<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(Mark one)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 For the Fiscal Year Ended June 30, 1999

OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                           Commission File No. 0-15474

                                 AMERALIA, INC.
               ---------------------------------------------------
               (Exact name of Company as specified in its charter)

            Utah                                                 87-0403973
-------------------------------                              -------------------
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

                  311 Raleigh Road, Kenilworth, Illinois 60043
                  --------------------------------------------
                    (Address of Principal Executive Offices)

Company's telephone number, including area code: (847) 256-9021
                                                 --------------

Securities registered pursuant to Section 12(b) of the Act: None.

Securities to be registered pursuant to Section 12(g) of the Act:

                          Common Stock - $.01 Par Value
                          -----------------------------
                                (Title of Class)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

                                                               Yes [X]    No [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.                                         [  ]

Revenues for the fiscal year ending June 30, 1999:                          Nil.

Shares of common stock, $.01 par value, outstanding as of June 30, 1999:
7,659,766. Aggregate market value of the voting stock held by non-affiliates of
AmerAlia as of June 30, 1999 was approximately $13,237,000. The estimate is
based on the last sale price per share and an estimated 4,072,800 shares held by
non-affiliates.

Documents incorporated by reference:  NONE

<PAGE>   2
                                     PART I

ITEM 1.  BUSINESS

(a)      GENERAL DEVELOPMENT OF THE BUSINESS

         AmerAlia, Inc. was incorporated as a Utah corporation on June 7, 1983.
AmerAlia was originally incorporated under the name "Computer Learning Software,
Inc." and changed its name to AmerAlia in January 1984.

         AmerAlia has been attempting to establish a chemical business for the
mining and manufacture of sodium bicarbonate and related products since 1989
when AmerAlia purchased an interest in a federal sodium lease in Rio Blanco
County, Colorado. AmerAlia acquired this lease in 1992. This lease contains a
naturally occurring, rare deposit of sodium bicarbonate, commonly known as
baking soda. AmerAlia's immediate objectives are to:

o        Finalize local, state and federal regulatory approvals to construct a
         plant for the recovery and production of sodium bicarbonate from its
         sodium lease; and

o        Raise sufficient funding to construct the plant and commence
         operations.

         AmerAlia's primary goal is to initially recover sodium bicarbonate from
the lease for sale to the animal feed market. Animal feed quality sodium
bicarbonate is a lower grade product with a current market price between $200
and $240 per ton delivered. Sodium bicarbonate is used in the preparation of
animal feed mixes where it acts as a rumen buffer to increase dairy cow milk
production. There are numerous other markets for sodium bicarbonate. These other
markets include pharmaceutical and food grade use of sodium bicarbonate. The
production of sodium bicarbonate will also enable the production of soda ash and
caustic soda, chemicals widely used in the manufacture of glass, detergents and
a variety of inorganic and organic chemicals. Potentially, sodium bicarbonate
might be used as an agent for flue gas desulfurization.

                  We have submitted our mining and development plans to the
Bureau of Land Management and submitted applications for all necessary
associated permits to other regulatory agencies of the federal, state and county
administrations. We are asking the BLM to issue an Environmental Assessment
("E.A.") and to determine a finding of no significant environmental impact
("FONSEI"). When the FONSEI is issued we shall be allowed to commence
construction activities on the Rock School Lease. If the BLM does not reach a
FONSEI, the construction of the plant and the operation of the mine may be
delayed significantly.

         AmerAlia has entered into a Design/Build Agreement with U.S. Filter
Wastewater Group, Inc. of Naperville, Illinois. Subject to certain conditions,
US Filter will complete the design and construction of the necessary mine and
processing plant for AmerAlia, guarantee the plant's performance and advance the
costs of construction to AmerAlia. Among the more significant conditions,
however, are the requirements that:

o        AmerAlia pay $6.4 million into an escrow. We have paid this amount into
         the escrow; and


<PAGE>   3
o        Before US Filter is obliged to incur any expenses outside of the escrow
         account, AmerAlia must have sufficient long-term financing. AmerAlia's
         ability to draw on this financing to repay the construction funding
         provided by US Filter must not be subject to conditions other than the
         performance of the plant.

         AmerAlia has not been involved in any bankruptcy, receivership, or
similar proceedings.

Forward Looking Statements and Risk Factors

         The future conduct of AmerAlia is dependent upon a number of factors
beyond our control. We can offer no assurance we will be able to conduct
AmerAlia's operations as contemplated in this report. Certain statements
contained in this report using the terms "may", "expects to", and other terms
denoting future possibilities, are forward-looking statements. The accuracy of
these statements cannot be guaranteed as they are subject to a variety of risks
beyond AmerAlia's ability to predict or control. These risks may cause actual
results to differ materially from the projections or estimates contained in this
report. These risks include, but are not limited to, the possibility the
described operations, reserves, or exploration or production activities will not
be completed on economic terms, if at all. The exploration, development and
mining of mineral properties, significant construction projects, and the
manufacture and marketing of chemical products are attendant with high risk.
Many of these risks are described in this report and it is important that each
person reviewing this report understands the significant risks accompanying the
establishment of AmerAlia's proposed operations. These risks and factors
include:

o        AmerAlia has contributed $6.4 million to an escrow account required
         under its Design/Build agreement with US Filter. US Filter is
         proceeding with its activities to design and commence construction of
         the plant and facilities using the escrow funding However, we do not
         expect US Filter will provide the construction funding under the
         Design/Build agreement unless AmerAlia can establish adequate long term
         financing which is a condition of the Design/Build Agreement.
         Consequently, if we cannot obtain this financing we will not be able to
         achieve our corporate objectives. AmerAlia will incur significant
         penalties if the US Filter construction program does not proceed and it
         will have spent millions of dollars of corporate funds on the
         preliminary design and construction activities. US Filter holds a
         security interest in the Rock School Lease.

o        AmerAlia is in the process of negotiating certain compensation
         arrangements with its officers. These negotiations have not been
         finalized.

o        AmerAlia historically has had, and continues to have, operating losses.
         Until we can generate revenues from operations we shall be reliant upon
         raising further debt and equity capital to fund operating losses.

o        AmerAlia's lease is due for renewal on July 1, 2001. The lease requires
         sodium be produced in paying quantities for the lease to be renewed.
         Our understanding of BLM general practice is that the conduct of our
         activities proceeding to an EA will be sufficient to enable a lease
         renewal. However, if there is a change in the interpretation of the
         lease conditions, then the BLM may depart from past practice and not
         renew the lease.

o        Although we have obtained a significant amount of information about the
         lease and we believe that the mineral resources can be extracted
         economically, this belief cannot be tested until operations commence.
         Actual operations may differ from our predictions and we may have to
         spend more to rectify these differences.

<PAGE>   4

o        Mining activities are subject to intensive federal, state, and local
         government regulation and scrutiny in a number of different areas
         including worker safety and health and environmental protection.

o        We have limited commitments from prospective purchasers of sodium
         bicarbonate when we produce it.

(b)      BUSINESS OF ISSUER

         AmerAlia is currently involved in only one industry segment: seeking to
finance and construct a solution mining facility and processing plant for the
manufacture of sodium bicarbonate.

General Discussion

         The Piceance Creek Basin. The Rock School Lease is one of three federal
leases granted within the Piceance Creek Basin in Rio Blanco County, Colorado.
The Piceance Creek Basin covers a unique, major natural resource of nahcolite, a
mineral form of naturally occurring sodium bicarbonate.

         AmerAlia has performed surface geological investigation of the 1,320
acre lease and has reviewed data assembled by other investigators in the
Piceance Creek Basin, including a 1974 report published by the United States
Geological Survey entitled "Stratigraphy and Nahcolite Resources of the Saline
Facies of the Green River Formation, Rio Blanco County, Colorado." (John R.
Dyni, USGS Report 74-56). This report analyzed the results of a detailed study
of ten core holes from the saline zone, including a core hole known as Dunn 20-1
which is approximately 800 feet to the east of AmerAlia's proposed plant site on
the Rock School lease.

         From this core hole, Mr. Dyni estimated the total nahcolite content of
the saline zone in this area at 315 million tons per square mile. Due to the
apparent lateral continuity of this deposit, we believe it is reasonable to
assume that the concentrations found in the Dunn 20-1 hole also exist beneath
the Rock School Lease.

         AmerAlia drilled a core hole on the Rock School lease in 1996 to
determine the extent of mineralization and the strength of the rocks in the
proposed solution mining area. The drill encountered nahcolite in three separate
resource intervals over 510 feet. The concentration within the resource
intervals averaged 26.4% nahcolite. AmerAlia engaged an independent consulting
firm, Agapito & Associates, to supervise the core hole drilling and to conduct
studies on core assays, rock strength and geological evaluation.

          Consequently, we believe the nahcolite deposit within the Rock School
 Lease is of significant size. However, not all of this resource can be
 recovered with existing technology and within existing BLM lease conditions.
 The economic viability of recovering the sodium bicarbonate cannot be
 established until the resource is brought into production, or until substantial
 additional engineering work is completed.

         AmerAlia's activities in pursuing its operations are set out more fully
below. (See "Exploration and Development Work To Date.")
<PAGE>   5
         The Sodium Bicarbonate Market.

         In 1998, AmerAlia commissioned Harriman Chemsault Ltd, a London based
marketing consultancy specialising in the chlor-alkali sector of the chemical
industry, to provide a study of the global market for sodium bicarbonate with
special emphasis on the United States. The existing and long established market
for sodium bicarbonate is principally for food grade, animal feed and commercial
usage with delivered sale prices in the range of $200-400 per ton, depending on
grade. This market is dominated by a few suppliers producing synthetic sodium
bicarbonate from soda ash (sodium carbonate). They sell their product under
well-established brand names. Based on publicly available information, AmerAlia
believes that the cost of producing synthetic sodium bicarbonate exceeds $150
per ton. The United States and Canadian markets currently absorb about 520,000
tons of sodium bicarbonate annually for the animal feed market, industrial
markets, food-grade sodium bicarbonate, and for pharmaceutical uses.

         The animal feed market accounts for approximately 130,000 tons of the
existing annual market for sodium bicarbonate in the United States and Canada.
The animal feed market is the lowest priced market with delivered prices of
approximately $200 per ton. Other markets are at higher prices with
pharmaceutical grade selling for approximately $400 per ton.

         Both the animal feed and the pharmaceutical grade markets are mature
and stable, experiencing modest growth. If we are able to commence production of
sodium bicarbonate (itself, subject to a number of risks), we plan initially to
supply the animal feed market. Small amounts in feed rations re-establish normal
rumen balance thereby controlling acidotic stress conditions in a manner similar
to antacids in humans. This increases yields of both milk and butter fat in the
dairy industry.

         Marketing Arrangements. AmerAlia has signed non-binding agreements with
two long standing distributors of sodium bicarbonate to the livestock industry.
Neither of these distributors has any obligation to purchase sodium bicarbonate
from AmerAlia. If the distributors choose to take production from AmerAlia when
it is available, they will have exclusive arrangements with AmerAlia to supply
the animal feed market and the opportunity to acquire sodium bicarbonate from
AmerAlia at a wholesale price. The contracts will only become effective only
when the buyers place their first order after AmerAlia commences production.
AmerAlia has no estimate as to when it will have production for sale. AmerAlia
has also received a letter of intent from a third distributor indicating a
capacity to distribute additional tonnage of sodium bicarbonate. These
distributors cover most of the United States and Canada.

         Competition. Any production by AmerAlia or any other person from the
Rock School lease will be marketed in the traditional sodium bicarbonate market
in competition with large and well-established companies. The animal feed market
is subject to competition from other suppliers of sodium bicarbonate and
alternative rumen buffers. The resources of those companies far exceed those of
AmerAlia.

         Based on preliminary engineering models, we believe that AmerAlia will
have a cost advantage over other producers of sodium bicarbonate. There is a
number of synthetic animal feed supplements which compete with sodium
bicarbonate. Based on our informal surveys, we believe that the animal feed
market will prefer to use naturally occurring sodium bicarbonate over a
synthetic alternative. If our plans prove to be accurate, AmerAlia's production
costs should allow AmerAlia to have a significant cost advantage in the animal
feed market.

<PAGE>   6

         Two unaffiliated companies hold adjacent or nearby sodium leases issued
by the BLM. The adjacent lease is owned by White River Nahcolite Minerals, a
wholly owned subsidiary of IMC Global, Inc. American Soda, L.L.P. (formerly
NaTrona Resources, Inc.) owns the other lease issued January 1, 1992. Although
the sodium resource in the Piceance Creek Basin is believed to be of substantial
size, the AmerAlia, White River and American Soda leases are the only leases
currently issued by the BLM. Competition in the long term is not regarded as
being significant since AmerAlia believes the market can absorb the anticipated
production.

The Rock School Lease

         Background Agreements. United States Sodium Lease No. C-0119985, known
as the Rock School Lease, with an area of 1,320 acres in Rio Blanco County,
Colorado, U.S.A. was previously owned by E. E. Kinder Co., an unaffiliated
Colorado general partnership, which had subleased the property to Denison
Resources (USA) Corp., a company acquired by AmerAlia in 1989. Under the
sublease, Denison had to meet certain requirements sufficient to obtain an
extension of the lease. In June, 1991 the Federal Bureau of Land Management
renewed the lease, effective July 1, 1991, for a period of ten years.

         On December 10, 1992 AmerAlia purchased the Rock School Lease from
Kinder. Kinder and AmerAlia amended the acquisition terms in January 1996.
AmerAlia has certain remaining obligations to pay to Kinder:

o        a minimum annual royalty of $75,000;

o        a production royalty equal to $1.50 per ton of production;

o        an annual consulting fee of $25,000, and

o        if the minimum royalty exceeds the production royalty payable, then a
         credit is carried forward and allowed against any future production
         royalties.

The BLM approved Kinder's assignment of the Rock School Lease effective January
1, 1996.

         Rock School Lease -- Terms. The current term of the Rock School lease
is due for renewal in June 2001. As leaseholder, AmerAlia has a preferential
right to renew the lease, but this right is subject to numerous requirements.
The most significant requires that AmerAlia must be producing sodium bicarbonate
from the lease "in paying quantities." As we have discussed above in Item 1, we
believe BLM general practice is that the conduct of our activities proceeding to
an EA will be sufficient to enable a lease renewal. This lease can be renewed in
perpetuity if we conduct operations on the lease and comply with the terms and
conditions of the lease.

         AmerAlia pays rent to the BLM annually in advance at the rate of $1 per
acre. If AmerAlia succeeds in its business plan and produces sodium bicarbonate
from the lease, AmerAlia will have to pay the BLM a 5% production royalty.

         Exploration and Development Work To Date. When AmerAlia acquired the
Denison interest in the Rock School Lease in 1989, approximately $493,000 had
already been invested in various geological, engineering and marketing studies
associated with developing the resource. Since then and through June 30, 1999,
AmerAlia has invested a further $1,750,000 in direct expenditures for further
geological and engineering studies including drilling a core hole, legal
expenses, technical consultants, and advances to the BLM to advance the
project's

<PAGE>   7

development. These expenditures, which do not include the acquisition cost of
the lease, have been capitalized in AmerAlia's financial statements. Further
capitalised expenditures include $1,250,000 paid to US Filter to June 30, 1999
to design and build the operating facility. Subsequent to June 30, we have
advanced a further $5,150,000 in advance payments to US Filter.

         In addition to these expenditures, there were other direct expenditures
incurred by AmerAlia in negotiating with and meeting prospective joint venture
partners, investors, financiers, customers and construction contractors. These
amounts have been written off in AmerAlia's accounts as incurred.

         Although we propose to carry out further exploration work on the Rock
School lease, our principal efforts are directed towards meeting the
requirements of the permitting agencies. Because the Piceance Creek Basin is
known to contain a substantial amount of oil shale, the BLM has prohibited
mining operations adversely affecting oil shale. The federal agency has,
however, accepted the proposed solution mining method and approval for a 50,000
tons per year initial mining operation is now expected. The BLM asked AmerAlia
to drill a core hole on the Rock School Lease and obtain site specific
underground data prior to the commencement of operations.

         AmerAlia drilled this core hole in early 1996. The drill encountered
nahcolite in three separate resource intervals over a depth of 510 feet,
averaging 26.4% nahcolite. AmerAlia engaged Agapito & Associates to supervise
the core hole drilling and to conduct studies on core assays, rock strength and
geological evaluation. We have submitted this report to the BLM and to other
regulatory agencies of the federal, state and county administrations. The BLM is
considering the reports, the revised plant design and data from the development
proposal. We have asked the BLM to come to a finding of no significant
environmental impact ("FONSEI"). A FONSEI finding will enable us to proceed with
construction of the operating plant. If the BLM does not reach a FONSEI, the
construction of the plant and the operation of the mine may be significantly
delayed and may not be able to be accomplished in the remaining time under the
lease.

