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 31Rifle, 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
      valueIndicate
      by check mark if the registrant is a well-known seasoned issuer, as
      defined in Rule 405 of the Securities Act.Yes
      £  NoTIndicate by check mark if the registrant is not
      required to file reports pursuant to Section 13 or Section 15(d) of the
      Act.Yes£NoTIndicate 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.  YesT  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 CompanyT





Indicate by check mark whether the registrant is a
      shell company (as defined in Rule 12b-2 of the
      Act).Yes£NoT












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.





TABLE OF CONTENTS





Item
            
            PagePART
      11
            Description
      of Business
            3Overview
      of Corporate Structure
            5Our
      Participation in NSHI & NSI
            6Restructuring
      Transactions
            7Activities
      of NSHI & NSI
            91.   Sodium
      Leases
            92.   NSI’s
      Sodium Bicarbonate Business
            123.   NSI’s
      Water Rights
            164.  Oil
      Shale Potential
            201A
            Risk
      Factors
            211B
            Unresolved
      Staff Comments
            242
            Properties
            253
            Legal
      Proceedings
            254
            Submission
      of Matters to a Vote of Security Holders
            25PART
      115
            Market
      for Common Equity, Related Stockholder Matters and Issuer Purchase of
      Securities
            266
            Selected
      Financial Data
            277
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation
            288
            Financial
      Statements and Supplemental Data
            339
            Changes
      in and Disagreements on Accounting and Financial
      Disclosure
            339A(T)
            Controls
      and Procedures
            349B
            Other
      Information
            34PART
      11110
            Directors,
      Executive Officers and Corporate Governance
            3511
            Executive
      Compensation
            3912
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            4213
            Certain
      Relationships and Related Party Transactions, and Director
      Independence
            4314
            Principal
      Accountant Fees and Services
            4715
            Exhibits
            48SIGNATURESConsolidated
      Financial Statements
            F-1


2
 Table of Contents


PART
I





ITEM1.
            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.


3
 Table of Contents





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.


4
 Table of Contents


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.


5
 Table of Contents





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 INNSHI& 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.


6
 Table of Contents


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
            
            
            ConsiderationBill
      H Gunn
            Chairman
      & CEO
            
            
            700,000
            
            
            
            $
            252,000Robert
      van Mourik
            Director,
      EVP & CFO
            
            
            250,000
            
            
            
            
            90,000James
      V Riley Trust
            Affiliate
      of James V. Riley, Director
            
            
            1,583,333
            
            
            
            
            570,000J.
      Jeffrey Geldermann
            Director
            
            
            1,003,400
            
            
            
            
            361,224Karen
      O. WoolardTrust
            Affiliate
      of  Robert C.Woolard,
      Director
            
            
            925,000
            
            
            
            
            333,000Glendower
      InvestmentsPty
      Ltd
            Affiliate
      of Neil E.Summerson,
      Director
            
            
            153,000
            
            
            
            
            55,080Geoffrey C. Murphy
            Director
            
            
            486,125
            
            
            
            
            175,005TOTALS:
            
            
            
            5,100,858
            
            
            
            $
            1,836,309


7
 Table of Contents


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
              PaidKaren
      O. Woolard Trust
            
            Affiliate
      of  Robert C.Woolard,
      Director
            
            Balance
      of Note&
      interest
            
            $
            977,188Robert
      van Mourik
            
            Director,
      EVP & CFO
            
            Accrued
      compensationadvances
      & expenses (1)
            
            
            920,064Bill
      H. Gunn
            
            Director
      & CEO
            
            Accrued
      compensationadvances
      & expenses (2)
            
            
            794,657Ahciejay
      Pty Ltd
            
            Affiliate
      ofRobert
      van Mourik
            
            Promissory
      note&
      interest (3)
            
            
            169,816James
      V Riley Trust
            
            Affiliate
      ofJames
      V. Riley,Director
            
            Promissory
      noteinterest
      & directors fees
            
            
            151,524J.
      Jeffrey Geldermann
            
            Director
            
            Promissory
      noteinterest
      & directors fees
            
            
            95,881Neil
      E. Summerson
            
            Director
            
            Director’s
      fees&
      expenses
            
            
            54,215Geoffrey
      C. Murphy
            
            Director
            
            Director’s
      fees&
      expenses
            
            
            36,550Robert
      C. Woolard
            
            Director
            
            Directors
      fees
            
            
            23,792Note
      holders
            
            Unrelated
      parties
            
            Notes
      & interest
            
            
            1,983,801Various
      creditors, taxesand
      working capital
            
            
            
            
            
            
            4,666,378TOTAL:
            
            
            
            
            
            $
            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.


8
 Table of Contents


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.


9
 Table of Contents


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:


10
 Table of Contents




Authorized Recovery (tons)Year ending
            
            Additions
            
            Production
            
            BalanceJune
      30, 2005
            
            
            
            
            
            467,271June
      30, 2006
            
            -
            
            (90,369)
            
            376,902June
      30, 2007
            
            -
            
            (98,145)
            
            278,757June
      30, 2008
            
            150,000
            
            (100,189)
            
            328,568June
      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


11
 Table of Contents


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
            
            
            187.4Animal
      Feed
            
            134
            
            
            147.7Pharmaceuticals
      and Personal Care
            
            48
            
            
            52.9Chemicals
            
            46
            
            
            50.7Cleaning
      Products
            
            44
            
            
            48.5Water
      Treatment
            
            33
            
            
            36.4Blast
      Media
            
            19
            
            
            20.9Fire
      Extinguishers
            
            9
            
            
            9.9Other
            
            17
            
            
            18.7Total
            
            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.


