H2O INNOVATION INC.
TSX VENTURE : HEO
ALTERNEX : ALHEO

H2O INNOVATION INC.

June 19, 2009 12:58 ET

H2O Innovation Announces the Closing of the Acquisition of Professional Water Technologies and the Closing of a Previously Proposed Equity Financing for CAD$1.5 M

QUEBEC CITY, QUEBEC--(Marketwire - June 19, 2009) - NOT FOR DISTRIBUTION TO THE U.S. NEWS WIRE SERVICES OR DISSEMINATION IN THE UNITED STATES

H2O Innovation Inc. ("H2O Innovation" or the "Company") (TSX VENTURE:HEO)(ALTERNEX:MNEMO:ALHEO) announces the completion, on June 17, 2009, of the previously announced acquisition of substantially all of the assets of Professional Water Technologies, Inc. ("Professional Water Technologies" or "PWT") by an indirectly wholly-owned U.S. subsidiary of H2O Innovation, in an arms' length transaction, pursuant to an asset purchase agreement executed on May 28, 2009 (the "Acquisition"). The Company also announces today the completion of an also previously announced equity financing of CAD$ 1.5 million with Le Fonds d'investissement REA II Natcan Inc. ("Fonds REA II"). The proceeds of this private placement are to be used by the Company for partial payment of the Acquisition and related transaction costs. The completion of this financing completes the total CAD$4.275 million equity financings previously proposed on May 28, 2009 in relation to the Acquisition.

Acquisition positions H2O Innovation as a complete membrane filtration expert

This acquisition positions H2O Innovation as a complete membrane filtration expert covering the full spectrum, from customized system design and in-house manufacturing to maintenance solutions and operations efficiency consulting. PWT and its unique line of specialty chemicals also allow H2O Innovation to develop closer ties with its customer base in a continual relationship. The Company will seek to extend such continual relationships to the more than 400 customers that have installed H2O Innovation systems over the years and to further solidify the customer relationships PWT brings. This one-of-a-kind offer-which differentiates H2O Innovation from both equipment providers and chemical suppliers-should enable the Company to increase its recurring revenues, benefit from higher margins than those typical to equipment sales, and establish a lead position for subsequent systems sales.

"We are very pleased to announce the closing of the acquisition of Professional Water Technologies and to immediately start working with PWT's team to grow H2O Innovation's water treatment systems after sales and maintenance solutions business line, which will no doubt become a strong growth vehicle for our Company for the years ahead" said Frederic Dugre, President and CEO, H2O Innovation Inc.

Acquisition makes H2O Innovation's business model evolve

With the strategic acquisition of Professional Water Technologies, H2O Innovation now counts two solid lines of business: Equipment & Systems sales and After Sales & Maintenance Solutions. Through its Equipment and Systems business line, H2O Innovation offers custom design, manufacturing, assembling and commissioning of water treatment systems through innovation membrane filtration and biological solutions. The After Sales & Maintenance Solutions line of business-now counting on approximately 15 combined employees and 13 international distributors-offers customers a proprietary dendrimer-based highly efficient line of patent-pending specialty chemicals, along with generic products, replacement parts and solutions such as membrane forensics and systems optimization. Going forward following its stated growth strategy, H2O Innovation is contemplating a business mix that will see it generate 70% of its revenues from sales of equipment and systems and 30% from after sales and maintenance solutions. As of the third quarter of fiscal year 2009 ended March 31, 2009, H2O Innovation recorded over CAD$4 million of sales of sales of services and consumables while PWT recorded total sales of US$2.6 million for the year ended December 31, 2008, based on its unaudited financial statements.

"As we mentioned when we first announced our intention to acquire the assets of PWT, this is an important and strategic addition to our operations. With it, H2O Innovation becomes a truly complete membrane filtration expert and our intention is to be renowned as a leader in this field in North America and abroad" concluded Frederic Dugre.

Reminder of the acquisition highlights

- Significantly grows H2O Innovation's sales of services and consumables-which are generally recurring in nature

- Improves H2O Innovation's average consolidated gross operating margin

- Brings H2O Innovation's a proprietary line of specialty patent-pending sustainable membrane pre-treatment and maintenance specialty chemicals

- Expands H2O Innovation into new geographical markets where the Company is not currently active in the equipment business-60% of Professional Water Technologies' sales are through a network of distributors in Australia, China, Europe, India, Israel, Mexico, Taiwan, and Thailand

- Adds a 12,000 sq. ft. manufacturing facility and office space in Vista, California

- Allows additional synergies to be obtained through consolidation of certain administrative functions and internal sales

"Our joining H2O Innovation signals the next exciting phase of our evolution," stated Stephen Dunham, PWT's President and CEO and H2O Innovation's newly appointed Vice-President, After Sales & Maintenance Solutions. "Our unique product capabilities, technical expertise, and global presence will have an increased and synergistic value when combined with H2O Innovation's technical, financial, and material resources."

