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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-K/A-1

(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, 2000
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.)

                  818 Taughenbaugh Blvd., Rifle, Colorado 81650
                  ---------------------------------------------
                    (Address of Principal Executive Offices)

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

Company's telephone number, including area code:                  (970) 625-9134
                                                                  --------------

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, 2000:                          Nil.

Shares of common stock, $.01 par value, outstanding as of November 15, 2000:
11,857,290. Aggregate market value of the voting stock held by non-affiliates of
AmerAlia as of November 15, 2000 was approximately $5,067,700. The estimate is
based on the last sale price per share and an estimated 5,391,176 shares held by
non-affiliates.

Documents incorporated by reference: NONE


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                                     PART I

ITEM 1.          BUSINESS

(a)      GENERAL DEVELOPMENT OF THE BUSINESS

         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, Inc. 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 objective is to raise sufficient funding to
construct a plant and commence operations.

         AmerAlia's primary goal is to recover sodium bicarbonate from the lease
for sale initially to the animal feed market and then to the industrial,
pharmaceutical and food grade markets. Animal feed quality sodium bicarbonate is
a lower quality product with a current market price averaging approximately $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 also enables the production of soda ash, caustic soda and
other sodium chemicals widely used in the manufacture of glass, detergents and a
variety of inorganic and organic chemicals. Sodium bicarbonate is used as a
reagent for flue gas desulfurization.

         AmerAlia submitted its mining and development plans to the Bureau of
Land Management ("BLM") and also submitted applications for all necessary
associated permits to other regulatory agencies of the federal, state and county
administrations. The BLM approved our mine plan to construct a solution mine
utilizing three solution cavities on our Rock School Lease in Northwest
Colorado. The BLM issued its Decision Record on December 3, 1999 after the BLM
produced an environmental assessment and reached a finding that the project
would have no significant environmental impact. The BLM did not receive any
appeals during the mandatory appeal period. The BLM also approved on December 1,
1999 our request to install groundwater monitoring wells on a portion of the
lease. We have now completed five monitoring wells. The stratigraphy and
aquifers encountered in these wells were consistent with previous wells drilled
in the resource. The purpose of the wells is to collect base line water data as
a prelude to our solution mining operations. The last data will be collected in
February 2001. The US Environmental Protection Agency (EPA) regulates solution
mining of nahcolite in Colorado. On February 1, 2001 the EPA issued our Final
Area Permit. It allows our project to proceed without limiting the number of
production wells or the production rate. This process took approximately two
years including a public review. We will be fully permitted to commence
construction and solution mining on the Rock School Lease upon completion of the
water monitoring activities and posting the required land reclamation bonds.

         In May, 1999 AmerAlia entered into a Design/Build Agreement with U.S.
Filter Wastewater Group, Inc. of Naperville, Illinois to design and construct
Phase I of a 150,000 ton per year sodium bicarbonate mining and processing plant
for a cost not to exceed $32 million With amendments and delays, this cost may
be higher by the time of completion. Under the contract, we paid an initial $6.4
million to US Filter. We are obliged to pay the balance at end of construction
and after a production rate of 50,000 tons per year has been achieved. US Filter
requires us to obtain long term financing for costs in excess of $6.4 million
before US


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Filter will advance construction financing. As a result of the $6.4 million we
have advanced to US Filter, engineering and procurement is 50% complete, most
critical delivery equipment and materials have been purchased and we are ready
to begin field construction. Some of the major plant items are now wholly or
partially fabricated. These include the crystallizers, centrifuge, product
dryer, storage silos and similar equipment. No construction has occurred on the
ground, and U.S. Filter is in a "stand by" capacity with respect to this project
until we are able to obtain adequate long-term financing. However, we have
instructed US Filter to progress its engineering design work nearly to
completion and we are funding the cost of this work from our own resources.

         Our ability to commence on-site construction is dependent upon either
being able to secure long term financing to repay US Filter's construction loan,
or to obtain a significant amount of debt and equity capital to continue plant
construction. Interested lenders had been waiting for an independent review of
the project by R.W. Beck, Engineers, and TvanF Associates, as marketing
sub-consultant. On April 24, 2000 they submitted their report. This report
assessed the proposed solution mining, plant design, marketing prospects and
financial feasibility of the project. They have, amongst other things, concluded
that the proposed project is technically feasible and should support a long term
debt of $32 million with a conservative debt service coverage ratio, based on
selling all of the proposed output for animal feed grade alone. While we intend
to concentrate in the initial years on the animal feed markets as evaluated by
Beck, AmerAlia also anticipates higher production rates and selling to higher
value sodium bicarbonate markets.

         The Beck report has now formed the basis of an information memorandum
and detailed financial projections provided to selected institutional and
non-institutional lenders in September 2000, for the purpose of securing long
term financing to repay the construction finance U.S. Filter has conditionally
agreed to advance. These documents and models have also been provided to Fitch
IBCA, Duff & Phelps for the purpose of their rating our long-term debt. We
anticipate having to raise approximately $50 million in new debt and equity to
fund construction and associated outlays. Whilst we are discussing our proposals
with various lenders and investors, we have not concluded any agreements to
raise these funds.

         In October, 2000 AmerAlia established a wholly owned subsidiary,
Natural Soda Inc. ("NSI"), to own our sodium bicarbonate assets and to operate
our soda business. This will meet the requirements of lenders who require a
"stand alone" subsidiary as a condition of providing our long-term funding.
Roger Day, formerly our Vice President Operations, has been appointed President
of NSI.

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

Forward Looking Statements and Risk Factors Statement pursuant to 1933 & 1934
Securities Acts

         AmerAlia's future conduct depends on a number of factors beyond our
control, so we cannot offer any assurance we will be able to conduct our
operations as we contemplate in this report. This report contains various
statements using the terms "may", "expects to", and other terms denoting future
possibilities. They are forward-looking statements. We cannot guarantee the
accuracy of these statements as they are subject to a variety of risks beyond
AmerAlia's ability to predict or control. These risks may cause actual results
to differ from the projections or estimates contained in this report. These
risks include, but are not limited to, the possibility the described operations,
reserves, exploration or production activities will not be completed on economic
terms. Undertaking exploration, development and mining of mineral properties,
significant construction projects, and the manufacture and marketing of chemical
products is risky. Many of these risks are described in this report and it is
important that each person reviewing this report understands the risks
accompanying the establishment of AmerAlia's proposed operations. These risks
and factors include:


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     o   As a result of the $6.4 million we have advanced to US Filter,
         engineering and procurement is 50% complete, most critical delivery
         equipment and materials have been purchased and (subject to adequate
         funding) we are ready to begin field construction. 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.

     o   AmerAlia has not negotiated long term employment and compensation
         arrangements with its officers, other than with its President of
         Natural Soda, Inc. (formerly its Vice President, Operations), pending
         resolution of long-term financing.

     o   As noted above, AmerAlia needs a significant amount of debt and equity
         financing to be able to commence construction of the processing plant
         and the solution mine in the field. Although AmerAlia has been seeking
         such financing for more than the past two years, it has been unable to
         conclude definitive arrangements for any such financing, other than the
         funding it has raised to complete work concluded so far.

     o   AmerAlia historically has had, and continues to have, operating losses
         and significant working capital shortages. Until we can generate
         revenues from operations we must raise further debt and equity capital
         to fund operating losses. AmerAlia's stock has historically been quoted
         on the Nasdaq SmallCap stock market that has provided accredited
         investors purchasing equity prospects of liquidity. Should AmerAlia's
         stock be removed from the Nasdaq SmallCap stock market for any reason,
         it will likely be more difficult for AmerAlia to conclude the necessary
         fund-raising.

     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 plant construction 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. Our application to renew the
         lease is currently being processed by the BLM.

     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.

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

     o   We have limited commitments from prospective purchasers of sodium
         bicarbonate when we commence production.

(b)              BUSINESS OF ISSUER

         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. AmerAlia is one of three companies holding
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.


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         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.

         AmerAlia's core drilling and evaluation project, conducted in 1996,
demonstrated the lateral continuity of this deposit beneath much of the Rock
School Lease. We believe it is reasonable to assume that the concentrations
found in the Dunn 20-1 hole also exist beneath much of the Rock School Lease.
This project was conducted to better determine the extent of mineralization and
the strength of the rocks in the proposed solution mining area. The project
identified a nahcolite mining interval with a vertical height of 510 feet. The
concentration within the interval averaged 26.4% nahcolite. AmerAlia engaged an
independent consulting firm, Agapito & Associates, to supervise the core hole
drilling and to conduct studies on core assays, mining interval, cavity design,
rock strength and geological evaluation.

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

         AmerAlia's activities in pursuing its operations are set out more fully
below. (See "Exploration and Development Work To Date.")

         The Sodium Bicarbonate Market.

         In 1998, AmerAlia commissioned Harriman Chemsault Ltd., a London based
marketing consultancy specialising in the chlor-alkali sector of the chemical
industry, to provide a study of the global market for sodium bicarbonate with
special emphasis on the United States. A further marketing study prepared by
TvanF Associates in July 1999 and updated for R.W. Beck, Engineers in April,
2000 reaffirmed the findings of the initial study. The existing and long
established market for sodium bicarbonate is principally for food grade, animal
feed and commercial usage with delivered sale prices of $200-400 per ton,
depending on grade. 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 the cost of producing synthetic sodium
bicarbonate exceeds $150 per ton. The United States and Canadian markets
currently absorb about 520,000 tons of sodium bicarbonate annually for the
animal feed market, industrial markets, food-grade sodium bicarbonate and for
pharmaceutical uses. The animal feed market, with delivered prices of
approximately $240 per ton, accounts for approximately 135,000 tons of this
usage.

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


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         Marketing Arrangements. We are aware that distributors experience
constant difficulties sourcing secure long-term supplies of animal feed grade
sodium bicarbonate. AmerAlia has 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 become effective only when the buyers place their
first order after AmerAlia commences production. At this time, AmerAlia cannot
reliably estimate when it will have product 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 anyone else from the Rock
School Lease will be marketed in traditional sodium bicarbonate markets in
competition with large and well-established companies. The animal feed market is
subject to competition from other suppliers of sodium bicarbonate and
alternative rumen buffers. The resources of those companies far exceed those of
AmerAlia.

         Based on preliminary engineering models, we believe that AmerAlia will
have a cost advantage over producers of sodium bicarbonate using soda ash as a
raw material. There is a number of synthetic animal feed supplements which
compete with sodium bicarbonate. Based on our informal surveys, we believe the
animal feed market will prefer to use naturally occurring sodium bicarbonate
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.