12
 Table of Contents


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.


13
 Table of Contents










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.


14
 Table of Contents


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 FY2004
            84,1032005
            85,038
            
            +
      1.12006
            88,910
            
            +
      4.62007
            101,970
            
            +14.72008
            101,614
            
            - 0.42009
            97,729
            
            -3.8Fiscal
              Year
            Gross
      Revenues
              ($)
            %
      Change
              on prior FY2004
            12,609,0412005
            14,141,500
            
            +
      12.22006
            15,293,688
            
            + 8.12007
            16,951,997
            
            +
      10.82008
            17,947,800
            
            + 5.92009
            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.


15
 Table of Contents


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
      SystemState
            
            
            Allocation
              (Acre Feet per year)California
            
            
            4,400,000Colorado
            
            
            3,881,250Arizona
            
            
            2,800,000Utah
            
            
            1,725,000Mexico
            
            
            1,500,000Wyoming
            
            
            1,050,000New
      Mexico
            
            
            845,750Nevada
            
            
            300,00016,502,000





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.


16
 Table of Contents


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.


17
 Table of Contents


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.


18
 Table of Contents


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 FlowDirect
      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
              StorageWolf
      RidgeReservoir
            Plateau
            7,380
            92%Larson Reservoir
            Piceance Creekheadwaters
            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
            1.00Enlargement
      and Extension ofMorgan
      Ditch No. 1
            September
      27, 1886
            April
      28, 1890
            0.40Morgan
      No. 2 Ditch
            September
      27, 1886
            April
      28, 1890
            0.40Home
      Supply Ditch
            September
      19, 1886
            May
      10, 1889
            1.00Larson Ditch
            September 17, 1886
            May 10, 1889
            2.50


19
 Table of Contents


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).


20
 Table of Contents




“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.


21
 Table of Contents


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.


22
 Table of Contents


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.


23
 Table of Contents


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.


24
 Table of Contents


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.








ITEM3.
            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.








ITEM4.
            SUBMISSION OF MATTERS
      TO A VOTE OF SECURITY
HOLDERS





None.


25
 Table of Contents


PART
II





ITEM5.
            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
            0.34December
      31, 2007
            1.01
            0.27
            0.45March
      31, 2008
            0.75
            0.35
            0.47June
      30, 2008
            1.10
            0.50
            0.80September
      30, 2008
            1.00
            0.60
            0.73December
      31, 2008
            0.87
            0.30
            0.57March
      31, 2009
            0.59
            0.20
            0.39June
      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.


26
 Table of Contents


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 InformationPlan
      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
            
            
            
            1,000,000Equity
      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.
            
            NoneOct
      2008
            
            15,277,778
            
            Sentient
            
            $5,500,000
      cash
            
            See
      Note 1.
            
            None
            
            212,597,269
            
            Sentient
            
            Settlement
      of debts
            
            See
      Note 1.
            
            None
            
            25,100,858
            
            Directors
      & affiliates
            
            Settlement
      of debts
            
            See
      Note 1.
            
            None
            
            22,433,706
            
            Six
      accredited investors
            
            Settlement
      of debts
            
            See
      Note 1.
            
            None
            
            2Dec
      2008
            
            12,149,628
            
            Sentient
            
            $4,373,866
      cash
            
            See
      Note 1.
            
            None
            
            2June
      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.


27
 Table of Contents


ITEM7.
            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.


28
 Table of Contents


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 FY2004
            84,1032005
            85,038
            
            +
      1.12006
            88,910
            
            +
      4.62007
            101,970
            
            +14.72008
            101,614
            
            -  0.42009
            97,729
            
            -3.8Fiscal
              Year
            Gross Revenues
              ($)
            % Change
              on prior FY2004
            12,609,0412005
            14,141,500
            
            +
      12.22006
            15,293,688
            
            +   8.12007
            16,951,997
            
            +
      10.82008
            17,947,800
            
            +   5.92009
            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.









29
 Table of Contents




The
following table presents comparative consolidated income statements of NSHI and
NSI:








FY2009
            
            
            FY2008
            
            
            Change on
              Prior yearTonnage
      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
            
            
            
            206Interest
      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.


30
 Table of Contents


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 yearASSETSCash
            
            $
            156,139
            
            
            $
            -Accounts
      receivable
            
            
            3,723,426
            
            
            
            2,898,121Inventories
            
            
            930,349
            
            
            
            742,760Prepaid
      expenses
            
            
            325,942
            
            
            
            483,315Total
      Current Assets
            
            
            5,135,856
            
            
            
            4,124,196
            
            
            
            1,011,660Property,
      plant & equipment, net
            
            
            9,462,474
            
            
            
            9,463,356Cavities  &
      well development, net
            
            
            6,130,745
            
            
            
            5,862,227Mineral
      leases
            
            
            4,167,471
            
            
            
            4,167,471Total
      Fixed Assets
            
            
            19,760,690
            
            
            
            19,493,054
            
            
            
            267,636Water
      rights
            
            
            3,150,582
            
            
            
            3,150,582Equipment
      held and not yet in service
            
            
            3,197,842
            
            
            
