H2O INNOVATION INC.
TSX VENTURE : HEO
TSX CROISSANCE : HEO

H2O INNOVATION INC.

September 28, 2007 22:27 ET

H2O Innovation Presents its 2007 Annual Results

QUEBEC CITY, QUEBEC--(Marketwire - Sept. 28, 2007) - Management of H2O Innovation (2000) inc. ("H2O")(TSX VENTURE:HEO)(ALTERNEXT:MNEMO:ALHEO) announces the disclosure of the Annual Report for the year ended June 30th, 2007 and the fourth quarter results for the same year. The significant increase of 94% of the consolidated revenues of H2O amounting to 7 M$ as of June 30th, 2007 proves out the fiscal year ended on the sign of growth, international business development and consolidation of its North American operations.

The fiscal year 2007 has been impacted by the integration of the results of the US subsidiary acquired in October 2006, Membrane Systems into the consolidated results of the Company. Therefore, when comparing the results of the current quarter with those of the corresponding quarter the previous year, the reader should keep in mind the significant impact of the integration of MSI on the sales and expenses figures. The last six months are notable by the fact that the first sales made by MSI were produced in the Ham-Nord (Quebec) manufacturing facility. It is worth mentioning that some of the synergies resulting from the integration of MSI are not fully accomplished as at June 30th, 2007.

For the 12 month period ending on June 30th, 2007, sales increased by 94.66% when compared to the previous year, amounting to $ 7,050,612 as of June 30th, 2007, compared to $ 3,622,101 as at June 30th, 2006. It is worth mentioning that the contribution of MSI sales to the consolidated revenues of the Company covers only nine months of operation as the US subsidiary was acquired only in October 2006. Therefore, we anticipate an increase in consolidated revenues over a full year of operation. This increase in revenues produced a reduction in the gross margin, from $ 798,107 $ to 766,350 for the twelve month periods ending respectively on June 30th, 2006 and 2007. We recognize an 11.2% drop in gross margin compared to the previous year. The realization of US municipal projects of larger size produce lower gross margin. Sustained efforts by management and the employees in the full integration of engineering, purchasing and manufacturing activities should allow the improvement of gross margin over the next quarters.

Sales expenses went up from $ 702,879 (19.4% of sales) for the twelve month period ended June 30th, 2006 to $ 1,257,024 (17.8% of sales) for the corresponding period ended June 30th, 2007. This increase in sales expenses results from the inclusion of the MSI sales expenses. It is worth mentioning that management initiated a more supported and targeted campaign on the international market, aiming more specifically towards Egypt and North Africa. The Company wishes to table on its numerous achievements, its know-how in sea water desalination, the expertise of its engineering team and the cost efficient manufacturing facility to favourably position itself in the international market.

Administration expenses went up from$ 866,640 (23.9% of sales) to $ 1,833,838 (26.0% of sales) for the years ended June 30th, 2006 and 2007 respectively. This increase in administration expenses during the year is largely due to the inclusion of the MSI administration expenses and to a larger remuneration amount.

For the year ending June 30th, 2007, no interest on long term debt is recorded in the operating results, as the debt was fully repaid during the fiscal year ended June 30th, 2006. Thanks to the issue of shares completed during the fourth quarter and to the exercise of warrants during the year, the Company benefited from an excess cash flow position, generating $ 202,449 in interest revenues on short term deposits.

Additional information on the Company can be found on SEDAR at www.sedar.com

About H2O

H2O's mission is to develop, manufacture and market innovative, environmentally friendly products, intended for production of drinking water and treatment of sewage and industrial process water.

Prospective disclosures

This press release may contain prospective disclosures representing current expectations of H2O and are subject to certain risks and uncertainties. H2O rejects any obligation to revise or update the prospective disclosures contained in this press release.

The TSX Venture Exchange and the Alternext Exchange assume no responsibility for the relevance or accuracy of this press release.

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