         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 another 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. We do not regard competition in the long term as
being significant since we believe the market can absorb the anticipated
production and high cost producers will yield market share.

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


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     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
plant construction will be sufficient to enable a lease renewal. Our application
to renew the lease has been submitted to the BLM. 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 December 31,
2000, AmerAlia has invested a further $2,390,844 in direct expenditures for
further geological and engineering studies including drilling a core hole, legal
expenses, technical consultants, and advances to the BLM to advance the
project's development. These expenditures, which do not include the acquisition
cost of the lease, have been capitalized in AmerAlia's financial statements.
Further capitalised expenditures include $7,689,202 paid to US Filter and others
through December 31, 2000 to design the operating facility and to commence
off-site fabrication of certain components for the plant.

         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.

         Our principal efforts are directed towards meeting the requirements of
the permitting agencies and proceeding with our plant construction. Because the
Piceance Creek Basin is known to contain a substantial amount of oil shale, the
BLM has prohibited mining operations adversely affecting oil shale. The federal
agency has, however, accepted the proposed solution mining method and has
approved a 50,000 tons per year initial mining operation. 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 submitted this report to the BLM and to other
regulatory agencies of the federal, state and county administrations. The BLM
issued its Decision Record on December 3, 1999 after the BLM produced an
environmental assessment and reached a finding that the project would have no
significant environmental impact. The BLM did not receive any appeals during the
mandatory appeal period. Combined with the permits we have received from state
and local agencies, the BLM action allows us to begin construction on the lease.

         The BLM also approved on December 1, 1999 our request to install
groundwater monitoring wells on a portion of the lease. We have now completed
five monitoring wells. The stratigraphy and aquifers


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encountered in these wells were consistent with previous wells drilled in the
resource. The purpose of the wells is to collect base line water data as a
prelude to our solution mining operations. Should we wish to expand our
production beyond 50,000 tons per year, we may be required to produce an
Environmental Impact Statement. If required, this will be expensive and time
consuming and we shall undertake that in conjunction with obtaining operational
data from the initial 50,000 tons per year project.

         Proposed Development Program. The plan submitted to the BLM envisages
the development of the resource in stages starting with a plant to produce
50,000 tons per year and then expanding the initial facility to 150,000 tons per
year. 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 previously tested in the same resource by Shell Oil (1970-1972) and
found to be feasible. Solution mining in other resources is well established.
AmerAlia's cash cost of production is expected to be about one-half of the
estimated existing industry average cash costs.

         In May 1999, we entered into an agreement with US Filter for the design
and construction of the plant and related facilities. Under the agreement, 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 (although we
         deposited the required funds, we have not obtained the firm financing
         commitment as described below); 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.

     o   Also, before US Filter will advance any expenses under the terms of the
         agreement, AmerAlia was obligated to obtain all necessary permits,
         bring electricity to the property, and take certain other actions.
         While AmerAlia believes it has all material permits necessary for the
         plant construction, there are certain other aspects of the agreement
         which are overdue and must yet be met. Among these overdue obligations
         are AmerAlia's obligations to supply water, natural gas and electricity
         to the site.

         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 existing state and
county roads. About 1.3 miles of new road is needed to access the production
facility. Marathon Oil has granted an access easement on its land reducing the
length of the new facility access road construction needed. These roads will
often be covered with snow in the winter.


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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".

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

         In June 1999, Marvin Hudson filed a complaint against AmerAlia, Inc. in
the United States District Court for the District of Colorado (civ. act. no.
99-M-1203) (the "Federal Action"). In this complaint, Mr. Hudson also named Bill
H. Gunn, Robert C.J. van Mourik, and Neil E. Summerson, individually and as
officers and directors of AmerAlia. None of the individuals were served. Mr.
Hudson alleged several causes of action in the Federal Action:

         "Breach of Contract" in which Mr. Hudson alleged that he had been
         employed by AmerAlia pursuant to an employment contract executed by Mr.
         Gunn in 1996 on behalf of AmerAlia which AmerAlia breached when it
         allegedly terminated Mr. Hudson's employment in June 1998. Mr. Hudson
         alleged that this employment contract provided for a salary of $80,000
         per year, options to purchase 30,000 shares of common stock per year,
         and 200,000 stock appreciation rights.

         In the Federal Action, Mr. Hudson also claimed damages for "Willful and
         Wanton Breach of Contract" and "Wrongful Termination."

         After several pleadings were filed in this federal court action, but
before any substantive discovery had been performed, the federal court dismissed
the Federal Action without prejudice in October 1999.

         In July 1999, AmerAlia filed a complaint against Mr. Hudson in the
Colorado District Court for Arapahoe County, Colorado (civ. act. no. 99-CV-2207)
(the "State Action"). As claims for relief against Mr. Hudson, AmerAlia alleged:

         that the employment contract allegedly entered into between AmerAlia
         and Mr. Hudson was a forgery or procured by fraud or duress and,
         therefore, not enforceable (the "Fraudulent Employment Contracts"); and


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         that Mr. Hudson had converted to his own use funds, documents, personal
         property, and equipment belonging to AmerAlia ("Conversion");

         In the State Action, AmerAlia has sought damages and exemplary damages
against Mr. Hudson, as well as an injunction and an accounting. Mr. Hudson
sought to remove this action to the Federal Court, but the Federal Court
remanded it back to the Arapahoe County District Court. In November 1999, the
Arapahoe County District Court granted Mr. Hudson's motion to change venue of
the State Action to El Paso County, Colorado where it was assigned case no.
99-CV-3050 in Division 5.

         In December 1999 Mr. Hudson filed an answer with counterclaims in the
State Action in which he denied the material allegations of AmerAlia's complaint
and re-alleged the Breach of Contract Action, Willful and Wanton Breach of
Contract, and Wrongful Discharge. At that time, Mr. Hudson also alleged
violation of the Colorado Wage Claim Act ( Section 8-4-101 et seq.) and common
law fraud. As he had done in the Federal Action, Mr. Hudson also named Messrs.
Gunn, van Mourik and Summerson individually and as officers and directors of
AmerAlia.

         Mr. Hudson served his answer and counterclaim on AmerAlia in December
1999, and AmerAlia replied denying all of Mr. Hudson's material allegations. Mr.
Hudson did not serve Mr. Gunn with the complaint until June 2000, and has not
yet served any other defendant. Mr. Gunn filed a reply in July 2000 denying all
of Mr. Hudson's material allegations.

         This case has not been set for trial, and only limited discovery has
taken place as yet. Consequently, although AmerAlia believes it has meritorious
claims against Mr. Hudson and will defend its position vigorously, it is
premature to predict the possible outcome to this matter.

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

         AmerAlia held an annual meeting of its shareholders on June 23, 2000.
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>
                             Abstain      Votes For
                            ---------     ---------
<S>                         <C>           <C>
Bill H. Gunn                9,071,035     1,034,000
John F. Woolard             9,491,060        76,175
Robert C. J. van Mourik     9,062,060     1,043,175
Neil E. Summerson           9,062,060     1,043,175
Robert A. Cameron           9,062,060     1,043,175
Geoffrey C. Murphy          9,491,060        76,175
</TABLE>


        No other matters were presented to the shareholders for action.


                                       10
<PAGE>   11


                                     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.

<TABLE>
<CAPTION>
                                  Average
For the Quarter Ended            Sale Price
---------------------            ----------

<S>                              <C>
September 30, 1998                 $ 1.45
December 31, 1998                  $ 1.25
March 31, 1999                     $ 1.50
June 30, 1999                      $ 3.00
September 30, 1999                 $ 3.00
December 31, 1999                  $ 2.86
March 31, 2000                     $ 2.91
June 30, 2000                      $ 2.14
September 30, 2000                 $ 1.17
December 31, 2000                  $ 0.75
</TABLE>

(b)      HOLDERS.

         (b)(1)   The number of record holders of AmerAlia's common stock on
                  June 30, 2000 was approximately 460. (This does not include an
                  indeterminate number of shareholders whose shares are held by
                  brokers in street name.)

         (b)(2)   Not applicable.


                                       11
<PAGE>   12


(c)      DIVIDENDS

         AmerAlia has not paid dividends on its common stock and has no plans to
pay cash dividends in the future.

RECENT SALES OF UNREGISTERED SECURITIES.

         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). 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. No underwriter or finder was involved in this
transaction.

         In January 2000, AmerAlia issued 100,000 shares to an accredited
investor for an investment of $250,000. No underwriter or finder participated in
the offering of these shares. 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.

         In March 2000, AmerAlia issued 24,000 shares of its restricted common
stock to Charles D. O'Kieffe as a fee for lending AmerAlia $300,000 with
interest calculated at the prime lending rate of the Harris Bank, Chicago. Mr.
O'Kieffe advanced the funds in October 1999 and the note was extended, in
February 2001, until July 1, 2001 in consideration for the issuance of another
30,000 shares of restricted common stock. Mr. O'Kieffe is an accredited investor
and an existing shareholder of AmerAlia. The offering was made under the
exemption from registration found in Section 4(2) of the Securities Act of 1933.
No underwriter or finder was involved in this transaction.

         In January 2000, AmerAlia issued 433,333 shares of its restricted
common stock to Industrial Systems, Inc. ("ISI"), a contractor performing work
for us on our Rock School Project. ISI accepted these shares in lieu of a cash
payment. ISI represented to us that it is an accredited investor and, therefore,
the offering was made under the exemption from registration found in Section
4(6) of the Securities Act of 1933. No underwriter or finder was involved in
this transaction.

         During the fiscal year ended June 30, 2000, dividends aggregating
$298,600 became payable to the holders of the Series E Preferred Stock. AmerAlia
has paid these dividends to the holders of the Series E Preferred Stock through
the issuance of 298,600 shares of its restricted common stock. In addition, it
has paid dividends of $74,650 to the holders of the Series E Preferred Stock for
the quarter ended September 30, 2000 through the issue of 74,650 shares of
common stock.

         In October, 2000 a stock bonus of 16,000 shares was granted to Roger
Day, an officer of the company, and a further 22,291 shares were issued in
settlement of fees payable.

ITEM 6.          SELECTED FINANCIAL DATA.