            3,197,842Rock
      School lease & reserves
            
            
            3,300,000
            
            
            
            3,300,000Well
      & well development, RSL
            
            
            595,000
            
            
            
            595,000Deferred
      financing & acquisition costs, net
            
            
            731,848
            
            
            
            770,816Engineering
      drawings
            
            
            -
            
            
            
            1,876,000Deposits  &
      bonds
            
            
            8,000
            
            
            
            12,000Restricted
      funds
            
            
            1,267,480
            
            
            
            1,079,980Patents,
      net
            
            
            22,886
            
            
            
            26,238Total
      Other Assets
            
            
            12,273,638
            
            
            
            14,008,458
            
            
            
            (1,734,820
            )TOTAL
      ASSETS
            
            $
            37,170,184
            
            
            $
            37,625,708LIABILITIESBank
      overdraft
            
            $
            -
            
            
            $
            54,080Accounts
      & royalties payable
            
            
            1,848,778
            
            
            
            1,888,099Accrued
      expenses
            
            
            434,590
            
            
            
            586,036Related
      party obligations
            
            
            -
            
            
            
            86,720,468Notes
      payable, current
            
            
            1,612,741
            
            
            
            1,873,671Capital
      leases, current
            
            
            10,983
            
            
            
            64,674Total
      Current Liabilities
            
            
            3,907,092
            
            
            
            91,187,028
            
            
            
            (87,279,936
            )Notes
      payable, long term
            
            
            29,784
            
            
            
            15,561Capital
      leases, non current portion
            
            
            11,071
            
            
            
            3,436Asset
      retirement obligations
            
            
            967,825
            
            
            
            1,036,640Total
      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
            )EQUITYPreferred
      stock
            
            
            -
            
            
            
            4,949,000Common
      stock
            
            
            10,000
            
            
            
            510Additional
      paid in capital
            
            
            117,701,031
            
            
            
            3,458,835Accumulated
      deficit
            
            
            (85,456,619
            )
            
            
            (78,402,287
            )TOTAL
      EQUITY
            
            
            32,254,412
            
            
            
            (69,993,942
            )
            
            
            102,248,354TOTAL
      LIABILITIES AND EQUITY
            
            $
            37,170,184
            
            
            $
            37,625,708


31
 Table of Contents


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.


32
 Table of Contents


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.


33
 Table of Contents


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.





34
 Table of Contents


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 DirectorBill
      H. Gunn (67)
            
            Chairman
      of the Board,
            
            02/84President
      & CEO of AmerAlia, Inc.
            
            09/90Robert
      C.J. van Mourik (56)
            
            Director,
              Executive
      Vice President & Chief Financial Officer,
              Secretary
      & Treasurer of AmerAlia, Inc.
            
            09/09Neil
      E. Summerson (61)
            
            Director
      (1)
            
            09/90Geoffrey
      C. Murphy (68)
            
            Director
      (1,2)
            
            06/99James
      V. Riley (72)
            
            Director
      (1,2)
            
            10/01Robert
      C. Woolard (72)
            
            Director
      (2)
            
            05/04J.
      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.


35
 Table of Contents


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.


36
 Table of Contents


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 bankingactivities;





·
            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.


37
 Table of Contents


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).


38
 Table of Contents


ITEM11.
            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-
            
            114,000Chief Executive
              Officer
            
            2008
            
            114,000
            
            -0-
            
            -0-
            
            -0-
            
            -0-
            
            -0-
            
            -0-
            
            114,000Robert van Mourik
              Chief
      Financial
            
            2009
            
            164,000
            
            -0-
            
            -0-
            
            -0-
            
            -0-
            
            -0-
            
            -0-
            
            164,000Officer &
              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.


39
 Table of Contents


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
            
            TotalName
            
            
            
            $
            
            $
            
            $
            
            $
            
            $
            
            $
            
            $(a)
            
            Year
            
            (b)
            
            (c)
            
            (d)
            
            (e)
            
            (f)
            
            (g)
            
            (h)Neil
      E.
              Summerson
            
            2009
            
            20,000
            
            -0-
            
            27,657
            
            -0-
            
            -0-
            
            -0-
            
            47,657Geoffrey
      C.
              Murphy
            
            2009
            
            20,000
            
            -0-
            
            27,657
            
            -0-
            
            -0-
            
            -0-
            
            47,657James
      V.
              Riley
            
            2009
            
            18,000
            
            -0-
            
            27,657
            
            -0-
            
            -0-
            
            -0-
            
            45,657Robert
      C.
              Woolard
            
            2009
            
            14,000
            
            -0-
            
            27,657
            
            -0-
            
            -0-
            
            -0-
            
            41,657J.
      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 AwardsName
            
            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
            
            6/30/1037,500
            
            -
            
            0.88
            
            6/30/11Geoffrey
      C. Murphy
            
            37,500
            
            -
            
            0.40
            
            6/30/1037,500
            
            -
            
            0.88
            
            6/30/11James
      V. Riley
            
            37,500
            
            -
            
            0.40
            
            6/30/1037,500
            
            -
            
            0.88
            
            6/30/11Robert
      C. Woolard
            
            37,500
            
            -
            
            0.40
            
            6/30/1037,500
            
            -
            
            0.88
            
            6/30/11J. Jeffrey Geldermann
            
            37,500
            
            -
            
            0.40
            
            6/30/1037,500
            
            -
            
            0.88
            
            6/30/11


40
 Table of Contents


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
            
            
            2008Robert
      van Mourik
            
            $
            32,806
            
            
            $
            61,545Bill
      H. Gunn
            
            
            13,878
            
            
            
            26,959Geoffrey
      C. Murphy
            
            
            7,717
            
            
            
            19,697Neil
      E. Summerson
            
            
            3,727
            
            
            
            8,294James
      V. Riley
            
            
            3,337
            
            
            
            7,794Robert
      C. Woolard
            
            
            3,011
            
            
            
            7,203J.
      Jeffrey Geldermann
            
            
            2,902
            
            
            
            6,904Total:
            
            $
            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.


