NSHI to
acquire the 46.5% of NSI previously owned by Sentient. As of October
31, 2008, AmerAlia owns 18% of the equity of NSHI which owns 100% of the equity
of NSI. Previously, the financial position, operations and cash flows
of NSI have been included in the consolidated financial statements primarily
because NSI represented AmerAlia’s principal business activity. The
“Minority Interest” ownership of the Sentient Entities in NSI was reflected
separately in the consolidated balance sheets along with its “Minority Interest”
share of income and loss from operations. All material inter-company
accounts and transactions have been eliminated in the consolidation
accounts.
As
a result of the restructuring, AmerAlia no longer has a controlling interest in
NSHI or its direct subsidiary, NSI. Consequently, in accordance with
generally accepted accounting principles, AmerAlia’s financial statements
reflect AmerAlia’s results on a consolidated basis for the period July 1, 2008
to October 31, 2008. After October 31, 2008 AmerAlia’s financial
statements reflect AmerAlia’s investment in NSHI using the equity method of
accounting. Nevertheless, AmerAlia’s participation in the management
and development of NSHI and NSI remains its principal business
activity. NSI uses solution mining to recover sodium bicarbonate for
sale to the animal feed, human food, pharmaceutical, personal products and
industrial uses including for flue gas desulfurization.
|
|
b.
|
Accounting
Method
|
AmerAlia’s
consolidated financial statements are prepared using the accrual method of
accounting. AmerAlia, NSHI and NSI have elected a June 30
year-end.
|
|
c.
|
Principles
of Consolidation
|
AmerAlia’s
consolidated financial statements for the year ended June 30, 2008 include the
accounts of its wholly owned subsidiary, NSHI and its 46.5% owned subsidiary,
NSI. All significant inter-company balances and transactions have
been eliminated. As a result of the restructuring on October 31, 2008
AmerAlia no longer consolidates the accounts of NSI and NSHI.
|
|
d.
|
Cash
and Restricted Cash
|
AmerAlia,
NSHI and NSI consider all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
At
various times during the year, the Company maintained cash balances in excess of
FDIC insurable limits. Management feels this risk is mitigated due to the
longstanding reputation of these banks.
AmerAlia
did not have any restricted cash at June 30, 2009. AmerAlia, NSHI and
NSI had $1,122,843 in restricted cash at June 30, 2008, comprising certificates
of deposit with banks to secure bonds associated with the water monitoring wells
and the restoration of the sodium leases.
AMERALIA,
INC.
Notes
to the Consolidated Financial Statements
June
30, 2009 and 2008
|
NOTE
1 -
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
|
|
e.
|
Fixed
Assets
|
Property,
plant, and equipment are stated at cost. The costs of replacements or
renewals, which improve or extend the life of existing property, are
capitalized. Maintenance and repairs are expensed as
incurred. Depreciation and amortization are provided for on the
straight-line method over the following estimated useful
lives. AmerAlia, NSHI and NSI have elected to expense all purchases
under $3,000 as maintenance and repairs.
|
Buildings
and improvements
|
25
to 40 years
|
|
Machinery
and equipment
|
10
to 30 years
|
|
Well
cavities and development
|
Units
of production
|
|
Furniture
and fixtures
|
3
to 5 years
|
|
|
f.
|
Income
Taxes
|
Deferred
Taxes are provided on a liability method whereby deferred tax assets are
recognized for deductible temporary differences and operating loss and tax
credit carry-forwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
Net
deferred tax liabilities consist of the following components:
|
June 30, 2009
|
June 30, 2008
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
NOL
Carryover
|
$ | 6,697,428 | $ | 30,820,913 | ||||
|
Related
Party
|
45,088 | 1,668,551 | ||||||
|
Allowance
for Doubtful Accounts
|
- | 13,649 | ||||||
|
Deferred
tax liabilities:
|
||||||||
|
Depreciation
|
- | (1,250,374 | ) | |||||
|
Valuation
allowance
|
(6,742,516 | ) | (31,252,739 | ) | ||||
|
Net
deferred tax asset
|
$ | - | $ | - | ||||
The
income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate to pretax income from continuing
operations for the years ended June 30, 2009 and 2008 due to the
following:
AMERALIA,
INC.
Notes
to the Consolidated Financial Statements
June
30, 2009 and 2008
|
NOTE
1 -
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
|
|
f.
|
Income
Taxes (Continued)
|
|
June 30, 2009
|
June 30, 2008
|
|||||||
|
Book
Income
|
$ | (2,257,439 | ) | $ | (18,077,427 | ) | ||
|
Stock
for expenses
|
358,483 | 25,971 | ||||||
|
Penalties
|
32,029 | 10,911 | ||||||
|
Meals
& Entertainment
|
626 | 579 | ||||||
|
Accretion
|
81,685 | 10,507 | ||||||
|
Gain
on debt settlement
|
686,665 | 3,875,829 | ||||||
|
Minority
interest in subsidiary
|
2,658,991 | - | ||||||
|
Other
|
8,692 | - | ||||||
|
NOL
Carryfoward used
|
(685,887 | ) | - | |||||
|
Minority
interest NSHI
|
(46,320 | ) | - | |||||
|
Minority
interest NSI
|
114,341 | - | ||||||
|
Valuation
allowance
|
(951,866 | ) | 14,153,630 | |||||
| $ | - | $ | - | |||||
At
June 30, 2009, AmerAlia had net operating loss carry-forwards of approximately
$17,172,900 that may be offset against future taxable income from the year 2009
through 2029. No tax benefit has been reported in the June 30, 2009
financial statements since the potential tax benefit is offset by a valuation
allowance of the same amount. The actual tax treatment of the related
party transactions potentially may differ from what has been reported on the
audit.
Due
to the change in ownership provisions of the Tax Reform Act of 1986, net
operating loss carryforwards for Federal income tax reporting purposes are
subject to annual limitations. Should a change in ownership occur, net operating
loss carryforwards may be limited as to use in future years,
|
|
g.
|
Use
of Estimates
|
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
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.
|
|
h.
|
Basic
Net Loss Per Share
|
The
computations of basic loss per share of common stock are based on the weighted
average number of shares outstanding during the period of the consolidated
financial statements as follows:
|
June 30, 2009
|
June 30, 2008
|
|||||||
|
Loss
(numerator)
|
$ | (5,788,307 | ) | $ | (46,352,377 | ) | ||
|
Shares
(denominator)
|
47,899,158 | 17,239,437 | ||||||
|
Per
share amount
|
$ | (0.12 | ) | $ | (2.69 | ) | ||
AmerAlia's
outstanding stock purchase warrants and options have been excluded from the
basic net loss per share calculation as they are
anti-dilutive. AmerAlia has excluded 375,000 and 3,615,000 common
stock equivalents as at June 30, 2009 and 2008, respectively.