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



--------------------------------------------------------------------------------
                                       12
<PAGE>   13


--------------------------------------------------------------------------------
                             SELECTED FINANCIAL DATA
                         Amounts in Thousands of Dollars
                             (Except Per Share Data)
                               Year ended June 30

<TABLE>
<CAPTION>
                       2000         1999         1998         1997         1996
                     --------     --------     --------     --------     --------
<S>                  <C>          <C>          <C>          <C>          <C>
Revenues                  --           --           --           --           --
Net Loss              (2,234)      (1,902)        (550)        (769)        (751)
Loss per Share          (.27)        (.31)        (.13)        (.26)        (.28)
Total Assets          11,092        5,836        3,500        3,008        3,608
Total Current
 Assets                   93        1,378          725           12            2
Total Current
 Liabilities           7,479          923          819          650        1,481
Long Term Debt            --           --           --            4            9
Shareholders'
 Equity                3,613        4,913        2,681        2,354        2,118
Weighted Average
 No. of Shares         8,270        6,230        4,313        3,014        2,653
</TABLE>

--------------------------------------------------------------------------------

ITEM 7.          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                 RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES

JUNE 30, 2000 AS COMPARED TO JUNE 30, 1999:

         During the year ended June 30, 2000, AmerAlia incurred significant
working capital shortages which it resolved through borrowings and sales of its
capital stock to accredited investors. AmerAlia:

              o  raised $875,000 through the sale of common stock to accredited
                 investors;

              o  borrowed $300,000 from Charles D. O'Kieffe, a shareholder, in
                 October 1999; and

              o  borrowed $5.2 million from NationsBank, N.A. (now Bank of
                 America, N.A.) in two increments in September 1999 and January
                 2000.

         In July 2000, we borrowed a further $2.126 million from Bank of America
under the same terms and conditions. These loans from the Bank of America are
guaranteed by AmerAlia's principal shareholder for a fee payable in restricted
shares as explained at Item 13(a) Certain Relationships and Related Party
Transactions under "Guaranty Agreement". The number of shares of restricted
common stock to be issued to pay the fee is based upon future market prices of
the Company's common stock, hence the obligation to pay the guarantee fee is
recorded as a current liability in the Company's financial statements until the
shares are issued. The liability for this fee was $520,000 at June 30, 2000, and
the aggregate liability to the Bank of America was $5,200,000. In conjunction
with the renegotiation of the guaranty fees, the term of this aggregated loan
has been extended to September 2001, and subsequently, to December 1, 2001 (See
Item 13(a) Guaranty Agreement).

         AmerAlia met its working capital requirements in excess of these
borrowings in a number of ways during the past fiscal year, and these are
continuing into the 2001 fiscal year.


                                       13
<PAGE>   14


              o  AmerAlia has deferred paying some accounts and royalties
                 payable. This includes approximately $466,667 at June 30, 2000,
                 in minimum royalties and consulting fees due to Kinder, the
                 vendor of the lease for our Rock School Project. This
                 obligation unsecured, Kinder has not demanded payment of these
                 amounts, and we intend to bring this account current when
                 adequate funds are available.

              o  In July 2000 we paid the Bank of America $109,525 interest that
                 was due on June 30, 2000.

              o  Throughout the year, we deferred paying $122,429 to various
                 related parties for directors fees and other compensation due
                 them. We intend to pay these fees when adequate funds are
                 available.

         During the year, we also issued 433,333 shares of our restricted common
stock to a contractor to prepay certain construction costs with a value to
AmerAlia of $1.3 million. We shall bring this prepayment to account as
capitalised construction expenditure as plant construction progresses.

         At the beginning of the year we held $991,305 in an escrow account for
US Filter under our Design/Build Agreement. During the year, we paid this money
together with an additional $4,753,337 to US Filter to progress their plant
design activities and to fabricate plant and equipment. We expended a further
$541,980 in engineering, consulting, legal, and other fees and costs to obtain
the BLM Decision Record that enables us commence on-site construction, subject
to our raising satisfactory long-term financing. These costs were capitalised in
our accounts as they contributed to a definable improvement in the value of the
Rock School Lease.

         In the 1999 fiscal year, we expended approximately $600,000 for the
same purpose but as the BLM decision outcome was unresolved at the end of the
fiscal year, those costs were expensed in that period. We invested a further
$222,020 in advancing our efforts to secure long-term finance. When this
financing is secured, we will amortise these costs over the term of the
financing. Finally, our resources were used to fund our operating loss of
$2,234,000 for the year. We also settled a contingent liability of $303,800
through arbitration for $250,000.

         In summary, total assets increased during the year to $11,092,021
(1999: $5,836,061; 1998: $3,500,143) and stockholders' equity decreased to
$3,613,247 (1999: $4,912,533; 1998: $2,680,688). 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 constructing the proposed plant and securing financing
for its construction, estimated to be up to $50 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 under 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 but have not yet concluded any agreements.

         Until we obtain adequate long-term financing, we will be unable to
advance the construction of the Rock School Project further. It is our goal to
maintain the Rock School Project in a "ready" status until we have received the
necessary funding and therefore are able to actively commence construction
activities on site. Until the Rock School Project has been constructed and has
commenced operations, we will not have any product for sale and will not receive
operating revenues. Until we receive our long-term financing, we will continue
to be dependent on equity placements to accredited investors and short-term debt
financing as in the past. We will continue to engage in appropriate cash
management techniques.


                                       14
<PAGE>   15


         A potential source of equity capital in the future is through the
exercise of our outstanding common stock purchase warrants and options. A total
of 1,307,000 options are currently outstanding. The outstanding options, if
exercised in whole or part, would result in additional capital for AmerAlia. The
option exercise prices range from $1.00 to $6.00, however, it is not likely that
any person will exercise options unless the market price for the shares exceeded
the option exercise prices on a sustained basis. Furthermore, AmerAlia will not
permit any person to exercise options unless the underlying shares of common
stock were included in an effective registration statement, or unless an
exemption from registration was available.

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

         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 in exchange for an investment in the
Rural Investment Trust. This investment was subsequently liquidated raising
$418,346.

         We 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 was settled
during the 2000 fiscal year for our payment to Raytheon of $250,000.

         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).

RESULTS OF OPERATIONS

JUNE 30, 2000 AS COMPARED TO JUNE 30, 1999:

         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 2000 was nearly $40,000 compared
with less than $37,000 in the previous year. General and administrative
expenditures were less this year than for last year, $1,469,914 (1999:
$1,910,792 and 1998: $629,605), however, as explained above, last year's
expenses included approximately $600,000 of expenditures which ultimately
contributed to the BLM Decision Record approving our mining plan but were
written off in 1999. In view of the BLM outcome, a similar level of expenditure
the year was capitalised and this has caused the general and administrative
expenditures to be substantially reduced.

         As noted above, AmerAlia financed a significant portion of its
operations through debt incurred during and after fiscal 2000. As a consequence
of the increased level of debt, interest expense has increased substantially
(2000: $357,535; 1999: $18,519; 1998: $38,909) and this will increase further
unless equity capital can be raised to repay the debt finance. General &
administrative costs also include the amortisation of fees paid to secure
short-term finance facilities. These fees, including the guaranty fees discussed
above, are amortised over the term of the loans. Financing costs amortised or
written off in fiscal 2000 totalled $435,500.

         It is likely that AmerAlia will continue to recognize significant
operating losses and negative cash flow until after its Rock School Project has
been completed and operating profitably. There is a number of


                                       15
<PAGE>   16


significant contingencies that result in this possibility being one of
significant risk, and there can be no assurance that AmerAlia will ever achieve
profitable operations or a positive cash flow.

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

         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 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 had a dispute with
Raytheon concerning additional work it performed which we considered to be
outside the specifications of the work orders. We subsequently settled this
dispute for $250,000. 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, US Filter is entitled to substantial liquidated
damages.

         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 up to $50
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.

Impact of Inflation

         AmerAlia believes that its activities are not materially affected by
inflation.


ITEM 7A.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         Not applicable.

ITEM 8.           FINANCIAL STATEMENTS.

         The financial statements are attached to this report following Part IV.

ITEM 9.           CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
                  DISCLOSURE

         None.


                                       16
<PAGE>   17


                                    PART III

ITEM 10.         DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

(a)      IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS.

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

<TABLE>
<CAPTION>
                                                                    First
                                                                  Elected or
Name & Age                         Position                       Appointed
----------                         --------                       ----------

<S>                                <C>                            <C>
Bill H. Gunn                       Chairman of the Board,           02/84
  Age 58                           President, & Chief
                                   Executive Officer

Robert van Mourik                  Director,                        09/90
  Age 47                           Executive Vice President         01/89
                                   Chief Financial Officer,
                                   Secretary & Treasurer

Neil E. Summerson                  Director                         09/90
  Age 52
  (1,2)

Robert A. Cameron                  Director                         09/90
  Age 62
  (2)

John F. Woolard                    Director,                        10/98
 Age 60                            Executive Vice President         06/98

Geoffrey C. Murphy                 Director                         06/99
  Age 59
  (1,2)

Samuel A. Stern                    Director                         11/00
  Age 71

Roger Day                          Vice President of Operations     02/99
  Age 50
</TABLE>

         (1) Members of the Compensation Committee.

         (2) Members of the Audit Committee


                                       17
<PAGE>   18


         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 a
successor is elected and qualified, or until their resignation. Executive
officers are elected at annual meetings of the Board of Directors. Each such
officer holds office for one year or until a successor has been duly elected and
qualified or until death, resignation or removal.

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

BILL H. GUNN

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

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

         During his business experience, Mr. Gunn has been exposed to a wide
variety of corporate investments and has been involved in major business
acquisition and development activities. His principal activity is now acting as
Chairman and President of AmerAlia.

ROBERT VAN MOURIK

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

NEIL E. SUMMERSON

         Until July 1997, Mr. Summerson was the senior partner, and for five
years prior was managing partner, in the international accounting firm of Ernst
& Young, at its offices in Brisbane, Australia. Prior to 1992, he worked in the
Corporate Recovery and Insolvency Division, which is involved in the
administration of insolvent companies, as well as providing counsel to small
businesses in the area of taxation, audit procedures and management advisory
services. Mr. Summerson received his Bachelor of Commerce degree from the
University of Queensland in 1968. He is a Fellow of the Institute of Chartered
Accountants, an Associate of the Australian Institute of Credit Management, a
Registered Public Accountant in Queensland,


                                       18
<PAGE>   19


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.

ROBERT A. CAMERON

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

JOHN F. WOOLARD

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

GEOFFREY C. MURPHY

         Mr. Murphy 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.

