Using the simplest form of analogy, a reverse merger is like a guppy swallowing a whale. After the guppy digests the whale, it still looks like a guppy on the outside, but is now a whale on the inside. In corporate terms, this is accomplished through the purchase and/or exchange of equity securities. The following illustrate the basic premise of a reverse merger transaction:
A private operating company (the whale) wishes to go public via a reverse merger. The private company is owned by its original founders and has ongoing business operations.
PRIVATE COMPANY
3 shareholders (original founders) Has assets, liabilities, revenues and ongoing operations Desires to be publicly traded..."