AMERALIA,
INC.
Notes
to the Consolidated Financial Statements
June
30, 2009 and 2008
|
NOTE
1 -
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
|
|
i.
|
Concentrations
of Risk
|
NSI
sells its products in North America through distributors to manufacturers and
users. Financial instruments consisting of trade accounts receivable potentially
subject NSI to concentrations of credit risk. Generally, NSI does not
require security when trade credit is granted to customers. Credit
losses are provided for in NSI’s financial statements and consistently have been
within management’s expectations. During the fiscal year ended June
30, 2009 NSI had two of these same customers that individually constituted more
than 10% of its total revenues. These customers had revenues
representing 27% and 25% of NSI’s total revenues and receivables balances
representing 34% and 20%, respectively, of NSI’s total trade accounts receivable
balance at June 30, 2009. During the fiscal year ended June 30, 2008
NSI had three customers that individually constituted more than 10% of its total
revenues. These customers had revenues representing 28%, 10% and 26%
of NSI’s total revenues and receivables balances representing 31%, 10% and 25%
respectively of NSI’s total trade accounts receivable balance at June 30,
2008.
|
|
j.
|
Accounts
Receivable
|
Accounts
receivable are carried at original invoice amount less an estimate made for
doubtful receivables based on a review of all outstanding amounts on a monthly
basis. Management determines the allowance for doubtful accounts by
identifying troubled accounts and by reviewing and considering individual
customer receivables, customer’s financial condition, credit history, aging of
accounts and current economic conditions. Accounts receivable are written off
when deemed uncollectible. Recoveries of accounts receivable
previously written off are recorded when received.
An
account receivable is considered to be past due if any portion of the receivable
balance is outstanding for more than 90 days. At June 30, 2009 the
net accounts receivable balance of NSI included $3,726,873 for trade receivables
with a $8,448 allowance for doubtful accounts and $5,000 due from
employees. At June 30, 2008 the net accounts receivable balance of
NSI included $2,928,119 for trade receivables with a $34,998 allowance for
doubtful accounts and $5,000 due from employees.
|
|
k.
|
Inventories
|
Inventories
consist of sodium bicarbonate which is stated at the lower of production costs
or market. Production costs include all identifiable costs of the plant,
including depreciation, royalties, and rental on the sodium
leases. Inventories also include packaging materials which are stated
at the lower of cost (first-in, first-out cost method) or market.
|
|
l.
|
Environmental
Costs
|
Environmental
costs and clean up costs are accrued at the time the exposure becomes known and
costs can be reasonably estimated. AmerAlia, NSHI and NSI do not
accrue liabilities for unasserted claims that are not probable of
assertion.
|
|
m.
|
Shipping
and Handling Fees and Costs
|
AmerAlia,
NSHI and NSI record all shipping and handling costs in cost of
sales.
AMERALIA,
INC.
Notes
to the Consolidated Financial Statements
June
30, 2009 and 2008
|
NOTE
1 -
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
|
|
n.
|
Mineral
Properties and Patents
|
Mineral
properties include costs associated with the development of the mining and
processing facility. Such items include the cost of leases, access
road, and electric power lines. Costs involved in registering,
developing, and defending patents related to the solution mining process are
capitalized and amortized on a straight-line basis over the life of the
patents.
|
|
o.
|
New
Accounting Pronouncements
|
During
the year ended June 30, 2009 and subsequently, the FASB has issued a number of
financial accounting standards, none of which did or are expected to have a
material impact on AmerAlia’s results of operations, financial position, or cash
flows, with exception of:
New
Accounting Pronouncements (Adopted during fiscal year 2009)
SFAS No.
157. In September 2006, the FASB issued SFAS No.
157, Fair Value
Measurements (“SFAS No. 157”). This statement defines fair value,
establishes a framework for measuring fair value in GAAP, and expands
disclosures about fair value measurements, but does not require any new fair
value measurements. SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. In February
2008, the FASB issued FASB Staff Position, or FSP, No. FAS 157-2, Effective Date of FASB Statement No.
157 (“FSP FAS 157-2”), which delayed the effective
date of SFAS No. 157 for certain nonfinancial assets and liabilities to fiscal
years beginning after November 15, 2008, and interim periods within those fiscal
years. We adopted SFAS No. 157 for its financial assets and liabilities in the
first quarter of fiscal 2009, which did not result in recognition of a
transaction adjustment to retained earnings or have a material impact on our
financial condition, results of operations or cash flows. We will adopt the
provisions for nonfinancial assets and liabilities in the first quarter of
fiscal 2010.
SFAS
159. Issued February 2007, SFAS 159 Fair Value Option for Financial
Assets and Financial Liabilities (Including an amendment of FASB Statement No.
115). SFAS 159 is effective for fiscal years beginning after
November 15, 2007. This Statement permits entities to choose to
measure many financial instruments and certain other items at fair value. The
objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions. This Statement is expected to expand the use of fair
value measurement, which is consistent with the Board’s long-term measurement
objectives for accounting for financial instruments.
SFAS No.
165. In May 2009, the FASB issued SFAS No. 165,
Subsequent Events
(“SFAS No. 165”). This statement provides guidance to establish general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before the financial statements are issued or are
available to be issued. This statement is effective for interim or fiscal
periods ending after June 15, 2009, and is applied prospectively. We adopted
SFAS No. 165 in the fourth quarter of fiscal 2009; this adoption did not have
any impact on our financial condition, results of operations or cash
flows.
AMERALIA,
INC.
Notes
to the Consolidated Financial Statements
June
30, 2009 and 2008
|
NOTE
1 -
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
|
|
o.
|
New
Accounting Pronouncements
(Continued)
|
New
Accounting Pronouncements (Not yet adopted)
SFAS No.
141(R). In December 2007, the FASB issued SFAS No.
