Reverse Merger Industry Trends

According to The Reverse Merger Report*, a quarterly publication, the number of Reverse Mergers completed annually has increased fourfold since 2000. In 2000 there were 46 Reverse Merger transactions; in 2001 there were 71; in 2002 there were 54; in 2003 there were 46; in 2004 there were 168; in 2005 there were 179; and in 2006 there were 206. The following table shows the number of Reverse Mergers compared to the number of Initial Public Offerings (IPOs).

Reverse Merger industry professionals suggest that beginning in 2004, two of the major reasons for this increased number of Reverse Mergers were:

A. New SEC public shell rules. In April 2004, the SEC publicly released for comment a new set of rules directly affecting Reverse Mergers. These were passed in June, 2005 and became fully effective in November, 2005. In 2006 the number of companies utilizing this alternative approach exceeded traditional initial public offerings.

B. Access to Capital. Following the SEC’s official declaration relating to ‘public shells’ and Reverse Mergers, an increased number of securities professionals began to utilize the Reverse Merger process as a tool to provide capital to businesses. As investors became more comfortable with the Reverse Merger approach, the availability of capital to companies going through a reverse merger increased significantly. For example, the 206 Reverse Mergers completed in 2006 funded an average of $9.4 million at the time of the Reverse Merger, and many raised additional capital subsequent to the Reverse Merger’s close.

*The Reverse Merger Report, 1st Quarter 2007 Deal Flow Media Pg. 2-3 Vol. III, No. 1