<PAGE> 1
RULE 424(b)(5)
RS NO. 33-45352
THIS PROSPECTUS SUPPLEMENT RELATES TO SECURITIES THAT ARE THE
SUBJECT OF AN EFFECTIVE REGISTRATION STATEMENT.
--------------------------------------------------------------------------------
PROSPECTUS SUPPLEMENT
TO
PROSPECTUS DATED OCTOBER 6, 2000
--------------------------------------------------------------------------------
GREKA ENERGY CORPORATION
450,000 SHARES
COMMON STOCK
(NO PAR VALUE)
We are offering 450,000 shares of our no par value common stock which will be
traded on the Nasdaq National Market System under our symbol, "GRKA." On
November 27, 2000, the last reported sale price of our common stock was $14.00
per share.
The underwriters have an option to purchase an additional 67,500 shares from
Greka to cover over allotments.
THERE ARE CERTAIN RISKS INVOLVED WITH THE OWNERSHIP OF OUR COMMON STOCK,
INCLUDING RISKS RELATED TO OUR BUSINESS AND THE MARKETS FOR OUR COMMON STOCK.
SEE "RISK FACTORS" BEGINNING ON PAGE S-4 OF THE PROSPECTUS SUPPLEMENT AND PAGE 6
OF THE PROSPECTUS.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ----------
<S> <C> <C>
Public offering price $ 13.75 $6,187,500
Underwriting discount $ 0.825 $ 371,250
Proceeds before expenses to GREKA Energy $12.925 $5,816,250
</TABLE>
--------------------------------------------------------------------------------
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS WHICH
ACCOMPANIES THIS PROSPECTUS SUPPLEMENT IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FRIEDMAN BILLINGS RAMSEY SANDERS MORRIS HARRIS
The date of this prospectus supplement is November 28, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT PROSPECTUS
<S> <C> <C> <C>
Prospectus Supplement Summary...............S-3 About this Prospectus.................. 2
Recent Developments ........................S-4 Information Made Available
Risk Factors................................S-4 to You............................... 2
Use of Proceeds.............................S-8 Incorporation of Documents by
Capitalization..............................S-8 Reference............................ 3
Underwriting................................S-9 Prospectus Summary..................... 3
Legal Matters...............................S-10 Risk Factors........................... 6
Form 10-Q for the period ended The Market for Our Common Stock........12
September 30, 2000.......................S-11 Plan of Distribution...................14
Description of Capital Stock...........15
Legal Matters..........................17
Experts................................17
SEC Position Regarding
Indemnification.....................17
</TABLE>
You should rely on the information contained in this prospectus
supplement, the accompanying prospectus and the documents we have incorporated
by reference. We have not authorized anyone to provide you with different
information. We are not making an offer of these securities in any state where
the offer or sale is not permitted. You should not assume that the information
provided by this prospectus supplement or the accompanying prospectus, as well
as the information we previously filed with the Securities and Exchange
Commission that is incorporated by reference herein, is accurate as of any date
other than its respective date.
S-2
<PAGE> 3
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights some basic information from this prospectus supplement
and the accompanying prospectus, the annual report and the Company's quarterly
reports for the periods ended June 30 and September 30, 2000 to help you
understand the offering of our common shares. It likely does not contain all the
information that is important to you. You should carefully read the entire
prospectus supplement and the accompanying prospectus, annual report and
quarterly reports and the other documents incorporated by reference to
understand fully the terms of the offering that are important to you in making
your investment decision. You should pay special attention to the "Risk Factors"
section beginning on page S-4 of this prospectus supplement and page 6 of the
prospectus to determine whether investment in our common shares is appropriate
for you. Throughout this prospectus supplement, we do not give effect to the 5%
stock dividend which we will issue to all shareholders of record at the close of
business on December 31, 2000. For the purposes of this prospectus supplement
and the accompanying prospectus, unless the context otherwise indicates when we
refer to "us," "we," "our," "ours" or "GREKA Energy" we are describing GREKA
Energy Corporation together with our subsidiaries.
GREKA ENERGY CORPORATION
Who We Are
We are an independent, integrated energy company committed to creating
shareholder value by capitalizing on consistent cash flow operationally hedged
from oil price fluctuation within integrated operations, exploiting exploration
and production opportunities and penetrating new niche markets utilizing
proprietary technology with emphasis on short radius horizontal drilling
technology patented by BP Amoco licensed to us. We have oil and gas production
and development activities in North America and the Far East, with primary areas
of activity in California, Louisiana and China.
Our principal business office is located at 630 Fifth Avenue, Suite 1501, New
York, New York 10111. The telephone number at that address is (212) 218-4680.
BUSINESS STRATEGY
Overview
We are a vertically integrated company focused on exploiting E&P opportunities
while improving production through the utilization of our licensed, short
radius, horizontal drilling technologies patented by BP Amoco. We have oil and
gas production, exploration and development activities in North American and the
Far East with our primary areas of activity in California, Louisiana and China.
In addition, we own and operate an asphalt refinery in California to which we
deliver 30% of our total current throughput. Through this vertical integration
of our operations, we are able to protect a significant portion of the
integrated refinery cash flow from risks related to oil price volatility thereby
protecting our margins. We intend to enhance production wherever possible
concentrating on production of crudes which may be utilized as feed stock for
our refinery to increase throughput and margins. See "Risk Factors" starting on
page S-4 of the prospectus supplement and page 6 of the prospectus.
S-3
<PAGE> 4
Recent Developments
On November 14, 2000, we announced a 5% stock dividend will be issued to all
shareholders of record at the close of market on December 31, 2000.
On November 1, 2000, we announced that we had satisfied our obligations under a
settlement agreement we entered into with Capco Resources Ltd by repurchasing
from Capco 800,000 shares of our issued and outstanding common stock. Part of
the purchase price was paid by the settlement of all of Capco's outstanding
debts owed to us and the dismissal of the related litigation. We paid to Capco
the remaining $4.2 million of the purchase price in cash on October 30, 2000. We
have canceled the shares acquired from Capco, thereby reducing the total number
of our issued and outstanding shares. As part of this settlement agreement, we
will also maintain voting rights related to the balance of the shares of GREKA
(490,000 shares) owned by Capco through December 31, 2002.
On September 26, 2000, we announced the successful recompletion of three wells
located in the Potash field leasehold in Plaquemines Parrish, Louisiana as part
of our continuing work-over operations. Initial flow tests on the recompleted
wells indicated 7.5 MMCFD and 200 BOPD, an increase of roughly 6.5 MMCFD and 100
BOPD per day. However, we will reduce production from these wells as part of an
orderly production plan. At present, we plan to work-over an additional three
wells in the Potash field prior to our year end.
On May 4, 2000, we tendered a bid package to Texaco Exploration and Production,
Inc. to purchase Texaco's interests in oil and gas production and reserves
located in the Cat Canyon Field, Santa Barbara County, California for $4
million. These properties consist of 13 leases, including 535 wells operated by
Texaco, plus non-operated and undeveloped minerals comprising approximately 6500
gross acres. All of the wells have been shut in since late 1998. At or about the
time of shut-in, the wells had been producing a total of approximately 410 BOPD.
We will use part of the proceeds from this offering to acquire these Texaco
properties, to pay for the expenses of the acquisition and to rework the
properties.
RISK FACTORS
Prior to making an investment decision, you should carefully consider, together
with the other information contained in and incorporated by reference into this
prospectus supplement, the following risk factors in addition to those risk
factors included in the attached prospectus.
OUR QUARTERLY RESULTS MAY BE VOLATILE DUE TO FLUCTUATING OIL AND GAS PRICES AND
MARKETS
Approximately 29% of our revenue for the nine months ended September 30, 2000
was derived from oil and gas operations unrelated to our asphalt business. With
respect to our oil and gas business, our revenues, cash flow, profitability and
future rate of growth are mostly dependent upon prevailing prices for oil and
gas. Our ability to maintain or increase our borrowing capacity and to obtain
additional capital on attractive terms is also to some extent dependent on these
commodities' prices. Historically, oil and gas prices and markets have been
volatile and are likely to continue to be volatile in the future. Prices for oil
and gas are subject to wide fluctuations in response to relatively minor changes
in supply of and demand for oil and gas, market uncertainty and a variety of
additional factors that are beyond our control. Those factors include:
o the domestic and foreign supply of oil and gas,
o the level of consumer demand, weather conditions,
o domestic and foreign governmental regulations and other
actions,
o actions taken by the Organization of Petroleum Exporting
Countries (OPEC),
o the price and availability of alternative fuels,
o overall economic conditions, and
o international political conditions (including wars and civil
unrest).
Significant declines in the price of oil or gas, such as the declines in oil
prices during 1999, would adversely affect our revenues, operating income and
borrowing capacity and may require a reduction in the carrying value of our oil
and gas properties.