         AmerAlia's proposed solution mining process will create underground
leach zones. The BLM's principal concern is the assessment of the effect of
these cavities on the geological environment, as well as on any existing
aquifers located above the proposed leaching caverns. While it is AmerAlia's
belief that the BLM is favorably disposed to the proposed development and that
the reports will conclude the environmental impact will be minimal, there is no
guarantee that a "FONSEI" will be issued. We are proceeding with our planning in
the expectation of approval. Should we wish to expand our production beyond
50,000 tons per year, we will be required to produce an Environmental Impact
Statement. This will be expensive and time consuming and we do not contemplate
undertaking one until operational data is available from the initial 50,000 tons
per year project.

         Proposed Development Program. The plan submitted to the BLM for
approval envisages the development of the resource in stages starting with a
plant to produce 50,000 tons per year and then expanding to 500,000 tons per
year. Production will be from a 500 foot thick zone at a depth of 2,000 feet to
2,500 feet. Weak liquor will be injected into the nahcolite bearing rock; the
nahcolite will dissolve and be brought to the surface in solution where it will
be recrystallized and dried prior to despatch. This solution mining technology
has been

<PAGE>   8

previously tested in the same resource by Shell Oil (1970-1972) and found to be
feasible. Solution mining in other resources is well established. AmerAlia's
cash cost of production is expected to be about $65 per ton, one-half of
estimated existing industry average cash costs.

         We anticipate the cost to construct the plant and associated facilities
on the Rock School lease will exceed $35 million for a 50,000 ton per year
plant. We have had numerous discussions with industry partners and investors or
investment representatives who have expressed interest in financing the
development of the property, but we have not reached agreement with any person
for permanent financing.

         In May 1999, we entered into an agreement with US Filter for the design
and construction of the plant and related facilities for not more than $33.5
million. US Filter will guarantee the performance of the plant and related
facilities, but will not guarantee that the underground facilities will produce
sodium bicarbonate in solution satisfactory to feed the plant. US Filter also
agreed to finance the design and construction of the plant and related
facilities subject, however, to two principal conditions:

o    First, AmerAlia was obliged to place $6.4 million into an escrow account to
     fund design and engineering expenses until AmerAlia was able to obtain a
     firm commitment for permanent financing (this we have done); and

o    Before US Filter will advance any expenses to AmerAlia under the terms of
     the agreement, AmerAlia must obtain a permanent financing commitment that
     is acceptable to US Filter. US Filter has advised AmerAlia an acceptable
     financing commitment must not be subject to conditions other than the
     performance of the plant. Under the Design/Build agreement we were required
     to provide acceptable financing by August 15, 1999. We have not met this
     condition, however, US Filter has not declared a default under the
     agreement and we are continuing negotiations with prospective financiers to
     establish a facility satisfactory to US Filter.

         If AmerAlia is not able to obtain outside financing for the project, or
if it is unable to obtain all necessary permits, it may not be able to complete
the development of the property and commence production.

         Access. The Rock School Lease is accessible by a county maintained
gravel road sufficient for the exploration and development work being
accomplished. Access is difficult during the winter and early spring because of
heavy snows in the area. The road will have to be improved to allow all-weather
access when production commences.

Australian Activities

         AmerAlia previously owned real estate in Australia. The real estate was
sold in 1989 to an unaffiliated, public Australian real estate investment trust,
known as The Rural Investment Trust. AmerAlia transferred its interest in this
trust to the THG Partnership, an affiliate, as part of its settlement of debt.
AmerAlia gave THG an option to exchange this investment for the issuance of 450
shares of Series E Preferred Stock. THG exercised this option in October 1998.
AmerAlia subsequently liquidated the RIT investment as described in Item 12
"Certain Relationships and Related Party Transactions".

<PAGE>   9

Employees

         AmerAlia's day to-day business activities are managed by Mr. Bill H.
Gunn, Chairman and President; Mr John F. Woolard, Executive Vice President and
Mr. Robert van Mourik, Executive Vice President and Chief Financial Officer. See
Item 11. - "Executive Compensation".

ITEM 2.  PROPERTIES

         AmerAlia is a lessee of United States Sodium Lease No. C-0119985
affecting 1,320 acres in Rio Blanco County, Colorado, USA, and described more
fully in Item 1. - "Business", above.

ITEM 3.  LEGAL PROCEEDINGS

AmerAlia v. Marvin Hudson

         Mr. Marvin Hudson, formerly a vice president, employee, and greater
than 10% shareholder of AmerAlia has made a claim and, in July 1999, filed an
action in United States District Court for the District of Colorado. He claims
that AmerAlia breached an employment agreement providing for minimum salary
compensation of $75,000 per year, together with equity compensation. AmerAlia
has filed a motion to dismiss this litigation on jurisdictional grounds. As a
result of the Court's ruling remaining the State Court complaint to the Arapahoe
County District Court, Mr. Hudson's attorneys have dismissed the Federal
Complaint and have advised AmerAlia they intend to refile their claims in state
court. Mr. Hudson also named Bill H. Gunn, Robert C.J. van Mourik, and Neil E.
Summerson (directors and officers of AmerAlia) as defendants in this action. To
the knowledge of AmerAlia, Mr. Hudson has not yet served the complaint on these
individual defendants.

         AmerAlia filed a complaint against Mr. Hudson in the District Court for
Arapahoe County, Colorado, in July 1999. AmerAlia claimed that Mr. Hudson has
wrongfully retained certain assets of AmerAlia. AmerAlia's complaint also seeks
an accounting from Mr. Hudson and a ruling that two alleged employment
agreements Mr. Hudson presented are void. Mr. Hudson removed this case to the
United States District Court, but the Federal Court, on AmerAlia's motion,
remanded the case to the State Court. Mr. Hudson has not yet responded to the
State Court complaint.

         This litigation is only in the earliest stages. AmerAlia believes that
it has meritorious defenses against Mr. Hudson's claims and meritorious claims
against Mr. Hudson and will defend its position aggressively.

Raytheon Engineers & Constructors, Inc.

         In 1998, AmerAlia entered into an engineering contract with Raytheon
for the design and construction of the processing plant on its Rock School
lease. AmerAlia has paid Raytheon $231,134 and Raytheon has billed AmerAlia for
an additional $303,800. Raytheon has sent AmerAlia a notice of its intention to
file a mechanics lien against the Rock School lease. AmerAlia believes that
Raytheon is not due the full amount of its invoice because of substandard work
that did not meet the time requirements of the contract. AmerAlia and Raytheon
have

<PAGE>   10

agreed to engage in mediation to attempt to resolve their differences. Raytheon
has not filed litigation to enforce this claim.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         AmerAlia held an annual meeting of its shareholders on June 28, 1999.
Messrs. Gunn, Woolard, van Mourik, Summerson, Cameron and Murphy were elected to
the Board of Directors. Votes were cast for the directors as follows:

<TABLE>
<CAPTION>
                                        Votes For        Abstain
                                        ---------        -------
<S>                                     <C>              <C>
              Bill H. Gunn              7,267,915        15,175
              John F. Woolard           7,280,790         2,300
              Robert C. J. van Mourik   7,281,090         2,000
              Neil E. Summerson         7,281,090         2,000
              Robert A. Cameron         7,281,090         2,000
              Geoffrey C. Murphy        7,281,090         2,000
</TABLE>

                                     PART II

ITEM 5.  MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
         STOCKHOLDER MATTERS

(a)      MARKET INFORMATION.

         Since August 1987, AmerAlia's Common Stock has been publicly traded
under the symbol "AALA" on The Nasdaq SmallCap Market which is operated by the
National Association of Securities Dealers, Inc. The Nasdaq SmallCap Market is
one of two distinct market tiers comprising the Nasdaq Stock Market which is a
highly regulated electronic securities market utilizing a sophisticated computer
and telecommunications network. Market participants comprise competing Market
Makers, independent dealers who commit capital to stocks and compete with each
other for orders, and Electronic Communications Networks, trading systems
recently integrated into Nasdaq to bring additional orders into the market. The
market structure provides visibility of orders and allows market participants to
compete for order flow. Trading is supported by a communications network linking
the market participants to quotations dissemination, trade reporting and order
execution systems. This market also provides specialized automation services for
screen-based negotiations of transactions, online comparison of transactions,
and a range of information services tailored to the needs of the securities
industry, investors and issuers.

         The average trading prices for AmerAlia's common stock as provided by
Nasdaq's online service for the past two fiscal years are provided in the table
below. These prices do not include allowance for retail markup or markdown,
commissions or other transaction costs.

<PAGE>   11
<TABLE>
<CAPTION>
              -------------------------------------------
                                                Average
              For the Quarter Ended            Sale Price
              -------------------------------------------
<S>                                            <C>
              September 30, 1997                 $1.25
              December 31, 1997                  $0.75
              March 31, 1998                     $1.65
              June 30, 1998                      $1.50
              September 30, 1998                 $1.45
              December 31, 1998                  $1.25
              March 31, 1999                     $1.50
              June 30, 1999                      $3.00
              -------------------------------------------
</TABLE>

(b)      HOLDERS.

         (b)(1)   The number of record holders of AmerAlia's common stock on
                  June 30, 1999 was approximately 452. (This does not include an
                  indeterminate number of shareholders whose shares are held by
                  brokers in street name.)

         (b)(2)   Not applicable.

(c)      DIVIDENDS

         AmerAlia has not paid dividends on its common stock and has no plans to
pay cash dividends in the future. AmerAlia's ability to pay dividends to holders
of its common stock is limited as a result of the issue of its outstanding
shares of Series E Preferred Stock.

RECENT SALES OF UNREGISTERED SECURITIES.

         On August 12, 1999, AmerAlia issued 250,000 shares of its restricted
common stock for a total investment of $625,000 ($2.50 per share). No
underwriter participated in the offering of these shares. Each of the investors
was an accredited investor. The offering was made under the exemptions from
registration under sections 4(2) and 4(6) of the Securities Act of 1933, and
Rule 506 of Regulation D.

         During the fiscal year ended June 30, 1999, dividends aggregating
$283,865 became payable to the holders of the Series E Preferred Stock. AmerAlia
paid, or will pay, these dividends to the holders of the Series E Preferred
Stock through the issuance of 283,865 shares of its restricted common stock.

           As previously reported in the December quarter Form 10-Q, the
Jacqueline Badger Mars Trust, an affiliate, subscribed $1,050,000 on December
30, 1998 for 140 units. Each unit included 5,000 shares of common stock and
common stock purchase warrants to acquire 5,000 shares of restricted common
stock for prices commencing at $2.00 per share. The Trust subsequently exercised
the warrants on March 26, 1999 and paid $1.4 million for the issue of 700,000
shares of common stock. On March 31, other accredited investors exercised
warrants for 553,000 shares at $2.00 per share raising $1,106,000 in additional
equity. There were no underwriters to these issues, the investors were
accredited investors only and an exemption from registration is claimed under
sections 4(2) and 4(6) and Rule 506 of Regulation D of the Securities Act of
1933.

<PAGE>   12

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
         OPERATION

LIQUIDITY AND CAPITAL RESOURCES

JUNE 30, 1999 AS COMPARED TO JUNE 30, 1998

         AmerAlia does not generate any operating income and, therefore,
continues to rely on raising capital from its existing shareholders and from
private offerings of its securities to finance its operations. During the 1999
fiscal year, AmerAlia raised a total of $4,208,096 through the sale of preferred
stock, common stock and warrants to accredited investors and to investors
outside of the United States. These securities were issued for cash,
cancellation of debt and for the exchange for an investment in the Rural
Investment Trust. This investment was subsequently liquidated raising $418,346.
After the end of the fiscal year, AmerAlia raised an additional $625,000 through
the sale of common stock and borrowed $4.2 million from a commercial bank. This
loan is guaranteed by AmerAlia's principal shareholder as explained at Item
13(a) Certain Relationships and Related Party Transactions under "Guaranty
Agreement".

         We have funded further capital expenditures on the Rock School Lease
development ($255,000) and on deposits under the Design/Build agreement with US
Filter ($1,250,000). In addition, we provided $991,305 in additional funding to
the escrow account under the Design/Build agreement. Principally, the balance of
the funds we raised were used to increase cash reserves by $395,000 and to fund
AmerAlia's operating loss. The operating loss includes a contingency for
$303,800, an amount we are disputing with Raytheon. This dispute is subject to
mediation and the outcome will determine the actual amount of our liability.

         As a result of the fund raising throughout the year, total assets
increased to $5,836,061 (1998: $3,500,143; 1997: $3,007,489) and stockholders'
equity increased to $4,912,533 (1998: $2,680,688; 1997: $2,354,561).

         The outstanding warrants, if exercised in whole or part, would result
in additional capital for AmerAlia. The warrant exercise prices range from $1.50
to $6.00, however, it is not likely that any person will exercise warrants
unless the market price for the shares exceeded the warrant exercise prices on a
sustained basis. Furthermore, AmerAlia will not permit any person to exercise
warrants unless the underlying shares of common stock were included in an
effective registration statement, or unless an exemption from registration was
available.

         AmerAlia has historically derived its liquidity from raising new equity
investment or by issuing notes payable. AmerAlia's ability to ensure its
long-term survival continues to be dependent upon AmerAlia obtaining all permits
necessary for the proposed plant and financing for its construction, estimated
to be in excess of $35 million. AmerAlia reached an agreement with US Filter to
provide construction financing, but US Filter's agreement is subject to numerous
conditions and, to date, US Filter has not advanced any funds pursuant to that
agreement. We have complied with our obligation to provide $6.4 million to
initiate the design and construction activities. We are negotiating with
prospective investors and financiers to achieve this financing objective,
although there can be no assurance we will be able to complete this financing.

<PAGE>   13

         We do not anticipate any difficulties with our computers and their
systems as the year 2000 approaches as our computers and software are relatively
new systems. The manufacturers and suppliers have represented to us the
equipment is Y2K compliant.

JUNE 30, 1998 AS COMPARED TO JUNE 30, 1997

         During the 1998 fiscal year, AmerAlia raised $1.1 million in different
offerings for the sale of its common stock, preferred stock and warrants to
accredited and non-United States investors.

         In order to simplify the presentation of AmerAlia's financial
statements, the Board of Directors decided to initiate discussions with holders
of the preferred stockholders to rationalize the various series of preferred
stock. Consequently, as discussed more fully in Item 13(a) later, all of the
outstanding shares of the various series of preferred stock have been exchanged
for common stock or a new Series E Preferred Stock. The rights and preferences
attributable to the Series E Stock are set out in Item 12 later. A total of
356,554 shares of common stock at $1 per share were issued in lieu of dividends
on Series A, B, C, D & E Preferred Stock and a further $36,000 of accrued but
unpaid dividends were included in the exchange of 26,000 shares of Series B
Stock for shares of Series E Stock.

         A net increase in AmerAlia's accounts and royalties payable of more
than $100,000 created an additional source of funds. Of these liabilities,
$266,667 is due to one creditor for consulting fees and royalties payable on the
Rock School Lease. The payment of minimum annual royalties generates credits
usable if a plant is built which can achieve production exceeding 50,000 ton per
year. Above this level of output, the credits can be offset against royalties
exceeding the minimum royalty. The total of these credits as at June 30, 1998
was $337,500. A further $223,606 was raised through the issue of notes payable.
Funds were applied to funding the operating loss, $100,183 was used to repay
notes payable, $13,051 was invested in developing the Rock School Lease project
and $45,704 was used to reduce liabilities due to related parties.

         As a result of the fund raising throughout the year, total assets
increased to $3,500,143 (1997: $3,007,489; 1996: $3,608,000) and stockholders'
equity increased to $2,680,688 (1997: $2,354,561; 1996: $2,118,000).

RESULTS OF OPERATIONS

JUNE 30, 1999 AS COMPARED TO JUNE 30, 1998:

         Since AmerAlia does not receive revenues from operations, any income it
receives is generally derived from interest earned on funds on deposit resulting
from stock subscriptions. Interest income in 1999 was less than $37,000 and less
than $5,000 in 1998.

         General and administrative expenditures were significantly higher this
year than for previous years (1999: $1,910,792; 1998: $629,605 and 1997:
$690,982) as expected as a result of the increased activity associated with
obtaining funding for the development of AmerAlia's lease and construction of
production facilities. Interest expense has been reduced further as a result of
lower debt (1999: $18,519; 1998: $38,909 and 1997: $70,383). Consequently, the
1999

<PAGE>   14
net loss of $1,901,601 significantly exceeded those of prior years (1998:
$549,817; and 1997: $769,185). Contributing to this loss was an expenditure of
approximately $600,000 paid to external consultants in connection with
developing the permitting applications and development plans associated with the
development of our resource; approximately $410,000 in management and staff
salaries due to higher staffing levels (1998: $260,000) and increased consulting
fees as a result of increased corporate activities. We have a dispute with
Raytheon concerning additional work it performed which we consider to be outside
the specifications of the work orders. We are disputing this amount and have
agreed with Raytheon to go to mediation and/or arbitration to settle the matter.
Meanwhile we have provided for a contingency of $303,800 in our financial
statements. Under our Design/Build agreement with US Filter we contributed
$6,400,000 to an escrow account to fund the initial design and construction
activities. Our agreement provides that if we cannot secure suitable long term
financing funding US Filter is entitled to substantial liquidated damages. Its
interests are secured by our interests in the Rock School Lease.