141(R), Business
Combinations (“SFAS 141(R)”), which is a revision of SFAS No. 141. In
general, SFAS No. 141(R) expands the definition of a business and transactions
that are accounted for as business combinations. In addition, SFAS No. 141(R)
generally requires all assets and liabilities of acquired entities to be
recorded at fair value, and changes the recognition and measurement of related
aspects of business combinations. SFAS No. 141(R) is effective for business
combinations with an acquisition date within fiscal years beginning on or after
December 15, 2008. The standard is required to be adopted prospectively and
early adoption is not allowed. We are in the process of determining the effect
the adoption of SFAS No. 141(R) will have on our financial condition, results of
operations or cash flows. Upon adoption of FAS 141(R), adjustments to acquired
tax contingencies for all acquisitions, regardless if they were completed prior
to the adoption of FAS 141(R), are recorded to the income statement, rather than
as an adjustment to Goodwill, if they occur anytime after the measurement period
(generally one year from the acquisition date).
SFAS No.
160. In December 2007, the FASB issued SFAS No.
160, Noncontrolling Interests
in Consolidated Financial Statements, an Amendment of ARB No. 51 (“SFAS
No. 160”). In general, SFAS No. 160 requires that a noncontrolling interest in a
consolidated subsidiary be presented in the consolidated statements of financial
position as a separate component of equity and also establishes a framework for
recognition of changes in control for a consolidated subsidiary that is not 100%
owned. SFAS No. 160 is effective for fiscal years beginning after December 15,
2008 and interim periods within those fiscal years. We are in the process of
determining the effect the adoption of SFAS No. 160 will have on our financial
condition, results of operations or cash flows.
SFAS No.
167. In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB
Interpretation No. 46(R) (“SFAS No. 167”). In general, SFAS No. 167
amends certain guidance for determining whether an entity is a variable interest
entity (VIE), requires a qualitative rather than a quantitative analysis to
determine the primary beneficiary for a VIE, requires continuous assessments of
whether an enterprise is the primary beneficiary of a VIE and requires enhanced
disclosures about an enterprise’s involvement with a VIE. SFAS No. 167 is
effective for fiscal years beginning after November 15, 2009, for interim
periods within those fiscal years, and for interim and annual reporting periods
thereafter. We do not expect the adoption of SFAS No. 167 will have a material
impact on our financial condition, results of operations or cash
flows.
SFAS No.
168. In June 2009, the FASB issued SFAS No. 168,
The FASB Accounting Standards
Codification and the Hierarchy of Generally of Generally Accepted Accounting
Principles — a Replacement of FASB Statement No. 162 (“SFAS No. 168”).
SFAS No. 168 establishes the FASB Accounting Standards Codification as the
source of authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of financial statements
in conformity with GAAP. SFAS No. 168 is effective for financial statements
issued for interim and annual periods ending after September 15, 2009. We do not
expect the adoption of SFAS No. 168 will have a material impact on our financial
condition, results of operations or cash flows.
AMERALIA,
INC.
Notes
to the Consolidated Financial Statements
June
30, 2009 and 2008
|
NOTE
1 -
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
|
|
p.
|
Stock
Options
|
On
July 1, 2005, we adopted Statement of Financial Accounting Standards No. 123
(revised 2004), “Share-Based Payment,” (“SFAS 123 (R)”) which requires the
measurement and recognition of compensation expense for all share-based payments
to employees and directors including employee stock options and stock purchases
related to the Company’s employee stock option and award plans based on
estimated fair values. SFAS 123 (R) supersedes our previous
accounting under Accounting Principles Board Option No. 25, “Accounting for
Stock Issued to Employees” (“APB25”) for periods beginning in fiscal 2006. In
March 2005, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 107 (“SAB 107”) relating to SFAS 123 (R). We have applied the
provisions of SAB 107 in our adoption of SFAS 123 (R).
We
adopted SFAS 123 (R) using the modified prospective transition method, which
requires the application of the accounting standard as of July 1, 2005, the
first day of our fiscal year 2006. Our financial statements as of and for the
fiscal year ended June 30, 2009 and 2008 reflect the impact of SFAS 123
(R). Stock-based compensation expense recognized under SFAS 123 (R)
for the fiscal year ended June 30, 2009 was $138,285 and for the fiscal year
ended June 30, 2008 was $66,593, and related to employee stock options issued
during those fiscal years.
SFAS
123 (R) requires companies to estimate the fair value of share-based payment
awards on the date of grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as
expense over the requisite service periods in our Statement of Operations. Prior
to the adoption of SFAS 123 (R), we accounted for stock-based awards to
employees and directors using the intrinsic value method in accordance with APB
25 as allowed under Statement of Financial Accounting Standards No. 123,
“Accounting for Stock-Based Compensation” (“SFAS 123”). Under the intrinsic
value method, no stock-based compensation expense had been recognized in our
Statement of Operations because the exercise price of the stock options granted
to employees and directors equaled the fair market value of the underlying stock
at the date of grant.
Stock-based
compensation expense recognized during the period is based on the value of the
portion of share-based payment awards that is ultimately expected to vest during
the period. Stock-based compensation expense recognized in our
Statements of Operations for the fiscal years ended June 30, 2009 and 2008 only
include compensation expense for share-based payment awards granted, but not yet
vested after July 1, 2005, and are based on the grant date fair value estimated
in accordance with SFAS 123 (R).
Stock-based
compensation expense recognized in our Statements of Operations for fiscal year
ended June 30, 2009 and 2008 assume all awards will vest, therefore no reduction
has been made for estimated forfeitures.
|
|
q.
|
Use
of Equity Method on Investment
|
AmerAlia
accounts for its investments in companies subject to significant influence using
the equity method of accounting, under which, AmerAlia’s pro-rata share of the
net income (loss) of the affiliate is recognized as income (loss) in the
Company’s statement of operations and AmerAlia’s share of the equity of the
affiliate is reflected in AmerAlia’s investment account on the balance
sheet.
AMERALIA,
INC.
Notes
to the Consolidated Financial Statements
June
30, 2009 and 2008
|
NOTE
1 -
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
|
|
r.
|
Advertising
|
AmerAlia,
NSHI and NSI follow the policy of charging the costs of advertising to expense
as incurred. Advertising expense for the years ended June 30, 2009
and 2008 was $nil and $nil, respectively.
|
|
s.
|
Revenue
Recognition
|
AmerAlia,
NSHI and NSI recognize revenue from the sodium bicarbonate sales when persuasive
evidence of a sale exists, the product has been shipped and delivered as
determined by the bill of sale, collection is reasonably assumed and no further
company obligation to perform exists.
|
|
t.
|
Deferred
Financing Costs
|
Deferred
financing costs include the costs of sourcing long term debt financing for the
WRNM Acquisition and its associated capital requirements. These costs
include finders’ fees, legal fees and fees paid for due diligence
costs.
|
|
u.
|
Impairment
of Long-Lived Assets
|
Management
reviews the net carrying value of all property and equipment and other
long-lived assets on a periodic basis. We estimate the net realizable value of
each asset group based on the estimated undiscounted future cash flows that will
be generated from operations at each property. These estimates of
undiscounted future cash flows are dependent upon the estimates of sodium
bicarbonate to be recovered, future production cost estimates and future sodium
bicarbonate price estimates over the estimated remaining life of the
property.
