Update: BJGL Drops a Bombshell

Contrary to what we have been thinking for the last half a year, Bejing Logistics (BJGL.OB) has never had control over its Chinese subsidiary Baolong, described as China’s largest third-party logistics providers, specializing in books & magazines, agricultural products and Chinese traditional medicine storage and shipping. For today's shocking announcement relays the fact that the merger between BJGL and Baolong was "never consummated pursuant to Chinese law" and thus null and void. If this is true, it means that BJGL has no assets, revenues, or any operations in China. This is a major blow. But there is worse news:

"Management of the Company that were reported to be officers or directors of Beijing Logistics, Inc. have each resigned any position with such company effective on April 29, 2008, and have no further affiliation or relationship with Beijing Logistics."

If this is not fraud (and all signs point that way), this is no less than gross negligence in not ensuring all the legal documentation was put in place for the merger. The fact that management slunk away with tails between their legs is a bad bad sign. But let's take an alternative scenario. Let's say the merger transaction was done properly but that the management of Baolong changed their mind, and wanted to assume control themselves. Well, a legal battle would ensure, and investors might still suffer, but BJGL would still have legal control over Baolong.

The fact is, Chinese law is labyrinthine and its interpretation subject to non-market forces. I would certainly chalk this up to the inherent risk of investing in Chinese small cap. Is this as bad as CXTI.OB (China Expert Technology)? Quite possibly.

My Position: None.