S-4
<PAGE> 5
OUR ASPHALT HEDGING STRATEGY IS SUBJECT TO ADVERSE FACTORS OUTSIDE OF OUR
CONTROL
Currently we mitigate commodity risk with respect to our oil and gas production
business in the Santa Maria area (approximately 38% of our proved reserves as of
December 31, 1999) by using the production from those wells as feedstock for our
asphalt refinery. Approximately 65% of the production from our refinery is
asphalt. The remaining 35%, fuel oil and naptha, are historically more sensitive
to changes in crude oil prices than asphalt. Historically asphalt prices have
been less volatile than oil and gas prices as a result of being driven by
government funded highway building and other public and private construction
rather than oil prices. Accordingly, over time we have been able to process oil
from our fields in the Santa Maria area (also known as "equity oil") and sell it
in the form of produced liquid asphalt at a more consistent price, and with a
higher profit, than we would otherwise be able to sell it on the spot crude oil
market. In addition, we have been able to buy crude oil from other producing
areas around our refinery at a price allowing us to refine it into asphalt and
other products at a profit. The result of integrating our producing properties
and our asphalt refinery is that this portion of our business has historically
been relatively insulated from the extremes of the volatility in oil prices.
This insulation could be destabilized by three factors; first, asphalt prices
could lose their historical stability. In that regard, from January 1999 through
September 2000, there has been an out of the ordinary increase in asphalt prices
in the market where our refinery operates from approximately $86 to
approximately $160 per ton. We believe that increase is mostly due to the
passage of legislation increasing road building and requiring higher grade
asphalt to be used. Second, the price of oil could increase such that it is no
longer economical for us to purchase oil in the spot crude oil market and refine
it. For the nine months ended September 30, 2000, approximately 30% of the
feedstock to our refinery was sourced from our equity barrels. Third, operating
costs at our refinery could increase due to various factors including
environmental and other legislation, increases in natural gas prices to provide
heat at our refinery, or general economic factors. Accordingly, if these factors
should affect us adversely, the operating economics of our refinery could be
materially adversely effected.
REPLACEMENT OF OUR OIL AND GAS RESERVES IS UNCERTAIN
Our future success depends upon our ability to find, develop or acquire
additional oil and gas reserves that are economically recoverable. Except to the
extent that we conduct successful exploitation and production activities or
acquire properties containing proved reserves, our estimated net proved reserves
will generally decline as reserves are produced. We cannot assure you that our
planned exploitation and production projects and acquisition activities will
result in significant additional reserves or that we will have continuing
success drilling productive wells economically and, in particular, that we will
fulfill our goal of producing 10,000 BOE per day in California by December 31,
2002. In addition, by year end we do not expect to be able to produce in excess
of 1500 BOE per day of crude oil from our current fields in the Santa Maria area
to provide feedstock for our refinery and we cannot assure you that we will be
able to obtain sufficient reserves in the form of equity barrels to operate our
refinery at the same profit levels on a going forward basis. If prevailing oil
and gas prices were to increase significantly, our costs to add new reserves
could increase.
The drilling of oil and gas wells involves a high degree of risk, especially the
risk of dry holes or of wells that are not sufficiently productive to provide an
economic return on the capital expended to drill the wells. In addition, our
drilling operations, including our contract services, may be curtailed, delayed
or canceled as a result of numerous factors, including the following:
o title problems,
o weather conditions,
o compliance with governmental requirements, and
o shortages or delays in the delivery of equipment.
OUR WELL REWORKING AND RECOMPLETION PROGRAM ENCOUNTERS DIFFICULTY IN CERTAIN
GEOLOGICAL FORMATIONS
Certain geologic formations in which we plan to improve oil production through
our reworking and recompletion program present difficult issues. In particular,
in the Santa Maria area, the source of equity barrels for our refinery, the
sands from which oil is produced are not sufficiently compact to prevent grains
of sand from flowing into the wellbore and clogging up production from the well.
This problem is particularly acute in the context of smaller
S-5
<PAGE> 6
diameter wellbores such as those drilled with our short radius horizontal
drilling technology. Typically this common "sand control" problem is managed by
using various completion technologies. Since the fourth quarter of 1999, we have
extended six wells in the Santa Maria area using our short radius drilling
technology and, in the three instances where completion was warranted, completed
them using gravel packs. The three successfully completed extensions encountered
production problems due to sand intrusion and are no longer producing. We are
currently working to solve this problem by using different completion
approaches. There can be no assurance that we will be able to solve the sand
intrusion problem in the Santa Maria area.
WE ARE AND WILL CONTINUE TO BE INVOLVED IN LITIGATION, WHICH COULD RESULT IN AN
ADVERSE EFFECT ON OUR BUSINESS
We have been and may from time to time be named as defendants in legal actions
claiming damages in connection with the operation of our business. These
typically include claims for damages in connection with contractual disputes
relating to the performance by us or our subsidiaries of obligations regarding
the purchase and sale of assets or the provision of goods and services.
In particular, we and two of our subsidiaries, Saba Petroleum Company and Santa
Maria Refining Company, were named as defendants in a legal action by Crown
Asphalt Distribution in July 1999. Crown brought suit for damages alleging a
number of theories of recovery including breach of contract, breach of covenant
of good faith and fair dealing, conversion, fraud, claim and delivery, unjust
enrichment and constructive trust, unfair competition, declaratory relief, and
specific performance pursuant to Santa Maria's termination of a processing
agreement with Crown. We have filed a counterclaim against Crown for an
accounting, breach of covenant of good faith and fair dealing, and tortious
interference with existing and prospective business relations. We have a reserve
of $200,000 in connection with this litigation. Trial of this matter is
scheduled to begin in February 2001. While we vigorously contest Crown's
allegations, a jury trial is an uncertain event and there can be no assurance
that we will not be held liable in connection with such matters in amounts that
would have a material adverse effect on our business and results of operations.
THE LAPSE OF LEGAL RESTRICTIONS ON THE SALE OF OUR STOCK COULD AFFECT OUR STOCK
PRICE AND DILUTE YOUR STOCK OWNERSHIP
Sales of substantial amounts of our common stock in the public market by
insiders following the offering, or the perception that these sales may occur,
could cause the market price of our common stock to fall. After the offering,
assuming the underwriters do not exercise their over-allotment option, there
will be 4,021,801 shares of our common stock outstanding. If the underwriters
exercise their over-allotment option, this number will increase to 4,089,301
shares. The shares offered by this prospectus will be freely tradable unless our
affiliates purchase them.
Approximately 1.1 million shares of our common stock are restricted under Rule
144 of the Securities Act. These shares may be resold only under Rule 144 or
through a registration filed with the SEC. To our knowledge all of these shares
could presently be sold pursuant to Rule 144.
Except with regard to 150,000 common shares or common shares underlying vested
options, Randeep S. Grewal, our Chairman and Chief Executive Officer has agreed
to enter into a "lock-up" agreement until May 22, 2001. Mr. Grewal currently
owns 100,000 shares of common stock and can acquire 270,000 shares of common
stock upon the exercise of vested options which he has been granted. In
addition, he will be able to acquire 200,000 shares of common stock upon the
exercise of options which he has been granted which will vest in January 2001.
This generally means that, without the prior approval of Friedman, Billings,
Ramsey & Co., Inc., he cannot sell more than 150,000 shares of common stock and
shares issuable upon the exercise of vested options until May 22, 2001.
WE HAVE A SUBSTANTIAL NUMBER OF SHARES SUBJECT TO OPTIONS, WARRANTS AND
DEBENTURES, WHICH, IF EXERCISED, MAY DILUTE YOUR INVESTMENT AND DECREASE THE
MARKET PRICE OF OUR COMMON STOCK
The value of your investment may be diluted and the market price of our common
stock could fall if our stockholders sell substantial amounts of common stock
issued upon the exercise of outstanding options, warrants and debentures in the
public market following this offering. Such sales might also make it more
difficult for us to sell equity securities in the future at a time and price
that we deem appropriate. As of October 31, 2000, we had:
S-6
<PAGE> 7
o 150,000 fully vested options granted on September 9, 1997 at a strike
price of $5 per share.
o 206,000 fully vested options granted on October 14, 1998 at a strike
price of $8.25 per share.
o 14,000 fully vested options granted on March 17, 1999 at a strike price
of $7.75 per share.
o 890,000 options granted on January 31, 2000 at a strike price of $8.625
per share, of which 25,000 vested on January 31, 2000; 383,000 will
vest on January 31, 2001; 388,000 will vest on January 31, 2002; and
94,000 will vest on January 31, 2003.
o 224,240 to 329,765 shares of common stock issuable upon exercise of 9%
convertible debentures.
o 50,000 shares of common stock issuable upon exercise of 15% convertible
debentures at a conversion price of $20 per share.
o 127,750 shares of common stock issuable upon exercise of warrants at a
strike price of $15 per share. These warrants originally expired on
December 1, 1999, however, on March 27, 2000 our board of directors
extended the expiration date to December 1, 2000.
o 95,000 shares of common stock issuable upon exercise of Class B
warrants granted on February 26, 1999 at a strike price of $10 per
share, which expire on December 31, 2001.