SAMUEL A. STERN

         Mr. Stern is a founding partner in the Washington, D.C. firm of Hills
and Stern and serves as an attorney and advisor for a number of domestic and
international clients. He was a partner in Wilmer Cutler Pickering in
Washington, D.C. from 1962 to 1988 and maintained an office there from 1997 to
1999. He was also, until December 1999, General Counsel, Global Energy
Investors, LLC., a developer of power projects. From July 1994 through February
1997 he was of counsel to Rogers & Wells, another international law firm with
offices in Washington, D.C. Mr. Stern is also a director of several
privately-held companies involved in energy production, software and venture
capital financing. He has extensive experience in project financing in the
United States and abroad. He holds degrees in Economics from the University of
Pennsylvania and in law from Harvard.


                                       19
<PAGE>   20


ROGER DAY

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

(b)      SIGNIFICANT EMPLOYEES.

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

(c)      FAMILY RELATIONSHIPS.

         There are no family relationships among the officers or directors.

(d)      INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS:

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

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

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

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

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

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

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

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


                                       20
<PAGE>   21


         (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.

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, 1998
through June 30, 2000, 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   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 filed on time since his
                appointment was not effective without Board approval.

            o   AmerAlia is aware that Mr. Hudson, through his ownership of an
                interest in THG, acquired beneficial ownership in additional
                securities which have not been reported as required. Mr. Hudson
                may have acquired or disposed of other shares of AmerAlia common
                stock or derivative securities. AmerAlia has no knowledge of his
                activities or whether he complied with his reporting
                obligations. Mr. Hudson ceased being subject to the reporting
                obligations of Section 16(a) in April 1999, following the
                dissolution of The THG Partnership.

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


                                       21
<PAGE>   22


ITEM 11.          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, 2000.
Messrs. Gunn and Woolard were the only executive officers receiving compensation
exceeding $100,000 during fiscal 2000, 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 adopted a group medical insurance plan for its employees
which includes dental coverage. This plan also provides a minimum amount of life
insurance. AmerAlia has not adopted any other benefit plan for its employees.
Prior to the adoption of that plan, AmerAlia reimbursed Messrs. Woolard, Gunn,
and Day for certain medical expenses and insurance premiums. AmerAlia currently
has no stock ownership, 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

<TABLE>
<CAPTION>
                                                                     Long Term Compensation
                                                                  -----------------------------
                                                                          Awards         Payout
                                    Annual Compensation           ---------------------  ------
                           -------------------------------------  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      2000  $150,000         -0-   $ 14,000(a)         -0-        -0-      -0-        -0-
 Chief Executive     1999  $125,000         -0-   $ 14,000(a)         -0-        -0-      -0-        -0-
     Officer         1998  $100,000         -0-   $ 14,000(a)         -0-        -0-      -0-        -0-

John F. Woolard,                            -0-   $14,000(a)(b)       -0-        -0-      -0-        -0-
 Executive Vice      2000  $150,000         -0-   $ 9,333(a)(b)       -0-        -0-      -0-        -0-
    President        1999  $135,000
</TABLE>

       Notes:     (a)     Directors fees
                  (b)     These fees have not been paid but have been accrued as
                          liabilities.

OPTIONS/SAR GRANTED DURING YEAR ENDED JUNE 30, 2000

       During the fiscal year ended June 30, 1999, AmerAlia granted stock
options, as described below, to Roger Day who became an executive officer in
April 1999.

       In May 2000, AmerAlia granted Mr. Gunn options to purchase 150,000
shares, Mr. van Mourik options to purchase 100,000 shares, and Mr. Cameron and
Mr. Summerson options to purchase 75,000 shares each. These options expire April
30, 2003 and the exercise price was determined based upon the market price of
the company's shares during August 2000. Accordingly, an exercise price of $1.09
was determined and the


                                       22
<PAGE>   23


grant of the options was subject to acceptance by October 15, 2000. AmerAlia
received acceptances from all directors offered options. 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,
2000, or subsequently. The following table sets forth information regarding the
year-end value of options and Stock Appreciation Rights held by the Chief
Executive Officer and the other named officers on June 30, 2000: No other Stock
Appreciation Rights have been granted, or are held by, any such person.

<TABLE>
<CAPTION>
      (a)                      (b)                  (c)                 (d)                          (e)
-----------------      ------------------     --------------     ------------------------   ---------------------
                                                                 # of unexercised options   Value of in-the-money
                                                                        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                       52,500

Robert van Mourik              -0-                  -0-                75,000                       28,125

John Woolard                   -0-                  -0-               250,000                      143,750

Roger Day                      -0-                  -0-                40,000                       15,000
</TABLE>

<TABLE>
<CAPTION>
      (a)                      (b)                  (c)                  (d)                        (e)
-----------------      ------------------     --------------    ----------------------    ---------------------
                                                                # of unexercised SAR's    Value of in-the-money
                                                                       at FY end          SAR's at FY end
                       Shares acquired on                            (exercisable/           (exercisable/
      Name                  exercise          Value realized         unexercisable)          unexercisable)
-----------------      ------------------     --------------    ----------------------    ---------------------

<S>                    <C>                    <C>               <C>                       <C>
Bill H. Gunn                   -0-                  -0-                70,000                     -0-
</TABLE>

LONG TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR

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

DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE

Not applicable since AmerAlia has not defined benefit or actuarial plans


                                       23
<PAGE>   24


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 $25,972 for services rendered during the
fiscal year ended June 30, 2000, and $18,302 for the fiscal year ended June 30,
1999.

       In addition, AmerAlia paid Coloney Von Soosten + Associates Inc. a
retainer of $2,500 per month for financial and administrative services. Hours in
excess of 15 per month were paid to Coloney Von Soosten + Associates Inc. at the
rate of $200 per hour. This consulting agreement ended in September 2000.
Geoffrey C. Murphy is a principal of Coloney Von Soosten + Associates Inc. and
had primary responsibility for the services it provided to AmerAlia. Mr. Murphy
became a director in June 1999 following the annual meeting of shareholders.

       In each case, Directors are reimbursed expenses 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.

       AmerAlia's only employment contract is with its President, Natural Soda,
Inc, Roger Day. In April 1999, effective November 1998, AmerAlia entered into a
five year employment agreement with Mr. Day who was employed with the title of
Vice President of Operations. As compensation for services rendered under the
employment agreement, Mr. Day 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 In October, 2000 AmerAlia granted Mr.
Day a stock bonus of 16,000 shares of common stock.

REPORT ON REPRICING OF OPTIONS/SARS.

       Not applicable, as no options or SARs were repriced during the fiscal
year ended June 30, 2000.


                                       24
<PAGE>   25


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 now comprises Mr. Summerson and Mr Murphy, neither has been an officer
nor an employee of AmerAlia or any of its subsidiaries during the fiscal year
ended June 30, 2000, or subsequently. Neither Mr. Summerson nor Mr. Murphy has
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 12.         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

       A capitalization table is helpful in understanding the security ownership
of certain beneficial owners and management of AmerAlia. The following table
sets forth this capitalization information as of November 15, 2000.

<TABLE>
<CAPTION>
                                                     Number of                    Voting Rights
       Description of Class                            Shares                       per share
       --------------------                          ----------                 ------------------

<S>                                                  <C>                        <C>
       Common Stock                                  11,857,290                 one vote per share
       Series E Preferred Stock                              82                        none
</TABLE>

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

       At November 15, 2000, AmerAlia had two classes of outstanding voting
securities, its common stock (referred to herein as the "Common Stock") and its
Series E Preferred. The following table sets forth information as of November
15, 2000 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.


                                       25
<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>
Bill H. Gunn                         474,060(1)       3.9%       1.0%
Robert van Mourik                    320,384(2)       2.7%       1.2%
John F. Woolard                      277,000(3)       2.3%       0.2%
Geoffrey C. Murphy                    40,000(4)       0.3%       0.3%
Neil E. Summerson                     75,000(5)       1.2%       nil
Robert A. Cameron                     75,000(6)       1.2%       nil

OFFICERS & DIRECTORS
AS A GROUP (7 PERSONS)             1,467,444(7)      11.3%       2.9%

Jacqueline Badger Mars             5,397,460(8)      45.5%      45.2%
atf the Jacqueline
Badger Mars Trust dated
Feb 5, 1975 as amended
6885 Elm St., McLean, VA 22101

Charles D. O'Kieffe                  659,310(9)       5.6%       5.5%
523 Washington Ave.,
Wilmette, IL 60091
</TABLE>

     (1) Mr. Gunn: Includes 87,935 shares of Common Stock owned directly by Mr.
         Gunn and 96,125 shares of Common Stock owned by Gunn Development Pty.
         Ltd. (of which Mr. Gunn is a controlling shareholder); options to
         acquire 140,000 shares of Common Stock at $1.50 per share until June
         28, 2006; and options to acquire 150,000 shares of Common Stock at
         $1.09 per share until April 30, 2005. Mr. Gunn has pledged 107,310
         shares to another stockholder as security for a loan. Does not include
         70,000 Stock Appreciation Rights issued at $1.50 per share expiring on
         dates up to June 28, 2006.

     (2) Mr. van Mourik: Includes 500 shares of Common Stock owned directly by
         Mr. van Mourik, 90,759 shares of Common Stock owned by Ahciejay Pty.
         Ltd. as Trustee for The R.C.J. Trust, and 54,125 shares of Common Stock
         owned by the R.C.J. Superannuation Fund, as to both of which Mr. van
         Mourik and his family are beneficiaries. Also includes options to
         acquire 75,000 shares of Common Stock at $1.50 per share expiring on
         June 28, 2006 and 100,000 shares of Common Stock at $1.09 per share
         expiring April 30, 2005.

     (3) Mr. Woolard: Includes 27,000 shares of Common 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.

     (4) Mr. Murphy: Includes 40,000 shares of common stock.

     (5) Mr. Summerson: Represents options to acquire 75,000 shares of common
         stock for $1.50 per share expiring June 28, 2006 and options to acquire
         75,000 shares of Common Stock at $1.09 per share expiring April 30,
         2005. The options are held by Glendower Investments Pty. Ltd. as
         trustee for a trust of which Mr. Summerson and his family are
         beneficiaries.


                                       26
<PAGE>   27


     (6) Mr. Cameron: Represents options to acquire 75,000 shares of Common
         Stock at $1.50 per share expiring on June 28, 2006 and options to
         acquire 75,000 shares of Common Stock at $1.09 per share expiring April
         30, 2005. The options are held by Jacinth Pty. Ltd., a company in which
         Robert Cameron, a director of AmerAlia, is a controlling shareholder.