Reminder of the terms of the acquisition

On May 28, 2009 H2O Innovation announced the execution of an asset purchase agreement between an indirectly wholly-owned U.S. subsidiary of H2O Innovation, and Professional Water Technologies pertaining to the acquisition of substantially all of the assets of Professional Water Technologies in an arms' length transaction. The purchase price of US$3.7 million is payable in cash and may be increased up to US$5.7 million if PWT's sales reach US$13.1 million within the 24 months period following the closing of the transaction. H2O Innovation will also assume liabilities accrued, prior to closing, in the normal course of business of PWT of approximately US$150,000.

Professional Water Technologies in numbers:

- Sales of US$2.6 million and EBITDA of US$0.53 million for the year ended December 31, 2008 based on the unaudited financial statements of PWT-acquisition is immediately accretive.

- Net book value of US$400,000 for the assets based on the unaudited financial statements of PWT for the year ended December 31, 2008.

- Sustained revenue and profitability growth over the last 4 years.

- Professional Water Technologies is presently profitable.

Founded in 1995 and headquartered in Vista, California, Professional Water Technologies develops leading patent-pending products for maintaining and operating municipal, industrial, and commercial membrane filtration systems, in particular for reverse osmosis systems. Professional Water Technologies synthesizes and manufactures a unique line of dendrimer-based sustainable specialty chemicals for membrane pre-treatment applications, and develops specific blends for maintenance, preservation, and cleaning of membrane systems that maximizes the operating efficiency, economy, and longevity of reverse osmosis systems. In complement to its product line, PWT also offers comprehensive analytic and technical capabilities aimed at maximizing the efficiency and cost-effectiveness of reverse osmosis systems.

Equity financing with Fonds REA II

The Company has also finalized the transaction set forth in the letter of intent it had entered into with Le Fonds d'investissement REA II Natcan Inc. whereby Fonds REA II has indicated its interest to acquire from the Company 2,727,273 units at a price of CAD$0.55 per unit for a total consideration of CAD$1.5 million previously announced by press release on May 28, 2009 in connection with the Acquisition. Each unit is comprised of one common share and one common share purchase warrant and each warrant entitles Fonds REA II to purchase one additional common share of the Company at a price of CAD$0.85 at any time prior to the date that is 30 months following the closing of this private placement. The net proceeds of this financing are to be used for the partial payment of the purchase price for the Acquisition and related transaction costs as well as to pursue its accelerate growth following the Acquisition and maximize its future growth opportunities. The Warrants, and the Common Shares underlying the Warrants, are subject to a statutory four-month hold period. The completion of this financing completes the total CAD$4.275 million equity financings previously proposed on May 28, 2009 in relation to the Acquisition.

Exchange of subscription receipts following closing of transaction

On June 4, 2009, H2O Innovation completed a separate equity offering whereby it issued 5,045,454 subscription receipts for aggregate gross proceeds of CAD$2,774,999.70. Each subscription receipt was exchanged following the closing of the acquisition on June 17, 2009 pursuant to the terms of the subscription receipt agreement for units consisting of one common share in the share capital of the corporation and one common share purchase warrant. Each common share purchase warrant will entitle the holder thereof to acquire at any time before 5:00 pm (Montreal time) on December 5, 2011, one common share at a price of CAD$0.85 per common share. Individual certificates will be issued shortly to holders of subscription receipts which do not need to take any action in order to receive the common shares and warrants which they are entitled following the exchange of subscription receipts. The proceeds from this offering of subscription receipts were used by H2O Innovation to partially fund the Acquisition.

Prospective disclosures

This press release may contain prospective disclosures representing current expectations of H2O Innovation and are subject to certain risks and uncertainties. For details of these risks and uncertainties please refer to the Company's Annual Information Form dated September 26, 2008 available on SEDAR (www.sedar.com). H2O Innovation is under no obligation to revise or update the prospective disclosures contained in this press release.

About H2O Innovation

Exclusively dedicated to water treatment, H2O Innovation is establishing itself as a key player in sustainable development and the field of clean technologies. H2O Innovation designs, develops, produces, and integrates state-of-the-art water treatment systems for the production of drinking water, the reclamation of water, the treatment of wastewater and industrial processed water in the municipal, commercial, pharmaceutical, industrial, mining, and energy markets. H2O Innovation has approximately 100 employees and eight offices including two manufacturing and assembly plants in Canada and the United States. Shares of H2O Innovation are listed on the TSX Venture Exchange (HEO) as well as on the NYSE Euronext Alternext Exchange (MNEMO:ALHEO).

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) nor the Alternext Exchange accepts responsibility for the adequacy or accuracy of this release.

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