From the HEK filings:
"On May 4, 2009, the Company cancelled 15,527,900 common shares that were issued to former China Water management and insiders, and approximately
1.5 million shares underlying warrants issuable to them in connection with the acquisition of China Water. The Company believes that China Water’s prior
management misrepresented the strength of the China Water business, and may have diverted corporate assets. The Company has taken these self-help actions
and may seek to take other actions against former China Water management and insiders in the future."
And:
"The business we acquired in China is not currently as strong as we had anticipated. Sales for the first quarter of 2008 were disappointing, reflecting
the downturn in the China economy.
• In addition, the financial reporting systems we inherited, which we knew were deficient at the time of the acquisition, continue to be a challenge."
As well as the timing of the deal being a bit rough (too bad they didn't make an offer until Nov 2008!), it sounds like HEK's acquisition didn't pan out the way their DD suggested. Share cancellation could certainly provoke a counter legal action by the former insiders of China Water.
I guess it shows just how tough it is to do straight up business in China.
I like the industry and the management team. And you can't do much better with the old adage "buy low, sell high" than HEK. Hopefully the insider buying outweighs all the question marks about the future.