         Until AmerAlia achieves its objective of establishing a plant for the
recovery and production of sodium bicarbonate, it will not be able to generate
operating revenues. Whilst we are progressing negotiations with various
prospective investors and financiers, we have not reached any definitive
agreements to enable us to build our proposed facilities. We estimate more than
$35 million will be required to fund construction and the associated working
capital requirements until profitable operations are established. There is no
assurance that AmerAlia can obtain this financing and in the meantime we must
fund our operating losses from our own resources as discussed above.

JUNE 30, 1998 AS COMPARED TO JUNE 30, 1997:

         As AmerAlia does not receive revenues from operations, any income it
receives is generally derived from interest earned on funds on deposit resulting
from stock subscriptions. Interest income in 1998 was less than $5,000 and less
than $2,000 in 1997. As AmerAlia no longer has Australian operations, management
decided, in consultation with the auditors, to remove the foreign currency
translation adjustment account from AmerAlia's balance sheet. This created a
foreign currency gain of $123,211 brought to account through the income
statement.

         General and administrative expenditures were significantly lower this
year than for previous years (1998: $629,605; 1997: $690,982 and 1996:
$668,202). However, this was temporary and as management progresses its plans to
obtain funding for the development of AmerAlia's lease and construction of
production facilities, the level of these expenditures is expected to increase.
Interest expense has been reduced as a result of lower debt (1998: $38,909;
1997: $70,383; and 1996: $124,128). Consequently, the 1998 net loss of $549,817
was significantly less than those of prior years (1997: $769,185 and 1996:
$751,350).

Impact of Inflation

         AmerAlia believes that its activities are not materially affected by
inflation.
<PAGE>   15
ITEM 7.  FINANCIAL STATEMENTS.

         The following information has been derived from AmerAlia's financial
statements. The financial statements attached to this annual report on Form 10-K
were prepared in accordance with Regulation S-B.

================================================================================

                             SELECTED FINANCIAL DATA
                         Amounts in Thousands of Dollars
                             (Except Per Share Data)

<TABLE>
<CAPTION>
                                             Year Ended June 30
                              1999       1998       1997       1996       1995
                             ------     ------     ------     ------     ------
<S>                          <C>        <C>        <C>        <C>        <C>
Revenues                         --         --         --         --         --
Net Loss                     (1,902)      (550)      (769)      (751)    (1,007)
Loss per Share                 (.31)      (.13)      (.26)      (.28)      (.41)
Total Assets                  5,836      3,500      3,008      3,608      2,985
Total Current
 Assets                       1,378        725         12        232        338
Total Current
 Liabilities                    923        819        650      1,481      1,539
Long Term Debt                   --         --          4          9         14
Shareholders'
 Equity                       4,913      2,681      2,354      2,118      1,432
Weighted Average
 No. of Shares                6,230      4,313      3,014      2,653      2,463
</TABLE>

================================================================================

ITEM 8.  DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

         None.

                                    PART III

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

(a)      IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS.

The following table sets forth the names and ages of all the Directors and
Executive Officers of AmerAlia, positions held by each such person, and when
such person was first elected or appointed. The directors each serve until their
successors are duly elected and qualified; officers are appointed by, and serve
at the pleasure of, the Board of Directors.

<PAGE>   16

<TABLE>
<CAPTION>
================================================================================
                                                                    First
                                                                    Elected or
         Name & Age            Position                             Appointed
--------------------------------------------------------------------------------
<S>                            <C>                                  <C>
         Bill H. Gunn          Chairman of the Board,               02/84
           Age 57              President, & Chief
                               Executive Officer

         Robert van Mourik     Director,                            09/90
           Age 46              Executive Vice President             01/89
           (2)                 Chief Financial Officer,
                               Secretary & Treasurer

         Neil E. Summerson     Director                             09/90
           Age 51
           (1,2)

         Robert A. Cameron     Director                             09/90
           Age 60
           (2)

         John F. Woolard       Director                             10/98
          Age 59               Executive Vice President             06/98

         Geoffrey C. Murphy    Director                             06/99
          Age 58

         Roger Day             Vice President of Operations         02/99
           Age 49

================================================================================
</TABLE>

         (1)  Members of the Compensation Committee.
         (2)  Members of the Audit Committee

         There are no family relationships among the officers or directors. No
arrangement exists between any of the above officers and directors pursuant to
which any one of those persons was elected to such office or position. No
director of AmerAlia is a director of a company having securities registered
under Section 12 or subject to Section 15(d) of the Securities Exchange Act of
1934 or a company registered under the Investment Company Act of 1940.

         Directors hold office until the next meeting of shareholders and until
a successor is elected and qualified, or until their resignation. Executive
officers are elected at annual meetings of the Board of Directors. Each such
officer holds office for one year or until a successor has been duly elected and
qualified or until death, resignation or removal. No director of AmerAlia is a
director of another company having securities registered under Section 12 of the
Securities Exchange Act of 1934 or a company registered under the Investment
Company Act of 1940.

<PAGE>   17

         A brief summary of the business experience of each person who is
currently an officer or director of AmerAlia, and such person's service with
AmerAlia is as follows:

BILL H. GUNN

         Mr. Gunn graduated in Commerce from the University of Queensland in
1963, achieving his Accounting Certificate from the University of Queensland in
the same year. Subsequently, he was admitted as a member of the Australian
Society of Certified Practising Accountants and has successfully completed and
passed the examinations for admittance as a Certified Public Accountant (CPA) in
the USA.

         Since March, 1977, Mr. Gunn has been a self-employed investor, CPA, and
a Director of several Stock Exchange listed public companies, as well as a
number of majority owned private corporations. These companies have been active
in the field of retailing, hotels, feed mills, mining exploration, automotive
components, securities investment, financing, property development and numerous
related fields.

         During his business experience, Mr. Gunn has been exposed to a wide
variety of corporate investments and has been involved in major business
acquisition and development activities. He is particularly knowledgeable on
business activities and investments in the State of Queensland, Australia, which
is widely regarded as the major Australian growth state. His principal activity
is now acting as Chairman and President of AmerAlia.

ROBERT VAN MOURIK

         Mr. van Mourik graduated in 1974 with a Bachelor of Applied Science
(Chemistry) and in 1981 with a Masters Degree in Business Administration. His
employment experience includes manufacturing, real estate development and
marketing, investment consulting and corporate reconstruction. He has served as
Executive Vice President, Chief Financial Officer, Treasurer and Secretary of
AmerAlia since 1989 and on September 26, 1990, he was elected a director.

NEIL E. SUMMERSON

         Until July 1997, Mr. Summerson was the senior partner, and for five
years prior was managing partner, in the international accounting firm of Ernst
& Young, at its offices in Brisbane, Australia. Prior to 1992, he worked in the
Corporate Recovery and Insolvency Division, which is involved in the
administration of insolvent companies, as well as providing counsel to small
businesses in the area of taxation, audit procedures and management advisory
services. Mr. Summerson received his Bachelor of Commerce degree from the
University of Queensland in 1968. He is a Fellow of the Institute of Chartered
Accountants, an Associate of the Australian Institute of Credit Management, a
Registered Public Accountant in Queensland, a registered Company Liquidator in
Queensland, an Official Liquidator, and an Officer of the Supreme Court of
Queensland. Mr. Summerson is a director of several Australian public and private
companies. During the current fiscal year, Mr. Summerson resigned as Receiver
and Manager of Denison Resources Ltd.

<PAGE>   18

ROBERT A. CAMERON

         Mr. Cameron graduated with Honors in Metallurgical and Chemical
Engineering from the University of Adelaide, Australia in April, 1961. Mr.
Cameron has had 16 years experience as Chief Executive Officer and director of a
number of Australian public companies. Mr. Cameron has been responsible for
developing mining operations involving such industrial minerals as rutile,
zircon, ilmenite, bentonite clay, calcium carbonate and silver and gold
properties. From 1983, Mr. Cameron was Chairman of the Board of Directors of
Denison Resources Ltd., an Australian stock exchange listed public company
formed for the specific purpose of exploring and developing underground natural
soda resources in Queensland, Australia. This led to the investigation of
natural soda deposits in the United States and securing the Rock School Lease
interest which was later transferred to the AmerAlia.

JOHN F. WOOLARD

         Mr. Woolard graduated from the University of Wisconsin, Madison,
Wisconsin, in June 1961. He received a Bachelor of Science degree with a major
in economics. After graduation he was employed by an advertising agency, working
in all major departments and finally as an account executive handling $5,000,000
annual advertising budgets. He joined an investment banking firm in 1968. In his
30 years in the investment banking business, Mr. Woolard has supervised all
departments in the firm, including retail sales, corporate finance,
underwriting, and accounting. Mr. Woolard has been a registered principal with
the New York Stock Exchange member firm, Stiffel, Nicolas & Co. for more than
the past five years until taking a leave of absence in January 1998. He is also
a director and an investor in a number of privately-held companies. Presently,
Mr. Woolard serves as Executive Vice President and Director of AmerAlia.

GEOFFREY C. MURPHY

         Mr. Murphy has, for more than the past five years, been a principal of
Coloney Von Soosten + Associates Inc., a consulting firm located in Kenilworth,
Illinois. Mr Murphy graduated with a Bachelor's degree from Dartmouth College,
and a Master's of Business Administration from the Amos Tuck School of Business
Administration at Dartmouth College.

ROGER DAY

         Mr. Day is a graduate from Michigan Technical University with
approximately twenty years experience in researching, developing and managing
operations similar to AmerAlia's undertakings. Mr. Day previously held senior
technical and management positions with two mining operations in Colorado. As
Vice President of Operations, Mr. Day is responsible for supervising the design,
construction and management of the solution mine and processing plant on
AmerAlia's lease.

(b)      SIGNIFICANT EMPLOYEES.

         AmerAlia does not employ anyone who is not an executive officer who
contributes significantly to its business.

(c)      FAMILY RELATIONSHIPS.

         There are no family relationships among the officers or directors.

<PAGE>   19

(d)      INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS:

         During the past five years, no director or officer of AmerAlia has:

         (d)(1) Filed or has had filed against him a petition under the federal
bankruptcy laws or any state insolvency law, nor has a receiver, fiscal agent or
similar officer been appointed by a court for the business or property of such
person, or any partnership in which he was a general partner, or any corporation
or business association of which he was an executive officer at or within two
years before such filings;

         (d)(2) Been convicted in a criminal proceeding or is a named subject of
a pending criminal proceeding (excluding traffic violations and other minor
offenses);

         (d)(3) Been the subject of any order, judgment, or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining such person from, or
otherwise limiting, the following activities:

                    (i) Acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator, floor broker,
leverage transaction merchant, any other person regulated by the Commodity
Futures Trading Commission, or an associated person of any of the foregoing, or
as an investment adviser, underwriter, broker or dealer in securities, or as an
affiliated person, director, or employee of any investment company, bank,
savings and loan association or insurance company, or engaging in or continuing
any conduct or practice in connection with such activity;

                    (ii) Engaging in any type of business practice; or

                    (iii) Engaging in any activity in connection with the
purchase or sale of any security or commodity or in connection with any
violation of federal or state securities laws or federal commodities laws;

       (d)(4) Been the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any federal or state authority
barring, suspending or otherwise limiting for more than 60 days the right of
such person to engage in any activity described in paragraph (3)(i) above, or to
be associated with persons engaged in any such activity; or

       (d)(5) Been found by a court of competent jurisdiction in a civil action
or by the Securities and Exchange Commission (the "Commission") to have violated
any federal or state securities law, and the judgment in such civil action or
finding by the Commission has not been subsequently reversed, suspended, or
vacated; or

       (d)(6) Been found by a court of competent jurisdiction in a civil action
or by the Commodity Futures Trading Commission to have violated any federal
commodities law, and the judgment in such civil action or finding by the
Commodity Futures Trading Commission has not been subsequently reversed,
suspended or vacated.


<PAGE>   20

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

       Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires AmerAlia's directors and officers and persons who own more than 10% of
AmerAlia's equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "SEC"). Directors,
officers, and greater-than-10% shareholders are required by SEC regulation to
furnish AmerAlia with copies of all Section 16(a) reports filed.

       Based solely on its review of the copies of the reports it received from
persons required to file, AmerAlia believes that during the period from July 1,
1997 through June 30, 1999, all filing requirements applicable to officers,
directors, and greater-than-10% shareholders were met in accordance with the
requirements of Section 16(a) except as follows:

o    The THG Partnership, of which Ms. Tiscornia, Bill H. Gunn, and Marvin H.
     Hudson were partners, exercised an option and acquired 450 shares of
     AmerAlia's Series E Preferred Stock in November 1998; Ms. Tiscornia and Mr.
     Gunn reported this transaction on a Form 4 in April 1999.

o    Mr. Gunn filed a Form 4 in October 1997 reporting transactions which took
     place in November 1996.

o    Mary L. Tiscornia filed a Form 3 in April 1998 reporting transactions which
     occurred in November 1996, and a Form 5 in April 1998 reporting subsequent
     transactions through March 31, 1998. Ms. Tiscornia ceased being subject to
     the reporting obligations of Section 16(a) in December 1998.

o    The Jacqueline Badger Mars Trust filed 32 Forms 4 in December 1997
     reporting transactions which took place since May 1994. In August 1998, in
     connection with an administrative proceeding brought by the SEC, Ms. Mars,
     without admitting or denying the issues identified in the order, consented
     to the entry of a cease-and-desist order in which she agreed to cease and
     desist from committing or causing any violations of, and committing or
     causing any future violations of, Sections 13(d) and 16(a) of the
     Securities Exchange Act of 1934 and Rules 13d-1, 13d-2, 16a-2 and 16a-3
     promulgated thereunder.

o    Mr. Neil Summerson filed a Form 4 in April 1998 reporting a transaction
     which occurred in January 1998.

o    Although Roger Day was appointed an executive officer of AmerAlia effective
     in November 1998, the appointment was not approved by the Board of
     Directors until April 1999. Consequently Mr. Day did not file a Form 3
     until April 1999. Mr. Day considers this report to have been timely since
     his appointment was not effective without Board approval.

o    Mr. Marvin Hudson (no longer subject to the reporting obligations of
     Section 16(a)) filed Forms 4 in October 1997 reporting transactions which
     occurred in November 1996 and July 1997. In addition, AmerAlia is aware
     that Mr. Hudson has acquired beneficial ownership in additional securities
     through his ownership of an interest in THG which have not been reported as
     required. Mr. Hudson may have acquired or disposed of other shares of
     AmerAlia common stock or derivative securities without the knowledge of
     AmerAlia which have not been reported. Mr. Hudson ceased being subject to
     the reporting obligations of Section 16(a) in April 1999, following the
     dissolution of The THG Partnership.

<PAGE>   21

       AmerAlia is obligated to pay common stock dividends to the holders of its
Series E Preferred Stock as a class. Some of these holders are subject to the
reporting obligations of Section 16(a). It is the position of these reporting
persons that the dividends are exempt from the reporting requirements by virtue
of Rule 16a-9 and, therefore, reports were not required to be filed to report
each issuance of dividends.

         AmerAlia is aware that the THG Partnership elected to dissolve and
distribute its assets to its partners in March 1999, and completed the
distribution in April 1999. As a result of this distribution, Mary L. Tiscornia
and Marvin H. Hudson ceased to be subject to the reporting requirements of
Section 16(a). However, as Marvin Hudson has failed to file the reports required
under Section 16(a) of the Securities Exchange Act of 1934, as amended, AmerAlia
does not know whether he may have any short-swing liability.

       As a result of acquiring shares in May 1997 and selling shares in August
1997, Ms. Mary Tiscornia generated a short swing profit of $2,340. Upon becoming
aware of this, Ms. Tiscornia brought the matter to the AmerAlia's attention and
voluntarily remitted this amount to AmerAlia in June 1998 in settlement of her
Section 16(b) liability.

ITEM 10.          EXECUTIVE COMPENSATION

(a)    SUMMARY COMPENSATION TABLE.

       The following table sets forth information regarding compensation paid to
the officers of AmerAlia during the three fiscal years ended June 30, 1999. Mr.
Gunn and Mr Woolard were the only executive officers receiving compensation
exceeding $100,000 during fiscal 1999, as shown below. Compensation to Mr. Gunn
is paid to Gunn Development Pty. Ltd., of which Mr. Gunn is a controlling
shareholder.

       AmerAlia has no plans for the payment or accrual for payment of any
amounts to any executive officer in connection with his resignation, retirement,
or other termination, or change of control or change in the executive officer's
responsibilities.

       AmerAlia has not adopted a qualified medical insurance, life insurance,
or other benefit plan for its employees. AmerAlia has reimbursed Messrs.
Woolard, Gunn, and Day for certain medical expenses and insurance premiums.
AmerAlia currently has no stock ownership or other profit-sharing or pension
plans, but may adopt such plans in the future. AmerAlia has no retirement plans
and, therefore, has made no contributions to any such plan on behalf of the
named officers.