If
undiscounted cash flows are less than the carrying value of a property, an
impairment loss will be recognized based upon the estimated expected future cash
flows from the property discounted at an interest rate commensurate with the
risk involved.
Management’s
estimates of sodium bicarbonate prices and other factors are subject to risks
and uncertainties of change affecting the recoverability of our investment in
various projects. Although management believes it has made a
reasonable estimate of these factors based on current conditions and
information, it is reasonably possible that changes could occur in the near term
which could adversely affect management’s estimate of net cash flows expected to
be generated and the need for asset impairment write-downs.
AmerAlia,
NSHI and NSI have hired expert appraisers to assess the fair market value of
their assets. These fair market valuations are compared against the
cost basis to determine if any further impairment exists.
|
|
v.
|
Acquisition
Costs
|
Acquisition
costs are being amortized over a 25 year period. AmerAlia, NSHI and
NSI recorded amortized acquisition expense of Nil and $38,977 for the years
ended June 30, 2009 and 2008, respectively.
AMERALIA,
INC.
Notes
to the Consolidated Financial Statements
June
30, 2009 and 2008
|
NOTE
2 -
|
COMPLETED
RESTRUCTURING AGREEMENT
|
On
September 25, 2008, AmerAlia, NSHI, NSI, Bill H. Gunn and Robert van Mourik,
Directors and executive officers of AmerAlia (collectively the “AmerAlia
parties”) entered into a Restructuring Agreement with the Sentient
Entities. Previously, NSHI owned 46.5% of NSI. On October
31, 2008, the AmerAlia Parties and the Sentient Entities completed an Amendment
to the Restructuring Agreement. As a result of the amendment, the
restructuring transaction was divided into two closings. In
accordance with the amended agreement the first closing occurred as of October
31, 2008. Prior to the first closing, the Sentient Entities
transferred their various interests to Sentient USA Resources Fund, L.P.
(“Sentient”). The second closing occurred as of December 31,
2008. In the first and second closings:
|
|
1.
|
Sentient
exchanged all its NSHI debentures and all accrued interest thereon, its
one share of NSHI common stock and its 53.5% of the common stock of NSI
for 82% of the issued common stock of
NSHI;
|
|
|
2.
|
AmerAlia
exchanged its NSHI debentures and all accrued interest thereon and its
NSHI preferred stock for 12.9% of the issued common stock of NSHI, giving
AmerAlia an aggregate ownership position in NSHI of
18%;
|
|
|
3.
|
Intercompany
loans between AmerAlia and NSHI were
extinguished;
|
|
|
4.
|
Sentient’s
indemnification rights relating to the extinguishment of a $9.9 million
bank loan were terminated; and
|
|
|
5.
|
Sentient
received an aggregate of 40,024,675 shares of AmerAlia common stock as
follows:
|
|
|
a.
|
27,427,406
shares of AmerAlia common stock for a total purchase price of
$9,873,866;
|
|
|
b.
|
6,619,469
shares in satisfaction of various promissory notes;
and
|
|
|
c.
|
5,977,800
shares in satisfaction of debts, rights and obligations acquired from the
Mars Trust in August 2007 at the first
closing.
|
|
|
6.
|
Officers
and Directors acquired 5,100,858 shares of AmerAlia Common Stock in
satisfaction of Series A Debenture Secured Promissory Notes, unsecured
notes and accrued compensation valued at
$1,836,309.
|
|
|
7.
|
Other
accredited investors acquired 2,433,706 shares in satisfaction of $876,134
worth of Series A Debenture Secured Promissory
Notes.
|
Sentient
no longer holds any debt in either AmerAlia or NSHI. All Series A
Debentures, Series B1 Debentures and Series C Debentures issued by NSHI were
cancelled. Following the first closing NSI again became a
wholly-owned subsidiary of NSHI.
On
December 31, 2008 Sentient purchased an additional 12,149,628 shares of AmerAlia
Common Stock for $4,373,866 at the second closing. The proceeds from
the second closing have been reserved for use in the following priority: (a) as
a working capital reserve for AmerAlia of $1,000,000 and (b) as a reserve solely
to fund AmerAlia’s share of an anticipated capital call by NSHI, AmerAlia’s
share of which is $2,880,000 and (c) additional working capital for
AmerAlia.
In
June 2007 AmerAlia’s debt to the Bank of America was repaid by the Mars Trust
under a guaranty agreement with the Mars Trust. Consequently,
AmerAlia recognized a related party contribution to capital of
$9,938,022. The Mars Trust held a right to indemnification from
AmerAlia under the guaranty agreement. Sentient acquired this
indemnification right from the Mars Trust along with various other debts and
shares in August 2007. Any potential claim on AmerAlia under the
indemnification right was extinguished at the first closing of the restructuring
agreement.
In
June 2008 a promissory note with a principal value of $1,200,000 previously due
to HPD was acquired by the Sentient Entities. Under the Restructuring
Agreement discussed below, Sentient agreed to accept interest at the rate of 6%
per year on the note from June 20, 2008, the acquisition
date. AmerAlia had
AMERALIA,
INC.
Notes
to the Consolidated Financial Statements
June
30, 2009 and 2008
|
NOTE
2 -
|
COMPLETED
RESTRUCTURING AGREEMENT (Continued)
|
previously
provided for interest payable to HPD. As a result of the acquisition
and by agreement with the related party, this interest provision was
extinguished. Consequently, a gain on the forgiveness of debt of
$536,640 was recorded as a contribution to capital.
In
September 2008 AmerAlia issued 1,402,200 shares of restricted common stock to
holders of Series C Debenture secured promissory notes in satisfaction and
cancellation of such notes and accrued interest with a total value of
$3,311,367. One of the holders was a related
party. Consequently, the gain on cancellation of debt resulted in a
contribution to capital of $878,397 from the issue of 495,820 shares of
AmerAlia’s common stock valued at $297,492. The other holder, an
accredited investor accepted 906,380 shares of AmerAlia’s common stock valued at
$543,828 and AmerAlia recorded a gain on settlement of debt of
$1,591,650.