41
 Table of Contents


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, MOJames
      V. Riley
            
            
            2,083,733
            (2)
            
            3.1%414
      N. Orleans, Suite 405, Chicago ILJ.
      Jeffrey Geldermann
            
            
            1,210,500
            (3)
            
            1.8%535
      Kenilworth Ave, Kenilworth ILBill
      H. Gunn
            
            
            1,064,445
            (4)
            
            1.6%Aspen,
      ColoradoGeoffrey
      C. Murphy
            
            
            776,993
            (5)
            
            1.2%514
      Meadow Rd, Winnetka ILRobert
      van Mourik
            
            
            545,385
            (6)
            
            0.8%St
      Lucia, Queensland, AustraliaNeil
      E. Summerson
            
            
            516,417
            (7)
            
            0.8%Yeronga,
      Queensland, AustraliaOfficers
      & 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.


42
 Table of Contents


(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 andSummerson, 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.


43
 Table of Contents


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
            
            
            ConsiderationBill
      H Gunn
            Chairman
      & CEO
            
            700,000
            
            
            
            $
            252,000Robert
      van Mourik
            Director,
      EVP & CFO
            
            250,000
            
            
            
            
            90,000James
      V Riley Trust
            Affiliate
      ofJames
      V. Riley, Director
            
            1,583,333
            
            
            
            
            570,000J.
      Jeffrey Geldermann
            Director
            
            1,003,400
            
            
            
            
            361,224Karen
      O. WoolardTrust
            Affiliate
      of  Robert C.Woolard,
      Director
            
            925,000
            
            
            
            
            333,000Glendower
      InvestmentsPty
      Ltd
            Affiliate
      of Neil E.Summerson,
      Director
            
            153,000
            
            
            
            
            55,080Geoffrey C. Murphy
            Director
            
            486,125
            
            
            
            
            175,005TOTALS:
            
            
            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
            
            AmountKaren
      O. Woolard Trust
            
            Affiliate
      of  Robert C.Woolard,
      Director
            
            Balance
      of Note&
      interest
            
            $
            977,188Robert
      van Mourik
            
            Director,
      EVP & CFO
            
            Accrued
      compensationadvances
      & expenses (1)
            
            
            920,064Bill
      H. Gunn
            
            Director  &CEO
            
            Accrued
      compensation advances & expenses (2)
            
            
            794,657Ahciejay
      Pty Ltd
            
            Affiliate
      ofRobert
      van Mourik
            
            Promissory
      note&
      interest (3)
            
            
            169,816James
      V Riley Trust
            
            Affiliate
      ofJames
      V. Riley, Director
            
            Promissory
      noteinterest
      & directorsfees
            
            
            151,524J.
      Jeffrey Geldermann
            
            Director
            
            Promissory
      noteinterest
      & directorsfees
            
            
            95,881Neil
      E. Summerson
            
            Director
            
            Director’s
      fees&
      expenses
            
            
            54,215Geoffrey
      C. Murphy
            
            Director
            
            Director’s
      fees&
      expenses
            
            
            36,550Robert
      C. Woolard
            
            Director
            
            Directors
      fees
            
            
            23,792Note
      holders
            
            Unrelated
      parties
            
            Notes
      & interest
            
            
            1,983,801Various
      creditors, taxesand
      working capital
            
            
            
            
            
            
            4,666,378TOTAL:
            
            
            
            
            
            $
            9,873,866


44
 Table of Contents


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, 2009Bill
      H. Gunn
            
            $
            48,769Robert
      van Mourik
            
            
            1,132Neil
      E Summerson
            
            
            5,000Geoffrey
      C Murphy
            
            
            5,000James
      V Riley
            
            
            4,500Robert
      C Woolard
            
            
            4,500J.
      Jeffrey Geldermann
            
            
            3,500Total:
            
            $
            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.


45
 Table of Contents


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.


46
 Table of Contents


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
            
            
            2008Audit
      fees
            
            $
            131,800
            
            
            $
            114,900Audit
      related fees
            
            
            -
            
            
            
            -Tax
      fees
            
            
            21,150
            
            
            
            12,980All 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.


47
 Table of Contents


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.


48
 Table of Contents


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,


31.1
            Certification
      of Chief Executive Officer filed pursuant to Rule 13a-14(a) of the
      Exchange Act


31.2
            Certification
      of Chief Financial Officer filed pursuant to Rule 13a-14(a) of the
      Exchange Act


32.1
            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).


32.2
            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.


49
 Table of Contents


(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.


50
 Table of Contents


SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned there­unto duly authorized.