     (7) All officers and directors: Includes beneficial ownership of Messrs.
         Gunn, van Mourik, Woolard, Murphy, Summerson and Cameron as described
         in notes 1, 2, 3, 4, 5, and 6, above, and options held by Roger Day, an
         executive officer who is not a director to acquire 60,000 shares of
         Common Stock at $1.50 per share. Does not include options held by Mr.
         Day to acquire 40,000 shares of Common Stock at $1.50 per share that
         vest over a period of four years commencing November 2001 until
         December 31, 2003.

     (8) Mars Trust: Includes 5,397,460 shares of Common Stock. See "Certain
         Relationships and Related Party Transactions".

     (9) Charles D. O'Kieffe: Includes 552,000 shares of common stock reported
         on Mr. O'Kieffe's Schedule 13G, and 107,310 shares pledged by Mr. Gunn
         as security for a loan.

         The above 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 $6.00 until March 31, 2001

         The Series E Stock consists of 82 shares issued at $1,000 per share.
Under the Statement of Preferences governing the Series E preferred stock, the
rights of the preferred stockholders to convert their shares expired October 31,
2000. Holders of 2,904 shares of preferred stock exercised their conversion
rights during October. The outstanding 82 shares of preferred stock, held by a
single person, have a liquidation preference of $1,000 per share plus accrued
dividends and are entitled to a dividend of 10% of the liquidation preference
when declared by the Board. The dividends are cumulative if unpaid. The
preferred stock does not have voting 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 13.         CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

TRANSACTIONS WITH MANAGEMENT AND OTHERS.

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

         Corporate Loans - Loans to AmerAlia. During the fiscal years ended June
30, 1999 and 2000, certain related parties advanced loans to AmerAlia as
detailed in Note 5 to the Financial Statements which


                                       27
<PAGE>   28


states that AmerAlia owed $9,333 to directors and affiliates of AmerAlia at June
30, 1999 and $131,762 at June 30, 2000. This comprised advances to AmerAlia, as
well as accrued but unpaid compensation and directors fees. The following
summarises the Company's liabilities to related parties:

<TABLE>
<CAPTION>
Related Party                                            June 30, 2000    June 30, 1999
-------------                                            -------------    -------------

<S>                                                      <C>              <C>
Ahciejay Pty. Ltd. (an affiliate of Robert van Mourik)     $ 51,700         $     -0-
Jacinth Pty. Ltd. (an affiliate of Robert A. Cameron)        28,729               -0-
John F. Woolard                                              23,333            9,333
Geoffrey C. Murphy                                           14,000               -0-
Neil E. Summerson                                            14,000               -0-
                                                           --------         --------
        Total:                                             $131,762         $  9,333
                                                           --------         --------
</TABLE>

         In addition, at June 30, 2000 AmerAlia owed John F. Woolard $50,818 for
reimbursement of expenses paid on behalf of the company. This liability was
extinguished in July 2000.

         Corporate Loans - Loans from AmerAlia. As detailed in Note 2 to the
Financial Statements, AmerAlia advanced funds to Gunn Development Pty. Ltd., an
associate of Mr. Gunn. The following summarizes these advances during the fiscal
years ended June 30, 1999 and 2000:

<TABLE>
<S>                                                     <C>
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 from Gunn Development at June 30, 1999:     $43,008
Advances to Gunn Development during year:                28,063
Repayments received during year:                         14,000
Net interest accrued:                                       Nil
                                                        -------
Balance due from Gunn Development at June 30, 2000:     $57,071
                                                        -------
</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 bore interest at
10% per annum. Mr. Gunn repaid the loans and interest in May 1999.

         Compensation Arrangements. AmerAlia entered into an employment
agreement with Roger Day, at that time 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.
Mr. Day is now President of Natural Soda, Inc., AmerAlia's wholly owned
subsidiary.

         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. When the Mars Trust
purchased these shares, the price of AmerAlia common stock was less than $1.30
per share, as quoted by the Nasdaq SmallCap Market. Included with the purchase
were 700,000 common stock purchase warrants,


                                       28
<PAGE>   29


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 Bank of
America, N.A. AmerAlia subsequently borrowed $4.2 million from Bank of America
for one year. The Mars Trust facilitated the loan by guaranteeing its repayment
in a manner satisfactory to the bank. To compensate the Trust, AmerAlia agreed
to pay an amount equal to 10% per year of the amount guaranteed, payable in
shares of AmerAlia's restricted common stock valued according to a formula based
on future market prices of AmerAlia's common stock. On January 20, 2000 the Mars
Trust facilitated a further loan for $1 million and again, in July 2000, for
$2.126 million. Additional guaranty agreements provided for the same level of
fees. In September 2000, AmerAlia and the Mars Trust amended the guaranty
agreements to aggregate the three guaranties into a single guaranty for a total
loan of $7.326 million.

         On December 1, 2000 AmerAlia renegotiated the Mars Trust Guaranty in
order to borrow a further $1.6 million from the Bank of America and to extend
the maturity date for the combined loans to December 1, 2001. The total guaranty
fee has now increased to $1,350,000 and will be met through the issue of a
number of shares to be determined by future events. The fee is not payable until
after AmerAlia announces its permanent financing or a strategic alliance for the
development of the Rock School Project. AmerAlia agreed that if, during the term
of the Guaranty, it appeared that arrangements for the development of the Rock
School Project are not reasonably forthcoming, the Board will determine whether
other actions may be in the best interests of AmerAlia stakeholders. AmerAlia
granted the Trust security over AmerAlia's entire interest in Natural Soda,
Inc., a wholly owned subsidiary formed to acquire AmerAlia's entire interest in
the Rock School Project and the Rock School Lease, as collateral for the
repayment of the entire loan and the Trust's liability under this Guaranty.

         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 former 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.


                                       29
<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.

         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, 2000,
dividends aggregating $298,600 became payable to the holders of the Series E
Preferred Stock AmerAlia has since paid these dividends to the holders of the
Series E Preferred Stock through the issuance of 298,600 shares of its
restricted common stock. It has paid a further $74,650 in dividends for the
quarter ended September 30, 2000 through the issuance of 74,650 shares of its
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.


                                       30
<PAGE>   31


                                     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(c)            Restated Articles of Incorporation

3.2(a)            Bylaws of AmerAlia, Inc.

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

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

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

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

10.10(f)          U.S. Government Sodium Lease

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

10.12(c)          Amended and Restated Guaranty Agreement with the Jacqueline
                  Badger Mars Trust

10.12(d)          Second Amended and Restated Guaranty Agreement with the
                  Jacqueline Badger Mars Trust

21.1              Subsidiaries of the Registrant: None.
</TABLE>

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

(b)      filed herewith.

(c)      Incorporated by reference from the Company's Form 10-K for its year
         ended June 30, 2000, as originally filed.


                                       31
<PAGE>   32


(d)      Incorporated by reference from the Company's Form 8-K reporting an
         event of December 1, 2000.

(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)      Incorporated by reference from the Company's Form 10-K for its year
         ended June 30, 1999.


(b)      REPORTS ON FORM 8-K

         In December 2000 the Company filed a current report on Form 8-K about
the Second Amended Mars Guaranty Agreement. In August 2000, the Company filed a
current report on Form 8-K reporting the results of its shareholders meeting
held in June 2000.

(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.


                                       32
<PAGE>   33


                                   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.

February 16, 2000

                                        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: 2/16/2001
---------------------------                 Officer and Director                     ---------
Bill H. Gunn



/s/ Robert van Mourik                       Secretary, Treasurer               Date: 2/16/2001
---------------------------                 Principal Financial                      ---------
Robert C. J. van Mourik                     and Accounting Officer,
                                            and Director


/s/ John F. Woolard                         Director                           Date: 2/16/2001
---------------------------                                                          ---------
John F. Woolard


/s/ Robert A. Cameron                       Director                           Date: 2/16/2001
---------------------------                                                          ---------
Robert A. Cameron


/s/ Neil E. Summerson                       Director                           Date: 2/16/2001
---------------------------                                                          ---------
Neil E. Summerson


/s/ Geoffrey C. Murphy                      Director                           Date: 2/16/2001
---------------------------                                                          ---------
Geoffrey C. Murphy


/s/ Samuel A. Stern                         Director                           Date: 2/16/2001
---------------------------                                                          ---------
Samuel A. Stern
</TABLE>


<PAGE>   34

                                 AMERALIA, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                              FINANCIAL STATEMENTS

                             JUNE 30, 2000 AND 1999



<PAGE>   35

                                 C O N T E N T S

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

Balance Sheets...............................................................  4

Statements of Operations.....................................................  6

Statements of Stockholders' Equity...........................................  7

Statements of Cash Flows..................................................... 14

Notes to the Financial Statements............................................ 16
</TABLE>


<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, 2000 and 1999, and the related statements of
operations, stockholders' equity and cash flows for the years ended June 30,
2000, 1999 and 1998 and from the beginning of the development stage on July 1,
1992 through June 30, 2000. 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 audit 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, 2000 and 1999, and the results of its operations
and its cash flows for the years ended June 30, 2000, 1999 and 1998 and from the
beginning of the development stage on July 1, 1992 through June 30, 2000 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 13 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 13. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.