       AmerAlia acquired a vehicle during the 1994 year for the use of Mr. Gunn

<PAGE>   22

<TABLE>
<CAPTION>
T=============================================================================================================
                                     Annual Compensation             Long Term Compensation
                              ---------------------------------  ------------------------------
                                                                        Awards           Payout
                                                                 --------------------    ------
                                                                 Restricted   Options     LTIP    All Other
 Name and Position    Year     Salary      Bonus      Other        Awards     & SAR's    Payout  Compensation
-------------------------------------------------------------------------------------------------------------
<S>                   <C>     <C>          <C>       <C>         <C>          <C>        <C>     <C>
    Bill H. Gunn
    President and     1999    $125,000      -0-      $14,000(a)     -0-         -0-        -0-       -0-
   Chief Executive    1998    $100,000      -0-      $14,000(a)     -0-         -0-        -0-       -0-
       Officer        1997    $100,000      -0-      $ 8,000(a)     -0-         -0-        -0-       -0-
=============================================================================================================
  John F. Woolard,
   Executive Vice     1999    $135,000      -0-      $ 9,333(a)     -0-         -0-        -0-       -0-
      President       (b)
=============================================================================================================
</TABLE>


Notes: (a) Directors fees
       (b) Mr. Woolard was employed by AmerAlia on June 1, 1998.

OPTIONS/SAR GRANTED DURING YEAR ENDED JUNE 30, 1999

       During the fiscal year ended June 30, 1998, AmerAlia granted stock
options to acquire 250,000 shares to John Woolard in connection with his
becoming a consultant to AmerAlia in February 1998. 100,000 of these options are
exercisable at $1.00 per share through March 31, 2001; the remaining 150,000
options are exercisable at $1.50 per share through March 31, 2003. Mr. Woolard
became an executive officer of AmerAlia on June 1, 1998. Subsequent to the end
of the 1998 fiscal year, AmerAlia granted stock options, as described below, to
Roger Day who became an executive officer in April 1999.

       AmerAlia has not adopted any other stock option or stock appreciation
rights plan.

AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUE TABLE.

       No officer exercised stock options during the fiscal year ended June 30,
1999, or subsequently. The following table sets forth information regarding the
year-end value of options being held by the Chief Executive Officer and the
other named officers such persons on June 30, 1999: No Stock Appreciation Rights
have been granted, or are held by, any such person:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
      (a)                     (b)                    (c)                  (d)                    (e)
-------------------------------------------------------------------------------------------------------------
                                                                                                Value of
                                                                     # of unexercised         in-the-money
                                                                    options at FY end      options at FY end
                       Shares acquired on                             (exercisable/          (exercisable/
      Name                  exercise            Value realized        unexercisable)         unexercisable)
-------------------------------------------------------------------------------------------------------------
<S>                    <C>                      <C>                 <C>                    <C>
Bill H. Gunn                  -0-                    -0-                140,000                245,000
-------------------------------------------------------------------------------------------------------------
Robert van Mourik             -0-                    -0-                 75,000                131,250
-------------------------------------------------------------------------------------------------------------
John Woolard                  -0-                    -0-                250,000                487,500
-------------------------------------------------------------------------------------------------------------
Roger Day                     -0-                    -0-                 20,000                 35,000
-------------------------------------------------------------------------------------------------------------
</TABLE>


<PAGE>   23
LONG TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR

       AmerAlia has no long term incentive compensation plans, defined benefit
plans, or actuarial plans. There are no plans to pay bonuses or deferred
compensation to employees of AmerAlia. AmerAlia has not adopted any medical,
life or other insurance plan for its employees.

DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE

       Not applicable since AmerAlia has not defined benefit or actuarial plans.

COMPENSATION OF DIRECTORS

       STANDARD ARRANGEMENTS.

       AmerAlia's directors are authorized to receive $14,000 cash compensation
per year for their services as Directors each year. In connection with certain
consulting services rendered by them, AmerAlia paid or accrued liabilities to an
affiliate of Robert A. Cameron $7,007 for services rendered during the fiscal
year ended June 30,1998, and $18,302 for the fiscal year ended June 30, 1999.

       In addition, AmerAlia pays Coloney Von Soosten + Associates Inc. a
retainer of $2,500 per month for financial and administrative services. Hours in
excess of 15 per month are paid to Coloney Von Soosten + Associates Inc. at the
rate of $200 per hour. Geoffrey C. Murphy is a principal of Coloney Von Soosten
+ Associates Inc. and has primary responsibility for the services it provides to
AmerAlia. Mr. Murphy became a director in June 1999 following the annual meeting
of shareholders.

       In each case, Directors are reimbursed expenses they incurred on behalf
of AmerAlia on a fully accountable basis.

       OTHER ARRANGEMENTS.

       Except as described herein, no officer or director of AmerAlia has been
or is being paid any cash compensation, or is otherwise subject to any deferred
compensation plan, bonus plan or any other arrangement and understanding whereby
such person would obtain any cash compensation for his services for and on
behalf of AmerAlia.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS.

       AmerAlia has no compensation plan or arrangement with respect to any
executive officer which plan or arrangement results or will result from the
resignation, retirement or any other termination of such individual's employment
with AmerAlia. AmerAlia has no plan or arrangement with respect to any such
persons which will result from a change in control or a change in the
individual's responsibilities following a change in control.

<PAGE>   24

       AmerAlia's only employment contract is with its vice president of
operations, Roger Day. In April 1999, effective November 1998, AmerAlia entered
into a five year employment agreement with Roger Day who is employed with the
title of Vice President of Operations. As compensation for services rendered
under the employment agreement, Mr. Day shall receive a salary of $100,000 per
annum, plus bonuses and salary increases as the Board of Directors may determine
in its sole discretion. AmerAlia also granted Mr. Day options to acquire 100,000
shares of Common Stock for an exercise price of $1.50 per share, exercisable
through December 31, 2003. Options to acquire 20,000 shares vested on Board
approval of the employment agreement; the remainder vest annually through
November 2002. In addition, AmerAlia advanced $25,000 to Mr. Day as a loan,
which amount will be forgiven over the period of his employment.

REPORT ON REPRICING OF OPTIONS/SARS.

       Not applicable, as no options or SARs were repriced during the fiscal
year ended June 30, 1999.

ADDITIONAL INFORMATION WITH RESPECT TO COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION.

       A Compensation Committee comprising the non-executive directors of the
Board was formed early in 1993 and determined the management fees payable to
Messrs. Gunn, van Mourik and Woolard, as set out above. The Compensation
Committee is now Mr. Summerson alone who has not been an officer nor an employee
of AmerAlia or any of its subsidiaries during the fiscal year ended June 30,
1999, or subsequently. Mr. Summerson does not have any other direct or indirect
relationship with AmerAlia requiring disclosure by AmerAlia pursuant to Item 401
of Regulation S-K. Furthermore, no executive officer of AmerAlia served as a
member of the Compensation Committee (or similar committee) of another entity
which dealt with compensation paid to any member of AmerAlia's Compensation
Committee, or with which any other interlocking relationship exists.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         A capitalization table is helpful in understanding the security
ownership of certain beneficial owners and management of AmerAlia. The following
table sets forth this capitalization information as of June 30, 1999.

<TABLE>
<CAPTION>
                                            Number of           Voting Rights
         Description of Class                Shares                per share
         --------------------               ---------         ---------------------
<S>                                         <C>               <C>
         Common Stock                       7,659,766         one vote per share
         Series E Preferred Stock               2,986         1,000 votes per share
</TABLE>


<PAGE>   25

(a) AND (b) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         At June 30, 1999, AmerAlia had two classes of outstanding voting
securities, its common stock (referred to herein as the "Common Stock") and its
Series E Preferred Stock (each share of which is equivalent to the beneficial
ownership of 1,000 shares of Common Stock). The following table sets forth
information as of June 30, 1999 with respect to the ownership of the Common
Stock and Series E Preferred Stock for all directors, individually, all
executive officers named in the compensation table, all executive officers and
directors as a group, and all beneficial owners of more than five percent of the
Common Stock (not including shares held in the name of known depositories, such
as CEDE & Co., for the benefit of the underlying beneficial shareholders). The
following shareholders have sole voting and investment power with respect to the
shares unless indicated otherwise.


<PAGE>   26
<TABLE>
<CAPTION>
==================================================================================
Name & Address                            Amount & Nature     Percent   Percent
     of                                    of Beneficial      of        of Voting
Beneficial Owner                             Ownership        Class     Securities
==================================================================================
<S>                                       <C>                 <C>       <C>
Neil E. Summerson                              75,000(1)        1.0%        nil

Bill H. Gunn                                  337,645(2)        4.3%        1.2%

Robert van Mourik                             220,384(3)        2.8%        1.4%

John F. Woolard                               274,500(7)        3.5%        nil

Geoffrey C. Murphy                             40,000           nil         nil

Robert A. Cameron                              75,000(5)        1.0%        nil

OFFICERS & DIRECTORS
AS A GROUP (7 PERSONS)                      1,042,529(8)       12.3%        3.2%

Madeline Ahern                                478,119(4)        5.9%        4.5%
atf The Bromley Family Trust
8th fl, 87 Wickham Tce,
Brisbane,  Qld, Australia

Jacqueline Badger Mars                      5,097,460(6)       52.8%       47.9%
atf the Jacqueline
Badger Mars Trust dated
Feb 5, 1975 as amended
6885 Elm St., McLean, VA 22101

Mary L. Tiscornia                             467,830(9)        5.8%        4.4%
448 Ignacio Boulevard, Suite 338
Novato, CA 94949
==================================================================================
</TABLE>


(1)      Mr. Summerson: Represents options to acquire 75,000 shares of Common
         Stock for $1.50 per share expiring on June 28, 2006, held by Glendower
         Investments Pty. Ltd. as trustee of a trust of which Mr. Summerson and
         his family are beneficiaries.

(2)      Mr. Gunn: Includes 18,685 shares of Common Stock owned directly by Mr.
         Gunn and 116,960 shares of Common Stock owned by Gunn Development Pty.
         Ltd. (of which Mr. Gunn is a controlling shareholder); 62 shares of
         Series E Preferred Stock (convertible into common shares at the rate of
         1,000:1); and options to acquire 140,000 shares of Common Stock at
         $1.50 per share expiring on dates up to June 28, 2006. Does not include
         70,000 Stock Appreciation Rights issued at $1.50 per share expiring on
         dates up to June 28, 2006.
<PAGE>   27
(3)      Mr. van Mourik: Includes 500 shares of Common Stock owned directly by
         Mr. van Mourik, 90,759 shares of Common Stock owned by Ahciejay Pty.
         Ltd. as Trustee for The R.C.J. Trust, and 54,125 shares of Common Stock
         owned by the R.C.J. Superannuation Fund, as to both of which Mr. van
         Mourik and his family are beneficiaries. Also includes options to
         acquire 75,000 shares of Common Stock at $1.50 per share expiring on
         June 28, 2006.

(4)      Bromley Family Trust: Includes 102,119 shares of Common Stock, and 376
         shares of Series E Preferred Stock. The Bromley Family Trust is a trust
         for the benefit of relatives of Robert van Mourik's spouse. Neither Mr.
         van Mourik nor his wife has any direct or indirect interest in the
         Bromley Family Trust, although Mrs. van Mourik is a contingent, unnamed
         beneficiary. Neither Mr. nor Mrs. van Mourik has received any
         distributions from the Bromley Family Trust and neither influences nor
         controls the decisions of the trustee. See "Certain Relationships and
         Related Party Transactions."

(5)      Mr. Cameron: Includes no shares, but includes options to acquire 75,000
         shares of Common Stock at $1.50 per share expiring on June 28, 2006.
         The options are held by Jacinth Pty. Ltd. a company in which Robert
         Cameron, a director of AmerAlia, is a controlling shareholder.

(6)      Mars Trust: Includes 3,097,460 shares of Common Stock and 2,000 shares
         of Series E Preferred Stock. See "Certain Relationships and Related
         Party Transactions".

(7)      Mr. Woolard: Includes 4,000 shares of Common Stock, 20 shares of Series
         E Preferred Stock, options to acquire 100,000 shares of Common stock at
         $1.00 per share exercisable through March 31, 2001, and options to
         acquire 150,000 shares of Common Stock at $1.50 per share exercisable
         through March 31, 2003.

(8)      All officers and directors: Includes beneficial ownership of Messrs.
         Gunn, Summerson, Woolard, van Mourik, and Cameron as described in notes
         1, 2, 3, 5, and 8, above, Mr. Murphy, and options held by Roger Day, an
         executive officer who is not a director to acquire 20,000 shares of
         Common Stock at $1.50 per share. Does not include options held by Mr.
         Day to acquire 80,000 shares of Common Stock at $1.50 per share which
         vest over a period of four years commencing November 1999 until
         December 31, 2003.

(9)      Ms. Tiscornia: Includes 61,830 shares of common stock and 406 shares of
         Series E Preferred Stock.

         The foregoing table does not include the possible effect of issuance of
up to 582,000 shares pursuant to the exercise of options held by persons who are
neither officers, directors, nor significant shareholders of AmerAlia, which
options are exercisable as follows:

              140,000 at $1.50 until June 28, 2006

              442,000 at $4.00 until March 31, 2000 and higher prices thereafter

         The Series E Stock consists of 2,986 shares issued at $1,000 per share.
The stock is entitled to a dividend preference of 10% per year, payable
quarterly in restricted common stock valued at $1 per share through October 31,
2000. The Series E Stock is convertible into common


<PAGE>   28

stock at the option of the holder until October 31, 2000 on the basis of 1,000
shares per share of Series E Stock. AmerAlia may redeem all or any portion of
the outstanding shares of Series E Stock at any time upon giving six months
notice, but only if the holder fails to exercise its conversion rights.

         To the best of our knowledge, there are no arrangements, understandings
or agreements relative to the disposition of any of AmerAlia's securities, the
operation of which would at a subsequent date result in a change in control of
AmerAlia.

CHANGES IN CONTROL.

         AmerAlia knows of no arrangement, the operation of which may, at a
subsequent date, result in a change in the control of AmerAlia.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

TRANSACTIONS WITH MANAGEMENT AND OTHERS.

         The following sets out information regarding transactions between
officers, directors and significant shareholders of AmerAlia during the most
recent two fiscal years and during the subsequent fiscal year.

         Corporate Loans. During the fiscal years ended June 30, 1998 and 1999,
certain related parties advanced loans to AmerAlia as detailed in Note 6 to the
Financial Statements which states that AmerAlia owed $35,354 to directors and
affiliates of AmerAlia at June 30, 1998 and $9,333 at June 30, 1999. This
comprised advances to AmerAlia, as well as accrued but unpaid compensation and
directors fees.

         As of June 30, 1997 AmerAlia owed $13,377 to Gunn Development Pty.
Ltd., an affiliate of Mr. Bill H. Gunn, an officer of AmerAlia. By June 30, 1998
and 1999 AmerAlia had repaid the balance due and had advanced further funds to
Gunn Development. The following summarizes these advances during the fiscal year
ended June 30, 1999:

<TABLE>
<S>                                                                     <C>
Balance due to Gunn Development at June 30, 1997:                       $ 13,377
Advances to Gunn Development during year:                                173,881
Repayments received during year:                                         142,830
Net interest accrued:                                                        Nil
                                                                        --------
Balance due from Gunn Development at June 30, 1998:                     $ 17,674
Advances to Gunn Development during year:                                 60,508
Repayments received during year:                                          35,174
Net interest accrued:                                                        Nil
                                                                        --------
Balance due to Gunn Development at June 30, 1999:                       $ 43,008
</TABLE>

         These advances bear no interest, are due on demand, and are not
evidenced by promissory notes. However, on January 6, 1999 and on March 3, 1999,
AmerAlia advanced short-term loans of $68,670 and $125,000, respectively to Bill
H. Gunn. These advances were evidenced by written documents and bear interest at
10% per annum. Mr. Gunn repaid these amounts together with interest thereon in
May 1999.

<PAGE>   29

         Compensation Arrangements. AmerAlia entered into an employment
agreement with Roger Day, its vice president of operations, in November 1998, as
described above under "Executive Compensation -- Employment Agreements" This
agreement was approved by the Board of Directors in April 1999.

         Directors and the other officers of AmerAlia are compensated as
described above under "Executive Compensation --Compensation of Directors."

         Purchase of Common Stock and Warrants. On December 30, 1998, Ms.
Jacqueline Badger Mars, in her capacity as trustee for the Jacqueline Badger
Mars Trust (the "Mars Trust"), acquired 700,000 shares of AmerAlia common stock
at $1.50 per share for a total investment of $1,050,000. At the time that the
Mars Trust purchased these shares, the price of AmerAlia common stock as quoted
by the Nasdaq SmallCap Market was less than $1.30 per share. Included with the
purchase were 700,000 common stock purchase warrants, granting the Mars Trust
the right to buy an additional 700,000 shares of common stock at a price of
$2.00 per share through March 31, 1999. On March 26, 1999, the Mars Trust
exercised these warrants for a total of $1,400,000 paid to AmerAlia.