AMERALIA,
      INC.By:/s/ Bill
      H. Gunn
            Date:
      October 8, 2009Bill
      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, 2009Bill
      H. Gunn
            
            (Principal
      Executive Officer)/s/ Robert van Mourik
            
            Executive
      Vice President, Chief Financial
            
            Date:
      October 8, 2009Robert
      C. J. van Mourik
            
            Officer,
      Secretary, Treasurer and Director(Principal
      Financial and Accounting Officer)/s/  Neil E.
      Summerson
            
            Director
            
            Date:
      October 8, 2009Neil
      E. Summerson/s/  Geoffrey C.
      Murphy
            
            Director
            
            Date:
      October 8, 2009Geoffrey
      C. Murphy/s/  James V.
    Riley
            
            Director
            
            Date:
      October 8, 2009James
      V. Riley/s/  Robert C.
      Woolard
            
            Director
            
            Date:
      October 8, 2009Robert
      C. Woolard/s/  J. Jeffrey
      Geldermann
            
            Director
            
            Date:
      October 8, 2009J.
      Jeffrey Geldermann


51
 Table of Contents


AMERALIA, INC.





CONSOLIDATED
FINANCIAL STATEMENTS





June
30, 2009


F-1
 Table of Contents





C
O N T E N T S








Report
      of Independent Registered Public Accounting Firm
            F-3Consolidated
      Balance Sheets
            F-4Consolidated
      Statements of Operations
            F-6Consolidated
      Statements of Stockholders’ Equity (Deficit)
            F-7Consolidated
      Statements of Cash Flows
            F-8Notes
      to the Consolidated Financial Statements
            F-9


F-2
 Table of Contents




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


F-3
 Table of Contents




AMERALIA,
INC.


Consolidated
Balance Sheets








ASSETS





As of June 30,2009
            
            
            2008CURRENT
      ASSETSCash
            
            $
            4,346,065
            
            
            $
            43,374Accounts
      receivable, net (Note 1)
            
            
            -
            
            
            
            2,898,121Inventories
      (Notes 1 and 4)
            
            
            -
            
            
            
            742,760Prepaid
      expenses (Note 5)
            
            
            -
            
            
            
            494,498Total
      Current Assets
            
            
            4,346,065
            
            
            
            4,178,753FIXED
      ASSETSProperty,
      plant & equipment, net (Notes 1 and 6)
            
            
            -
            
            
            
            9,463,356Cavities
      and well development, net (Note 6)
            
            
            -
            
            
            
            5,862,227Mineral
      leases (Note 6)
            
            
            -
            
            
            
            4,167,471Total
      Fixed Assets
            
            
            -
            
            
            
            19,493,054OTHER
      ASSETSInvestment
      in Natural Soda Holdings, Inc. (Note 3)
            
            
            5,805,793
            
            
            
            -Water
      rights
            
            
            -
            
            
            
            3,150,582Patents
      (Note 7)
            
            
            -
            
            
            
            26,238Well
      and well development RSL (Note 8)
            
            
            -
            
            
            
            595,000Engineering
      drawings (Note 9)
            
            
            -
            
            
            
            1,876,000Equipment
      held and not yet in service (Note 9)
            
            
            -
            
            
            
            3,197,842Deferred
      financing and acquisition costs, net (Note 1)
            
            
            -
            
            
            
            770,816Rock
      School lease and reserves (Note 8)
            
            
            -
            
            
            
            3,300,000Deposits
      and bonds
            
            
            -
            
            
            
            12,000Restricted
      funds (Note 1)
            
            
            -
            
            
            
            1,122,843Total
      Other Assets
            
            
            5,805,793
            
            
            
            14,051,321TOTAL
      ASSETS
            
            $
            10,151,858
            
            
            $
            37,723,128





The
accompanying notes are an integral part of these consolidated financial
statements.


F-4
 Table of Contents


AMERALIA,
INC.


Consolidated
Balance Sheet (Continued)








LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)





As of June 30,2009
            
            
            2008CURRENT
      LIABILITIESAccounts
      payable
            
            $
            357,042
            
            
            $
            2,594,453Bank
      overdraft
            
            
            -
            
            
            
            54,331Royalties
      payable (Note 10)
            
            
            975,000
            
            
            
            971,760Accrued
      expenses (Note 11)
            
            
            44,211
            
            
            
            1,602,315Accrued
      expenses due to related parties (Note 12)
            
            
            71,401
            
            
            
            51,952,899Current
      portion of notes payable to related parties (Note 13)
            
            
            -
            
            
            
            24,392,339Current
      portion of notes payable (Note 14)
            
            
            -
            
            
            
            5,709,963Current
      portion of capital lease obligations (Note 15)
            
            
            -
            
            
            
            64,674Interest
      payable
            
            
            -
            
            
            
            1,007,274Total
      Current Liabilities
            
            
            1,447,654
            
            
            
            88,350,008LONG
      TERM LIABILITIESNotes
      Payable (Note 14)
            
            
            -
            
            
            
            15,561Capital
      lease obligations (Note 15)
            
            
            -
            
            
            
            3,436Asset
      retirement obligations (Note 16)
            
            
            -
            
            
            
            1,036,640Total
      Long Term Liabilities
            
            
            -
            
            
            
            1,055,637TOTAL
      LIABILITIES
            
            
            1,447,654
            
            
            
            89,405,645COMMITMENTS
      AND CONTINGENT LIABILITIES (Note 19)MINORITY
      INTEREST
            
            
            -
            
            
            
            15,376,985STOCKHOLDERS’
      EQUITY (DEFICIT)Preferred
      stock, $0.05 par value; 1,000,000 authorized;82
      issued and outstanding (Note 20)
            
            
            4
            
            
            
            4Common
      stock, $0.01 par value; 100,000,000 sharesauthorized;
      66,293,696 and 17,298,507 issued and outstanding
            
            
            662,937
            
            
            
            172,985Additional
      paid in capital
            
            
            119,221,803
            
            
            
            38,159,742Accumulated
      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.