Following
the second closing of the restructuring, Sentient now owns 72.4% of AmerAlia’s
common stock. In addition, pursuant to the Restructuring Agreement,
Sentient has the right to nominate Peter Cassidy and up to three additional
suitably qualified persons for election by the shareholders as directors of
AmerAlia.
The
changes in control of both AmerAlia and NSHI have resulted in restrictions on
the companies’ use of their net operating loss carryforwards.
|
NOTE
3 -
|
INVESTMENT
IN NATURAL SODA HOLDINGS, INC.
|
Under
the equity method of accounting, only AmerAlia’s investment in and amounts due
to and from NSHI and its direct subsidiary, NSI, have been included in
AmerAlia’s balance sheet. As a result, AmerAlia recorded an asset in
its balance sheet related to AmerAlia’s investment interest in
NSHI. The following is the consolidated statement of operations for
the eight months ended June 30, 2009 and the consolidated balance
sheet for NSHI and NSI as of June 30, 2009:
|
Consolidated Statement of
Operations
For Eight Months ended June 30,
2009
|
||||
|
Revenues
|
$ | 13,308,265 | ||
|
Cost
of sales
|
(9,576,818 | ) | ||
|
Gross
profit
|
3,731,447 | |||
|
General
and administrative expenses
|
175,884 | |||
|
Loss
on impairment
|
1,876,000 | |||
|
Depreciation
and amortization expense
|
1,697,816 | |||
|
Total
expenses
|
3,749,700 | |||
|
Loss
from operations
|
(18,253 | ) | ||
|
Interest
expense
|
(270,500 | ) | ||
|
Interest
income
|
451 | |||
|
Total
other income (expense)
|
(270,049 | ) | ||
|
Net
loss
|
$ | (288,302 | ) | |
AMERALIA,
INC.
Notes
to the Consolidated Financial Statements
June
30, 2009 and 2008
|
NOTE
3 -
|
INVESTMENT
IN NATURAL SODA HOLDINGS, INC.
(Continued)
|
|
Consolidated Balance Sheet as at June 30,
2009
|
||||
|
ASSETS
|
||||
|
Cash
|
$ | 156,139 | ||
|
Accounts
receivable
|
3,723,426 | |||
|
Inventories
|
930,349 | |||
|
Prepaid
expenses
|
325,942 | |||
|
Total
Current Assets
|
5,135,856 | |||
|
Property,
plant and equipment, net
|
9,462,474 | |||
|
Cavities
and well development, net
|
6,130,745 | |||
|
Mineral
leases
|
4,167,471 | |||
|
Total
Fixed Assets
|
19,760,690 | |||
|
Water
rights
|
3,150,582 | |||
|
Patents,
net
|
22,886 | |||
|
Equipment
held and not yet in service
|
3,197,842 | |||
|
Well
and well development, RSL
|
595,000 | |||
|
Acquisition
costs, net
|
731,848 | |||
|
Rock
School Lease & reserves
|
3,300,000 | |||
|
Deposits
and bonds
|
8,000 | |||
|
Restricted
funds
|
1,267,480 | |||
|
Total
Other Assets
|
12,273,638 | |||
|
TOTAL
ASSETS
|
$ | 37,170,184 | ||
|
LIABILITIES
|
||||
|
Accounts
payable
|
$ | 1,734,405 | ||
|
Royalties
payable
|
114,373 | |||
|
Accrued
expenses
|
434,590 | |||
|
Notes
payable, current
|
1,612,741 | |||
|
Capital
leases, current portion
|
10,983 | |||
|
Total
Current Liabilities
|
3,907,092 | |||
|
Notes
payable, long term
|
29,784 | |||
|
Capital
leases, non-current portion
|
11,071 | |||
|
Asset
retirement obligations
|
967,825 | |||
|
Total
Long Term Liabilities
|
1,008,680 | |||
|
TOTAL
LIABILITIES
|
4,915,772 | |||
|
EQUITY
|
||||
|
Common
stock
|
10,000 | |||
|
Additional
paid in capital
|
116,084,415 | |||
|
Accumulated
deficit
|
(83,840,003 | ) | ||
|
TOTAL
EQUITY
|
32,254,412 | |||
|
TOTAL
LIABILITIES AND EQUITY
|
$ | 37,170,184 | ||
AMERALIA,
INC.
Notes
to the Consolidated Financial Statements
June
30, 2009 and 2008
|
NOTE
4 -
|
INVENTORIES
|
Inventories
consisted of the following:
|
June 30,
2009
|
June 30,
2008
|
|||||||
|
Raw
materials and supplies
|
$ | - | $ | 443,276 | ||||
|
Finished
goods
|
- | 299,484 | ||||||
|
Total
|
$ | - | $ | 742,760 | ||||
|
NOTE
5 -
|
PREPAID
EXPENSES
|
Prepaid
expenses consisted of the following:
|
June 30, 2009
|
June 30, 2008
|
|||||||
|
Prepaid
natural gas costs
|
$ | - | $ | 243,259 | ||||
|
Prepaid
construction costs
|
- | 227,500 | ||||||
|
Other
prepayments & deposits
|
- | 23,739 | ||||||
|
Total
|
$ | - | $ | 494,498 | ||||
|
NOTE
6 -
|
FIXED
ASSETS
|
Fixed
assets consist of the following amounts:
|
June 30,
2009
|
June 30,
2008
|
|||||||
|
Property
plant and equipment
|
$ | - | $ | 12,716,015 | ||||
|
Cavities
and well development
|
- | 8,962,704 | ||||||
|
Furniture
and fixtures
|
- | 133,312 | ||||||
|
Mineral
leases
|
- | 4,167,471 | ||||||
|
Subtotal
|
- | 25,979,502 | ||||||
|
Less,
accumulated depreciation and amortization
|
- | (6,486,448 | ) | |||||
|
Total
|
$ | - | $ | 19,493,054 | ||||
Depreciation
and amortization expense for the years ended June 30, 2009 and 2008 was $856,613
and $1,697,662, respectively.
|
NOTE
7 -
|
PATENTS
|
Patents
consisted of the following:
|
June 30, 2009
|
June 30, 2008
|
|||||||
|
Patents
acquired from IMC at fair value
|
$ | - | $ | 50,000 | ||||
|
Less,
accumulated amortization
|
- | (23,762 | ) | |||||
|
Net
patents
|
$ | - | $ | 26,238 | ||||
The
patents are being amortized on a straight line basis over a period of the
remaining life of the patent up to 20 years. Amortization expense for
the years ended June 30, 2009 and 2008 was $1,117 and $4,307,
respectively.