         Guaranty Agreement. AmerAlia entered into an agreement with the Mars
Trust on September 13, 1999 for the purpose of establishing a loan with
NationsBank N.A. AmerAlia subsequently borrowed $4.2 million from NationsBank
for one year. The Mars Trust facilitated the loan by guaranteeing its repayment
in a manner satisfactory to the bank. To compensate the Trust, AmerAlia has
agreed to pay an amount equal to 10% of the amount guaranteed payable in shares
of AmerAlia's restricted common stock valued according to a formula based on
future market prices of AmerAlia's common stock.

         THG Partnership Transactions. In connection with the settlement of a
pre-existing debt, AmerAlia granted The THG Partnership an option until October
1998 to exchange units of the Rural Investment Trust, an Australian public real
estate investment trust, for an additional 450 shares of Series E Preferred
Stock or (at THG's election) to purchase 450 shares of Series E Preferred Stock
for $450,000 in cash. The partners of The THG Partnership were Miss Mary L.
Tiscornia, a significant shareholder of AmerAlia, Mr. Bill H. Gunn, Chairman and
CEO of AmerAlia, and Mr. Marvin H.
Hudson, a former Vice President.

         On October 13, 1998 THG notified AmerAlia it was exercising its option
to put the RIT investment to AmerAlia. As part of its own working capital
requirements, THG had secured a debt facility with the ANZ Bank in Australia
using the RIT investment as collateral. AmerAlia assumed THG's liability to the
ANZ Bank in exchange for payment to AmerAlia of the amount of the outstanding
indebtedness. This debt was approximately A$300,000 ($180,000). Consequently,
effective October 18, 1998, AmerAlia and THG entered into an agreement whereby:

o   THG assigned the RIT units to AmerAlia;

o   THG paid to AmerAlia the amount of its outstanding debt due to ANZ Bank;

o   AmerAlia assumed liability for THG's debt to the ANZ Bank, guaranteed it
    would pay principal and interest in accordance with the requirements of the
    loan facility, and indemnified THG and its partners against any loss which
    it might incur in settling the debt;

o   THG delivered to AmerAlia transfer documents and powers of attorney
    sufficient to enable AmerAlia to transfer the RIT investment into AmerAlia's
    name.

<PAGE>   30

         Although the transaction occurred between AmerAlia and THG, then an
affiliate, management believed the substance of the transaction was between
AmerAlia and the ANZ Bank. AmerAlia believed it gained access to this borrowing
on favorable terms without the costs normally associated with secured borrowing
from financial institutions. THG did not receive any consideration for providing
the credit facility to AmerAlia. Subsequently THG dissolved.

         The RIT units were liquidated in May 1999 and the debt to the ANZ Bank
repaid. The total consideration received by AmerAlia for the issue of the 450
shares of Series E Preferred Stock upon liquidation of its RIT investment was
$418,346.

         Short Swing Liability. As a result of acquiring shares in May 1997 and
selling shares in August 1997, Ms. Mary Tiscornia generated a short swing profit
of $2,340. Upon becoming aware of this, Ms. Tiscornia brought the matter to the
AmerAlia's attention and voluntarily remitted this amount to AmerAlia in June
1998 in settlement of her Section 16(b) liability.

         Conversion of Series of Preferred Stock into Common Stock. At the
beginning of the 1998 fiscal year, Ms Jacqueline Badger Mars in her capacity as
trustee of the Jacqueline Badger Mars Trust held shares of Series A, B, and D
Preferred Stock. At a meeting held on June 30, 1998, the shareholders of
AmerAlia approved the following conversions and exchanges:

o   666,666 shares of Series A preferred stock were exchanged by agreement with
    AmerAlia for 666,666 shares of common stock;

o   25,000 shares of Series B preferred stock were exchanged for 125,000 shares
    of common stock in accordance with the statement of preferences which
    established the Series B stock; and

o   the 2,000 shares of Series D Preferred stock were exchanged by agreement
    with AmerAlia for 2,000 shares of Series E Preferred Stock which hold the
    same preferences as those attributable to the Series D stock.

         AmerAlia reached an agreement with Miss Madeline Ahern who held the
remaining 26,000 shares of Series B Preferred Stock as trustee for the Bromley
Family Trust, to exchange the outstanding Series B shares held by the Bromley
Family Trust, together with accrued but unpaid dividends due of $36,000, for 296
shares of Series E Preferred Stock. This exchange was accomplished based on the
respective liquidation values of the Series B and Series E Preferred Stock

         AmerAlia negotiated with the holders of the outstanding 750 shares of
Series C Preferred Stock an exchange, based upon their respective liquidation
values, for 60 shares of Series E Preferred Stock. One of the holders of the
Series C Preferred Stock was Mr. John Woolard who received 20 shares of Series E
Preferred Stock. Subsequently, AmerAlia appointed Mr. Woolard an executive
officer (in June 1998) and a director (in October 1998) of AmerAlia.

         AmerAlia negotiated with THG and the Bromley Family Trust, the
remaining holders of 180 shares of Series D Preferred Stock, an exchange for 180
shares of Series E Preferred Stock and an exchange of an option to acquire 450
shares of Series D Preferred Stock for an option to acquire 450 shares of Series
E Stock.

         As a result of these transactions, the shares of Series E Preferred
Stock are the only shares of preferred stock currently outstanding.
<PAGE>   31
         No nominee or director of AmerAlia is, or has been, a partner or
executive officer of any investment banking firm that has performed services for
AmerAlia during the last fiscal year or that AmerAlia proposes to have perform
services during the current year. AmerAlia is not aware of any other
relationship between its directors and AmerAlia that are similar in nature and
scope to those relationships listed in paragraphs (b)(1) through (5) of this
Item 13 except as described above.

         Dividend Payments. During the fiscal year ended June 30, 1998,
dividends of $356,554 became payable on the Series A, B, C, D and E Preferred
Stock and AmerAlia, upon the agreement with the investors, paid this dividend
through the issuance of a total of 356,554 shares of restricted common stock in
accordance with the statements of preferences. Many of the holders of the Series
E Preferred Stock are affiliated with AmerAlia. . (The Series A, B, C, and D
shares were converted or exchanged for Series E Preferred Stock pursuant to
shareholder approval at the meeting held on June 30, 1998.)

         During the fiscal year ended June 30, 1999, dividends aggregating
$283,865 became payable to the holders of the Series E Preferred Stock AmerAlia
paid, or will pay, these dividends to the holders of the Series E Preferred
Stock through the issuance of 283,865 shares of its restricted common stock.

         Employment Disputes. Marvin Hudson, formerly a vice president, employee
and greater-than-10% shareholder of AmerAlia, has made certain claims against
AmerAlia and has filed litigation against AmerAlia as described above.
AmerAlia has also filed litigation against Mr. Hudson.

(b)(1)-(4) CERTAIN BUSINESS RELATIONSHIPS

         See Item 13(a), above.

(b)(5)   No nominee or director of AmerAlia is, or has been, a partner or
         executive officer of any investment banking firm that has performed
         services for AmerAlia during the last fiscal year or that AmerAlia
         proposes to have perform services during the current year.

(b)(6)   AmerAlia is not aware of any other relationship between its directors
         and AmerAlia that are similar in nature and scope to those
         relationships listed in paragraphs (b)(1) through (5) of this Item 13
         except as described above.

(c)      INDEBTEDNESS OF MANAGEMENT.

         No director, executive officer, nominee for election as a director, any
member of the immediate family of any of the foregoing, or any corporation or
organization of which any of the foregoing persons is an executive officer,
partner or beneficial holder of ten percent or more of any class of equity
securities, or any trust or other estate in which any such person has a
substantial beneficial interest or as to which such person serves as a trustee
or in a similar capacity, was indebted to AmerAlia at any time, except as
disclosed in Item 13(a), above.

(d)      TRANSACTIONS WITH PROMOTERS: Not applicable.

<PAGE>   32

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)      EXHIBITS.

         (1) The financial statements included as a part of this report are as
         described on page F-2.

         (2) No financial statement schedules are included in this report.

         (3) The exhibits required by Item 601 of Regulation S-K are as follows.
         Certain of the following exhibits are hereby incorporated by reference
         pursuant to Rule 12b-23 as promulgated under the Securities and
         Exchange Act of 1934, as amended, from the reports noted below:

<TABLE>
<CAPTION>
Exhibit
Number        Description
------        -----------
<S>           <C>
3.1 (a)       Articles of Incorporation and Amendment.

3.2 (a)       Bylaws of AmerAlia, Inc.

3.3 (a)       Statement of Preferences for Series A Convertible Preferred Stock.

3.4 (f)       Statement of Preferences for Series B Preferred Stock, as amended.

10.1 (b)      Agreement with Eagle Star Nominees Ltd. as trustee for The Rural
              Investment Trust for sale of property in consideration for
              issuance of vendor units in the Rural Investment Trust.

10.6 (e)      Form of Distributor agreements for marketing of sodium
              bicarbonate.

10.7 (e)      General Services Agreement with Raytheon Engineers & Constructors,
              Inc.

10.8 (f)      First Amendment to Special Warranty Assignment, Royalty
              Reservation, and Minimum Royalty Payment between AmerAlia and E.E.
              Kinder Co.

10.9 (f)      Consulting Agreement between AmerAlia and E.E. Kinder Co.

10.10 (f)     U.S. Government Sodium Lease

10.11 (g)     Design/Build Contract with U.S. Filter Corp.

10.12 (g)     Guaranty Agreement with the Jacqueline Badger Mars Trust

21.1          Subsidiaries of the Registrant: None.

27 (g)        Financial Data Schedule
</TABLE>

<PAGE>   33

(a)      Incorporated by reference from the Company's Form 10 General
         Registration Statement filed with the Commission on March 5, 1987.

(b)      Incorporated by reference from the Company's Form 10-K for its year
         ended June 30, 1989.

(c)      Incorporated by reference from the Company's Form 10-K for its year
         ended June 30, 1990.

(d)      Incorporated by reference from the Company's Form 10-K for its year
         ended June 30, 1992.

(e)      Incorporated by reference from the Company's Form 10-K for its year
         ended June 30, 1993.

(f)      Incorporated by reference from the Company's Form 10-K for its year
         ended June 30, 1995.

(g)      Included herewith.

(b)      REPORTS ON FORM 8-K

         During the last quarter of the period covered by this report the
Company filed no current reports on Form 8-K.

(c)      EXHIBITS

         Required exhibits are attached hereto and are listed in Item 14(a)(3)
of this Report.

(d)      FINANCIAL STATEMENT SCHEDULES

         Item 14(a) of this Report lists all required financial statement
schedules to be attached hereto.
<PAGE>   34
                                 AMERALIA, INC.
                          (A Development Stage Company)

                              Financial Statements

                             June 30, 1999 and 1998


                                      F-1

<PAGE>   35
                                C O N T E N T S

<TABLE>
<S>                                                                         <C>
Independent Auditors' Report................................................ F-3

Balance Sheets.............................................................. F-4

Statements of Operations.................................................... F-6

Statements of Stockholders' Equity.......................................... F-7

Statements of Cash Flows................................................... F-13

Notes to the Financial Statements.......................................... F-15
</TABLE>


                                      F-2
<PAGE>   36
                          INDEPENDENT AUDITORS' REPORT


Board of Directors and Shareholders of
AmerAlia, Inc.
(A Development Stage Company)
Kenilworth, Illinois

We have audited the accompanying balance sheets of AmerAlia, Inc. (a
development stage company) as of June 30, 1999 and 1998, and the related
statements of operations, stockholders' equity and cash flows for the years
ended June 30, 1999, 1998 and 1997 and from the beginning of the development
stage on July 1, 1992 through June 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AmerAlia, Inc. (a development
stage company) as of June 30, 1999 and 1998, and the results of its operations
and its cash flows for the years ended June 30, 1999, 1998 and 1997 and from
the beginning of the development stage on July 1, 1992 through June 30, 1999 in
conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 14 to the
financial statements, the Company has suffered recurring losses and has not
established a current source of revenue. Together these factors raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 14.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.



Jones, Jensen & Company
Salt Lake City, Utah
October 1, 1999


                                      F-3
<PAGE>   37

                                 AMERALIA, INC.
                         (A Development Stage Company)
                                 Balance Sheets


                                     ASSETS
<TABLE>
<CAPTION>
                                                                                June 30,
                                                                     --------------------------------
                                                                        1999                 1998
                                                                     -----------          -----------
CURRENT ASSETS
<S>                                                                   <C>                  <C>
 Cash (Note 1)                                                      $   312,104          $   707,199
 Restricted cash (Notes 1 and 3)                                        991,305                 -
 Related party receivables (Note 2)                                      43,008               17,674
 Prepaid expenses                                                        30,082                 -
 Interest receivable                                                      1,167                 -
                                                                    -----------          -----------
    Total Current Assets                                              1,377,666              724,873
                                                                    -----------          -----------

FIXED ASSETS, net (Notes 1 and 5)                                        24,202                6,983
                                                                    -----------          -----------

OTHER ASSETS

 Lease acquisition and exploration costs (Notes 3 and 11)             3,023,287            2,768,287
 Plant construction - deposit (Note 3)                                1,250,000                 -
 Deferred financing costs (Note 1)                                      110,000                 -
 Note receivable - related party (Note 2)                                25,000                 -
 Deposits                                                                25,906                 -
                                                                    -----------          -----------

    Total Other Assets                                                4,434,193            2,768,287
                                                                    -----------          -----------

    TOTAL ASSETS                                                    $ 5,836,061          $ 3,500,143
                                                                    ===========          ===========
</TABLE>

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

                                       F-4
<PAGE>   38

                                 AMERALIA, INC.
                          (A Development Stage Company)
                           Balance Sheets (Continued)

                      LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                                June 30,
                                                                     --------------------------------
                                                                        1999                 1998
                                                                     -----------          -----------
CURRENT LIABILITIES
<S>                                                                <C>                   <C>
 Accounts payable                                                     $   232,017          $   160,844
 Royalties payable (Note 10)                                              279,167              204,167
 Bank overdraft                                                             5,702                4,586
 Accrued expenses (Note 12)                                                88,219                3,066
 Due to related parties (Note 6)                                            9,333               35,354
 Notes payable - current portion (Note 7)                                   4,000              411,008
 Interest payable                                                           1,290                  430
                                                                      -----------          -----------

    Total Current Liabilities                                             619,728              819,455
                                                                      -----------          -----------

    Total Liabilities                                                     619,728              819,455
                                                                      -----------          -----------

COMMITMENTS AND CONTINGENCIES (Note 10)                                   303,800               -
                                                                      -----------          -----------

STOCKHOLDERS' EQUITY

 Preferred stock, $0.05 par value; 1,000,000 authorized;
  2,986 and 2,536 issued and outstanding,  respectively                       149                  127
 Common stock, $0.01 par value; 100,000,000 shares
  authorized; 7,659,766 and 5,317,551 issued and
  outstanding, respectively                                                76,598               53,176
 Additional paid-in capital                                            16,545,797           12,151,930
 Accumulated deficit                                                  (11,710,011)          (9,524,545)
                                                                      -----------          -----------

     Total Stockholders' Equity                                         4,912,533            2,680,688
                                                                      -----------          -----------

     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                       $ 5,836,061          $ 3,500,143
                                                                      ===========          ===========
</TABLE>

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

                                       F-5
<PAGE>   39

                                 AMERALIA, INC.
                          (A Development Stage Company)
                            Statements of Operations

<TABLE>
<CAPTION>

                                                                                                            From the
                                                                                                           Beginning
                                                                                                         of Development
                                                                                                            Stage on
                                                                                                         July 1, 1992 to
                                                             For the Years Ended June 30,                    June 30,
                                               -----------------------------------------------------    ------------------
                                                    1999                1998               1997                1999
                                               ---------------   -----------------   ---------------    ------------------
<S>                                            <C>               <C>                 <C>                <C>
REVENUES                                       $        -        $          -        $        -         $           -

EXPENSES

  General and administrative                         1,910,792             629,605           690,982             6,066,112
  Depreciation and amortization                          9,056               8,618             9,389                69,970
                                               ---------------   -----------------   ---------------    ------------------

     Total Expenses                                  1,919,848             638,223           700,371             6,136,082
                                               ---------------   -----------------   ---------------    ------------------

LOSS FROM OPERATIONS                                (1,919,848)           (638,223)         (700,371)           (6,136,082)
                                               ---------------   -----------------   ---------------    ------------------

OTHER INCOME (EXPENSE)

  Other income                                          -                       29            -                         29
  Investment income                                     -                   -                 -                     89,760
  Interest expense                                     (18,519)            (38,909)          (70,383)             (637,048)
  Interest income                                       36,752               4,075             1,569               279,516
  Foreign currency gain (loss)                              14             123,211            -                    (63,572)
                                               ---------------   -----------------   ---------------    ------------------

     Total Other Income (Expense)                       18,247              88,406           (68,814)             (331,315)
                                               ---------------   -----------------   ---------------    ------------------

NET LOSS BEFORE INCOME TAX
 EXPENSE                                            (1,901,601)           (549,817)         (769,185)           (6,467,397)

  Income tax expense                                    -                   -                 -                     -
                                               ---------------   -----------------   ---------------    ------------------