HJ & Associates, LLC
Salt Lake City, Utah
September 18, 2000


<PAGE>   37


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

                                    ASSETS

<TABLE>
<CAPTION>
                                                                        JUNE 30,
                                                              ---------------------------
                                                                  2000           1999
                                                              -----------     -----------
<S>                                                           <C>             <C>
CURRENT ASSETS

 Cash (Note 1)                                                $     4,980     $   312,104
 Restricted cash (Note 1)                                              --         991,305
 Related party receivables (Note 2)                                57,071          43,008
 Prepaid expenses                                                  30,152          30,082
 Interest receivable                                                2,713           1,167
                                                              -----------     -----------
    Total Current Assets                                           94,916       1,377,666
                                                              -----------     -----------
FIXED ASSETS, net (Notes 1 and 4)                                  24,524          24,202
                                                              -----------     -----------
OTHER ASSETS

 Lease acquisition and exploration costs (Notes 3 and 10)       3,565,267       3,023,287
 Plant construction in progress (Note 3)                        6,994,642       1,250,000
 Deferred financing costs (Note 1)                                392,020         110,000
 Note receivable - related party (Note 2)                          20,000          25,000
 Deposits                                                             650          25,906
                                                              -----------     -----------
    Total Other Assets                                         10,972,579       4,434,193
                                                              -----------     -----------
    TOTAL ASSETS                                              $11,092,019     $ 5,836,061
                                                              ===========     ===========
</TABLE>


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


                                        4
<PAGE>   38

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

                     LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                         JUNE 30,
                                                             ------------------------------
                                                                 2000               1999
                                                             ------------      ------------
<S>                                                          <C>               <C>
CURRENT LIABILITIES

 Accounts payable                                            $    727,812      $    232,017
 Royalties payable (Note 9)                                       354,167           279,167
 Bank overdraft                                                    38,356             5,702
 Guarantee fees payable (Note 11)                                 520,000                --
 Accrued expenses (Note 11)                                        91,862            88,219
 Due to related parties (Note 5)                                  131,762             9,333
 Notes payable (Note 6)                                         5,504,000             4,000
 Interest payable                                                 110,815             1,290
                                                             ------------      ------------
    Total Current Liabilities                                   7,478,774           619,728
                                                             ------------      ------------
COMMITMENTS AND CONTINGENCIES (Note 9)                                 --           303,800
                                                             ------------      ------------
STOCKHOLDERS' EQUITY

 Preferred stock, $0.05 par value; 1,000,000 authorized;
  2,986 and 2,986 issued and outstanding,  respectively               149               149
 Common stock, $0.01 par value; 100,000,000 shares
  authorized; 8,765,699 and 7,659,766 issued and
  outstanding, respectively                                        87,657            76,598
 Additional paid-in capital                                    19,068,338        16,545,797
 Prepaid construction costs (Note 3)                           (1,300,000)               --
 Accumulated deficit                                          (14,242,899)      (11,710,011)
                                                             ------------      ------------
     Total Stockholders' Equity                                 3,613,245         4,912,533
                                                             ------------      ------------
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY              $ 11,092,019      $  5,836,061
                                                             ============      ============
</TABLE>


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


                                        5
<PAGE>   39



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


<TABLE>
<CAPTION>
                                                                                          FROM THE
                                                                                          BEGINNING
                                                                                       OF DEVELOPMENT
                                                                                          STAGE ON
                                                 FOR THE YEARS ENDED JUNE 30,           JULY 1, 1992
                                      ---------------------------------------------      TO JUNE 30,
                                          2000             1999             1998             2000
                                      -----------      -----------      -----------    --------------
<S>                                   <C>              <C>              <C>            <C>
REVENUES                              $        --      $        --      $        --      $        --

EXPENSES

  General and administrative            1,523,717        1,910,792          629,605        7,589,829
  Depreciation and amortization            11,225            9,056            8,618           81,195
                                      -----------      -----------      -----------      -----------
     Total Expenses                     1,534,942        1,919,848          638,223        7,671,024
                                      -----------      -----------      -----------      -----------
LOSS FROM OPERATIONS                   (1,534,942)      (1,919,848)        (638,223)      (7,671,024)
                                      -----------      -----------      -----------      -----------
OTHER INCOME (EXPENSE)

  Other income                                 --               --               29               29
  Investment income                            --               --               --           89,760
  Interest expense                       (357,535)         (18,519)         (38,909)        (994,583)
  Other financing costs                  (435,502)              --               --         (435,502)
  Interest income                          39,891           36,752            4,075          319,407
  Gain on settlement of debt               53,800               --               --           53,800
  Foreign currency gain (loss)                 --               14          123,211          (63,572)
                                      -----------      -----------      -----------      -----------
     Total Other Income (Expense)        (699,346)          18,247           88,406       (1,030,661)
                                      -----------      -----------      -----------      -----------
NET LOSS BEFORE INCOME TAX
 EXPENSE                               (2,234,288)      (1,901,601)        (549,817)      (8,701,685)

  Income tax expense                           --               --               --               --
                                      -----------      -----------      -----------      -----------
NET LOSS                              $(2,234,288)     $(1,901,601)     $  (549,817)     $(8,701,685)
                                      ===========      ===========      ===========      ===========
BASIC NET LOSS PER SHARE              $     (0.27)     $     (0.31)     $     (0.13)
                                      ===========      ===========      ===========
WEIGHTED AVERAGE NUMBER OF
 SHARES OUTSTANDING                     8,269,928        6,229,634        4,313,400
                                      ===========      ===========      ===========
</TABLE>


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


                                        6

<PAGE>   40


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


<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 July 1, 1992
 (beginning of development stage)               --     $        --       1,803,627     $    18,036     $ 4,449,738     $      --

Shares issued for cash at $2.99
 per share                                      --              --         421,250           4,213       1,255,787            --

Shares issued for payment
 of obligations at $2.05 per share              --              --           7,312              73          14,927            --

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

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

Balance at June 30, 1992                        --              --       2,232,189          22,322       5,720,452            --

Issuance of Series A preferred
 stock for cash at $1.50 per share         666,666          33,333              --              --         966,667            --

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

Shares issued in acquisition
 of Rock School lease at $3.00
 per share                                      --              --          50,000             500         149,500            --

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

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

Balance at June 30, 1993                   666,666     $    33,333       2,282,256     $    22,822     $ 6,836,619     $      --
                                       -----------     -----------     -----------     -----------     -----------     ---------
<CAPTION>
                                                           OTHER
                                       ACCUMULATED     COMPREHENSIVE
                                         DEFICIT          INCOME
                                       -----------     -------------
<S>                                    <C>             <C>
Balance at July 1, 1992
 (beginning of development stage)      $(3,797,189)     $    22,211

Shares issued for cash at $2.99
 per share                                      --               --

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

Change in cumulative
 adjustment account                             --          147,000

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

Balance at June 30, 1992                (4,189,901)         169,211

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

Issuance of fractional shares
 on reverse split                               --               --

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

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

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

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


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


                                        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)

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

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

Net loss for the year ended
 June 30, 1994                                   --              --              --              --              --              --
                                        -----------     -----------     -----------     -----------     -----------     -----------
Balance at June 30,1994                     717,666     $    35,883       2,378,506     $    23,785     $ 7,512,219     $   (77,904)
                                        -----------     -----------     -----------     -----------     -----------     -----------

<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.


                                        8

<PAGE>   42



                                 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 30,1994                      717,666     $    35,883       2,378,506     $    23,785     $ 7,512,219    $   (77,904)

Shares issued for cash and
 extinguishment of debt at $1.64 per
 share                                            --              --         160,000           1,600         261,031             --

Shares issued in lieu of dividends
 at $1.57 per share                               --              --          71,250             713         111,287             --

Issuance of Series C preferred
 for cash at $80.00 per share                    750              38              --              --          59,963             --

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

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

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

Balance, June 30, 1995                       718,416          35,921       2,609,756          26,098       7,944,500             --

Shares issued in lieu of dividends
 at $1.00 per share                               --              --         107,285           1,072         106,182             --

Issuance of series D preferred
 stock for cash at $1,000 per share            1,435              72              --              --       1,434,958             --

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

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

Balance, June 30, 1996                       719,851     $    35,993       2,717,041     $    27,170     $ 9,485,640    $        --
                                         -----------     -----------     -----------     -----------     -----------    -----------

<CAPTION>
                                                              OTHER
                                         ACCUMULATED      COMPREHENSIVE
                                           DEFICIT            INCOME
                                         ------------     -------------
<S>                                      <C>              <C>
Balance at June 30,1994                  $(5,372,716)     $   123,211

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

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

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

Dividends paid                              (112,000)              --

Payment received on Series B
 stock subscriptions                              --               --

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

Balance, June 30, 1995                    (6,494,633)         123,211

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

Issuance of series D preferred
 stock for cash at $1,000 per share               --               --

Dividends paid                              (333,216)              --

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

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



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


                                        9

<PAGE>   43



                                 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, 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
                                            ACCUMULATED     COMPREHENSIVE
                                              DEFICIT           INCOME
                                            -----------     -------------
<S>                                         <C>             <C>
Balance, June 30, 1996                      $(7,579,199)     $   123,211

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                         --               --

Dividends paid                                 (233,790)              --

Additional capital contributed                       --               --

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

Balance, June 30, 1997                      $(8,582,174)     $   123,211
                                           ------------      -----------
</TABLE>



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


                                       10

<PAGE>   44


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

Issuance of Series D preferred
 stock for cash at $1,000.00 per share              240              12             --              --         239,988           --

Common stock sold for cash
 at $1.00 per share                                  --              --        865,000           8,650         856,350           --

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

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

Shares issued in lieu of dividends
 at $1.00 per share                                  --              --        356,554           3,566         352,988           --

Conversion of preferred stock                  (718,060)        (35,903)       791,666           7,917          63,987           --

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

Shares canceled                                      --              --         (5,000)            (50)         (4,950)          --

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

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

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

<CAPTION>
                                                                  OTHER
                                              ACCUMULATED     COMPREHENSIVE
                                                DEFICIT           INCOME
                                            -------------     -------------
<S>                                         <C>             <C>
Balance, June 30, 1997                      $ (8,582,174)     $    123,211

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

Common stock sold for cash
 at $1.00 per share                                   --                --

Offering costs                                        --                --

Foreign currency translation
 adjustment                                           --          (123,211)

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

Conversion of preferred stock                         --                --

Dividends paid                                  (392,554)               --

Shares canceled                                       --                --

Additional capital contributed                        --                --

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

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


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


                                       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     $      --
                                          ---------      -----------   ------------      -----------     ------------     ---------

<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.