WE HAVE RECENTLY ADDED MEMBERS TO OUR MANAGEMENT TEAM
Although our Chairman and Chief Executive Officer, Randeep Grewal, has been with
the Company for over three years, certain of our other officers have only been
employed in the last year. In particular, in the last year we have hired new
management to manage our oil and gas exploration and development business in our
E & P Americas business unit and we hired a new Chief Financial Officer in
September 2000. There can be no assurance that our newly hired managers will be
able to integrate into the Company and/or implement our growth strategy
effectively.
WE HAVE IMPLEMENTED CERTAIN ANTI-TAKEOVER MEASURES
We have certain anti-takeover defenses in place including a rights plan, a
staggered board, the right of the Board to authorize us to issue shares of
preferred stock, change of control provisions in our employee stock option
plans, a requirement of a super majority shareholder vote to approve shareholder
initiatives and change of control provisions in our employment agreement with
Randeep Grewal, our Chairman and Chief Executive Officer.
The issuance of preferred stock or of rights under our rights plan could be used
as a method of discouraging, delaying or preventing a change in control of us
and would significantly dilute our public ownership, which could adversely
affect the market value of our common stock. A staggered board has the effect of
requiring a shareholder contesting our proposed slate of directors to spend
three years to replace all of our current directors, while preventing written
consents by the stockholders prevents actions from being taken without our
Board's consent.
DIFFICULTIES INTEGRATING OUR ACQUISITION OF SABA AND OTHER ACQUISITIONS COULD
ADVERSELY AFFECT US
The Saba acquisition more than doubled the size of our company, and many of the
assets acquired represent a significant expansion of what were formerly smaller
pieces of our traditional lines of business. In addition, we have acquired some
businesses that are new to us. As a result, we may encounter difficulties
integrating this acquisition and successfully managing the rapid growth we
expect to experience from it. To the extent we encounter problems in integrating
the Saba acquisition and any other acquisitions, we could be materially
adversely affected. In addition, we plan to pursue select acquisitions in the
future. Because we may pursue these acquisitions around the world and may
actively pursue a number of opportunities simultaneously, we may encounter
unforeseen expenses, complications and delays, including difficulties in
staffing and providing operational and management oversight.
S-7
<PAGE> 8
USE OF PROCEEDS
We expect that we will receive approximately $5,516,250 million net proceeds
from the sale of our common shares or $6,388,687 if the underwriters'
over-allotment option is exercised in full after deducting the underwriter's
discounts and other offering expenses. We plan to use the net proceeds
substantially as follows:
o $4.0 million to acquire the Texaco assets.
o $500,000 for expenses related to the Texaco acquisition and to
rework the Texaco properties.
o The balance of the proceeds, including any proceeds resulting
from the exercise of the underwriters over-allotment option
will be applied to general corporate purposes including
temporary or permanent debt reduction.
Until we use the net proceeds of this offering, we will invest the funds in
interest-bearing bank accounts or short-term, investment grade securities.
CAPITALIZATION
The following table sets forth our unaudited consolidated capitalization on a
historical basis as of September 30, 2000 and our unaudited consolidated
capitalization as adjusted to reflect (a) the repurchase of 723,077 common
shares from Capco for $4.2 million paid for from working capital balances (b)
the issuance of 4,800 shares for conversion of $60,000 of our 9% convertible
debentures at a conversion price of $12.50 per share (c) the exercise of 5,000
options at an exercise price of $8.25 per share (d) the exercise of 5,000 Class
B warrants at an exercise price of $10.00 per share and (e) the sale of the
common shares offered by this prospectus supplement and the accompanying
prospectus, including the application of net proceeds of $5,516,250 using the
offering price of $13.75 per share, an underwriter's fee of 6% and estimated
expenses of $300,000 (excluding any proceeds from the Underwriters' option
shares). See "Use of Proceeds" above and "Underwriting" hereafter. This table
should be read in conjunction with our consolidated financial statements and the
notes to those financial statements that are being delivered as a part of this
document in our annual report on Form 10-K/A and quarterly reports on Form 10-Q.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000
ACTUAL AS ADJUSTED
------------ ------------
<S> <C> <C>
Debt:
Short term debt $ 16,164,682 $ 16,164,682
Long term debt 22,359,403 21,283,153
------------ ------------
Total debt $ 38,524,085 $ 37,447,835
Shareholders' equity:
Common stock, no par value; 50,000,000
shares authorized, 4,280,078 outstanding;
4,021,801 outstanding as adjusted(1) $ 37,001,043 $ 38,468,543
Retained earnings (deficit) 5,190,721 5,190,721
------------ ------------
Total stockholders' equity $ 42,191,764 $ 43,659,264
Total capitalization $ 80,715,849 $ 81,107,099
Total common shares issued and outstanding 4,280,078 4,021,801(1)
Number of common shares reserved for issuance upon exercise of options, warrants
or conversion rights: 1,997,515 shares
</TABLE>
(1) Excludes the following:
o 224,240 to 329,765 shares of common stock issuable upon exercise of 9%
convertible debentures. The conversion price for these debentures is
equal to 95% of the average closing bid price for our common stock for
S-8
<PAGE> 9
the 30 prior trading days, provided that the conversion price will not
be less than $8.50 or greater than $12.50 per share. For the thirty
trading days prior to November 28, 2000, the average closing bid price
was greater than $12.50 per share. Accordingly, the conversion price as
of November 28, 2000 was $12.50 per share.
o 50,000 shares of common stock issuable upon exercise of 15% convertible
debentures at a conversion price of $20 per share.
o 127,750 shares of common stock issuable upon exercise of warrants at a
strike price of $15 per share. These warrants originally expired on
December 1, 1999, however, on March 27, 2000 our board of directors
extended the expiration date to December 1, 2000.
o 95,000 shares of common stock issuable upon exercise of Class B
warrants granted on February 26, 1999 at a strike price of $10 per
share, which expire on December 31, 2001.
o 1,395,000 shares of common stock issuable upon exercise of employee
stock options. Includes the following options:
o 150,000 options granted on September 9, 1997 at a
strike price of $5 per share, which are now fully
vested.
o 206,000 options granted on October 14, 1998 at a
strike price of $8.25 per share, which are now fully
vested.
o 14,000 options granted on March 17, 1999 at a strike
price of $7.75 per share, which are now fully vested.
o 890,000 options granted on January 31, 2000 at a
strike price of $8.625 per share, of which 25,000
vested on January 31, 2000; 383,000 will vest on
January 31, 2001; 388,000 will vest on January 31,
2002; and 94,000 will vest on January 31, 2003.
o 135,000 options are reserved for issuance for
employee stock options not granted as of November 28,
2000.
o shares of common stock issuable pursuant to our Shareholder Rights
Plan.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement, we
have agreed to sell to each of the underwriters named below, and each of the
underwriters has severally agreed to purchase, the number of shares of common
stock set forth opposite their names below.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Friedman, Billings, Ramsey & Co., Inc. 250,000
Sanders Morris Harris Inc. 200,000
-------
Total 450,000
=======
</TABLE>
Under the terms and conditions of the underwriting agreement, the underwriters
are committed to purchase all the common stock offered hereby if any is
purchased. We have agreed to indemnify the underwriters against certain civil
liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect thereof.
The underwriters initially propose to offer the common stock directly to the
public at the public offering price set forth on the cover page of this
prospectus supplement and to certain dealers at such offering price less a
concession not to exceed $.49 per share. The underwriters may allow, and such
dealers may reallow, a concession not to exceed $.10 per share to certain other
dealers. After the common stock is released for sale to the public, the
underwriters may change the offering price and other selling terms.
S-9
<PAGE> 10
We have granted to the underwriters an option excisable during a 30-day period
after the date hereof to purchase, at the initial offering price less
underwriting discounts and commissions, up to an additional 67,500 shares of
common stock for the sole purpose of covering over-allotments, if any. To the
extent that the underwriters exercise the option, each underwriter will be
committed, subject to certain conditions, to purchase that number of additional
shares of common stock that is proportionate to such underwriter's initial
commitment.
We have agreed to pay the underwriters a fee equal to 6% of the gross proceeds
received from this offering by either discounting the offering price to
purchasers in this offering or, at the underwriters' option, paying a cash fee
to the underwriters at the closing of this offering. This fee is contingent upon
the closing of the purchase and sale of shares of our common stock in this
offering. In addition, we have agreed to reimburse the underwriters for their
out-of-pocket expenses, including the fees and expenses of the underwriters'
legal counsel, whether or not this offering is consummated.
In connection with this offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may over-allot this offering creating a syndicate
short position. In addition, the underwriters may bid for and purchase common
stock in the open market to cover syndicate short positions or to stabilize the
price of common stock. Finally, the underwriting syndicate may reclaim selling
concessions from syndicate members if the syndicate repurchase previously
distributed common stock in syndicate covering transactions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain the
market price of the common stock above independent market levels. The
underwriters are not required to engage in these activities and may end any of
these activities at any time.