NET LOSS                                       $    (1,901,601)  $        (549,817)  $      (769,185)   $       (6,467,397)
                                               ===============   =================   ===============    ==================

BASIC NET LOSS PER SHARE                       $         (0.31)  $           (0.13)  $         (0.26)
                                               ===============   =================   ===============

WEIGHTED AVERAGE NUMBER OF
 SHARES OUTSTANDING                                  6,229,634           4,313,400         3,014,000
                                               ===============   =================   ===============
</TABLE>

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

                                       F-6
<PAGE>   40

                                 AMERALIA, INC.
                          (A Development Stage Company)
                       Statements of Stockholders' Equity

<TABLE>
<CAPTION>
                                                      Preferred Stock                          Common Stock
                                               ------------------------------         ---------------------------------
                                                  Shares            Amount               Shares               Amount
                                               -----------       ------------         --------------         ----------
<S>                                          <C>                   <C>                 <C>                   <C>
Balance at July 1, 1992
 (beginning of development stage)                    --            $      --            1,803,627            $  18,036

Shares issued for cash at $2.99
 per share                                           --                   --              421,250                4,213

Shares issued for payment
 of obligations at $2.05 per share                   --                   --                7,312                   73

Change in cumulative
 adjustment account                                  --                   --                   --                   --

Net loss for the year ended
 June 30, 1992                                       --                   --                   --                   --
                                              ---------            ---------            ---------            ---------

Balance at  June 30, 1992                            --                   --            2,232,189               22,322

Issuance of Series A preferred
 stock for cash at $1.50 per share              666,666               33,333                   --                   --

Issuance of fractional shares
 on reverse split                                    --                   --                   67                   --

Shares issued in acquisition
 of Rock School lease at $3.00
 per share                                           --                   --               50,000                  500

Change in cumulative
 adjustment account                                  --                   --                   --                   --

Net loss for the year ended
 June 30, 1993                                       --                   --                   --                   --
                                              ---------            ---------            ---------            ---------

Balance at June 30, 1993                        666,666            $  33,333            2,282,256            $  22,822
                                              ---------            ---------            ---------            ---------

<CAPTION>

                                               Additional                                                          Other
                                                Paid-in              Subscription         Accumulated          Comprehensive
                                                Capital               Receivable            Deficit               Income
                                              --------------         -------------        -----------          -------------
<S>                                          <C>                   <C>                 <C>                   <C>
Balance at July 1, 1992
 (beginning of development stage)             $ 4,449,738            $      --            $(3,797,189)         $    22,211

Shares issued for cash at $2.99
 per share                                      1,255,787                   --                     --                   --

Shares issued for payment
 of obligations at $2.05 per share                 14,927                   --                     --                   --

Change in cumulative
 adjustment account                                    --                   --                     --              147,000

Net loss for the year ended
 June 30, 1992                                         --                   --               (392,712)                  --
                                              -----------            ---------            -----------          -----------

Balance at  June 30, 1992                       5,720,452                   --             (4,189,901)             169,211

Issuance of Series A preferred
 stock for cash at $1.50 per share                966,667                   --                     --                   --

Issuance of fractional shares
 on reverse split                                      --                   --                     --                   --

Shares issued in acquisition
 of Rock School lease at $3.00
 per share                                        149,500                   --                     --                   --

Change in cumulative
 adjustment account                                    --                   --                     --               (3,000)

Net loss for the year ended
 June 30, 1993                                         --                   --               (524,482)                  --
                                              -----------            ---------            -----------          -----------

Balance at June 30, 1993                      $ 6,836,619            $      --            $(4,714,383)         $   166,211
                                              -----------            ---------            -----------          -----------
</TABLE>


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


                                       F-7
<PAGE>   41
                                 AMERALIA, INC.
                          (A Development Stage Company)
                 Statements of Stockholders' Equity (Continued)


<TABLE>
<CAPTION>


                                               Preferred Stock              Common Stock           Additional
                                           ----------------------    --------------------------      Paid-in       Subscription
                                            Shares         Amount       Shares          Amount       Capital        Receivable
                                           -------    -----------    -----------    -----------    -----------    -------------
<S>                                        <C>        <C>            <C>            <C>            <C>            <C>
Balance at June 30, 1993                   666,666    $    33,333      2,282,256    $    22,822    $ 6,836,619    $        --



Shares issued for payment of
 obligations at $2.18 per share                 --             --         36,250            363         78,650             --


Shares issued in lieu of
 dividends at $1.50 per share                   --             --         60,000            600         89,400             --

Issuance of Series B preferred
 stock for cash at $10.00 per share         51,000          2,550             --             --        507,550             --

Subscriptions receivable on
 Series B stock                                 --             --             --             --             --        (77,904)

paid                                 --             --             --             --             --             --

Change in cumulative
 adjustment account                             --             --             --             --             --             --

Net loss for the year ended
 June 30, 1994                                  --             --             --             --             --             --
                                           -------    -----------    -----------    -----------    -----------    -----------


Balance at June 30,1994                    717,666    $    35,883      2,378,506    $    23,785    $ 7,512,219    $   (77,904)
                                           =======    ===========    ===========    ===========    ===========    ========--=
</TABLE>




<TABLE>
<CAPTION>


                                                                    Other
                                                Accumulated     Comprehensive
                                                  Deficit         Income
                                              -------------   ---------------
<S>                                           <C>             <C>
Balance at June 30, 1993                      $(4,714,383)    $   166,211



Shares issued for payment of
 obligations at $2.18 per share                        --              --


Shares issued in lieu of
 dividends at $1.50 per share                          --              --

Issuance of Series B preferred
 stock for cash at $10.00 per share                    --              --

Subscriptions receivable on
 Series B stock                                        --              --

Dividends paid                                   (90,000)             --

Change in cumulative
 adjustment account                                    --         (43,000)

Net loss for the year ended
 June 30, 1994                                   (568,333)             --
                                                ---------     -----------


Balance at June 30,1994                       $(5,372,716)        123,211
                                              ===========     ===========
</TABLE>



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

                                       F-8



<PAGE>   42
                                 AMERALIA, INC.
                          (A Development Stage Company)
                 Statements of Stockholders' Equity (Continued)


<TABLE>
<CAPTION>

                                                  Preferred Stock              Common Stock
                                             -------------------------   -------------------------
                                               Shares         Amount        Shares        Amount
                                             -----------   -----------   -----------   -----------


<S>                                          <C>           <C>             <C>         <C>
Balance at June 30,1994                          717,666   $    35,883     2,378,506   $    23,785

Shares issued for cash and
 extinguishment of debt at $1.64 per
 share                                                --            --       160,000         1,600

Shares issued in lieu of dividends
 at $1.57 per share                                   --            --        71,250           713

Issuance of Series C preferred
 for cash at $80.00 per share                        750            38            --            --

Dividends paid                                        --            --            --            --

Payment received on Series B
 stock subscriptions                                  --            --            --            --

Net loss for the year ended
 June 30, 1995                                        --            --            --            --
                                             -----------   -----------   -----------   -----------

Balance, June 30, 1995                           718,416        35,921     2,609,756        26,098

Shares issued in lieu of dividends
 at $1.00 per share                                   --            --       107,285         1,072

Issuance of series D preferred
 stock for cash at $1,000.00 per share             1,435            72            --            --

Dividends paid                                        --            --            --            --

Net loss for the year ended
 June 30, 1996                                        --            --            --            --
                                             -----------   -----------   -----------   -----------

Balance, June 30, 1996                           719,851   $    35,993     2,717,041   $    27,170
                                             -----------   -----------   -----------   -----------

<CAPTION>


                                              Additional                                    Other
                                               Paid-in    Subscription    Accumulated   Comprehensive
                                               Capital     Receivable       Deficit        Income
                                             -----------  ------------    -----------   -------------

<S>                                          <C>           <C>            <C>            <C>
Balance at June 30,1994                      $ 7,512,219   $   (77,904)   $(5,372,716)   $   123,211

Shares issued for cash and
 extinguishment of debt at $1.64 per
 share                                           261,031            --             --             --

Shares issued in lieu of dividends
 at $1.57 per share                              111,287            --             --             --

Issuance of Series C preferred
 for cash at $80.00 per share                     59,963            --             --             --

Dividends paid                                        --            --       (112,000)            --

Payment received on Series B
 stock subscriptions                                  --        77,904             --             --

Net loss for the year ended
 June 30, 1995                                        --            --     (1,009,917)            --
                                             -----------   -----------    -----------    -----------

Balance, June 30, 1995                         7,944,500            --     (6,494,633)       123,211

Shares issued in lieu of dividends
 at $1.00 per share                              106,182            --             --             --

Issuance of series D preferred
 stock for cash at $1,000.00 per share         1,434,958            --             --             --

Dividends paid                                        --            --       (333,216)            --

Net loss for the year ended
 June 30, 1996                                        --            --       (751,350)            --
                                             -----------   -----------    -----------    -----------

Balance, June 30, 1996                       $ 9,485,640   $        --    $(7,579,199)   $   123,211
                                             -----------   -----------    -----------    -----------
</TABLE>



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


                                      F-9

<PAGE>   43
                                 AMERALIA, INC.
                          (A Development Stage Company)
                 Statements of Stockholders' Equity (Continued)



<TABLE>
<CAPTION>


                                                   Preferred Stock                       Common Stock                 Additional
                                           ------------------------------     --------------------------------          Paid-in
                                             Shares              Amount           Shares             Amount             Capital
                                           -----------        -----------     -------------       ------------        -----------
<S>                                        <C>                <C>             <C>                 <C>                 <C>
Balance, June 30, 1996                         719,851        $    35,993         2,717,041       $     27,170        $ 9,485,640

Shares issued for cash and
 extinguishment of debt at $1.00
 per share                                          --                 --           358,500              3,585            354,915

Shares issued in lieu of dividends
 at $1.00 per share                                 --                 --           233,790              2,338            231,452

Issuance of Series D preferred
 stock for cash at $1,000.00 per share             405                 20                --                 --            404,993

Issuance of Series D preferred
 stock for extinguishment of
 debt at $1,000.00 per share                       100                  5                --                 --             99,995

Dividends paid                                      --                 --                --                 --                 --

Additional capital contributed                      --                 --                --                 --            167,418

Net loss for the year ended
 June 30, 1997                                      --                 --                --                 --                 --
                                           -----------        -----------     -------------       ------------        -----------

Balance, June 30, 1997                         720,356        $    36,018         3,309,331       $     33,093        $10,744,413
                                           -----------        -----------     -------------       ------------        -----------

<CAPTION>


                                                                                 Other
                                           Subscription     Accumulated      Comprehensive
                                            Receivable        Deficit            Income
                                           ------------     -----------      -------------
<S>                                        <C>              <C>              <C>
                                           $         --     $(7,579,199)     $     123,211
Balance, June 30, 1996

Shares issued for cash and
 extinguishment of debt at $1.00                     --              --                 --
 per share

Shares issued in lieu of dividends                   --              --                 --
 at $1.00 per share

Issuance of Series D preferred                       --              --                 --
 stock for cash at $1,000.00 per share

Issuance of Series D preferred
 stock for extinguishment of                         --              --                 --
 debt at $1,000.00 per share
                                                     --        (233,790)                --
Dividends paid
                                                     --              --                 --
Additional capital contributed

Net loss for the year ended                                    (769,185)                --
 June 30, 1997                             ------------     -----------      -------------

                                           $         --     $(8,582,174)     $     123,211
Balance, June 30, 1997                     ------------     -----------      -------------

</TABLE>


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


                                      F-10
<PAGE>   44

                                 AMERALIA, INC.
                          (A Development Stage Company)
                 Statements of Stockholders' Equity (Continued)

<TABLE>
<CAPTION>
                                                   Preferred Stock                      Common Stock
                                           ------------------------------      ------------------------------
                                              Shares            Amount            Shares            Amount
                                           ------------      ------------      ------------      ------------
<S>                                        <C>               <C>               <C>               <C>
Balance, June 30, 1997                          720,356      $     36,018         3,309,331      $     33,093

Issuance of Series D preferred
 stock for cash at $1,000.00 per share              240                12                --                --

Common stock sold for cash
 at $1.00 per share                                  --                --           865,000             8,650

Offering costs                                       --                --                --                --

Foreign currency translation
 adjustment                                          --                --                --                --

Shares issued in lieu of dividends
 at $1.00 per share                                  --                --           356,554             3,566

Conversion of preferred stock                  (718,060)          (35,903)          791,666             7,917

Dividends paid                                       --                --                --                --

Shares canceled                                      --                --            (5,000)              (50)

Additional capital contributed                       --                --                --                --

Net loss for the year ended
 June 30, 1998                                       --                --                --                --
                                           ------------      ------------      ------------      ------------

Balance, June 30, 1998                            2,536      $        127         5,317,551      $     53,176
                                           ============      ============      ============      ============
</TABLE>

<TABLE>
<CAPTION>
                                            Additional                                              Other
                                             Paid-in         Subscription      Accumulated      Comprehensive
                                             Capital          Receivable         Deficit           Income
                                           ------------      ------------     ------------      ------------
<S>                                        <C>               <C>              <C>               <C>
Balance, June 30, 1997                     $ 10,744,413      $         --     $ (8,582,174)     $    123,211

Issuance of Series D preferred
 stock for cash at $1,000.00 per share          239,988                --               --                --

Common stock sold for cash
 at $1.00 per share                             856,350                --               --                --

Offering costs                                 (240,800)               --               --                --

Foreign currency translation
 adjustment                                          --                --               --          (123,211)

Shares issued in lieu of dividends
 at $1.00 per share                             352,988                --               --                --

Conversion of preferred stock                    63,987                --               --                --

Dividends paid                                       --                --         (392,554)               --

Shares canceled                                  (4,950)               --               --                --

Additional capital contributed                  139,954                --               --                --

Net loss for the year ended
 June 30, 1998                                       --                --         (549,817)               --
                                           ------------      ------------     ------------      ------------

Balance, June 30, 1998                     $ 12,151,930      $         --     $ (9,524,545)     $         --
                                           ============      ============     ============      ============
</TABLE>


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

                                      F-11
<PAGE>   45



                                 AMERALIA, INC.
                         (A Development Stage Company)
                 Statements of Stockholders' Equity (Continued)


<TABLE>
<CAPTION>


                                              Preferred Stock                  Common Stock            Additional
                                           ----------------------        -------------------------       Paid-in     Subscription
                                           Shares          Amount        Shares             Amount       Capital      Receivable
                                           ------          ------        ------             ------     ----------    ------------

<S>                                     <C>           <C>              <C>            <C>             <C>             <C>
Balance, June 30, 1998                       2,536    $        127       5,317,551    $     53,176    $ 12,151,930    $       --

Shares issued for cash and
 extinguishment of debt at $1.00
 per share                                    --              --            72,500             725          71,775            --

Shares issued for cash and
 extinguishment of debt at $1.50
 per share                                    --              --           807,500           8,075       1,203,175            --

Shares issued in lieu of dividends
 at $1.00 per share                           --              --           209,215           2,092         207,123            --

Shares issued through exercise
 of warrants at $2.00 per share               --              --         1,253,000          12,530       2,493,470            --

Issuance of Series E preferred
 stock through exercise of option
 at $929.66 per share                          450              22            --              --           418,324            --

Dividends declared                            --              --              --              --              --              --

Net loss for the year ended
 June 30, 1999                                --              --              --              --              --              --
                                      ------------    ------------    ------------    ------------    ------------    ------------

Balance, June 30, 1999                       2,986    $        149       7,659,766    $     76,598    $ 16,545,797    $       --
                                      ============    ============    ============    ============    ============    ============
</TABLE>


<TABLE>
<CAPTION>


                                                          Other
                                      Accumulated      Comprehensive
                                        Deficit           Income
                                      -----------      -------------

<S>                                   <C>              <C>
Balance, June 30, 1998                $ (9,524,545)    $       --

Shares issued for cash and
 extinguishment of debt at $1.00
 per share                                    --               --

Shares issued for cash and
 extinguishment of debt at $1.50
 per share                                    --               --

Shares issued in lieu of dividends
 at $1.00 per share                           --               --

Shares issued through exercise
 of warrants at $2.00 per share               --               --

Issuance of Series E preferred
 stock through exercise of option
 at $929.66 per share                         --               --

Dividends declared                        (283,865)            --

Net loss for the year ended
 June 30, 1999                          (1,901,601)            --
                                      ------------     ------------

Balance, June 30, 1999                $(11,710,011)    $       --
                                      ============     ============
</TABLE>


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


                                     F-12

<PAGE>   46



                                 AMERALIA, INC.
                         (A Development Stage Company)
                            Statements of Cash Flows


<TABLE>
<CAPTION>
                                                                                                               From the
                                                                                                              Beginning of
                                                                                                              Development
                                                                                                                Stage on
                                                                                                              July 1, 1992
                                                                     For the Years Ended June 30,               Through
                                                              -------------------------------------------       June 30,
                                                                 1999            1998            1997             1999
                                                              -----------     -----------     -----------     -----------

