gotta pay themselves
Private Placement
From January 2007 through May 2007, we sold to investors in a private placement transaction an aggregate of 11,462,000 units of our securities. Each unit consisted of one share of common stock and a warrant to purchase one share of common stock. The purchase price was $1.00 per unit and we received an aggregate of $11,462,000 in gross proceeds. The warrants have an exercise period of two years and an exercise price of $1.50 per share. The securities sold in the private placement were exempt from registration under the Securities Act of 1933, as amended, pursuant to Regulation S promulgated thereunder. This prospectus relates to the resale of 11,462,000 shares of common stock issued in the private placement and 11,462,000 shares of common stock issuable upon the exercise of the warrants. In addition, we are registering for resale 5,179,310 shares of our common stock previously issued to certain of the selling stockholders.
THE OFFERING
This prospectus relates to the resale of shares of our common stock by the selling stockholders of ReoStar Energy Corporation identified in this prospectus. All costs associated with this registration will be borne by us.
We are not selling any shares of common stock in this offering, and we will not receive any of the proceeds from the sale of these shares by the selling stockholders. All of the proceeds from the sale of the shares offered pursuant to this prospectus will go to the stockholders who offer and sell them. We will not receive any proceeds from the sale of shares by the selling stockholders. A portion of the shares offered pursuant to this prospectus are issuable upon the exercise of warrants. If these warrants are fully exercised by payment of the exercise price in cash, we will receive gross proceeds of approximately $17,193,000 (based on warrants to purchase 11,462,000 shares of common stock at an exercise price of $1.50 per share), which will be used for general corporate purposes, including working capital. The actual allocation of proceeds realized from the exercise of these warrants will depend upon the amount and timing of such exercises, our operating revenues and cash position at such time and our working capital requirements. The outstanding warrants may or may not be exercised, at the discretion of the holder.
The selling stockholders identified in this prospectus, or their pledgees, donees, transferees or other successors-in-interest, may offer the shares from time to time through public or private transactions at prevailing market prices, at prices related to prevailing market prices or at privately negotiated prices. We do not know when or in what amounts a selling stockholder may offer shares for sale. The selling stockholders may sell some, all or none of the shares offered by this prospectus.
Common stock outstanding as of June 15, 2007 79,591,310
Common stock offered by selling stockholders Up to 28,103,310 shares (including 11,462,000 shares
underlying warrants)
Use of proceeds We will not receive any proceeds from the sale of shares
of our common stock by the selling stockholders. We
may receive proceeds of $17,193,000 if all of the
warrants held by the selling stockholders are exercised.
Management anticipates such proceeds will be used for
working capital and other general corporate purposes.
We cannot estimate how many, if any, warrants may be
exercised. See "Use of Proceeds" beginning on page 8.
OTCBB Trading symbol REOS
Risk Factors The securities offered by this prospectus are speculative
and involve a high degree of risk and investors
purchasing securities should not purchase the securities
unless they can afford the loss of their entire investment.
See "Risk Factors" beginning on page 3.
2
RISK FACTORS
An investment in our common stock is speculative and involves a high degree of risk and uncertainty. You should carefully consider the risks described below, together with the other information contained in this prospectus, including the consolidated financial statements and notes thereto of our company, before deciding to invest in our common stock.
RISKS RELATED TO OUR COMPANY
We may not operate profitably or generate positive cash flow in the future, and as a result, we may be forced to curtail or close our operations.
If we cannot generate positive cash flows in the future, or raise sufficient financing to continue our normal operations, then we may be forced to scale down or even close our operations. In particular, additional capital may be required in the event that:
• Drilling and completion costs for further wells increase beyond our expectations; or
• We encounter greater costs associated with general and administrative expenses or offering costs.
The occurrence of any of the aforementioned events could adversely affect our ability to meet our business plans.
We will depend almost exclusively on outside capital to pay for the continued exploration and development of our properties. Such outside capital may include the sale of additional stock and/or commercial borrowing. Capital may not continue to be available if necessary to meet these continuing exploration and development costs or, if the capital is available, that it will be on terms acceptable to us. The issuance of additional equity securities by us would result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
If we are unable to obtain financing in the amounts and on terms deemed acceptable to us, we may be unable to continue our business and as a result may be required to scale back or cease operations for our business, the result of which would be that our stockholders would lose some or all of their investment.
Expansion of our operations will require significant capital expenditures for which we may be unable to provide sufficient financing.
Our business model contemplates expansion of our business by drilling on our existing properties and identifying and acquiring additional oil and gas properties. We intend to rely on external sources of financing to meet the capital requirements associated with the exploration and expansion of our oil and gas operations. We plan to obtain the future funding that we will need through debt and equity markets, but we cannot be assured that we will be able to obtain additional funding when it is required or that it will be available to us on commercially acceptable terms.
We also intend to make offers to acquire oil properties in the ordinary course of our business. If these offers are accepted, our capital needs will increase substantially. If we fail to obtain the funding that we need when it is required, we may have to forego or delay potentially valuable opportunities to acquire new oil and gas properties or default on existing funding commitments to third parties and forfeit or dilute our rights in existing oil property interests.
Our future performance is dependent upon our ability to identify, acquire and develop oil properties.
