China Medicine Corporation (CHME)

[horst]

Hardly a silly question! In 99% of reverse mergers, the merging company buys the control bloc of preferred stock to take control of the company. The control bloc of preferred stock typically carries "super voting rights" sufficient to 'outvote' all the common shares, and that's why in the pink sheets, we very rarely have the opportunity to vote on any action the company is taking - our votes don't matter because each preferred share might carry, for example, 10,000 votes, and the control block ensures control in that way (thus the name "control bloc.")

Typically, if the custodian has taken over an abandoned shell, the custodian will rework the preferred stock so the custodian owns and then sells the control bloc and keeps the proceeds. In other cases, if a company hires a custodian to work on the shell, the custodian would be compensated in a different way. Anyway, the merging company sometimes does but never needs to own common shares for control, and once they control the company, the merging company often grants its execs and officers shares in lieu of salary, or offers common stock to the shareholders of the private company that's going public. Typically those would be restricted shares in that scenario.

Hopefully that helps.
H