F-5
 Table of Contents




AMERALIA,
INC.


Consolidated
Statements of Operations








For the years ended
      June 30,2009
            
            
            2008REVENUES
            
            $
            6,526,895
            
            
            $
            17,947,800COST
      OF GOODS SOLD
            
            
            5,206,712
            
            
            
            16,330,335GROSS
      PROFIT (DEFICIT)
            
            
            1,320,183
            
            
            
            1,617,465EXPENSESGeneral
      and administrative
            
            
            972,572
            
            
            
            921,392Depreciation,
      amortization and accretion expense
            
            
            867,710
            
            
            
            1,771,884Total
      Expenses
            
            
            1,840,282
            
            
            
            2,693,276LOSS
      FROM OPERATIONS
            
            
            (520,099
            )
            
            
            (1,075,811
            )OTHER
      INCOME (EXPENSE)Interest
      income
            
            
            2,220
            
            
            
            4,044Gain
      on settlement of liabilities
            
            
            1,874,359
            
            
            
            -Other
      income
            
            
            11,989
            
            
            
            16,206Interest
      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
            )
            
            
            341,837LOSS
      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.


F-6
 Table of Contents


AMERALIA,
INC.


Consolidated
Statements of Stockholders' Equity (Deficit)





AdditionalPreferred Stock
            
            
            Common Stock
            
            
            Paid-In
            
            
            AccumulatedShares
            
            
            Amount
            
            
            Shares
            
            
            Amount
            
            
            Capital
            
            
            Deficit
            
            
            TotalBalance,
      June 30, 2007
            
            
            82
            
            
            $
            4
            
            
            
            17,239,437
            
            
            $
            172,394
            
            
            $
            27,716,551
            
            
            $
            (59,039,856
            )
            
            $
            (31,150,907
            )Options
      granted
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            66,593
            
            
            
            -
            
            
            
            66,593Premium
      on convertible note
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            439,168
            
            
            
            -
            
            
            
            439,168Related
      party contribution to capital on debt settlement
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            9,938,021
            
            
            
            -
            
            
            
            9,938,021Issue
      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
            
            
            
            -
            
            
            
            138,285Shares
      issued to settle related party debts
            
            
            -
            
            
            
            -
            
            
            
            18,193,947
            
            
            
            181,939
            
            
            
            8,964,616
            
            
            
            -
            
            
            
            9,146,555Related
      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
            
            
            
            -
            
            
            
            1,760,681Share
      issues to related parties for cash
            
            
            -
            
            
            
            -
            
            
            
            27,427,406
            
            
            
            274,274
            
            
            
            9,599,592
            
            
            
            -
            
            
            
            9,873,866Elimination
      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
            
            
            
            -
            
            
            
            63,568,399Issue
      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.


F-7
 Table of Contents


AMERALIA,
INC.


Consolidated
Statements of Cash Flows





For the Years ended
      June 30,2009
            
            
            2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
            
            $
            (5,788,307
            )
            
            $
            (46,352,377
            )Adjustments
      to reconcile net loss to net cash used by operating
      activities:Options
      granted
            
            
            138,285
            
            
            
            66,593Depreciation,
      amortization and accretion expense
            
            
            867,708
            
            
            
            1,771,884Amortization
      of debt discount
            
            
            209,448
            
            
            
            229,719Gain
      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
            )
            
            
            127,912Prepaid
      expenses
            
            
            155,647
            
            
            
            (199,607
            )Accounts
      and royalties payable
            
            
            (1,101,340
            )
            
            
            (1,139,712
            )Accrued
      expenses due to related parties
            
            
            5,543,787
            
            
            
            43,674,337Accrued
      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 ACTIVITIESCavities
      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 ACTIVITIESBank
      overdraft
            
            
            (54,331
            )
            
            
            51,314Proceeds
      from issuance of common stock
            
            
            9,873,866
            
            
            
            -Payments
      on capital leases
            
            
            (29,125
            )
            
            
            (51,795
            )Proceeds
      from notes payable
            
            
            -
            
            
            
            960,480Proceeds
      from sale of debenture and interest
            
            
            -
            
            
            
            2,428,091Capital
      contribution from majority interest
            
            
            -
            
            
            
            535,000Payments
      on debt
            
            
            (1,444,150
            )
            
            
            (35,277
            )Payments
      on related party debt
            
            
            (980,000
            )
            
            
            -Proceeds
      from related party notes payable
            
            
            260,000
            
            
            
            914,705Net
      Cash Provided by Financing Activities
            
            
            7,626,260
            
            
            
            4,802,518NET
      INCREASE IN CASH
            
            
            4,320,151
            
            
            
            32,406NET
      CASH OF DECONSOLIDATED SUBSIDIARY
            
            
            (17,460
            )
            
            
            -CASH
      AT BEGINNING OF YEAR
            
            
            43,374
            
            
            
            10,968CASH
      AT END OF YEAR
            
            $
            4,346,065
            
            
            $
            43,374SUPPLEMENTAL
      DISCLOSURE OF CASHFLOW
      INFORMATIONIncome
      taxes
            
            $
            -
            
            
            $
            -Interest
            
            $
            1,203,990
            
            
            $
            526,512





The
accompanying notes are an integral part of these consolidated financial
statements.