CASH FLOWS FROM OPERATING ACTIVITIES

<S>                                                           <C>             <C>             <C>             <C>
  Net loss                                                    $(1,901,601)    $  (549,817)    $  (769,185)    $(6,467,397)
  Adjustments to reconcile net loss to net cash
   (used) by operating activities:
    Bad debt                                                         --              --              --           624,798
    Stock issued for services rendered                               --              --            65,000          65,000
    Depreciation and amortization                                   9,056           8,618           9,389          79,548
    Exchange (gain)                                                   (14)       (123,211)         (6,810)       (168,556)
  Change in Operating Assets and Liabilities:
    Decrease in prepayments                                          --              --              --            18,000
    Decrease in notes receivable                                     --              --              --         1,300,497
    (Increase) in restricted cash                                (991,305)           --              --          (991,305)
    (Increase) decrease in accounts and interest
      receivable                                                   (1,167)           --            38,086            (502)
    (Increase) decrease in related party receivables              (25,334)         (7,610)         59,466         (43,008)
    (Increase) in prepaid expenses                                (30,082)           --              --           (30,082)
    (Increase) in deposits                                        (25,906)           --              --           (25,906)
    (Increase) decrease in other assets                          (110,000)        224,500        (224,500)       (110,000)
    Increase in bank overdraft                                      1,116           4,586            --             5,702
    Increase (decrease) in due to related parties                 (35,354)        (45,704)          1,541         (71,969)
    Increase (decrease) in accounts payable and
      royalties payable                                           146,173         106,319        (122,974)        448,580
    Increase in accrued expenses                                   19,836            --              --            19,836
    Increase (decrease) in interest payable                           860         (22,096)        229,463        (117,776)
    Increase in contingent liabilities                            303,800            --              --           303,800
                                                              -----------     -----------     -----------     -----------

          Net Cash (Used) in Operating Activities              (2,639,922)       (404,415)       (720,524)     (5,160,740)
                                                              -----------     -----------     -----------     -----------

CASH FLOWS FROM INVESTING ACTIVITIES

  Lease acquisition, exploration and development
    expenditures                                                 (255,000)        (13,051)        (20,192)     (2,177,890)
  Plant construction deposit                                   (1,250,000)           --              --        (1,250,000)
  Liquidation of RIT investment                                   418,346            --              --           418,346
  Purchase of property and equipment                              (26,261)           --              --           (91,529)
  Cash paid on note receivable related                            (25,000)           --              --           (25,000)
  Cash received from notes receivable                                --              --              --          (144,853)
                                                              -----------     -----------     -----------     -----------

          Net Cash (Used) in Investing Activities             $(1,137,915)    $   (13,051)    $   (20,192)    $(3,270,926)
                                                              -----------     -----------     -----------     -----------
</TABLE>



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



                                     F-13

<PAGE>   47
                                 AMERALIA, INC.
                         (A Development Stage Company)
                      Statements of Cash Flows (Continued)

<TABLE>
<CAPTION>
                                                                                                 From the
                                                                                               Beginning of
                                                                                               Development
                                                                                                 Stage on
                                                                                               July 1, 1992
                                                          For the Years Ended June 30,           Through
                                                   -----------------------------------------     June 30,
                                                       1999          1998           1997          1999
                                                   -----------   ------------   ------------   ------------
<S>                                               <C>            <C>            <C>            <C>
CASH FLOWS FROM FINANCING ACTIVITIES

  Cash received from issuance of stock             $ 3,574,000    $   859,200    $   404,013    $ 8,291,596
  Cash received from notes                             198,217        223,606        320,400        757,222
  Payments on note payable                            (389,475)      (100,183)       (55,000)      (612,658)
  Additional capital contributed                            --        139,954         51,727        307,372
                                                   -----------    -----------    -----------    -----------

      Net Cash Provided by Financing Activities      3,382,742      1,122,577        721,140      8,743,532
                                                   -----------    -----------    -----------    -----------

NET INCREASE (DECREASE) IN CASH                       (395,095)       705,111        (19,576)       311,866

CASH AND CASH EQUIVALENTS AT
 BEGINNING OF YEAR                                     707,199          2,088         21,664            238
                                                   -----------    -----------    -----------    -----------
CASH AND CASH EQUIVALENTS AT
 END OF YEAR                                       $   312,104    $   707,199    $     2,088    $   312,104
                                                   ===========    ===========    ===========    ===========
SUPPLEMENTAL DISCLOSURE OF CASH
 FLOW INFORMATION

  Income taxes                                     $        --    $        --    $        --    $        --
  Interest                                         $    17,659    $    38,479    $    70,382    $   279,373

NON-CASH FINANCING ACTIVITIES

  Common stock issued for payment of obligations   $   215,750    $        --    $   393,031    $   608,781
  Common stock issued for services rendered        $        --    $        --    $    65,000    $    65,000
  Payment of preferred stock dividends through
   the issuance of additional common and
   preferred stock                                 $   209,215    $   356,554    $   233,790    $ 1,144,813
</TABLE>


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

                                     F-14
<PAGE>   48

                                 AMERALIA, INC.
                        Notes to the Financial Statements
                          (A Development Stage Company)
                             June 30, 1999 and 1998


NOTE 1 -      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

              a.  General Development of the Business

              AmerAlia, Inc. (AmerAlia) was originally incorporated as Computer
              Learning Software, Inc. under the laws of the State of Utah on
              June 7, 1983 and renamed AmerAlia, Inc. in January 1984. AmerAlia
              acquired various investments in Australia which have since been
              sold.

              Since 1989, AmerAlia has been primarily engaged in establishing a
              chemical business in the manufacture of sodium bicarbonate and
              related products. AmerAlia purchased an interest in, and
              subsequently acquired, a federal sodium lease in Colorado, USA.
              AmerAlia's lease contains a substantial, naturally occurring, rare
              deposit of sodium bicarbonate, commonly known as baking soda.

              AmerAlia's primary objective is to use solution mining to recover
              sodium bicarbonate for sale to the animal feed, industrial,
              pharmaceutical and food grade markets. The production of sodium
              bicarbonate will also enable the production of soda ash and
              caustic soda, chemicals which are widely used in the manufacture
              of glass, detergents and a variety of inorganic and organic
              chemicals. Potentially, sodium bicarbonate might be used as an
              agent for flue gas desulfurization, a market AmerAlia expects will
              expand as the requirements of the 1990 amendments to the Clean Air
              Act impact more significantly on industry. It proposes to achieve
              this objective by:

                  1.  finalizing Bureau of Land Management approval of a
                      proposal to construct a plant for the recovery and
                      production of sodium bicarbonate; and

                  2.  raising sufficient capital to construct the plant and
                      commence operations.

              AmerAlia has submitted their mining and development plans to the
              Bureau of Land Management and submitted applications for all
              necessary associated permits to other regulatory agencies of the
              federal, state and county administrations. If the required permits
              are not obtained, the construction of the plant and the operation
              of the mine may be delayed significantly.

              b. Accounting Method

              AmerAlia's financial statements are prepared using the accrual
              method of accounting. AmerAlia has elected a June 30, year-end.



                                      F-15

<PAGE>   49




                                 AMERALIA, INC.
                        Notes to the Financial Statements
                          (A Development Stage Company)
                             June 30, 1999 and 1998


NOTE 1 -      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
              (Continued)

              c. Cash and Restricted Cash

              AmerAlia considers all highly liquid investments with a maturity
              of three months or less when purchased to be cash equivalents.

              AmerAlia has $991,305 in restricted cash at June 30 1999 that is
              being held in an escrow account to be used for the construction of
              its sodium bicarbonate plant (see Note 3).

              d. Reporting Currency and Remeasurement

              AmerAlia's financial statements are reported in its reporting
              currency, the United States dollar. Remeasurement of Australian
              assets, liabilities and operations into United States dollars
              results in foreign currency gains and losses which are reflected
              in the statements of operations. During the year ended June 30,
              1998, management decided that the foreign currency translation
              adjustment was no longer valid because the Australian operations
              had ceased. Therefore, the amount was removed from the balance
              sheet and recorded through the current year statement of
              operations.

              e. Fixed Assets

              Fixed assets are stated at cost, less accumulated depreciation.
              Depreciation is determined using the straight-line method over the
              estimated useful lives of the assets ranging from 3 to 7 years.
              Expenditures for property additions and betterments are
              capitalized at cost. Maintenance and repairs are charged to
              expense when incurred.

              f. Income Taxes

              At June 30, 1999, AmerAlia had net operating loss carryforwards of
              approximately $6,400,000 that may be offset against future taxable
              income from the year 2000 through 2014. No tax benefit has been
              reported in the June 30, 1999 financial statements because
              AmerAlia believes that the carryforwards are more likely than not
              to expire unused. Accordingly, the potential tax benefit is offset
              by a valuation allowance of the same amount.

              g. Basic Net Loss Per Share

              Basic net loss per share is computed using the weighted average
              number of common shares outstanding during the applicable period.
              AmerAlia's outstanding stock purchase warrants and options have
              been excluded from the basic net loss per share calculation as
              they are anti-dilutive.



                                      F-16

<PAGE>   50

                                 AMERALIA, INC.
                        Notes to the Financial Statements
                          (A Development Stage Company)
                             June 30, 1999 and 1998

NOTE 1 -      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
              (Continued)

              h. Use of Estimates

              The preparation of financial statements in conformity with
              generally accepted accounting principles require management to
              make estimates and assumptions that affect the reported amounts of
              assets and liabilities and disclosure of contingent assets and
              liabilities at the date of the financial statements and the
              reported amounts of revenues and expenses during the reporting
              period. Actual results could differ from those estimates.

              i. Concentrations of Risk

              AmerAlia records receivables from advances to related parties and
              from uncollected investment revenues.

              AmerAlia maintains several accounts with financial institutions.
              The accounts are insured by the Federal Deposit Insurance
              Corporation up to $100,000. The Company's balances exceed that
              amount. The Company also maintains a cash account with a brokerage
              firm. This account is not insured by the Federal Deposit Insurance
              Corporation. At June 30, 1999, the amount of uninsured cash in all
              accounts was $1,086,479.

              Credit losses, if any, have been provided for in the financial
              statements and are based on management's expectations. AmerAlia's
              accounts receivable are subject to potential concentrations of
              credit risk. AmerAlia does not believe that it is subject to any
              unusual risks, or significant risks in the normal course of its
              business.

              j. Deferred Financing Costs

              AmerAlia has incurred costs of $110,000 in connection with
              establishing a long-term financing package for approximately
              $32,000,000 for the construction of a plant for the recovery and
              production of the sodium bicarbonate. The amount will be amortized
              over the life of the long-term financing agreement once
              established.

NOTE 2 -      RELATED PARTY RECEIVABLES

              AmerAlia occasionally issues advances to related parties who have
              supported AmerAlia over the years. The balance due from related
              parties at June 30, 1999 and 1998 totals $43,008 and $17,674,
              respectively. These advances are non-interest bearing and are due
              on demand.

              AmerAlia also loaned an officer of the Company $25,000 as part of
              his employment agreement. Interest is payable on the loan at 7.0%
              per annum, payable quarterly. Accrued interest receivable on June
              30, 1999 was $1,167. As part of the agreement, AmerAlia will
              cancel $5,000 of the principal amount each year on the anniversary
              date of the employment agreement until paid in full. In the event
              of termination for any reason, the entire unpaid principal is due
              within 30 days of the termination date.




                                      F-17

<PAGE>   51


                                 AMERALIA, INC.
                        Notes to the Financial Statements
                          (A Development Stage Company)
                             June 30, 1999 and 1998


NOTE 3 -      LEASE ACQUISITION AND EXPLORATION COSTS

              In December 1992, AmerAlia acquired from an unrelated party
              ("Kinder"), BLM Sodium Lease C-0119985 known as the Rock School
              Lease, including 1,320 acres, in Rio Blanco County, Colorado, USA.
              AmerAlia acquired the Rock School Lease for consideration
              comprising (I) a cash payment of $600,000; (ii) the issuance of
              50,000 shares of common stock; and (iii) commencing July 1, 1994,
              the reservation of a production royalty of $2 per ton which was
              amended January 1, 1996 to $1.50 per ton for all production, due
              and payable on the last day of the month following the month of
              production provided that a minimum annual royalty of $100,000
              (which was changed to $75,000 on January 1, 1996) be paid monthly
              in arrears. A further condition of the lease acquisition agreement
              with Kinder is that all minimum royalty payments will be credited
              against any future liability which exceeds the minimum royalty
              (see Note 10). Kinder assigned all of its rights, title and
              interest in the federal lease to AmerAlia. Kinder also agreed to
              provide all documentation, files and records in its possession
              pertaining to the exploration of and development plans for the
              Rock School Lease; warranted that it had not assigned to any third
              party or dealt in any way with its interest in the Rock School
              Lease and granted AmerAlia an option to acquire its royalty
              interest. The assignment of the interest in the Rock School Lease
              from Kinder was approved by the BLM on January 1, 1996.

              The Rock School Lease was renewed July 1, 1991 for a period of ten
              years and is renewable under terms and conditions prescribed by
              the Secretary of the Interior. The lease is currently undeveloped,
              although the adjoining lease has been brought into production.
              AmerAlia has obtained the necessary permits from the appropriate
              regulatory authorities to mine its lease. As a part of obtaining
              the approval of the Bureau of Land Management to solution mine the
              property, AmerAlia drilled its first core hole during 1996. The
              completed core hole has provided specific data which prove the
              existence and continuity of the nahcolite beds through the Rock
              School Lease as described below.

              AmerAlia has engaged engineering consultants to form preliminary
              estimates of the cost of constructing a 50,000,000 ton per year
              plant. AmerAlia estimates that $35,000,000 or more will be
              required for construction and annual operating costs will be up to
              $5,000,000 for mining operations. AmerAlia has entered into a
              preliminary construction agreement dated May 14, 1999 with a
              Delaware corporation doing business as U.S. Filter Corporation and
              HPD Products (US Filter) to design, manage and construct a sodium
              bicarbonate solution mining and production plant on the Rock
              School Lease for an amount not to exceed $33,200,000. Pursuant to
              the agreement, AmerAlia is to deposit a total of $6,400,000 into
              an escrow account at certain times as prescribed in a deposit
              schedule. As of June 30, 1999, AmerAlia had paid U.S. Filter
              $1,250,000 as a preliminary deposit for the design of the plant.
              AmerAlia had also deposited an additional $950,000 into the
              required escrow account. This amount is included in the restricted
              cash of $991,305 as of June 30, 1999 in the accompanying financial
              statements. Therefore, at June 30, 1999, a total of $2,200,000 of
              the $6,400,000 had either been paid directly to U.S. Filter or
              deposited into the escrow account. The remaining $4,200,000 was
              deposited into the escrow account September 15, 1999. U.S. Filter
              will submit progress invoices that will be paid out of the escrow
              funds.

                                      F-18

<PAGE>   52


                                 AMERALIA, INC.
                        Notes to the Financial Statements
                          (A Development Stage Company)


                             June 30, 1999 and 1998

NOTE 3 -      LEASE ACQUISITION AND EXPLORATION COSTS (Continued)

              Subject to certain conditions, U.S. Filter will complete the
              design and construction of the necessary mine and processing plant
              for AmerAlia, guarantee the plant's performance and advance the
              costs of construction to AmerAlia. Among the more significant
              conditions, however, are the requirements that i) AmerAlia pay
              $6,400,000 into an escrow account as previously mentioned and ii)
              before U.S. Filter is obligated to incur any expenses outside the
              escrow account, AmerAlia must have sufficient long-term financing.

              AmerAlia has entered into preliminary discussions with an
              organization to provide the long-term financing once the plant is
              completed. This agreement had not been finalized as of the date of
              our audit report.

              If AmerAlia is unable to obtain the long-term financing, U.S.
              Filter has the right to cease any further work on the project and
              recover damages from AmerAlia. As a result of an amendment to the
              agreement with U.S. Filter, U.S. Filter holds a security interest
              in AmerAlia's Rock School Lease.

              AmerAlia is currently working on obtaining the required permits
              from the BLM and other regulatory authorities to enable the
              construction to proceed.

              The lease is one of three federal leases which cover a unique,
              major natural resource of nahcolite (naturally occurring sodium
              bicarbonate). AmerAlia has performed surface geological
              investigation of the 1,320 acre lease and has reviewed data
              assembled by other investigators in the Piceance Creek Basin,
              including a 1974 report published by the United States Geological
              Survey entitled "Stratigraphy and Nahcolite Resources of the
              Saline Facles of the Green River Formation, Rio Blanco County,
              Colorado." (John R. Dyni, USGS Report 74-56). This report analyzed
              the results of a detailed study of ten core holes from the saline
              zone, including a core hole known as Dunn 209-1 which is
              approximately 800 feet to the east of AmerAlia's proposed initial
              mine site on the Rock School lease.

              From this core hole, the total nahcolite content of the saline
              zone in this area was estimated at 315 tons per square mile. Using
              this figure translates to a total nahcolite content of the Rock
              School Lease of 649 million short tons for the 1,320 acre lease.
              Due to lateral persistence of this deposit, which allows
              correlation of beds over distances of many miles, it is reasonable
              to assume that the concentrations found in the Dunn 20-1 hole also
              exist beneath the Rock School Lease.