                                       12

<PAGE>   46


                                 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, 1999                        2,986      $       149      7,659,766      $    76,598     $ 16,545,797     $      --

Shares issued for cash at $2.50
 per share                                       --               --        250,000            2,500          622,500            --

Shares issued in lieu of loan fees
 at $2.50 per share                              --               --         24,000              240           59,760            --

Shares issued for cash at $2.50
 per share                                       --               --        100,000            1,000          249,000            --

Shares issued as prepaid
 construction costs at $3.00
 per share                                       --               --        433,333            4,333        1,295,667            --

Shares issued in lieu of dividends
 at $1.00 per share                              --               --        298,600            2,986          295,614            --

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

Net loss for the year ended
 June 30, 2000                                   --               --             --               --               --            --
                                       ------------     ------------   ------------     ------------     ------------     ---------

Balance, June 30, 2000                        2,986     $        149      8,765,699      $    87,657     $ 19,068,338     $      --
                                       ============     ============   ============      ===========     ============     =========

<CAPTION>
                                                                  OTHER
                                              ACCUMULATED     COMPREHENSIVE
                                                DEFICIT           INCOME
                                            -------------     -------------
<S>                                         <C>               <C>
Balance, June 30, 1999                      $(11,710,011)     $        --

Shares issued for cash at $2.50
 per share                                            --               --

Shares issued in lieu of loan fees
 at $2.50 per share                                   --               --

Shares issued for cash at $2.50
 per share                                            --               --

Shares issued as prepaid
 construction costs at $3.00
 per share                                            --               --

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

Dividends declared                              (298,600)              --

Net loss for the year ended
 June 30, 2000                                (2,234,288)              --
                                            ------------      -----------

Balance, June 30, 2000                      $(14,242,899)     $        --
                                            ============      ===========
</TABLE>


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


                                       13

<PAGE>   47



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

<TABLE>
<CAPTION>
                                                                                                              FROM THE
                                                                                                              BEGINNING
                                                                                                            OF DEVELOPMENT
                                                                                                               STAGE ON
                                                                    FOR THE YEARS ENDED JUNE 30,            JULY 1, 1992
                                                         ---------------------------------------------       TO JUNE 30,
                                                             2000             1999            1998              2000
                                                         -----------      -----------      -----------      -----------
<S>                                                      <C>              <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES

  Net loss                                               $(2,234,288)     $(1,901,601)     $  (549,817)     $(8,701,685)
  Adjustments to reconcile net loss to net cash
   (used) by operating activities:
     Bad debt                                                     --               --               --          624,798
     Stock issued for services rendered                           --               --               --           65,000
     Depreciation and amortization                            11,225            9,056            8,618           90,773
     Exchange (gain)                                              --              (14)        (123,211)        (168,556)
     Gain on settlement of debt                              (53,800)              --               --          (53,800)
  Change in Operating Assets and Liabilities:
    Decrease in prepayments                                       --               --               --           18,000
    Decrease in notes receivable                                  --               --               --        1,300,497
    (Increase) decrease in restricted cash                   991,305         (991,305)              --               --
    (Increase) in accounts and interest
      receivable                                              (1,546)          (1,167)              --           (2,048)
    (Increase)in related party receivables                   (14,063)         (25,334)          (7,610)         (57,071)
    (Increase) in prepaid expenses                               (70)         (30,082)              --          (30,152)
    (Increase) decrease in deposits                           25,256          (25,906)              --             (650)
    (Increase) decrease in other assets                     (222,020)        (110,000)         224,500         (332,020)
    Increase in bank overdraft                                32,654            1,116            4,586           38,356
    Increase (decrease) in due to related parties            122,429          (35,354)         (45,704)          50,460
    Increase (decrease) in accounts payable and
      royalties payable                                      624,595          146,173          106,319        1,073,175
    Increase in accrued expenses                               3,643           19,836               --           23,479
    Increase in guarantee fees payable                       520,000               --               --          520,000
    Increase (decrease) in interest payable                  109,525              860          (22,096)          (8,251)
    Increase (decrease) in contingent liabilities           (303,800)         303,800               --               --
                                                         -----------      -----------      -----------      -----------
          Net Cash (Used) in Operating Activities           (388,955)      (2,639,922)        (404,415)      (5,549,695)
                                                         -----------      -----------      -----------      -----------
CASH FLOWS FROM INVESTING ACTIVITIES

  Lease acquisition, exploration and development
    expenditures                                            (541,980)        (255,000)         (13,051)      (2,719,870)
  Plant construction in progress                          (5,744,642)      (1,250,000)              --       (6,994,642)
  Liquidation of RIT investment                                   --          418,346               --          418,346
  Purchase of property and equipment                         (11,547)         (26,261)              --         (103,076)
  Cash paid on note receivable related                            --          (25,000)              --          (25,000)
  Cash received from notes receivable                          5,000               --               --         (139,853)
                                                         -----------      -----------      -----------      -----------
          Net Cash (Used) in Investing Activities        $(6,293,169)     $(1,137,915)     $   (13,051)     $(9,564,095)
                                                         -----------      -----------      -----------      -----------
</TABLE>


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


                                       14

<PAGE>   48



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


<TABLE>
<CAPTION>
                                                                                                             FROM THE
                                                                                                            BEGINNING
                                                                                                          OF DEVELOPMENT
                                                                                                             STAGE ON
                                                               FOR THE YEARS ENDED JUNE 30,               JULY 1, 1992
                                                    ------------------------------------------------       TO JUNE 30,
                                                         2000             1999              1998              2000
                                                    ------------      ------------      ------------      ------------
<S>                                                 <C>               <C>               <C>               <C>
CASH FLOWS FROM FINANCING ACTIVITIES

  Cash received from issuance of stock              $    875,000      $  3,574,000      $    859,200      $  9,166,596
  Cash received from notes                             5,500,000           198,217           223,606         6,257,222
  Payments on note payable                                    --          (389,475)         (100,183)         (612,658)
  Additional capital contributed                              --                --           139,954           307,372
                                                    ------------      ------------      ------------      ------------

      Net Cash Provided by Financing Activities        6,375,000         3,382,742         1,122,577        15,118,532
                                                    ------------      ------------      ------------      ------------

NET INCREASE (DECREASE) IN CASH                         (307,124)         (395,095)          705,111             4,742

CASH AND CASH EQUIVALENTS AT
 BEGINNING OF YEAR                                       312,104           707,199             2,088               238
                                                    ------------      ------------      ------------      ------------
CASH AND CASH EQUIVALENTS AT
 END OF YEAR                                        $      4,980      $    312,104      $    707,199      $      4,980
                                                    ============      ============      ============      ============
SUPPLEMENTAL DISCLOSURE OF CASH
 FLOW INFORMATION

  Income taxes                                      $         --      $         --      $         --      $         --
  Interest                                          $    248,010      $     17,659      $     38,479      $    527,383

NON-CASH FINANCING ACTIVITIES

  Common stock issued for payment of
   obligations                                      $     60,000      $    215,750      $         --      $    668,781
  Common stock issued for services rendered                   --      $         --      $         --      $     65,000
  Payment of preferred stock dividends through
   the issuance of additional common and
   preferred stock                                  $    298,600      $    209,215      $    356,554      $  1,443,413
  Common stock issued as prepaid construction
   costs                                            $  1,300,000      $         --      $         --      $  1,300,000
</TABLE>


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


                                       15

<PAGE>   49


                                 AMERALIA, INC.
                        Notes to the Financial Statements
                          (A Development Stage Company)
                             June 30, 2000 and 1999


NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          a.   General Development of the Business

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

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

          AmerAlia's primary objective is to use solution mining to recover
          sodium bicarbonate for sale to the animal feed, industrial,
          pharmaceutical and food grade markets. The production of sodium
          bicarbonate also enables the production of soda ash, caustic soda and
          other sodium chemicals commonly used in the manufacture of glass,
          detergents and a variety of inorganic and organic chemicals. Sodium
          bicarbonate is also used as an agent for flue gas desulfurization, a
          market AmerAlia expects to expand with the national clean air effort.
          AmerAlia proposes to construct and operate a 150,000 ton per year
          design capacity facility in two or three phases. AmerAlia submitted
          its mining plans to the Bureau of Land Management which has found that
          the project would have no significant environmental impact. This
          finding, combined with the permits AmerAlia has received from state
          and local agencies, allows AmerAlia to begin construction on the
          lease.

          b.   Accounting Method

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

          c.   Cash and Restricted Cash

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

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


                                       16
<PAGE>   50


                                 AMERALIA, INC.
                        Notes to the Financial Statements
                          (A Development Stage Company)
                             June 30, 2000 and 1999


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

          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, 2000, AmerAlia had net operating loss carryforwards of
          approximately $8,600,000 that may be offset against future taxable
          income from the year 2000 through 2020. No tax benefit has been
          reported in the June 30, 2000 financial statements since the potential
          tax benefit is offset by a valuation allowance of the same amount.

          g.   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.


                                       17
<PAGE>   51


                                 AMERALIA, INC.
                        Notes to the Financial Statements
                          (A Development Stage Company)
                             June 30, 2000 and 1999


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

          h.   Basic Net Loss Per Share

          The computations of basic loss per share of common stock are based on
          the weighted average number of shares outstanding during the period of
          the financial statements as follows:

<TABLE>
<CAPTION>
                                          FOR THE YEARS ENDED JUNE 30,
                                  --------------------------------------------
                                      2000            1999            1998
                                  ------------    ------------    ------------
<S>                               <C>             <C>             <C>
          Loss (numerator)        $(2,234,288)    $(1,901,601)    $  (549,817)
          Shares (denominator)      8,269,928       6,229,634       4,313,400
          Per share amount        $     (0.27)    $     (0.31)    $     (0.13)
</TABLE>

          AmerAlia's outstanding stock purchase warrants and options have been
          excluded from the basic net loss per share calculation as they are
          anti-dilutive.

          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 occasionally exceed that amount.
          The Company also maintains a cash account with a brokerage firm. This
          account is not insured by the Federal Deposit Insurance Corporation.
          At June 30, 2000 and 1999, the amount of uninsured cash in all
          accounts was $-0- and $1,086,479, respectively.

          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 $144,497 in establishing short-term
          loans. These costs are being amortized over the remaining term of the
          loan. In addition, AmerAlia has incurred costs of $247,523 in
          connection with establishing a long-term financing package for
          approximately $32,000,000 for the construction of a plant for the
          recovery and production of the sodium bicarbonate. This amount will be
          amortized over the life of the long-term financing agreement once
          established.


                                       18

<PAGE>   52


                                 AMERALIA, INC.
                        Notes to the Financial Statements
                          (A Development Stage Company)
                             June 30, 2000 and 1999


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, 2000 and 1999 totals $57,071 and $43,008,
          respectively. These advances are non-interest bearing and are due on
          demand.

          AmerAlia also loaned an officer of the Company $25,000 during the year
          ended June 30, 1999 as part of his employment agreement. Interest is
          payable on the loan at 7.0% per annum, payable quarterly. Accrued
          interest receivable at June 30, 2000 and 1999 was $2,713 and $1,167,
          respectively. 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. The principal balance outstanding at June 30,
          2000 was $20,000.

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 9). 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 the permits to construct the mining facilities. AmerAlia
          is required to provide a $1,300,000 reclamation bond on the site prior
          to full commencement. AmerAlia is currently negotiating this bond. The
          EPA's Underground Injection Control Permit, currently issued in draft
          form, is the only significant additional permit required to operate
          the facility.


                                       19

<PAGE>   53


                                 AMERALIA, INC.
                        Notes to the Financial Statements
                          (A Development Stage Company)
                             June 30, 2000 and 1999


NOTE 3 -- LEASE ACQUISITION AND EXPLORATION COSTS (Continued)

          AmerAlia has entered into a construction agreement dated May 14, 1999
          with a Delaware corporation doing business as U.S. Filter Corporation
          and HPD Products (US Filter) to design, manage and construct a sodium
          bicarbonate solution mining and production plant on the Rock School
          Lease for an amount not to exceed $33,200,000. As of June 30, 2000,
          the Company had advanced a total of $6,384,397 to U.S. Filter for the
          construction of the plant. The Company has also capitalized certain
          costs related to the construction of the plant totaling $610,245,
          bringing the total capitalized costs at June 30, 2000 to $6,994,642.