F-8
 Table of Contents


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.


F-9
 Table of Contents


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 yearsMachinery
      and equipment
            10
      to 30 yearsWell
      cavities and development
            Units
      of productionFurniture
      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, 2008Deferred
      tax assets:NOL
      Carryover
            
            $
            6,697,428
            
            
            $
            30,820,913Related
      Party
            
            
            45,088
            
            
            
            1,668,551Allowance
      for Doubtful Accounts
            
            
            -
            
            
            
            13,649Deferred
      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:


F-10
 Table of Contents




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, 2008Book
      Income
            
            $
            (2,257,439
            )
            
            $
            (18,077,427
            )Stock
      for expenses
            
            
            358,483
            
            
            
            25,971Penalties
            
            
            32,029
            
            
            
            10,911Meals
      & Entertainment
            
            
            626
            
            
            
            579Accretion
            
            
            81,685
            
            
            
            10,507Gain
      on debt settlement
            
            
            686,665
            
            
            
            3,875,829Minority
      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, 2008Loss
      (numerator)
            
            $
            (5,788,307
            )
            
            $
            (46,352,377
            )Shares
      (denominator)
            
            
            47,899,158
            
            
            
            17,239,437Per
      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.


F-11
 Table of Contents




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.


F-12
 Table of Contents




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.


F-13
 Table of Contents




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.


F-14
 Table of Contents




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.


F-15
 Table of Contents




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.


F-16
 Table of Contents




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


F-17
 Table of Contents




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,
      2009Revenues
            
            $
            13,308,265Cost
      of sales
            
            
            (9,576,818
            )Gross
      profit
            
            
            3,731,447General
      and administrative expenses
            
            
            175,884Loss
      on impairment
            
            
            1,876,000Depreciation
      and amortization expense
            
            
            1,697,816Total
      expenses
            
            
            3,749,700Loss
      from operations
            
            
            (18,253
            )Interest
      expense
            
            
            (270,500
            )Interest
      income
            
            
            451Total
      other income (expense)
            
            
            (270,049
            )Net
      loss
            
            $
            (288,302
            )


F-18
 Table of Contents




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 asat June 30,
      2009ASSETSCash
            
            $
            156,139Accounts
      receivable
            
            
            3,723,426Inventories
            
            
            930,349Prepaid
      expenses
            
            
            325,942Total
      Current Assets
            
            
            5,135,856Property,
      plant and equipment, net
            
            
            9,462,474Cavities
      and well development, net
            
            
            6,130,745Mineral
      leases
            
            
            4,167,471Total
      Fixed Assets
            
            
            19,760,690Water
      rights
            
            
            3,150,582Patents,
      net
            
            
            22,886Equipment
      held and not yet in service
            
            
            3,197,842Well
      and well development, RSL
            
            
            595,000Acquisition
      costs, net
            
            
            731,848Rock
      School Lease & reserves
            
            
            3,300,000Deposits
      and bonds
            
            
            8,000Restricted
      funds
            
            
            1,267,480Total
      Other Assets
            
            
            12,273,638TOTAL
      ASSETS
            
            $
            37,170,184LIABILITIESAccounts
      payable
            
            $
            1,734,405Royalties
      payable
            
            
            114,373Accrued
      expenses
            
            
            434,590Notes
      payable, current
            
            
            1,612,741Capital
      leases, current portion
            
            
            10,983Total
      Current Liabilities
            
            
            3,907,092Notes
      payable, long term
            
            
            29,784Capital
      leases, non-current portion
            
            
            11,071Asset
      retirement obligations
            
            
            967,825Total
      Long Term Liabilities
            
            
            1,008,680TOTAL
      LIABILITIES
            
            
            4,915,772EQUITYCommon
      stock
            
            
            10,000Additional
      paid in capital
            
            
            116,084,415Accumulated
      deficit
            
            
            (83,840,003
            )TOTAL
      EQUITY
            
            
            32,254,412TOTAL
      LIABILITIES AND EQUITY
            
            $
            37,170,184


F-19
 Table of Contents




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,
      2008Raw
      materials and supplies
            
            $
            -
            
            
            $
            443,276Finished
      goods
            
            
            -
            
            
            
            299,484Total
            
            $
            -
            
            
            $
            742,760





NOTE
      5 -
            PREPAID
      EXPENSES





Prepaid
expenses consisted of the following:


June 30, 2009
            
            
            June 30, 2008Prepaid
      natural gas costs
            
            $
            -
            
            
            $
            243,259Prepaid
      construction costs
            
            
            -
            
            
            
            227,500Other
      prepayments & deposits
            
            
            -
            
            
            
            23,739Total
            
            $
            -
            
            
            $
            494,498





NOTE
      6 -
            FIXED
      ASSETS





Fixed
assets consist of the following amounts:


June 30,
      2009
            
            
            June 30,
      2008Property
      plant and equipment
            
            $
            -
            
            
            $
            12,716,015Cavities
      and well development
            
            
            -
            
            
            
            8,962,704Furniture
      and fixtures
            
            
            -
            
            
            
            133,312Mineral
      leases
            
            
            -
            
            
            
            4,167,471Subtotal
            
            
            -
            
            
            
            25,979,502Less,
      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, 2008Patents
      acquired from IMC at fair value
            
            $
            -
            
            
            $
            50,000Less,
      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.