The underwriters have informed us that they do not intend to confirm sales of
the common stock offered hereby to any accounts over which they exercise
discretionary authority.
Except with respect to 150,000 shares of common stock and/or common stock
underlying options owned by him, Randeep S. Grewal, our Chairman and Chief
Executive Officer has agreed not to offer, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of
directly or indirectly, any shares of our common stock, or any securities
convertible into or exercisable or exchangeable for any of our common stock or
any right to acquire our common stock until May 22, 2001. Friedman, Billings,
Ramsey & Co., Inc. at any time and without notice, may release all or any
portion of the common stock subject to the foregoing lock-up agreement.
LEGAL MATTERS
Certain legal matters with respect to the legality of the common stock being
offered will be passed upon for us by Ballard Spahr Andrews & Ingersoll, LLP,
Denver, Colorado. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Akin, Gump, Strauss, Hauer & Feld, L.L.P.
S-10
<PAGE> 11
THE FOLLOWING IS GREKA ENERGY CORPORATION'S QUARTERLY REPORT ON
FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2000.
S-11
<PAGE> 12
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-20760
GREKA Energy Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 84-1091986
--------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation of organization) Identification No.)
630 Fifth Avenue, Suite 1501, New York, NY 10111
------------------------------------------------
(Address of principal executive office)
(212) 218-4680
----------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
------------------------------------------
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X Yes No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. X Yes No
--- ---
<PAGE> 13
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
As of November 13, 2000, GREKA had 3,566,801 shares of Common Stock, no par
value, outstanding.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I - FINANCIAL INFORMATION .............................................3
Item 1. Financial Statements...............................................3
Condensed Consolidated Balance Sheets as of September 30, 2000
(Unaudited) and December 31, 1999 .....................................3
Condensed Consolidated Statements of Operations for the Nine and
Three Month Periods Ended September 30, 2000 and 1999 (Unaudited).....4
Condensed Consolidated Statements of Cash Flows for the
Nine Month Periods Ended September 30, 2000 and 1999 (Unaudited)......5
Notes to Condensed Consolidated Financial Statements (Unaudited).........6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation......................................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk........16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................16
Item 2. Changes in Securities and Use of Proceeds.........................16
Item 3. Defaults Upon Senior Securities...................................16
Item 4. Submission of Matters to a Vote of Security Holders...............16
Item 5. Other Information.................................................16
Item 6. Exhibits and Reports on Form 8-K..................................17
SIGNATURE..................................................................17
</TABLE>
<PAGE> 14
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
GREKA ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Current Assets
Cash and equivalents $ 2,657,665 $ 97,319
Restricted cash -- 1,000,000
Accounts receivable trade, net of
allowance for doubtful accounts of
$1,343,852 (1999) $0 (2000) 12,023,875 4,681,823
Inventories 5,669,220 4,253,277
Other current assets 1,181,544 1,951,554
------------ ------------
Total Current Assets 21,532,304 11,983,973
------------ ------------
Property and Equipment
Investment in limestone property,
at cost 3,675,973 3,675,973
Oil and gas properties (full cost method) 33,095,097 29,653,061
Land 17,387,740 17,210,814
Plant and equipment 27,618,117 26,875,661
------------ ------------
81,776,927 77,415,509
Less accumulated depletion, depreciation
and amortization (9,002,129) (7,128,995)
------------ ------------
Property and Equipment - Net 72,774,798 70,286,514
Other Assets 2,748,671 1,943,196
------------ ------------
Total Assets $ 97,055,773 $ 84,213,683
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses 7,459,375 $ 8,235,627
Current maturities of long term notes 16,164,682 13,173,296
------------ ------------
Total Current Liabilities 23,624,057 21,408,923
Long Term debt, net of current Portion 22,359,403 20,446,510
Other Liabilities 8,880,549 8,979,927
Stockholder's Equity
Common Stock, no par value, 50,000,000
Shares authorized, issued 4,339,940 at
12/31/99 and 4,280,078 at September 30, 2000 37,001,043 37,261,043
Accumulated comprehensive income (loss) -- (19,243)
Retained (deficit) earnings 5,190,721 (3,863,477)
------------ ------------
Total Stockholders' Equity 42,191,764 33,378,323
------------ ------------
$ 97,055,773 $ 84,213,683
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 15
GREKA ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Nine Months Ended Sept. 30, Three Months Ended Sept. 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 35,685,294 $ 18,682,475 $ 12,305,379 $ 9,633,912
Expenses
Production costs 16,200,408 10,283,740 3,760,975 5,635,340
General and administrative 5,035,431 2,347,971 1,910,922 760,968
Depletion, depreciation and
Amortization 2,420,839 2,830,334 831,000 1,111,148
------------ ------------ ------------ ------------
Total Expenses 23,656,678 15,462,045 6,502,897 7,507,456
Operating Income 12,028,616 3,220,430 5,802,482 2,126,456
Other Income (Expense)
Equity in pre-merger loss of Saba -- (553,483) -- --
Other -- 650,516 -- (28,749)
Interest expense (2,974,418) (1,334,996) (1,162,434) (688,675)
------------ ------------ ------------ ------------
Other Income (Expense), Net (2,974,418) (1,237,963) (1,162,434) (717,424)
Income before Income Tax 9,054,198 1,982,467 4,640,048 1,409,032
Provision for Colombian Taxes -- 472,100 --
Minority Interest in Loss (Earnings)
of Consolidated Subsidiary -- (20,617) --
------------ ------------ ------------ ------------
Net Income 9,054,198 1,530,984 4,640,048 1,409,032
------------ ------------ ------------ ------------
Other Comprehensive Income -- 63,982 -- --
------------ ------------ ------------ ------------
Net Comprehensive Income $ 9,054,198 $ 1,594,966 $ 4,640,048 $ 1,409,032
============ ============ ============ ============
Earnings per share
Basic $ 2.09 $ 0.36 $ 1.08 $ 0.33
============ ============ ============ ============
Diluted $ 1.94 $ 0.36 $ 0.96 $ 0.33
============ ============ ============ ============
Weighted average shares outstanding
Basic 4,329,615 4,255,737 4,309,189 4,290,079
============ ============ ============ ============
Diluted 4,783,486 4,255,737 4,901,457 4,290,079
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 16
GREKA ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from Operating Activities
Net Income $ 9,054,198 $ 1,530,984
Adjustments to reconcile net
income to net cash provided by (used for)
operating activities
Depletion, depreciation and
Amortization 2,420,839 2,830,334
Equity in pre-merger loss of Saba -- 553,483
Compensation Expense - Common Stock -- 150,000
Changes in:
Accounts receivable (7,342,052) (4,358,512)
Other current assets 1,770,010 197,693
Other assets (805,475) --
Inventory (1,415,943) (2,132,891)
Accounts payable and accrued
Liabilities (875,630) (643,627)
Minority interest in loss of subsidiary -- (20,617)
------------ ------------
Net Cash Provided (Used)
in Operating Activities 2,805,947 (1,893,153)
Cash Flows from Investing Activities
Expenditures for property and equipment (6,306,936) (1,090,763)
Proceeds from sale of property 1,417,056 915,000
Acquisition of inventory -- (1,000,000)
Expenditures for acquisition of Saba,
net of cash acquired -- 234,850
------------ ------------
Net Cash Used In
investing Activities (4,889,880) (940,913)
------------ ------------
Cash Flows from Financing Activities
Proceeds from (payments of) notes payable and
long-term debt 9,805,289 11,526,450
Principal payments on notes
payable and long-term debt (7,775,150) (8,021,838)
Net increase in revolver loan 3,189,140 --
Payment of financing cost -- (435,743)
Purchase of Treasury Stock (500,000) --
Redeem Debentures (75,000) --
------------ ------------
Net Cash Provided (Used) by Financing
Activities 4,644,279 3,068,869
------------ ------------
Net Increase (Decrease) in Cash and
Cash Equivalents 2,560,346 234,803
Cash and Cash Equivalents at Beginning
of Period 97,319 250,212
------------ ------------
Cash and Cash Equivalents at End of Period $ 2,657,665 $ 485,015
============ ============
</TABLE>
5
<PAGE> 17
GREKA ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements
have been prepared on a basis consistent with the accounting principles and
policies reflected in the financial statements for the year ended December 31,
1999, and should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's 1999 Form 10-K/A. In the
opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (which, except as otherwise
disclosed herein, consist of normal recurring accruals only) necessary to
present fairly the Company's consolidated financial position as of September 30,
2000,and the consolidated results of operations for the nine and three month
periods ended September 30, 2000 and 1999, and the consolidated cash flows for
the nine month periods ended September 30, 2000 and 1999.
