April 16, 2007 08:51 ET

H2O Innovation Foresees to Complete a CAN$ 15M Financing and Plans to Acquire a US Wastewater Treatment Company

QUEBEC CITY, QUEBEC--(CCNMatthews - April 16, 2007) - H2O Innovation (2000) inc. ("H2O") (TSX VENTURE:HEO)(Alternext:MNEMO:ALHEO) is pleased to announce a CAN$ 15M financing through AMSTERDAMS EFFECTENKANTOOR B.V. ("AEK") subject to securing the appropriate regulatory approval and the signature of a letter of intent pertaining to the acquisition of all issued and outstanding shares of a US based wastewater equipment company (the "Target").

Financing of CAN$ 15M

H2O plans to complete a CAN$ 15M private placement of units through AEK at a price of $1.75 per unit to finance the acquisition described below. Each unit will consist of one common share of H2O and one common share purchase warrant. Each share purchase warrant entitles the holder thereof to purchase one common share at a price of $2.30 at any time prior to 5:00 p.m. (Montreal time) on the date that is 24 months following the closing of the offering. Remaining proceeds of financing will be applied in the working capital for current and future projects. AEK will subscribe for fully managed accounts and external clients. AEK will receive a commission consisting of cash and/or warrants in compliance with the TSX.V regulations. This private placement is subject to obtaining all regulatory approvals from the TSX Venture Exchange Inc., the Autorite des Marches Financiers in Canada and all other applicable securities commissions. This placement is intended to qualified investors as described by the regulators.

Strategic acquisition

The letter of intent provides, among others, that H2O would acquire 100% of the issued and outstanding shares of the Target, a privately own company based in the United States, active in wastewater technologies. The purchase price for the acquisition is US$ 7,473,000 and is payable in cash at the closing of the transaction. This purchase price may be raised up to US$ 11M following the performance of the Target ("The Adjustment"). The Adjustment will be payable in shares of H2O according to the performance of the Target's EBITDA, which Target's EBITDA will be specified at the closing date. The shares will be issued based on the market price at the time of payment. The payment will be made, if any, on closing and on the first anniversary date of the closing date. The completion of the transaction is subject to a satisfactory due diligence, the completion of the financing, the entering into a share purchase agreement with terms and conditions to the satisfaction of both parties, the obtaining of all required regulatory approvals and the satisfaction of other customary conditions. The name of the Target will be reveal when those conditions will be met.

The Target highlights:

- Audited financial statements under US GAAP over the past 10 years;

- Sales of US$ 8,86M and an adjusted EBITDA of US$ 1,87M for the financial year ending July 31st, 2006;

- Sales of US$ 20,30M, including one significant contract of US$ 10M oversees and an adjusted EBITDA of US$ 1,84M for the financial year ending July 31st, 2005,

- As per July 31st 2006:

- Total assets : US$ 4,099,437

- Total liabilities : US$ 2,737,360

- Shareholders equity : US$ 1,362,077;

- Net Income: US$ 139,326, and

- An internal sales force and a network all across the US with 22 representatives and 4 manufacturing agents worldwide.

"With this transaction, H2O will strengthen its position in the wastewater treatment industry. The Target will enable H2O to access a US sales network as well as an active international sales force counting 22 distributors across the US and four exclusive manufacturing agents", explains Guy Goulet, President and Chief Executive Officer of H2O. "H2O indeed fulfills its promises of external growth as announced during the press conference concerning the Alternext listing on January 25th, 2007", he added.

The Target has more than 20 years of experience in the municipal and industrial wastewater treatment business. It is a complementary acquisition for H2O and it will increase the range of products offered by H2O.

"On a pro-forma basis, this acquisition will increase H2O annual income to more than CAN$ 20M and will indeed contribute to increase profit margin. It is also worth mentioning that the company will benefit from the Target strong relationships with major US based engineering firms. Furthermore, the Target expertise in wastewater systems will enable H2O to diversify and to strengthen its client offer with patented complementary water technologies in order to reach a specific portion of the industry", stated Frederic Dugre, Executive Vice-President of H2O.

Management expects, following the acquisition, that H2O will enlarge its portfolio of products, extend its sales network across the entire US and Canada territories and strategically position itself on the international market, in emerging countries, with burgeoning projects in the water and wastewater sector. Management also expects, that the Target will contribute to increase H2O's gross margin and add another CAN$ 2M worth of contracts into H2O's current sales backlog of CAN$ 9M.

About H2O

H2O is pursuing its market development in drinking water with a complete portfolio of membrane technologies for municipal, industrial and commercial sectors. H2O's mission is to develop, produce and market state of the art, environmentally friendly products dedicated to the production of drinking water and the treatment of wastewater and industrial processed water.

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

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