F-20
 Table of Contents




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
beingrecorded 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.


F-21
 Table of Contents




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,
      2008Salaries
      and wages
            
            $
            -
            
            
            $
            294,729Freight
            
            
            -
            
            
            
            34,628Property
      tax
            
            
            -
            
            
            
            225,180Employment
      taxes
            
            
            44,211
            
            
            
            1,016,279Other
            
            
            -
            
            
            
            31,499Total
            
            $
            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,
      2008Accrued
      officer and director compensation,  expenses and advances
      (1)
            
            $
            71,401
            
            
            $
            1,339,789Accrued
      interest on Series A Debenture secured promissory notes
            
            
            -
            
            
            
            384,053Accrued
      interest on Series C Debenture secured promissory note
            
            
            -
            
            
            
            297,553Accrued
      interest and contingent interest due on various promissory notes and
      debentures issued to Sentient entities (2)
            
            
            -
            
            
            
            49,905,694Accrued
      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.




F-22
 Table of Contents




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, 2008Various
      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
            
            $
            -
            
            
            $
            2,443,387NSHI
      Series A Secured 10% Debentures payable to the Sentient Entities due
      September 30, 2005
            
            
            -
            
            
            
            5,750,000NSHI
      Secured Subordinated Series B1 Debentures payable to the Sentient Entities
      due February 19, 2008; interest at 34.8766%
            
            
            -
            
            
            
            11,300,000Various
      unsecured promissory notes payable to Sentient Entities at 6%
      interest
            
            
            -
            
            
            
            1,845,552Secured
      notes payable to accredited related party investors; 10% interest
      payable quarterly; due September 30, 2005
            
            
            -
            
            
            
            2,000,000Unsecured
      promissory note payable to an accredited related party investor due July
      31, 2008; interest at 12%
            
            
            -
            
            
            
            200,000Series
      C Debenture Secured Promissory Note payable to an accredited related party
      investor; due March 19, 2008; interest at 13.5%
            
            
            -
            
            
            
            853,400Total
      related party notes payable
            
            
            -
            
            
            
            24,392,339Less
      current portion
            
            
            -
            
            
            
            24,392,339Total
      related party notes payable long term
            
            $
            -
            
            
            $
            -





NOTE
      14 -
            NOTES
      PAYABLE





Notes
payable comprise the following:


June 30, 2009
            
            
            June 30, 2008NSHI
      Series A Secured 10% Debentures payable to payable quarterly; due
      September 30, 2005
            
            $
            -
            
            
            $
            2,250,000AmerAlia
      Series C Debenture Secured Promissory note payable to an accredited
      investor, due March 19, 2008
            
            
            -
            
            
            
            1,464,292Wells
      Fargo factoring facility with fees payable according to time taken to
      collect each receivable
            
            
            -
            
            
            
            1,842,563Note
      payable to an investor, on call at 4.5%
            
            
            -
            
            
            
            100,000Note
      payable to McFarland Dewey Securities Co; unsecured, interest at 4%; due
      May 18, 2004
            
            
            -
            
            
            
            18,000Motor
      vehicle loans at 0.9% p.a. interest due February and March 2009 secured by
      motor vehicles
            
            
            -
            
            
            
            46,669Note
      payable to investor; unsecured, due on demand; at 10%
      interest.
            
            
            -
            
            
            
            4,000Total
      notes payable
            
            
            -
            
            
            
            5,725,524Less
      current portion
            
            
            -
            
            
            
            5,709,963Total
      long-term debt
            
            $
            -
            
            
            $
            15,561


F-23
 Table of Contents




AMERALIA,
INC.


Notes
to the Consolidated Financial Statements


June
30, 2009 and 2008





NOTE
      15 -
            CAPITAL
      LEASE OBLIGATIONS





June 30, 2009
            
            
            June 30, 2008Total
      minimum lease payments
            
            $
            -
            
            
            $
            71,619Less
      interest and taxes
            
            
            -
            
            
            
            (3,509
            )Present
      value of net minimum lease payments
            
            
            -
            
            
            
            68,110Less
      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, 2008Beginning
      balance
            
            $
            1,036,640
            
            
            $
            898,000Liability
      incurred
            
            
            -
            
            
            
            142,045Liability
      settled
            
            
            (154,895
            )
            
            
            (30,345
            )Accretion
      expense
            
            
            8,980
            
            
            
            26,940Transfer
      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
            
            Amount2010
            
            $
            192,3002011
            
            
            32,4002012
            
            
            -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.


F-24
 Table of Contents




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
              PriceOutstanding,
      June 30, 2008
            
            
            3,615,000
            
            
            $1.01Granted
            
            
            187,500
            
            
            $0.88Expired/Cancelled
            
            
            (3,240,000
            )
            
            $1.08Exercised
            
            
            (187,500
            )
            
            $0.42Outstanding,
      June 30, 2009
            
            
            375,000
            
            
            $0.64Exercisable,
      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
            
            NumberJune
      30, 2010
            
            $0.40
            
            187,500June
      30, 2011
            
            $0.88
            
            187,500375,000





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.


F-25
 Table of Contents




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.


F-26
 Table of Contents




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