Oil and Gas Properties
The Company periodically reviews the carrying value of its oil and gas
properties in accordance with requirements of the full cost method of
accounting. Under these rules, capitalized costs of oil and gas properties may
not exceed the present value of estimated future net revenues from proved
reserves, discounted at 10%, plus the lower of cost or fair market value of
unproved properties ("ceiling"). Application of this ceiling test requires
pricing future revenue at the prices in effect as of the end of each reporting
period and requires a writedown for accounting purposes if the ceiling is
exceeded.
6
<PAGE> 18
Business Segments
The Company`s operations are in three industry segments: Integrated
Operations (California refinery and E&P), E&P Americas, and E&P International.
Information about the Company's operation by segment as of and for the three and
nine month periods ended September 30, 2000 and 1999, is as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Integrated E&P E&P Corporate
Ended September 30, 2000 Operations Americas International and other Total
------------------------------ ---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Oil and Gas Revenue $ 2,665 $ 3,706 $ 0 $ (2,665) $ 3,706
Refinery Revenue 8,600 0 0 0 8,600
Total Revenue 11,265 3,706 0 (2,665) 12,306
Production Costs 690 861 0 0 1,551
Refinery Costs 4,875 0 0 (2,665) 2,210
Gross Profit 5,700 2,845 0 0 8,545
Other Expenses 301 404 0 1,206 1,911
DD&A Expenses 377 454 0 0 831
EBITDA 5,399 2,441 0 (1,206) 6,634
EBIT 5,022 1,987 0 (1,206) 5,803
Interest and other
expenses 742 210 0 211 1,163
Net income (loss) $ 4,280 $ 1,777 $ 0 $ (1,417) $ 4,640
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Integrated E&P E&P Corporate
Ended September 30, 2000 Operations Americas International and other Total
------------------------------ ---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Oil and Gas Revenue $ 6,822 $ 9,961 $ 422 $ (6,822) $ 10,383
Refinery Revenue 25,302 0 0 0 25,302
Total Revenue 32,124 9,961 422 (6,822) 35,685
Production Costs 2,063 2,580 84 0 4,727
Refinery Costs 18,296 0 0 (6,822) 11,474
Gross Profit 11,765 7,381 338 0 19,484
Other Expenses 1,417 1,274 104 2,241 5,036
DD&A Expenses 1,107 1,237 76 0 2,420
EBITDA 10,348 6,107 234 (2,241) 14,448
EBIT 9,241 4,870 158 (2,241) 12,028
Interest and other
expenses 1,955 279 27 713 2,974
Net income (loss) $ 7,286 $ 4,591 $ 131 $ (2,954) $ 9,054
========== ========== ========== ========== ==========
Capital Expenditures $ 1,118 $ 2,575 $ 965 $ 1,649 $ 6,307
Identifiable Assets $ 62,117 $ 17,227 $ 1,695 $ 16,017 $ 97,056
</TABLE>
<TABLE>
<CAPTION>
Three Months Integrated E&P E&P Corporate
Ended September 30, 1999 Operations Americas International and other Total
------------------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenue $ 8,734 $ 899 $ 0 $ 0 $ 9,633
Production Costs 4,974 661 0 0 5,635
Gross Profit 3,760 238 0 0 3,998
Other Expenses 279 177 81 224 761
DD&A Expenses 1,014 29 0 68 1,111
EBITDA 3,481 61 (81) (224) 3,237
EBIT 2,467 32 (81) (292) 2,126
Interest and other
expenses 308 41 (265) 633 717
Net income (loss) $ 2,159 $ (9) $ 184 $ (925) $ 1,409
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Integrated E&P E&P Corporate
Ended September 30, 1999 Operations Americas International and other Total
------------------------------ ---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenue $ 14,204 $ 2,463 $ 2,015 $ 0 $ 18,682
Production Costs 7,761 1,412 1,111 0 10,284
Gross Profit 6,443 1,051 904 0 8,398
Other Expenses 460 600 208 1,080 2,348
DD&A Expenses 1,935 471 299 125 2,830
EBITDA 5,983 451 696 (1,080) 6,050
EBIT 4,048 (20) 397 (1,205) 3,220
Interest and other
expenses 380 103 110 1,096 1,689
Net income (loss) $ 3,668 $ (123) $ 287 $ (2,301) $ 1,531
========== ========== ========== ========== ==========
</TABLE>
7
<PAGE> 19
NOTE 2 - GENERAL AND ADMINISTRATIVE EXPENSE
Included in general and administrative expense is $750,000 for the
Company's employee net profit sharing plan. The remaining increase is primarily
the result of increased staffing.
NOTE 3 - NET INCOME PER SHARE
Basic earnings per share ("EPS") is calculated by dividing net income
by the weighted average number of shares of common stock outstanding during the
period. No dilution for any potentially dilutive securities is included. Diluted
EPS assumes the conversion of all potentially dilutive securities and is
calculated by dividing net income, as adjusted, by the weighted average number
of shares of common stock outstanding, plus all potentially dilutive securities.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic Earnings
Net Income to Common Shares $4,640,048 $1,409,032 $9,054,198 $1,530,984
Interest Savings on
Convertible Debt 73,800 -- 221,400 --
---------- ---------- ---------- ----------
Net Income for Diluted Shares $4,113,848 $1,409,032 $9,275,598 $1,530,984
========== ========== ========== ==========
Weighted Average Outstanding 4,309,189 4,290,079 4,329,615 4,255,737
Additional Dilutive Securities
Options 349,068 -- 210,641 --
Convertible Debt 243,200 -- 243,200 --
Total Weighted Average Shares 4,901,457 4,290,079 4,783,456 4,255,737
Outstanding and Diluted
Securities
========== ========== ========== ==========
Basic EPS $ 1.08 $ 0.33 $ 2.09 $ 0.36
========== ========== ========== ==========
Diluted EPS $ 0.96 $ 0.33 $ 1.94 $ 0.36
========== ========== ========== ==========
</TABLE>
The impact of certain outstanding securities have been excluded from
the diluted EPS calculation because to include them would have been antidilutive
for the periods presented. Securities excluded from the calculation are options
exercisable into 80,000 common shares at prices ranging from $12.50 to $20.00
per share. Convertible debentures convertible into 50,000 shares of common stock
at $20.00 per share, and warrants convertible into 127,000 shares of common
stock at $15.00 per share.
NOTE 4 - INVENTORY
Inventory is stated at the lower of cost, determined on a first-in,
first-out basis, or market and includes material, labor and manufacturing
overhead costs. Due to the continuous manufacturing process, there is no
significant work in process at any time. Inventory consists of the following at
September 30, 2000:
<TABLE>
<S> <C>
Raw Material ................. $ 3,318,697
Finished goods ............... 2,350,523
------------
Total ..................... $ 5,669,220
============
</TABLE>
8
<PAGE> 20
NOTE 5 - STATEMENT OF CASH FLOWS
Following is certain supplemental information regarding cash flows for
the nine month periods ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
------------ --------
<S> <C> <C>
Interest paid $ 2,415,518 $ 784,614
Income taxes paid $ 0 $ 0
</TABLE>
NOTE 6 - CONTINGENCIES
In 1993, GREKA's subsidiary acquired a producing mineral interest in
California from a major oil company. At the time of acquisition, the
subsidiary's investigation revealed that a discharge of diluent, a light,
oil-based fluid which is often mixed with heavier grades of crude had occurred
on the acquired property. The purchase agreement required the seller to
remediate the area of the diluent spill. After the subsidiary assumed operation
of the property, it became aware of additional diluent contamination and
believes the major oil company is responsible to remediate these areas as well.
The subsidiary has notified the seller of its obligation to remediate.
Notwithstanding the subsidiary's compliance in proceeding with any required
remediation on seller's account, the subsidiary is committed to hold the seller
accountable for the required remediation. Since the investigation is not
complete, an accurate estimate of cost cannot be made. In May 2000, the Company
and the seller were named as parties to a legal proceeding filed by the surface
owner of the property with respect to the contamination.
In 1995, GREKA's subsidiary agreed to acquire an oil and gas interest
in California on which a number of out of production oil wells had been drilled
by the seller. The acquisition agreement required that the subsidiary assume the
obligation to abandon any wells that the subsidiary did not return to
production, irrespective of whether certain consents of third parties necessary
to transfer the property to the subsidiary were obtained. A third party whose
consent was required to transfer the property did not consent to the transfer
and is holding the seller accountable for all remediation. Management believes
the subsidiary has no obligation to remediate this property because it believes
the seller did not give the subsidiary any consideration to enter into the
contract for the property. Since May 2000, the subsidiary commenced remediation
on the subject property as directed by the regulatory agency. Notwithstanding
the subsidiary's compliance in proceeding with any required remediation on
seller's account, the subsidiary is committed to hold the seller accountable for
the required obligations of the property. Since the investigation is not
complete, an accurate estimate of cost cannot be made.
GREKA's subsidiary owns an asphalt refinery in Santa Maria, California,
with which significant environmental remediation obligations are associated.
This refinery was acquired from Conoco Inc. in 1994 and Conoco performs all
environmental obligations that arose during and as a result of its operations of
the refinery prior to the acquisition.