              Based on the foregoing information, AmerAlia believes that the
              nahcolite deposit within the Rock School Lease is of significant
              size. However, not all of this resource can be recovered with
              existing technology. Until the resource is brought into production
              or until substantial additional engineering work is accomplished,
              the viability of economic recoverability cannot be established.
              AmerAlia has capitalized costs associated with the acquisition of
              the lease site and certain other costs associated with the
              development of the resource. All other costs incurred in
              developing the resource are expensed as period costs (Note 11).


                                      F-19

<PAGE>   53

                                 AMERALIA, INC.
                        Notes to the Financial Statements
                          (A Development Stage Company)
                             June 30, 1999 and 1998


NOTE 4 - INVESTMENT IN THE RURAL INVESTMENT TRUST

         On October 18, 1998, pursuant to an option agreement with THG
         Partnership (THG), AmerAlia issued 450 shares of Series E preferred
         stock in exchange for units in the Rural Investment Trust (RIT). The
         RIT was later liquidated during May 1999 and AmerAlia received
         $418,346. As part of the transfer of the RIT units, AmerAlia assumed a
         $180,000 note payable to an Australian bank. AmerAlia repaid the note
         using the $418,346 proceeds.

NOTE 5 - FIXED ASSETS

         Fixed assets consist of office furniture and equipment as follows:

<TABLE>
<CAPTION>

                                                               June 30,
                                                    ----------------------------
                                                         1999            1998
                                                    ------------     -----------
<S>                                                 <C>              <C>
            Vehicle                                 $     31,960     $   31,960
            Equipment                                     50,369         35,081
            Less accumulated depreciation                (58,127)       (60,058)
                                                    ------------     ----------

                                                    $     24,202     $    6,983
                                                    ============     ==========
</TABLE>

         Depreciation expense for the years ended June 30, 1999, 1998 and 1997
         was $9,056, $8,618 and $9,389, respectively.

NOTE 6 - DUE TO RELATED PARTIES

         AmerAlia owed $9,333 and $35,354 to affiliates of AmerAlia at June 30,
         1999 and 1998, respectively. This liability is comprised of advances to
         AmerAlia, accrued compensation and unpaid directors fees.



                                      F-20

<PAGE>   54



                                 AMERALIA, INC.
                        Notes to the Financial Statements
                          (A Development Stage Company)
                             June 30, 1999 and 1998


NOTE 7 - NOTES PAYABLE - LONG TERM

<TABLE>
<CAPTION>
                                                                                     June 30,
                                                                             ------------------------
                                                                                1999          1998
                                                                             ----------    ----------
<S>                                                                          <C>           <C>
              Notes payable consist of the following amounts:

              Note payable to investors; unsecured, due on
               demand; at 10% interest.                                      $    4,000    $    4,000

              Note payable to investor; unsecured, due on
               April 23, 1999; at 12% interest.                                      --       197,000

              Note payable to financial institution; principal
               and interest payment of $568 due monthly;
               at 9.5% interest; secured by vehicle.                                 --         5,878

              Note payable to an employee; unsecured,
               due on demand; interest free.                                         --        18,533

              Note payable Raytheon Engineers & Constructors,
               Inc; unsecured, due upon a 90 day demand; at
               12% interest.                                                         --       185,597
                                                                             ----------    ----------
                                                                                  4,000       411,008
                   Less current portion                                          (4,000)     (411,008)
                                                                             ----------    ----------

                   Total Long-Term Notes Payable                             $   -         $   -
                                                                             ==========    ==========
</TABLE>


         Principal maturities are as follows:

<TABLE>
<CAPTION>

                Year Ended
                 June 30,                                           Amount
                ----------                                        ---------
<S>                                                               <C>
                   2000                                           $   4,000
                   2001                                                  --
                   2002                                                  --
                   2003                                                  --
                   2004                                                  --
                   2005 and thereafter                                   --
                                                                  ---------
                                                                  $   4,000
</TABLE>


                                      F-21
<PAGE>   55



                                 AMERALIA, INC.
                        Notes to the Financial Statements
                          (A Development Stage Company)
                             June 30, 1999 and 1998


NOTE 8 -      OFFICER COMPENSATION

              AmerAlia paid $125,000 and $100,000 to Gunn Development Pty. Ltd.
              and $55,000 and $55,000 to Ahciejay Pty. for management fees
              during the years ended June 30, 1999 and 1998, respectively. These
              companies are affiliates of Mr. Bill H. Gunn, Chairman and
              President of AmerAlia, and Mr. Robert van Mourik, Executive Vice
              President, Secretary & Treasurer. On June 1, 1998, AmerAlia
              appointed Mr. John Woolard as an Executive Vice President.
              Previously, Mr. Woolard had been employed as a consultant under a
              consulting agreement. AmerAlia paid $135,000 and $60,000 in total
              compensation to Mr. Woolard during the years ended June 30, 1999
              and 1998, respectively. Additional fees totaling $18,302 and
              $7,007 have been paid to Jacinth Pty. Ltd., an affiliate of Robert
              Cameron, a director of AmerAlia for the years ended June 30, 1999
              and 1998, respectively. In addition, all directors received
              $14,000 for directors fees, except Mr. Woolard who received a
              prorata portion ($9,333) from the time he was appointed a director
              through June 30, 1999.

              In June 1996, AmerAlia agreed to grant 70,000 Stock Appreciation
              Rights ("SAR's") to Mr. Bill Gunn. At any time after the share
              price has sustained an average bid price of more than $3.50 for a
              six month period before June 28, 2006, a holder of SAR's may
              require AmerAlia to exchange its SAR's, in whole or in part at the
              holder's option, for an issuance of restricted common stock at
              $1.50 per share on a one-for-one basis. If a holder of a SAR
              ceases to be a director or employee of AmerAlia prior to the
              conversion of all its SAR's, then the remaining SAR's are
              canceled.

NOTE 9 -      OUTSTANDING STOCK OPTIONS AND PURCHASE WARRANTS

              The following summarizes the exercise price per share and
              expiration date of AmerAlia's outstanding options and warrants to
              purchase preferred and common stock at June 30, 1999:

<TABLE>
<CAPTION>
                    Expiration Date             Price         Number
                  --------------------         -------      ---------
<S>                                            <C>          <C>
                  March 31, 1999                $2.00         462,000  *See note (a)
                  March 31, 2001                $1.00         100,000
                  March 31, 2003                $1.50         150,000
                  June 28, 2006                 $1.50         505,000
                  June 28, 2006 (SAR's)         $1.50          70,000  (See Note 8)
                                                              -------

                                                            1,287,000
                                                            =========
</TABLE>

              Note(a):    If unexercised, these options are exercisable at $4.00
                          until March 31, 2000 and thereafter at $6.00 until
                          expiring on April 1, 2001.

              During the year ended June 30, 1999, 363,333 options and warrants
              expired and options for 1,253,000 common shares were exercised.

              During the years ended June 30, 1998 and 1997, no options expired.


                                      F-22
<PAGE>   56

                                 AMERALIA, INC.
                        Notes to the Financial Statements
                          (A Development Stage Company)
                             June 30, 1999 and 1998


NOTE 10 -     COMMITMENTS AND CONTINGENT LIABILITIES

              AmerAlia is a party to certain claims and lawsuits arising from
              its business activities.

              In 1993, AmerAlia entered into an engineering contract with
              Raytheon Engineering (Raytheon) for the design and construction of
              a processing plant for the Rock School Lease. AmerAlia has
              rescinded the contract claiming that Raytheon was late in
              providing engineering plans and testing and that their work was
              substandard. Raytheon has an outstanding invoice due them for
              approximately $303,800. AmerAlia is contesting the invoice and
              claims that the amount is not owed because of substandard work.
              Although management intends to vigorously contest the claim, a
              contingent liability of $303,800 has been recorded at June 30,
              1999.

              Marvin Hudson, a former officer and employee of AmerAlia has
              alleged that AmerAlia breached an employment agreement. AmerAlia
              claims that the agreement was fraudulent and void and intends on
              vigorously contesting the claim. The litigation is only in the
              earliest stages and the outcome or potential loss cannot currently
              be reasonably predicted. AmerAlia believes that they have a valid
              defense and intends on defending their case vigorously.

              On December 10, 1992, AmerAlia acquired the Rock School Lease from
              Kinder; the acquisition terms were amended by Kinder and AmerAlia
              on January 1, 1996. As amended, the acquisition agreement provides
              for the following consideration:

               1.  Commencing January 1, 1996, the reservation of a production
                   royalty of $1.50 per ton for all production, due and payable
                   on the last day of the month following the month of
                   production subject to a minimum annual royalty of $75,000 in
                   arrears;

               2.  Starting January 1, 1996, the establishment of a consulting
                   arrangement between Kinder and AmerAlia providing for an
                   annual consulting fee of $25,000 payable monthly in arrears.

<TABLE>
<CAPTION>

                   Minimum amounts due are as follows:

<S>                                                                                           <C>
                        2000                                                                  $   100,000
                        2001                                                                      100,000
                        2002                                                                      100,000
                                                                                              -----------

                             Total                                                            $   300,000
                                                                                              ===========
</TABLE>

               These payments will continue while AmerAlia holds the Rock School
               Lease. Royalties payable as of June 30, 1999 and 1998 were
               $279,167 and $204,167, respectively.

               As discussed in Note 3, the payment of the minimum annual
               royalties accrues credits which AmerAlia can offset against
               future royalty liabilities if they exceed the minimum annual
               royalty due. The total of these credits at June 30, 1999 was
               $412,500.



                                      F-23

<PAGE>   57




                                 AMERALIA, INC.
                        Notes to the Financial Statements
                          (A Development Stage Company)
                             June 30, 1999 and 1998


NOTE 10 -      COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

               In April 1999 (effective November 1998), AmerAlia entered into an
               employment contract with its Vice-President of Operations for a
               period of five years. Pursuant to the employment agreement, the
               officer will receive a salary of $100,000 per annum, plus bonuses
               and salary increases. AmerAlia also granted the officer options
               to acquire 100,000 shares of common stock at an exercise price of
               $1.50 per share, through December 31, 2003. 20,000 of those
               options vested upon signing the agreement and the remaining
               options shall vest annually through November 2002.

NOTE 11 -      RECOVERABILITY OF LEASE ACQUISITION AND EXPLORATION COSTS

               The recoverability of this investment is dependent upon AmerAlia
               developing mining operations on the lease so that the
               profitability of mining operations, or prospective mining
               operations, is sufficient to enable AmerAlia to be able to sell
               its investment and recover the lease acquisition and exploration
               costs, as well as any subsequent capitalized expenditures.

NOTE 12 -      ACCRUED EXPENSES

               Accrued expenses consist of the following at June 30, 1999 and
               1998, respectively:

<TABLE>
<CAPTION>

                                                                                  1999                   1998
                                                                               -----------           -----------

<S>                                                                            <C>                   <C>
               Accrued dividends                                               $    74,650           $        --
               Payroll taxes                                                        13,569                 3,066
                                                                               -----------           -----------

                   Total                                                       $    88,219           $     3,066
                                                                               ===========           ===========
</TABLE>

NOTE 13 -      PREFERRED STOCK

               The following are terms of the various series of preferred stock:

               1.  AmerAlia issued 666,666 shares of Series A Convertible
                   Preferred Stock at $1.50 per share. The shares were
                   convertible into 666,666 shares of common stock and carried a
                   9% dividend payable annually in restricted common stock. The
                   shares were converted into common shares during the year
                   ended June 30, 1998.

               2.  There were 51,000 shares of Series B Preferred Stock issued
                   at $10 per share. Each share was convertible into 5 shares of
                   common stock and carried a 9% dividend payable annually at
                   the option of the stockholder in restricted common stock at
                   $2 per share. The shares were converted to common shares or
                   Series E Preferred during the year ended June 30, 1998.



                                      F-24
<PAGE>   58



                                 AMERALIA, INC.
                        Notes to the Financial Statements
                          (A Development Stage Company)
                             June 30, 1999 and 1998


NOTE 13 - PREFERRED STOCK (Continued)

               3.  Series C Convertible Preferred Stock consisted of 750 shares
                   issued at $80 per share. Each share was convertible into
                   common stock until April 22, 2005 on the basis of 53 shares
                   of common stock for each share of Series C and carried a 5%
                   dividend payable annually in cash. The Series C stock was
                   converted to Series E Preferred during the year ended June
                   30, 1998.

               4.  There are 2,986 shares of Series E preferred stock which
                   carry a 10% dividend payable quarterly in restricted common
                   stock at $1.00 per share. Each share of the preferred stock
                   is convertible into 1,000 shares of common stock until
                   October 31, 2000.

NOTE 14 - GOING CONCERN

               AmerAlia's financial statements are prepared using generally
               accepted accounting principles applicable to a going concern
               which contemplates the realization of assets and liquidation of
               liabilities in the normal course of business. However, AmerAlia
               does not have significant cash or other material assets, nor does
               it have an established source of revenues sufficient to cover its
               operating costs and to allow it to continue as a going concern.
               It is the intent of AmerAlia to generate revenue through the
               manufacture and sales of its sodium bicarbonate products.
               However, AmerAlia cannot begin mining the product until long-term
               financing for the construction of the plant is obtained and the
               plant completed.

NOTE 15 - SUBSEQUENT EVENTS

               Subsequent to June 30, 1999, AmerAlia issued 250,000 shares of
               common stock at $2.50 per share for $625,000. AmerAlia also
               borrowed a total of $4,200,000 from Nation's Bank under a
               one-year agreement in order to deposit the remaining $4,200,000
               into their escrow account to be used for the construction of the
               sodium bicarbonate plant (see Note 3). The loan is guaranteed by
               a significant shareholder under a "Guaranty Agreement."
               Management proposes to repay the $4,200,000 note with proceeds
               from future equity subscriptions.

                                      F-25



<PAGE>   59
                                   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.

October 11, 1999

                                       AMERALIA, INC.



                                       By: /s/ Bill H. Gunn
                                           -------------------------------------
                                           Bill H. Gunn, President

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of AmerAlia
and in the capacities and on the dates indicated.

<TABLE>
<S>                                       <C>                           <C>
/s/ Bill H. Gunn                          Principal Executive           Date: 10/11 /99
-----------------------------------       Officer and Director                ---------
Bill H. Gunn


/s/ Robert van Mourik                     Secretary, Treasurer          Date: 10/11/99
-----------------------------------       Principal Financial                 ---------
Robert C. J. van Mourik                   and Accounting Officer,
                                          and Director


/s/ John F. Woolard                       Director                      Date: 10/11/99
-----------------------------------                                           ---------
John F. Woolard


/s/ Robert A. Cameron                     Director                      Date: 10/11/99
-----------------------------------                                           ---------
Robert A. Cameron


/s/ Neil E. Summerson                     Director                      Date: 10/11/99
-----------------------------------                                           ---------
Neil E. Summerson


/s/ Geoffrey C. Murphy                    Director                      Date: 10/11/99
-----------------------------------                                           ---------
Geoffrey C. Murphy
</TABLE>

<PAGE>   60

                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
EXHIBIT
NUMBER        DESCRIPTION
------        -----------
<S>           <C>
3.1 (a)       Articles of Incorporation and Amendment.

3.2 (a)       Bylaws of AmerAlia, Inc.

3.3 (a)       Statement of Preferences for Series A Convertible Preferred Stock.

3.4 (f)       Statement of Preferences for Series B Preferred Stock, as amended.

10.1 (b)      Agreement with Eagle Star Nominees Ltd. as trustee for The Rural
              Investment Trust for sale of property in consideration for
              issuance of vendor units in the Rural Investment Trust.

10.6 (e)      Form of Distributor agreements for marketing of sodium
              bicarbonate.

10.7 (e)      General Services Agreement with Raytheon Engineers & Constructors,
              Inc.

10.8 (f)      First Amendment to Special Warranty Assignment, Royalty
              Reservation, and Minimum Royalty Payment between AmerAlia and E.E.
              Kinder Co.

10.9 (f)      Consulting Agreement between AmerAlia and E.E. Kinder Co.

10.10 (f)     U.S. Government Sodium Lease

10.11 (g)     Design/Build Contract with U.S. Filter Corp.

10.12 (g)     Guaranty Agreement with the Jacqueline Badger Mars Trust

21.1          Subsidiaries of the Registrant: None.

27 (g)        Financial Data Schedule
</TABLE>

(a)      Incorporated by reference from the Company's Form 10 General
         Registration Statement filed with the Commission on March 5, 1987.

(b)      Incorporated by reference from the Company's Form 10-K for its year
         ended June 30, 1989.

(c)      Incorporated by reference from the Company's Form 10-K for its year
         ended June 30, 1990.

(d)      Incorporated by reference from the Company's Form 10-K for its year
         ended June 30, 1992.

(e)      Incorporated by reference from the Company's Form 10-K for its year
         ended June 30, 1993.

(f)      Incorporated by reference from the Company's Form 10-K for its year
         ended June 30, 1995.

(g)      Included herewith.