AMERALIA,
INC.
Notes
to the Consolidated Financial Statements
June
30, 2009 and 2008
|
NOTE
8 -
|
ROCK
SCHOOL LEASE AND WELL COSTS
|
In
December 1992, AmerAlia acquired from an unrelated party, E. E. Kinder Co.
(Kinder), BLM Sodium Lease C-0119985 known as the Rock School Lease, covering
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 valued at $3.00 per
share or $150,000; 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.
Kinder
assigned all of its rights, title and interest in the federal lease to AmerAlia
which then assigned them to NSHI. 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 NSHI an option to acquire its royalty
interests. The assignment of the interest in the Rock School Lease
from Kinder was approved by the BLM on January 1, 1996.
The
Rock School Lease was renewed July 1, 2001 for a period of ten years and is
renewable under the terms and conditions prescribed by the Secretary of the
Interior. The lease is currently undeveloped. There is a
risk that the Department of Interior will not renew the lease.
During
the years ended June 30, 1993 through June 30, 2003, NSHI capitalized lease
acquisition, exploration and development costs of $3,066,917. Since
then, no further expenditures have been capitalized. NSHI has also
installed five water monitoring wells and has collected base line data required
by the Division of Minerals and Geology. The last data was collected
in February 2001, completing the regulatory requirements necessary to begin
solution-mining activities.
NSHI
has recorded the value of the Rock School Lease and Reserves at
$3,300,000. The value of the monitoring wells is
$595,000.
|
NOTE
9 -
|
ENGINEERING
DRAWINGS AND EQUIPMENT HELD
|
AmerAlia
entered into a Design/Build agreement on May 14, 1999 with a Delaware
corporation doing business as U.S. Filter Corporation and HPD Products (US
Filter) to design, manage and construct a sodium bicarbonate solution mining and
production plant for an amount not to exceed $33,200,000. The
agreement was not completed although engineering drawings were prepared and some
equipment constructed. As of June 30, 2004 AmerAlia, NSHI and NSI had
the drawings valued at $2,800,000 and the equipment valued at
$4,700,000. AmerAlia, NSHI and NSI performed an impairment analysis
on these assets and determined an impairment charge on the equipment in fiscal
year 2005 of $458,087. AmerAlia, NSHI and NSI also placed $80,093 of
the equipment in service during the year which resulted in a $4,161,820 value
being recorded on
the books as of June 30, 2005. During fiscal year 2006 NSI placed
$44,697 of the equipment in service and completed an impairment analysis which
resulted in an impairment of $924,000 on the engineering drawings and $919,281
on the equipment, leaving a $1,876,000 and a $3,197,842 account balance being
recorded on the books as of June 30, 2006. During fiscal years 2007
and 2008 no equipment was placed in service and no impairment recorded on these
assets. Therefore, no changes were made to the account balances as at
June 30, 2008. During fiscal year ended June 30, 2009 no equipment
was placed in service and no impairment recorded on the equipment but the
remaining balance of the engineering drawings was impaired resulting in a nil
account balance at year end and $1,876,000 of impairment expense being
recognized. The equipment is being held in storage until it is
brought into service.
AMERALIA,
INC.
Notes
to the Consolidated Financial Statements
June
30, 2009 and 2008
|
NOTE
10 -
|
ROYALTIES
PAYABLE
|
Royalties
payable comprise the amount of minimum guaranteed royalties payable due to
Kinder (Note 8) and the monthly royalties due to the BLM. Upon the
closing of the recapitalization agreement in October 2008 all ongoing
obligations to pay the Kinder royalties became NSHI’s
responsibility. At June 30, 2009 and 2008, AmerAlia owed $975,000 and
$971,760, respectively. Royalty expense for the years ended June 30,
2009 and 2008 was $99,960 and $357,717, respectively.
|
NOTE
11 -
|
ACCRUED
EXPENSES
|
Accrued
expenses comprise the following:
|
June 30,
2009
|
June 30,
2008
|
|||||||
|
Salaries
and wages
|
$ | - | $ | 294,729 | ||||
|
Freight
|
- | 34,628 | ||||||
|
Property
tax
|
- | 225,180 | ||||||
|
Employment
taxes
|
44,211 | 1,016,279 | ||||||
|
Other
|
- | 31,499 | ||||||
|
Total
|
$ | 44,211 | $ | 1,602,315 | ||||
|
NOTE
12 -
|
DUE
TO RELATED PARTIES
|
Accrued
liabilities due to related parties comprise the following:
|
June 30,
2009
|
June 30,
2008
|
|||||||
|
Accrued
officer and director compensation, expenses and advances
(1)
|
$ | 71,401 | $ | 1,339,789 | ||||
|
Accrued
interest on Series A Debenture secured promissory notes
|
- | 384,053 | ||||||
|
Accrued
interest on Series C Debenture secured promissory note
|
- | 297,553 | ||||||
|
Accrued
interest and contingent interest due on various promissory notes and
debentures issued to Sentient entities (2)
|
- | 49,905,694 | ||||||
|
Accrued
interest on promissory note due to an accredited related party
investor
|
- | 25,810 | ||||||
| $ | 71,401 | $ | 51,952,899 | |||||
|
(1)
|
Accrued
directors fees and officer and director compensation also includes
interest expense totaling $67,378 for the year ended June 30, 2009 accrued
on unpaid loan account balances. Interest expense of $138,396
was included in the year ended June 30, 2008.
|
|
(2)
|
Contingent
interest was payable on the Series B1 debentures subject to certain
conditions. These conditions were met only upon the maturity of
the debentures on February 18, 2008 so NSHI recognized the additional
liability at that time. All obligations to pay this contingent
interest liability were extinguished through the issue of NSHI equity at
the closing of the recapitalization agreement in October
2008. See Note 2, item
1.
|
AMERALIA,
INC.