GREKA's subsidiaries, as is customary in the industry, are required to
plug and abandon wells and remediate facility sites on their properties after
production operations are completed. The cost of such operation will be
significant and will occur, from time to time, as properties are abandoned.
There can be no assurance that material costs for remediation or other
environmental compliance will not be incurred in the future. The occurrence of
such environmental compliance costs could be materially adverse to the Company.
No assurance can be given that the costs of closure of any of the Company's
subsidiaries' other oil and gas properties would not have a material adverse
effect on the Company.
NOTE 7 - SALE OF BEAVER LAKE RESOURCES CORPORATION
In August 2000, the Company sold its Canadian subsidiary, Beaver Lake
Resources Corporation, for a net price of $649,333 resulting in the Company's
disposition of all its non-core oil and gas assets in Canada. This amount is
included in the Company's notes receivable.
9
<PAGE> 21
NOTE 8 - STOCK OPTIONS AND WARRANTS
In January 2000, the Company's Chairman and CEO was granted options to
purchase an aggregate of 400,000 shares of the Company's no par value common
stock at an option price of $8.625 per share. In addition, other employees were
granted options to purchase an additional 599,500 shares of the company's no par
value common stock shares at an exercise price of $8.625 per share. No
compensation expense has resulted in connection with the granting of these
options as the option price equaled the market price on the date of grant.
A summary of the outstanding options follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
---------- ----------
<S> <C> <C>
Options outstanding, January 1 375,000 $ 6.93
Options granted 1,125,000(1) $ 9.19
Options terminated 135,000 $ 8.63
----------
Options outstanding, September 30 1,365,000 $ 8.63
</TABLE>
(1) During 2000 options were granted to a consultant to purchase 100,000 shares
of the Company's no par value common stock at an average exercise price of
$15.00 per share. These options were terminated unvested during October,
2000.
<TABLE>
<CAPTION>
Option Vesting Schedule
-----------------------
<S> <C>
January 31, 2000 400,000
January 31, 2001 383,000
January 31, 2002 388,000
January 31, 2003 94,000
</TABLE>
The Company also granted warrants to purchase common stock to the
purchasers of shares from one of the 1997 "Reg S" offerings. A summary is as
follows:
<TABLE>
<CAPTION>
Number of
Date Granted Shares Option Price Effective Date Expiration Date
------------ ---------- ------------ -------------- ---------------
<S> <C> <C> <C> <C>
September 29, 1997 127,750 $15.00 January 1, 1998 December 1, 2000
</TABLE>
NOTE 9 - RECENTLY ISSUED PRONOUNCEMENTS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. This statement which was amended by SFAS No.
137, becomes effective for the Company for the year beginning January 1, 2001,
and establishes accounting and reporting standards for derivative instruments
and for hedging activities. It requires that an entity recognize all derivatives
as either assets or liabilities in the balance sheet and measure those
instruments at fair value. The Company does not anticipate the adoption of this
standard will have a material effect on the financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 provides guidance on the recognition, presentation and disclosure
of revenue in the financial statements and requires adoption no later than the
fourth quarter of 2000. The Company is currently evaluating the impact of SAB
101 to determine what effect, if any, it may have on the Company's financial
position and results of operations.
NOTE 10 - SUBSEQUENT EVENTS
In October 2000, the Company closed its settlement agreement with Capco
Resources, Ltd. under the terms of the agreement the Company bought back 76,923
shares in the third quarter, and in October, bought back subsequently 723,077
additional shares of the Company's common stock for a total consideration of
$5.2 million. These shares have been canceled. The Company has voting control
through December 31, 2002 of 490,000 shares of the Company's common stock
remaining with Capco. (See Part II, Item 1-"Legal Proceedings")
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
GREKA Energy Corporation, a Colorado corporation ("GREKA" or the
"Company") is an independent integrated energy company committed to creating
shareholder value by capitalizing on consistent cash flow hedged from oil price
fluctuations within integrated operations, exploiting E&P opportunities and
penetrating new niche markets utilizing proprietary technology with an emphasis
on low cost short radius horizontal drilling technology patented by BP Amoco and
licensed to GREKA. GREKA has oil and gas production, exploration and development
activities in North America and the Far East, with primary areas of activity in
California, Louisiana, and China. In addition, GREKA owns and operates an
asphalt refinery in California through a wholly-owned subsidiary.
Business Strategy
GREKA's objective is to build shareholder value through consistent
economic growth both in the increased throughput at its asphalt refinery and in
the growth of its reserves and production thereby creating an increase in net
asset value per share, cash flow per share and earnings per share. Management is
focused on a balanced program of low to medium risk exploitation and development
of its existing reserves utilizing its low cost horizontal short radius drilling
technology licensed from BP Amoco. This is balanced by rapid growth through the
acquisition of synergistic businesses such as the Saba Petroleum Company
("Saba") acquisition concluded during the first quarter of 1999. All asset and
capital investment decisions are measured and ranked by their risk-adjusted
impact on per share value.
10
<PAGE> 22
GREKA has established a three prong strategy that capitalizes on its
asset base to enhance shareholder value as follows:
Integrated Hedged Operations
Hedged operations of GREKA are planned to focus on the integration of
its Santa Maria (California) assets, including an asphalt refinery and interest
in heavy oil fields. The hedged operations are targeted to capitalize on the
stable asphalt market in California by providing a balance of equity and third
party feedstock (heavy oil) into the refinery. The integration of the refinery
(100% owned) with the interests in the heavy oil producing fields (100% working
interest) has successfully provided a stable hedge to GREKA on each equity
barrel (since June 1999). GREKA's strategy in these integrated assets is
two-fold:
1. GREKA intends to proceed with acquisitions that enhance the long-term
feedstock supply to the refinery.
2. GREKA intends to implement the proprietary BP Amoco Horizontal Drilling
Technology to cost-efficiently boost production rates from the 150
potential drilling locations identified in the Santa Maria Valley area
of central California.
The two actions are targeted to increase throughput into the refinery
from the highest rate during 1999 of approximately 4,500 barrels per day to
10,000 barrels per day by year end 2002. It is anticipated that the
profitability from these integrated operations will not be affected by volatile
oil prices. It is also anticipated that, by using the equity barrels to supply
the refinery, working capital requirements should be lower and cash flow should
be enhanced. The continued stability of the price of asphalt, coupled with
reduced costs for processing and lifting, should create a substantial value for
GREKA's shareholders.
Exploitation, Exploration & Production
GREKA is focusing on return to production ("RTP") work that had been
ignored by Saba. Such RTP has enhanced and is expected to continue to enhance
the current production levels and capitalize on current oil prices (as announced
in GREKA's press release of August 1, 2000). GREKA plans to capitalize on its
existing portfolio of domestic and international exploitation and exploration
projects that are synergistic with GREKA's BP Amoco Horizontal Drilling
Technology. GREKA plans to specifically focus on its existing concessions in
strategic locations, such as China, where GREKA believes there is a significant,
long-term demand for energy and a niche advantage for the Company.
BP Amoco Horizontal Drilling Technology
GREKA plans to continuously pursue new, emerging opportunities in the
energy business to identify and evaluate niche markets for its proprietary
knowledge. Two specific niche targets are coal bed methane projects and gas
storage. These opportunities should provide significant upside from the use of
short horizontal laterals.
Significant and lucrative markets exist for the application of the
niche technology for GREKA's short radius horizontal drilling know-how. Mature
fields are in abundance throughout the world where the operators are faced with
declining production, uncertain oil prices and upcoming costs to abandon and
plug the uneconomic wells at their production rates. Such an environment creates
a unique market for GREKA to acquire such fields through a conservative
selection process. Primary acquisition candidates will have existing production,
existing operating infrastructure and facilities, geological formations
conducive to the technology, well bores and pay zones under ten thousand feet
with sufficient recoverable oil in place. As an example, GREKA has found that
California is a unique opportunity due to its stringent new drilling
regulations. GREKA's activities are essentially "re-work" negating any lengthy
approvals through the regulatory authorities. Such an environment has created
"pockets" of opportunity whereby significant recoverable oil has been left in
place by the majors and owners which, rather than attempt a costly endeavor to
drill new wells in urban areas, choose to sell their oil and gas interests.
GREKA intends to pursue such opportunities.
Business Development of GREKA
GREKA Energy Corporation was formed in 1988 as a Colorado corporation
under the name of Kiwi III, Ltd. On May 13, 1996, GREKA, then known as Petro
Union, Inc., filed a voluntary petition for relief pursuant to Chapter 11 of the
United States Bankruptcy Code. Current GREKA management acquired Petro Union,
Inc. and simultaneously procured on August 28, 1997, an order confirming Petro
Union's First Amended Plan of Reorganization from the Bankruptcy Court for the
Southern District of Indiana. The bankruptcy court approved the final accounting
and closed the bankruptcy proceedings on March 26, 1998.