          In addition, during the year ended June 30, 2000, AmerAlia issued
          433,333 shares of its outstanding common stock valued at $3.00 per
          share as prepaid construction costs related to the plant construction,
          for a total value of $1,300,000. These costs will be reclassified in
          the future as plant construction costs as the services are performed.
          Since the prepaid amount was the result of a stock issuance, the
          amount is being shown in the equity section of the accompanying
          balance sheet at June 30, 2000.

          Subject to AmerAlia obtaining satisfactory long-term financing, US
          Filter will complete the design and construction of the mine and
          processing plant for AmerAlia, guarantee the plant's performance and
          advance the costs of construction to AmerAlia. An independent
          engineering and marketing report has formed the basis of an
          information memorandum and detailed financial projections provided to
          selected institutional and non-institutional lenders in September 2000
          for the purpose of securing $32 million of long-term financing to
          repay the US Filter construction finance. These documents and models
          have also been provided to Fitch IBCA, Duff & Phelps for the purpose
          of their rating the long-term debt. At the date of this report,
          AmerAlia does not have Fitch's preliminary assessment and is awaiting
          expressions of interest from prospective lenders.

          In addition, AmerAlia has continued 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 one of three companies holding 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 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 initial mine site on the Rock School lease.


                                       20

<PAGE>   54



                                 AMERALIA, INC.
                        Notes to the Financial Statements
                          (A Development Stage Company)
                             June 30, 2000 and 1999


NOTE 3 -- LEASE ACQUISITION AND EXPLORATION COSTS (Continued)

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

          Based on the foregoing information, AmerAlia believes that the
          nahcolite deposit within the Rock School Lease is of significant size.
          However, not all of this resource can be recovered with existing
          technology. Until the resource is brought into production or until
          substantial additional engineering work is accomplished, the viability
          of economic recoverability cannot be established.

          AmerAlia has capitalized costs associated with the acquisition of the
          lease site and certain other costs associated with the development of
          the resource. All other costs incurred in developing the resource are
          expensed as period costs.

NOTE 4 -- FIXED ASSETS

          Fixed assets at June 30, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                  JUNE 30,
                                           ---------------------
                                             2000         1999
                                           --------     --------
<S>                                        <C>          <C>
          Vehicle                          $ 31,960     $ 31,960
          Equipment                          61,916       50,369
          Less accumulated depreciation     (69,352)     (58,127)
                                           --------     --------
                                           $ 24,524     $ 24,202
                                           ========     ========
</TABLE>

          Depreciation expense for the years ended June 30, 2000, 1999 and 1998
          was $11,225, $9,056 and $8,618, respectively.

NOTE 5 -- DUE TO RELATED PARTIES

          AmerAlia owed $131,762 and $9,333 to affiliates of AmerAlia at June
          30, 2000 and 1999, respectively. This liability is comprised of
          advances to AmerAlia, accrued compensation and unpaid directors fees.


                                       21
<PAGE>   55



                                 AMERALIA, INC.
                        Notes to the Financial Statements
                          (A Development Stage Company)
                             June 30, 2000 and 1999


NOTE 6 -- NOTES PAYABLE

<TABLE>
<CAPTION>
                                                                         JUNE 30,
                                                                 -------------------------
                                                                    2000           1999
                                                                 ----------     ----------
<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 an individual; unsecured, due on
           October 29, 2000; interest at the prime rate
           (9.50% at June 30, 2000)                                 300,000             --

          Note payable to financial institution; principal
          and interest due January 21, 2001; interest at the
          prime rate (9.50% at June 30, 2000); secured
           by a related party guarantee agreement                 5,200,000             --
                                                                 ----------     ----------
               Total Notes Payable                               $5,504,000     $    4,000
                                                                 ==========     ==========
</TABLE>

NOTE 7 -- OFFICER COMPENSATION

          AmerAlia paid $150,000 and $125,000 to Gunn Development Pty. Ltd. and
          $55,000 and $55,000 to Ahciejay Pty. for management fees during the
          years ended June 30, 2000 and 1999, respectively. These companies are
          affiliates of Mr. Bill H. Gunn, Chairman and President of AmerAlia,
          and Mr. Robert van Mourik, Executive Vice President, Chief Financial
          Officer, Secretary & Treasurer. On June 1, 1998, 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 $150,000 and $135,000 in total compensation
          to Mr. Woolard during the years ended June 30, 2000 and 1999,
          respectively. Additional fees totaling $25,972 and $18,302 have been
          paid to Jacinth Pty. Ltd., an affiliate of Robert Cameron, a director
          of AmerAlia for the years ended June 30, 2000 and 1999, respectively.
          In addition, directors earned fees of $14,000 each. The liabilities to
          related parties include these fees (See Note 5), except in one
          instance where the fee reduced a related party receivable (See
          Note 2).

          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.


                                       22

<PAGE>   56


                                 AMERALIA, INC.
                        Notes to the Financial Statements
                          (A Development Stage Company)
                             June 30, 2000 and 1999


NOTE 8 -- OUTSTANDING STOCK OPTIONS AND PURCHASE WARRANTS

          AmerAlia has elected to follow Accounting Principles Board Opinion No.
          25, "Accounting for Stock Issued to Employees" (APB 25) and related
          interpretations in accounting for its employee stock options because
          the alternative fair value accounting provided for under FASB
          Statement No. 123, "Accounting for Stock-Based Compensation," requires
          use of option valuation models that were not developed for use in
          valuing employee stock options. Under APB 25, of the exercise price of
          AmerAlia's stock options is greater than or equal to the market price
          of the underlying stock on the date of grant, no compensation expense
          is recognized. Accordingly, no additional compensation expense was
          recorded by AmerAlia for the years ended June 30, 2000, 1999 or 1998.

          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, 2000:

<TABLE>
<CAPTION>
                    EXPIRATION DATE            PRICE       NUMBER
                    ---------------            -----      ---------
<S>                 <C>                        <C>        <C>
                    March 31, 2001             $6.00        442,000
                    March 31, 2001             $1.00        100,000
                    March 31, 2003             $1.50        150,000
                    December 31, 2003          $1.50         40,000 (See Note 9)
                    June 28, 2006              $1.50        505,000
                    June 28, 2006 (SAR's)      $1.50         70,000 (See Note 7)
                                                          ---------
                                                          1,307,000
                                                          =========
</TABLE>

          During the year ended June 30, 2000, no options or warrants were
          exercised or expired.

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

          During the year ended June 30, 1998, no options expired.

NOTE 9 -- 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 rescinded the contract
          claiming that Raytheon was late in providing engineering plans and
          testing and that their work was substandard. Raytheon had an
          outstanding invoice due them for approximately $303,800. During the
          year ended June 30, 2000, the amount was settled for $250,000 and the
          claim was dropped, resulting in a gain on settlement of debt of
          $53,800 for the year ended June 30, 2000.

          Marvin Hudson, a former officer and employee of 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 it has a valid defense and intends to
          defend its case vigorously.


                                       23

<PAGE>   57


                                 AMERALIA, INC.
                        Notes to the Financial Statements
                          (A Development Stage Company
                             June 30, 2000 and 1999


NOTE 9 -- COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

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

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

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

               Minimum amounts due are as follows:

<TABLE>
<S>                                           <C>
                    2001                       $100,000
                    2002                        100,000
                                               --------
                         Total                 $200,000
                                               ========
</TABLE>

          These payments will continue while AmerAlia holds the Rock School
          Lease. Royalties payable as of June 30, 2000 and 1999 were $354,167
          and $279,167, 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, 2000 was $487,500.

          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 vest annually through
          November 2002.

NOTE 10 -- 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.


                                       24

<PAGE>   58


                                 AMERALIA, INC.
                        Notes to the Financial Statements
                          (A Development Stage Company)
                             June 30, 2000 and 1999


NOTE 11 -- ACCRUED EXPENSES

          Accrued expenses consist of the following at June 30, 2000 and 1999,
          respectively:

<TABLE>
<CAPTION>
                                 2000         1999
                                -------     -------
<S>                             <C>         <C>
          Accrued dividends     $74,650     $74,650
          Payroll taxes          12,495      13,569
          Other                   4,717          --
                                -------     -------
              Total             $91,862     $88,219
                                =======     =======
</TABLE>

          AmerAlia has also entered into certain Guarantee Agreements with the
          Mars Trust, whereby the Mars Trust has guaranteed the repayment of the
          notes payable to the Bank of America (Note 6) in the event of a
          default. AmerAlia has agreed to pay the Mars Trust a guarantee fee
          equal to 10% of the loan proceeds, payable in restricted shares of
          common stock with the number of shares determined by future market
          prices of AmerAlia's stock. As of June 30, 2000, $520,000 was owed to
          the Mars Trust for these guarantee fees on the $5,200,000 note payable
          to the Bank of America. Upon the extension of the original due dates
          applicable to the Bank of America notes payable subsequent to June 30,
          2000, the Guarantee Agreements were also amended and extended for an
          additional fee (see Note 14).

NOTE 12 -- PREFERRED STOCK

          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 13 -- 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 14 -- SUBSEQUENT EVENTS

          On July 10, 2000, AmerAlia borrowed from Bank of America $2,126,000
          and entered into a further guarantee agreement with the Mars Trust.
          These funds have been used to pay interest due to Bank of America,
          reduce accounts payable, working capital and for further capital
          expenditure on the Rock School Lease project.


                                       25

<PAGE>   59


                                 AMERALIA, INC.
                        Notes to the Financial Statements
                          (A Development Stage Company)
                             June 30, 2000 and 1999



NOTE 14 -- SUBSEQUENT EVENTS (Continued)

          On September 1, 2000, AmerAlia completed an Amended and Restated
          Guarantee Agreement with the Mars Trust to replace the three existing
          guarantee agreements. It provides for the total $7,326,000 borrowed
          from the Bank of America and the extension of the guarantee to
          September 14, 2001 for a fee equal to 15% of the total loan, payable
          in restricted shares with the number of shares determined by future
          market prices of AmerAlia's common stock. Compared with the fee of 10%
          per year payable on the three existing guarantees, the new fee of 15%
          for the extended time is equivalent to a weighted average of
          approximately 9.2% per year.


                                       26