Notes
to the Consolidated Financial Statements
June
30, 2009 and 2008
|
NOTE
13 -
|
NOTES
PAYABLE TO RELATED PARTIES
|
Notes
payable to related parties comprise the following:
|
June 30, 2009
|
June 30, 2008
|
|||||||
|
Various
guaranty promissory notes acquired by Sentient Entities from Jacqueline
Badger Mars Trust due December 31, 2005; Interest
at various rates between 4.5% and 4.99%;
unsecured
|
$ | - | $ | 2,443,387 | ||||
|
NSHI
Series A Secured 10% Debentures payable to the Sentient Entities due
September 30, 2005
|
- | 5,750,000 | ||||||
|
NSHI
Secured Subordinated Series B1 Debentures payable to the Sentient Entities
due February 19, 2008; interest at 34.8766%
|
- | 11,300,000 | ||||||
|
Various
unsecured promissory notes payable to Sentient Entities at 6%
interest
|
- | 1,845,552 | ||||||
|
Secured
notes payable to accredited related party investors; 10% interest
payable quarterly; due September 30, 2005
|
- | 2,000,000 | ||||||
|
Unsecured
promissory note payable to an accredited related party investor due July
31, 2008; interest at 12%
|
- | 200,000 | ||||||
|
Series
C Debenture Secured Promissory Note payable to an accredited related party
investor; due March 19, 2008; interest at 13.5%
|
- | 853,400 | ||||||
|
Total
related party notes payable
|
- | 24,392,339 | ||||||
|
Less
current portion
|
- | 24,392,339 | ||||||
|
Total
related party notes payable long term
|
$ | - | $ | - | ||||
|
NOTE
14 -
|
NOTES
PAYABLE
|
Notes
payable comprise the following:
|
June 30, 2009
|
June 30, 2008
|
|||||||
|
NSHI
Series A Secured 10% Debentures payable to payable quarterly; due
September 30, 2005
|
$ | - | $ | 2,250,000 | ||||
|
AmerAlia
Series C Debenture Secured Promissory note payable to an accredited
investor, due March 19, 2008
|
- | 1,464,292 | ||||||
|
Wells
Fargo factoring facility with fees payable according to time taken to
collect each receivable
|
- | 1,842,563 | ||||||
|
Note
payable to an investor, on call at 4.5%
|
- | 100,000 | ||||||
|
Note
payable to McFarland Dewey Securities Co; unsecured, interest at 4%; due
May 18, 2004
|
- | 18,000 | ||||||
|
Motor
vehicle loans at 0.9% p.a. interest due February and March 2009 secured by
motor vehicles
|
- | 46,669 | ||||||
|
Note
payable to investor; unsecured, due on demand; at 10%
interest.
|
- | 4,000 | ||||||
|
Total
notes payable
|
- | 5,725,524 | ||||||
|
Less
current portion
|
- | 5,709,963 | ||||||
|
Total
long-term debt
|
$ | - | $ | 15,561 | ||||
AMERALIA,
INC.
Notes
to the Consolidated Financial Statements
June
30, 2009 and 2008
|
NOTE
15 -
|
CAPITAL
LEASE OBLIGATIONS
|
|
June 30, 2009
|
June 30, 2008
|
|||||||
|
Total
minimum lease payments
|
$ | - | $ | 71,619 | ||||
|
Less
interest and taxes
|
- | (3,509 | ) | |||||
|
Present
value of net minimum lease payments
|
- | 68,110 | ||||||
|
Less
current portion
|
- | (64,674 | ) | |||||
|
Long-term
portion of capital lease obligations
|
$ | - | $ | 3,436 | ||||
|
NOTE
16 -
|
ASSET
RETIREMENT OBLIGATION
|
The
asset retirement obligation (ARO) represents the estimated current fair value of
the costs to plug the wells, remove buildings and return the site to its natural
condition. NSI recorded the fair value of the ARO at the date of the
purchase of the assets and liabilities of White River and is accreting the
balance at the current inflation rate of 3%. The ARO value at June
30, 2008 is $1,036,640.
|
June 30, 2009
|
June 30, 2008
|
|||||||
|
Beginning
balance
|
$ | 1,036,640 | $ | 898,000 | ||||
|
Liability
incurred
|
- | 142,045 | ||||||
|
Liability
settled
|
(154,895 | ) | (30,345 | ) | ||||
|
Accretion
expense
|
8,980 | 26,940 | ||||||
|
Transfer
with restructuring agreement
|
(890,725 | ) | - | |||||
|
Ending
balance
|
$ | - | $ | 1,036,640 | ||||
|
NOTE
17 -
|
OPERATING
LEASES
|
NSI
has signed six leases for a total of 46 railway hopper cars. Three of
these leases terminate in September 2010, one terminated in November 2008, one
terminates in December 2009 and the other terminates in June
2010. These leases require monthly payments of $385 to $540 per
car. NSI has signed a lease for a 29,988 square foot warehouse in
Rifle, Colorado. The lease terminates May 2010 and requires monthly
payments of $10,546 increasing by 3% in January of each year.
The
following is a schedule of future minimum lease payments required to be paid by
NSI under the non-cancellable operating lease agreements at June 30,
2009:
|
Year ended June 30
|
Amount
|
|||
|
2010
|
$ | 192,300 | ||
|
2011
|
32,400 | |||
|
2012
|
- | |||
|
Total
|
$ | 224,700 | ||
The
rental expense component recognized by AmerAlia related to the above leases was
$179,251 for financial year 2009 and $475,279 for financial year
2008.
AMERALIA,
INC.
Notes
to the Consolidated Financial Statements
June
30, 2009 and 2008
|
NOTE
18 -
|
OUTSTANDING
STOCK OPTIONS AND PURCHASE WARRANTS
|
As
a result of applying SFAS No. 123(R) to stock options granted to board members,
AmerAlia recorded expenses of $138,285 and $66,593 for the year ended June 30,
2009 and 2008, respectively. These expenses are
included in the selling, general and administrative amount in the statement of
operations.
Under
FASB Statement 123(R), AmerAlia estimated the fair value of each stock award at
the grant date by using the Black-Scholes option pricing model with the
following weighted average assumptions used for each of the grants,
respectively; dividend yield of zero percent for all years; expected volatility
of 172.58% and 165.59%; risk-free interest rates of 2.500% and 4.500% and
expected lives of 3.0 years.
A
summary of the status of AmerAlia’s stock options and warrants as of June 30,
2008 and changes during the year ended June 30, 2009 is presented
below:
|
Options,
Warrants
and SAR’s
|
Weighted
Average
Exercise
Price
|
||||||
|
Outstanding,
June 30, 2008
|
3,615,000 | $1.01 | |||||
|
Granted
|
187,500 | $0.88 | |||||
|
Expired/Cancelled
|
(3,240,000 | ) | $1.08 | ||||
|
Exercised
|
(187,500 | ) | $0.42 | ||||
|
Outstanding,
June 30, 2009
|
375,000 | $0.64 | |||||
|
Exercisable,
June 30, 2009
|
375,000 | $0.64 | |||||
The
following summarizes the exercise price per share and expiration date of
AmerAlia's outstanding options and warrants to purchase common stock at June 30,
2009:
|
Expiration Date
|
Price
|
Number
|
|||
|
June
30, 2010
|
$0.40 | 187,500 | |||
|
June
30, 2011
|
$0.88 | 187,500 | |||
| 375,000 |
During
the year ended June 30, 2009, 187,500 options were granted and 33,750 shares
were issued to non-executive directors pursuant to the net exercise provisions
of their option agreements over 187,500 shares.