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<PAGE> 23
During 1998, management of GREKA focused substantially all of its
efforts on corporate restructuring, recapitalization and acquisition efforts and
an investment in a horizontal drilling pilot program in the Cat Canyon field in
California that all were part of implementing its strategic niche growth plan.
During the latter part of 1998 and early 1999, management was primarily focused
on the acquisition of Saba, which had substantial reserves suited to
exploitation by GREKA's horizontal drilling technology, and considerable
expenses were incurred in connection with the Saba transactions in the first
quarter of 1999. Due to the significance to GREKA of the Saba acquisition,
GREKA's management and staff devoted a substantial amount of time and effort to
the acquisition.
On March 22, 1999, the Company, then known as Horizontal Ventures,
Inc., changed its name to GREKA Energy Corporation. Effective March 24, 1999,
GREKA acquired Saba as a wholly owned subsidiary.
Immediately subsequent to the completion of the acquisition, management
commenced its strategy which resulted in the following material accomplishments:
o In May 1999, the Company's subsidiary assumed full operation of its
asphalt refinery which significantly increased, and is expected to
continue to increase, operating cash flows.
o Also in May 1999, the Company's subsidiaries secured financing with a
new bank, BNY Financial Corporation ("BNY"), for $11 million which was
later increased to $12 million in September 1999.
o Further in May 1999, the Company's subsidiary paid $6 million to Bank
One Texas, N.A. ("Bank One") to reduce the debt owed by Saba which was
in default since 1998.
o In June 1999, the Company's subsidiary sold its non-core assets in
Colombia, further reducing its debt by $10 million while maintaining
upside potential through either a repurchase option which has recently
been exercised or a court order directing rescission of the sale.
o In July 1999, the Company completed the acquisition of all of the
Beaver Lake Resources Corporation (the owner of the Company's Canadian
assets) shares it did not already own, thereby privatizing Beaver Lake
as a wholly owned subsidiary. Greka issued approximately 68,000 shares
to complete the acquisition of the minority interest.
o In August 1999, the Company entered into a term sheet to restructure
Saba's 9% senior subordinated debentures.
o Also in August 1999, the Company's subsidiary emerged from voluntary
bankruptcy following consummation of the sale of its non-core assets in
Colombia.
o Further in August 1999, the Company's subsidiary signed a production
sharing contract with the China United Coalbed Methane Corporation Ltd.
to jointly exploit coalbed methane (CBM) resources in China.
o In November 1999, the Company's subsidiaries closed the financing of a
$35 million facility with GMAC Commercial Credit LLC to provide
financing to reduce current liabilities and for future acquisitions.
o Also in November 1999, the Company's subsidiary made an additional
payment of $11.2 million to Bank One to reduce the defaulted debt owed
by Saba.
o Further in November 1999, the Company adopted a shareholder rights plan
to preserve the long-term value of the Company for its shareholders.
o In December 1999, the Company announced that its shares commenced
trading on the Nasdaq National Market System.
o In February 2000, GREKA announced that it had the option to re-purchase
Colombian assets valued at approximately $65 million (PV-10) pursuant
to the Company's calculations that a look-back provision, under the
agreement by which the assets were sold, is three times greater than
the required valuation threshold. In March 2000, GREKA further
announced that, subject to a court order directing rescission of the
sale, it had exercised its option to re-purchase the Colombian assets
for an estimated cost of $12 million which will result in the Company's
receipt of assets with a PV-10 value of approximately $65 million at
December 31, 1999 (approximately $12.22 per share outstanding). In
August 2000, GREKA announced that it had secured the Colombian assets
with a court-ordered injunction, prohibiting the transfer, encumbrance
or disposition of the assets and related cash flow until the court
determines the rights of the parties under the agreement. (See Part II,
Item 1-"Legal Proceedings").
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<PAGE> 24
o In May 2000, the Company released record first quarter results with an
increase by $0.58 of earnings per share, the fourth consecutive quarter
of earnings reported by the Company and reflecting twelve months of
profitability.
o In June 2000, the Company closed with Canadian Imperial Bank of
Commerce ("CIBC") the financing of up to $47.5 million with actual
availability subject to borrowing base adjustments. A portion of the
proceeds were paid to reduce the current debt of the Company, which
payment resulted in the complete elimination of all Bank One debt.
o In June 2000, the Company exchanged $3.3 million of Saba 9% senior
subordinated debentures for GREKA debentures.
o In June and July 2000, the Company's Canadian subsidiary sold a portion
of its non-producing assets for an aggregate contract price of $0.9
million.
o In August 2000, the Company announced that its daily production
increased over 22%, with an 18% increase in oil production and a 34%
increase in gas production since December 1999. The Company further
highlighted the concentration of its E&P Americas segment on increasing
gas production which had risen 66% in June compared to March, through a
continuous workover program.
o In August 2000, the Company announced its fifth consecutive quarter of
record profits with a 161% increase to the earnings per share reported
at $0.81.
o In August 2000, the Company sold its Canadian subsidiary, Beaver Lake
Resources Corporation, for a contract price of $649,333 resulting in
the Company's disposition of all its non-core oil and gas assets in
Canada.
o In September 2000, the Company settled the matter of Enervest LP v.
Saba of Texas, Inc. (Case No. 1999-30673, 152nd Judicial District Court
of Harris County, Texas, June 1999), which matter was dismissed.
o In October 2000, the Company closed its settlement agreement with Capco
Resources, Ltd. and for a total consideration of $5,200,000, bought
back 800,000 shares of the Company's common stock which have been
cancelled. The Company has voting control through December 31, 2002 of
490,000 shares of the Company's common stock remaining with Capco. The
related litigation of Capco Resources, Ltd. v. GREKA Energy
Corporation, et al. (Case No. 99-K-2155,U.S. District Court for the
District of Colorado, August 1999) has been dismissed.
o In November 2000, the Company reported its sixth consecutive quarter of
record profits with a 227% increase to the earnings per share reported
at $1.08 for the third quarter.
Cautionary Information About Forward-Looking Statements
This document contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements, other than statements of historical facts, included in or
incorporated by reference into this Form 10-Q which address activities, events
or developments which the Company expects, believes or anticipates will or may
occur in the future are forward-looking statements. The words "believes,"
"intends," "expects," "anticipates," "projects," "estimates," "predicts" and
similar expressions are also intended to identify forward-looking statements.
These forward-looking statements include, among others, statements concerning:
* the benefits expected to result from GREKA's acquisition of Saba,
including
* synergies in the form of increased revenues,
* decreased expenses and avoided expenses and expenditures that are
expected to be realized as a result of the Saba acquisition, and
* the complementary nature of GREKA's horizontal drilling technology and
certain oil reserves acquired with the acquisition of Saba, and
other statements of:
* expectations,
* anticipations,
* beliefs,
* estimations,
* projections, and
other similar matters that are not historical facts, including such matters
as:
* future capital,
* development and exploration expenditures (including the timing, amount
and nature thereof),
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<PAGE> 25
* drilling and reworking of wells, reserve estimates (including estimates
of future net revenues associated with such reserves and the present
value of such future net revenues),
* future production of oil and gas,
* repayment of debt,
* business strategies,
* oil, gas and asphalt prices and demand,
* exploitation and exploration prospects,
* expansion and other development trends of the oil and gas industry, and
* expansion and growth of business operations.
These statements are based on certain assumptions and analyses made by
the management of GREKA in light of its experience and its perception of
historical trends, current conditions and expected future developments as well
as other factors it believes are appropriate in the circumstances.
GREKA cautions the reader that these forward-looking statements are
subject to risks and uncertainties, including those associated with:
* the financial environment,
* general economic, market and business conditions,
* the regulatory environment,
* business opportunities that may be presented to and pursued by GREKA,
* changes in laws or regulations
* exploitation and exploration successes,
* availability to obtain additional financing on favorable conditions,
* trend projections, and
* other factors, many of which are beyond GREKA's control,
that could cause actual events or results to differ materially from those
expressed or implied by the statements. Such risks and uncertainties include
those risks and uncertainties identified in the Management's Discussion and
Analysis sections of this document and risk factors discussed from time to time
in the Company's filings with the Securities and Exchange Commission.
Significant factors that could prevent GREKA from achieving its stated
goals include:
* the inability of GREKA to obtain financing for capital expenditures and
acquisitions,
* declines in the market prices for oil, gas and asphalt, and
* adverse changes in the regulatory environment affecting GREKA.
The cautionary statements contained or referred to in this document
should be considered in connection with any subsequent written or oral
forward-looking statements that may be issued by GREKA or persons acting on its
or their behalf. GREKA undertakes no obligation to release publicly any
revisions to any forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
Long-Term Potential
Management believes that the results of operations for the three month
period ended September 30, 2000 and cash flows of GREKA reported herein are
demonstrative of the successful implementation of management's business plan,
continue to reflect the long-term potential of the Company. The Company's EBITDA
is 54% of its revenue for the three months ended September 30, 2000, and 40% for
the nine-month period ended September 30, 2000.
