This is an obscure process whereby a private company purchases the trading rights of a public 'shell' company and then reverse-splits the number of shares of stock outstanding.

There have been numerous examples of reverse mergers, including one that Turner Broadcasting did with Rice Communications some 20 years ago, says Tim Halter with Halter Financial Group, Dallas-based financial consultants that specialize in reversed mergers.

Reverse mergers are usually undertaken extremely quietly -- and quickly -- away from the publicity surrounding the IPO market. For micro-cap stocks, reverse mergers are attractive because there is a '100%' success rate in terms of actually completing a reverse merger, and it typically costs less than an IPO, says Halter. He estimates it costs on average about $150,000 to purchase the trading rights to a shell company and another $50,000 to $100,000 in related expenses. An average IPO costs at least five times as much as a reverse merger, says John Lane, managing director of the equity syndicate at Westport Resources.

Unlike a traditional IPO, a reverse merger isn't necessarily a great way to raise capital. 'But it does create liquidity and allow the company to use the public stock as an attractive currency,' says Joe Mannes, chief financial officer of the private Internet start-up InterAir Wireless and a former banker in the field. 'You have to know exactly what you are getting into.'

A reverse merger may be an easier way to issue stock, but it may not necessarily be the safest. 'All the stars need to line up for these things to work,' says Kathy Smith of the IPO Plus Aftermarket Fund.

Excepting last Wednesday's blockbuster IPO of EarthWeb (EWBX:Nasdaq), the stars have not been in alignment for private Internet companies. Investors may be crazy about Internet companies, but many fear that the recent rise of Internet stocks is nothing more than a bubble about to burst.

This weakness had led to a rise in these so-called reverse mergers, says Halter. 'They are becoming, to a greater extent, an alternative for companies looking to immediately go public.' Adds Westport's Lane: 'They have always been quiet, but now, because of the inability to get offerings done, reverse mergers are being considered much more of a norm than in the past.'

Since it's a process often favored by micro-cap stocks, it may be best to look at a real-life example. NetAmerica, a Seattle-based Internet service provider, will purchase the trading rights of a publicly traded 'shell' of a company called Venture World Limited, which was essentially a holding company. The stock hasn't traded for three years, according to Doug Cole, chairman of NetAmerica.

For Venture World's current shareholders, it's not a pretty picture, says Lane. 'You either have some shares in a growing company or a lot more shares in an almost-dead company.' Cole says, however, that since Venture World's stock is presently worth nothing, its shareholders would be happy to get 'even one penny' out of this deal.

This particular reverse merger may strike some as a little troublesome since financial details on the soon-to-be public company are rather hard to find. Cole declined to disclose the cost of NetAmerica's deal with Venture World.

NetAmerica, will begin trading on the over-the-counter (OTC) market 'within days,' under the symbol NAMI, says NetAmerica's president Greg Martin. The company can begin trading on the OTC's bulletin board even before its SEC forms are made public. A company looking to go public via an IPO publicizes its financial information to the institutional community and files a prospectus (called an 'S-1') weeks before the initial public offering.

Cole explains that he is interested in pursuing acquisitions, using the company's stock as currency, once the company begins trading. But he would not disclose the number of clients the company currently has, although he said NetAmerica was a smaller-scale MindSpring (MSPG:Nasdaq).

'I've never heard of them, and I know they don't own a [communication] backbone,' says Randy Barrett, senior writer for Interactive Week, an Internet publication that tracks ISPs. 'I would say NetAmerica is just a marginal regional ISP, if that.' Smaller ISPs lease backbone usage from larger providers, such as America Online (AOL:NYSE).

NetAmerica's Martin says he hopes that his company's stock will open around 3. Cole adds that he wouldn't be surprised to see a secondary offering in his stock's future, as well as NetAmerica trading on the Nasdaq Composite Index. The company has not applied to trade on the Nasdaq, according to Mike Shokouhi, a Nasdaq spokesperson.

InterAir Wireless' Mannes, is a fan of the process, but insists that the company needs to have a solid financial foundation for it to work in the long run. 'I'm a proponent of reverse mergers, since they can be exactly what is necessary for a company to meet its goal and objectives,' he says.

Would he think of a reverse merger for his outfit? 'While I am a fan of the process, it's not my favorite form of financing,' says Mannes diplomatically. For an investor, it may pay to wait and see on a company like NetAmerica, whose financial background is an enigma because it hasn't filed a prospectus with the SEC yet. (A prospectus is filed by a company for a more traditional IPO.)