In
June 2001, the Shareholders approved the 2001 Directors’ Incentive Plan whereby
each director (who is not an employee or officer) is granted an option to
purchase 75,000 shares at a current market price when a person joins the Board
of Directors. In addition, options to purchase 37,500 shares are
granted to each such director sitting at July 1 of each year. The
exercise price for these options is the average market price during the month of
June preceding each grant date, and the options have a three-year
term. All options under this plan vest and are exercisable six months
after the date of grant.
AMERALIA,
INC.
Notes
to the Consolidated Financial Statements
June
30, 2009 and 2008
|
NOTE
19 -
|
COMMITMENTS
AND CONTINGENT LIABILITIES
|
AmerAlia
is a party to certain claims and lawsuits arising from its business
activities.
On
December 10, 1992, AmerAlia and NSHI acquired the Rock School Lease from Kinder
(See Note 8); 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.
|
The
unpaid portion of these obligations as of October 31, 2008 is recorded in
AmerAlia’s accounts and royalties payable as current
liabilities. Obligations incurred since October 31, 2008 are
obligations of NSHI.
|
NOTE
20 -
|
PREFERRED
STOCK
|
There
are 82 shares of Series E preferred stock outstanding at June 30, 2009 and 2008
which carry a 10% dividend payable quarterly when declared by the directors of
AmerAlia. Each share of the preferred stock was convertible into 1,000 shares of
common stock until October 31, 2000. Since October 31, 2000 the 82
shares have not been convertible into common stock and have no voting
rights.
|
NOTE
21 -
|
OFFICER
COMPENSATION
|
At
June 30, 2009 accrued unpaid compensation, interest, expenses and advances to
AmerAlia of $48,769 and $1,132 were due to Bill H. Gunn and Robert van Mourik,
respectively (at June 30, 2008: $219,065 and $616,342,
respectively). These amounts also include $14,000 director’s fees due
annually. During the year ended June 30, 2009, Mr. Gunn received
$214,000 for his salary and directors fees (which included $100,000 paid
directly by NSI) and a further $65,434 of his accrued
compensation. All of Mr. van Mourik’s salary and director’s fees of
$164,000 was paid as well as $510,039 of arrears due to him.
Mr.
Bill H. Gunn is Chairman and President of AmerAlia, and Mr. Robert van Mourik is
Executive Vice President, Chief Financial Officer, Secretary and Treasurer of
AmerAlia.
|
NOTE
22 -
|
LIQUIDITY
|
AmerAlia’s
financial statements are prepared using generally accepted accounting principles
applicable to a going concern which contemplate the realization of assets and
liquidation of liabilities in the normal course of business. As a
result of the recent restructuring, AmerAlia holds an investment in NSHI which
is unlikely to produce sufficient distributions of income to meet AmerAlia’s
overhead expenses in the short term. As the effect of the
restructuring has been to repay nearly all of AmerAlia’s obligations, AmerAlia
expects that the operating costs of AmerAlia will be reduced to approximately
$1,000,000 annually. In addition, NSHI may call on its
shareholders for additional capital. While AmerAlia has reserved
$2,880,000 to meet anticipated capital calls, its remaining cash reserves are
required to sustain AmerAlia’s operations and repay
obligations.
AMERALIA,
INC.
Notes
to the Consolidated Financial Statements
June
30, 2009 and 2008
|
NOTE
22 -
|
LIQUIDITY
(Continued)
|
Under
the Restructuring Agreement, Sentient has the right to purchase up to a total of
5,500,000 additional shares of AmerAlia’s common stock at $0.36 per share until
October 31, 2011. This right can only be exercised to resolve
obligations of AmerAlia that existed at the first closing and have not been
discharged, and only then if the holders of the unpaid obligations pursue or
threaten to pursue claims against AmerAlia or AmerAlia’s
affiliates.
In
view of these conditions, AmerAlia’s ability to continue as a going concern is
dependent upon its ability to obtain additional financing or capital to meet its
ongoing obligations. AmerAlia’s ability to obtain further financing
through the offer and sale of AmerAlia’s securities is subject to market
conditions and other factors beyond AmerAlia’s control. There is no
assurance AmerAlia will be able to obtain financing on favorable terms or at
all. If cash is insufficient to fund its business operations, they
could be adversely affected. Insufficient funds may require
delay, scaling back or eliminating expenses and/or employees.
|
NOTE
23 -
|
INCOME
TAXES
|
The
Financial Accounting Standards Board ("FASB") has issued Financial
Interpretation No. 48, Accounting for Uncertainty in Income Taxes - An
Interpretation of FASB Statement No.109 (FIN 48). FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an enterprise's
financial statements in accordance with FASB Statement No. 109, Accounting for
Income Taxes. FIN 48 requires a company to determine whether it is more likely
than not that a tax position will be sustained upon examination based upon the
technical merits of the position. If the more-like1y-than-not threshold is met,
a company must measure the tax position to determine the amount to recognize in
the financial statements. As a result of the implementation of FIN 48, AmerAlia
performed a review of its material tax positions in accordance with recognition
and measurement standards established by FIN 48.
At
the adoption date of January 1, 2007, AmerAlia had no unrecognized tax benefit
which would affect the effective tax rate if recognized.
AmerAlia
includes interest and penalties arising from the underpayment of income taxes in
the consolidated statements of operations in the provision for income taxes. As
of June 30, 2009, AmerAlia had no accrued interest or penalties related to
uncertain tax positions.
AmerAlia
files income tax returns in the U.S. federal jurisdiction and in the state of
Colorado. With few exceptions, AmerAlia is no longer subject to U.S. federal,
state and local, or non-U.S. income tax examinations by tax authorities for
years before 2004.
|
NOTE
24 -
|
SUBSEQUENT
EVENTS
|
On
July 1, 2009 AmerAlia granted options to Non-executive Directors to acquire
187,500 shares at $0.29 per share until June 30, 2012 in accordance with the
2001 Directors’ Incentive Plan.
AmerAlia
contributed $450,000 to NSHI in July in response to a capital call.
AmerAlia
has evaluated subsequent events for recognition or disclosure through the date
these financial statements were available to be issued, October 8,
2009.
F-27