Results of Operations
Comparison of Three Month Periods Ended September 30, 2000 and 1999
Revenues increased from $9,633,912 for the third quarter of 1999 to
$12,305,379 for the third quarter of 2000 primarily as a result of increased
production and increased prices.
General and administrative expenses increased from $760,968 for the
third quarter of 1999 to $1,910,922 for the third quarter of 2000 primarily as a
result of a $750,000 provision for the Company's employee net profit sharing
plan and increased staffing.
Depreciation, depletion and amortization decreased from $1,111,148 for
the third quarter of 1999 to $831,000 for the third quarter of 2000 primarily as
a result of the Company having an increased reserve base resulting in a lower
depletion rate.
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<PAGE> 26
Interest expense increased from $688,675 for the third quarter of 1999
to $1,162,434 for the third quarter of 2000 primarily as a result of slightly
higher interest rates and higher level of borrowings.
Comparison of Nine Months Periods Ended September 30, 2000 and 1999
Revenues increased from $18,682,475 for the first nine months of 1999
to $35,685,294 for the first nine months of 2000 primarily as a result of
increased production and increased prices and as a result of the timing of the
acquisition of Saba which did not occur until the last week of the first quarter
1999.
Production costs increased from $10,283,740 for the first nine months
of 1999 to $16,200,408 for the first nine months of 2000 primarily as a result
of an increase in the price of crude oil that was purchased by the refinery and
as a result of the timing of the acquisition of Saba which did not occur until
the last week of the first quarter 1999.
General and administrative expenses increased from $2,347,971 for the
first nine months of 1999 to $5,035,431 for the first nine months of 2000
primarily as a result of a provision of $750,000 in the Company's employee net
profit sharing plan and increased staffing.
Depreciation, depletion and amortization decreased from $2,830,334 for
the first nine months of 1999 to $2,420,839 for the first nine months of 2000 is
primarily a result of the Company having an increased reserve base resulting in
a lower depletion rate.
Interest expense increased from $1,334,996 for the first nine months of
1999 to $2,974,418 for the first nine months of 2000 primarily as a result of
slightly higher interest rates and as a result of the timing of the acquisition
of Saba which did not occur until the last week of the first quarter 1999.
Liquidity and Capital Resources
The working capital deficit at September 30, 2000 was $2,091,753
compared to a working capital deficit of $9,424,950 at December 31, 1999.
Current assets increased $9,548,331 from $11,983,973 at December 31, 1999 to
$21,532,304 at September 30, 2000 which includes a increase of $2,560,346 in
cash and cash equivalents from $97,319 at December 31, 1999 to $2,657,665 at
September 30, 2000. The $5,669,220 of refinery raw material and finished product
inventories resulted from refinery operations. Interest expense of $1,162,434
for the third quarter of 2000, increased by $473,759 compared to $688,675 for
the third quarter of 1999. This increase is primarily the result of slightly
higher interest rates and a net increase of interest bearing debt of $4,904,279.
Current liabilities increased from $21,408,923 at December 31, 1999 to
$23,624,057 at September 30, 2000, a increase of $2,215,134 The current portion
of long term debt increased $2,991,386 between the periods, and accounts payable
and accrued expenses decreased by $776,252 between these periods.
Cash Flows
Cash used in operations improved from an outflow of $1,893,153 for the
nine months ended September 30, 1999 to an inflow of $2,805,947 for the nine
months ended September 30, 2000. Net income for the period, adjusted for
non-cash charges, provided $11,475,037 of cash inflow.
The Company's net cash flows from investing activities increased from a
net outflow of $940,913 for the nine months ended September 30, 1999 to an
outflow of $4,889,880 for the nine months ended September 30, 2000.
Liquidity
Under the direction of GREKA's management and in accordance with its
business strategy, GREKA has improved its liquidity and expects to have low
capital requirements. Specifically, GREKA expects to fund future capital
expenditures from its cash flow and lines of credit in place.
Capital Expenditures
The Company's growth is focused on acquisitions that are synergistic
with its technology. It is intended that such acquisitions will be achieved
concurrent with the closing of adequate financing. Operationally on the current
asset base, the Company expects to fund its annual capital expenditures by its
cash flow and lines of credit in place.
Under the direction of GREKA's management and in accordance with its
business strategy, GREKA has improved its liquidity and expects to finance its
capital requirements primarily from internal resources. Management believes that
the Company has sufficient cash flows for all of its operating and foreseen
capital requirements. Further, GREKA intends to achieve the following:
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<PAGE> 27
* Continue to execute an aggressive rework program to return to
production existing wells on all properties that have shut-in
wells.
* Utilize the in-house proprietary and cost effective horizontal
drilling technology to enhance production in the Santa Maria
Valley area.
* Continue to acquire assets to enhance the benefit of
integrated operations that collectively provide for low cost
operating expenses and high cash flow.
GREKA's management also believes that the disposition of non-core assets brings
opportunities for cost savings, and other synergies, resulting in improved cash
flow potential for the long-term growth of GREKA and of shareholder value.
Further, these dispositions give GREKA a stronger consolidated asset base upon
which it can rely in securing future financing, both equity and debt. However,
there is no assurance that any specific level of cost savings or other synergies
will be achieved or that such cost savings or other synergies will be achieved
within the time periods contemplated, or that GREKA will be able to secure
future financing.
Inflation
GREKA does not believe that inflation will have a material impact on
GREKA's future operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
At September 30, 2000, the Company's operations were exposed to market
risks primarily as a result of changes in commodity prices, interest rates and
foreign currency exchange rates. The Company does not use derivative financial
instruments for hedging,speculative or trading purposes.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The following material developments occurred during the quarter ended
September 30, 2000 with respect to the legal proceedings reported in the GREKA
Annual Report on Form 10-K/A for the fiscal year ended December 31, 1999:
The matter of Enervest LP v. Saba Energy of Texas, Inc. (Case No.
1999-30673, 152nd Judicial District Court of Harris County, Texas, June 1999) as
reported in the GREKA 1999 Annual Report on Form 10-K/A settled and was
dismissed in September 2000.
The matter of Capco Resources, Ltd. v. GREKA Energy Corporation, et al.
(Case No. 99-K-2155,U.S. District Court for the District of Colorado, August
1999) as reported in the GREKA 1999 Annual Report on Form 10-K/A settled and was
dismissed in October 2000.
From time to time, the Company and its subsidiaries are a named party
in legal proceedings arising in the ordinary course of business. While the
outcome of such proceedings cannot be predicted with certainty, management
believes it has adequately reserved for these contingencies and does not expect
these matters to have a material adverse effect on the Company's financial
condition or results of operations.
Item 2. Changes in Securities and Use of Proceeds.
In October 2000, the Company repurchased 800,000 shares of its common
stock from Capco Resources Ltd. and canceled such shares so that they became
authorized but unissued shares of common stock. (See Part II, Item 1 above).
Item 3. Defaults Upon Senior Securities.
The information required by this Item is incorporated herein by
reference to the discussion in Part I Item 1 of the Company's Form 10-K/A for
the year ended December 31, 1999 under the subheading "Financing and Debt
Restructuring Activities" at page 8.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
Effective October 19, 2000, Susan M. Whalen resigned as a member of the
Board of Directors and as an executive officer of the Company, and Kenton D.
Miller was appointed to the Board of Directors to fill the resulting vacancy.
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<PAGE> 28
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. The following exhibits are furnished as part of this report:
Exhibit No. Description
10.1 Settlement Agreement and Release by and among GREKA and
Randeep S. Grewal and Capco Resources, Ltd., Capco Energy,
Inc., and Ilyas Chaudhary dated August 17, 2000 (filed as
Exhibit 10.8 to the Post Effective Amendment No. 1 to the
registration statement on Form S-2, file no. 333-45352, and
incorporated by reference herein).
11.1 Computation of Earnings per Common Share*
27.1 Financial Data Schedule*
* Filed herewith
(b) During the quarter for which this report is filed, GREKA filed the
following Reports on Form 8-K:
Current Report on Form 8-K dated July 7, 2000 which reported events under Item
5, Other Events.
Current Report on Form 8-K dated September 7, 2000 which reported events under
Item 5, Other Events.
SIGNATURE
Pursuant to the requirements 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.
GREKA ENERGY CORPORATION
Date: November 13, 2000 By:/s/ Randeep S. Grewal
----------------------------------------
Randeep S. Grewal, Chairman and
Chief Executive Officer
Date: November 13, 2000 By:/s/ Oswald G. Mechsner
----------------------------------------
Oswald G. Mechsner, Chief Financial Officer
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November 28, 2000
[GREKA LOGO]
GREKA ENERGY CORPORATION
450,000 SHARES
COMMON STOCK
----------
PROSPECTUS
SUPPLEMENT
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FRIEDMAN BILLINGS RAMSEY
SANDERS MORRIS HARRIS
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We have not authorized any dealer, sales person or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or our affairs have not
changed since the date hereof.
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