HEO H2O Innovation Inc

H2O Innovation (2000) Inc. - (the "Company" or "H2O Innovation") (TSX VENTURE: HEO) (ALTERNEXT:MNEMO:ALHEO) announces the disclosure of its results for the year ended June 30, 2008 and the fourth quarter results for the same year. During the fiscal year 2007-2008, the Company sets a new sales record and reached a progression of 6.9 points of its gross margin compared to the previous fiscal year.

CONSOLIDATED RESULTS

                              3 months ended            Fiscal year ended
                                     June 30                      June 30
                          (unaudited results)            (audited results)

                         2008           2007           2008          2007
                         $CAN           $CAN           $CAN          $CAN

Sales               3,673,947      1,903,995     10,813,536     7,050,612
Gross margin        1,128,182       (211,543)     2,676,986     1,262,674
Net loss           (1,452,263)    (1,735,005)    (3,633,897)   (2,889,498)
Basic and diluted
 loss per share        (0,037)        (0,063)        (0,100)       (0,117)

Strong sales growth: + 53.4%

Sales, totaling $10.8M, for the fiscal year ended June 30, 2008 were up by 53.4% compared to $7.0M for the previous year ended on June 30, 2007. Sales for the fourth quarter of 2008 reached $3.7M compared to $2.8M for the previous quarter and $1.9M for the fourth quarter of fiscal year 2007. As of June 30, 2008 the order backlog totalized $20.0M compared to $14.0M on June 30, 2007, which represents a 43.0% increase in one year.

The 53.4% growth in sales for the 2007-2008 fiscal year over the previous year is due to the completion of municipal contracts. With its latest acquisitions, Sigma Environmental Solutions Inc., Wastewater Technology Inc., and most recently, on July 3, Itasca Systems Inc. ("Itasca"), H2O Innovation's range of operations now covers a significant part of North America and the Company's integration efforts and sharing of knowledge, started several months earlier, are beginning to bear fruits.

6.9 points increase of its gross margin

For the fiscal year ended June 30, 2008, the Company's gross margin reached 24.8% of its sales, compared to 17.9% in 2007, which represents a 6.9 points increase. For 2008 fourth quarter, the gross margin reached 30.7% compared to 22.3% for the previous quarter and (11.1%) for the fourth quarter of fiscal year 2007.

Operating expenses

During the fiscal year ended June 30, 2008, operating, selling, administrative and general expenses reached $4.9M or 44.9% of the sales compared to $3.5M, or 49.7% of the sales in 2007. For the 2008 fourth quarter, operating expenses, selling, general and administrative expenses reached $1.7M, or 46.8% of the sales compared to $1.2M, or 41.6% of the sales for the previous quarter and $1.0M, or 50.0% for the fourth quarter of fiscal year 2007.

Net Loss

H2O Innovation finished the 2008 fiscal year with net loss of $3.6M compared to $2.9M for the same period ended June 30, 2007. This nominal increase of $744,399 for the twelve-month period ended June 30, 2008 was due to a number of factors, including a complete reorganization at the senior management level, the integration of newly acquired companies, and the Company's positioning on new markets in Western Canada, United-States, and abroad. If non recurring expenses of about $655,000 are excluded, the Company is at essentially the same loss level as on June 30, 2007. These non recurring expenses include a severance pay for an executive ($250,000), a stock-based compensation for past services ($280,000), expenses for acquisitions not completed ($60,000), and various expenses for restructuring and integrating the new subsidiaries ($65,000).

RECENT EVENTS

A portfolio completed with industrial water treatment technologies

On July 3, 2008, the Company completed the acquisition of Itasca. This third acquisition in the United States will allow H2O Innovation to more rapidly increase its gross operating margins and benefit from an industrial customer base in a geographic area that has yet to be exploited by the Company: the North American Midwest. This transaction increases annual recurring income tied to after-sales service, maintenance products, and replacement parts by $2.3M. Moreover, this transaction adds a 3,400 square meter production platform, in Minnesota, to the 6,000 square meters already in Quebec.

Backlog of $21.0M (as at August 26, 2008)

As of August 26, 2008, the latest order backlog of the Company reached $21.0M compared to $14.0M as of June 30, 2007. This increase of 50.0% in 14 months is the result of the Company's strong organic and external (acquisitions) growth. The organic growth reached $4.0M or 28.5% and the external growth reached $3.0M or 21.5%.

About 75.0% of the contracts are related to the municipal market. Therefore, it appeared essential and strategic to anticipate a diversification of the Company's customer base. Following this approach, H2O Innovation completed the acquisition of Itasca on July 3, 2008, in order to rapidly expand the Company's presence in fast-growing industrial sectors such as energy and agrifood.

To support its strong growth, H2O Innovation has also recently, during the first quarter of the new fiscal year, signed two debt financing agreements for a total of $5.0M.

2009 OBJECTIVES

The Company is now integrating and consolidating its operations in order to generating a positive working capital. H2O Innovation has already begun to integrate the most recent subsidiaries acquired in order to optimize human and material resources. In this regard, as of the first quarter of 2008-2009 the Company has already proceeded with the restructuring and reallocation of certain costs with a view of reducing fixed sales and administrative costs by $750,000 for the next fiscal year.

Also, for the fiscal year 2009, H2O Innovation's management has settled four business objectives:

- Reach a sales level that can generate a positive cash flow

- Raise the beneficial growth margin on its sales

- Reduce the percentage of its operating, selling, administrative and general expenses (percentage of its sales)

- Increasing its backlog

The Financial Annual Report for the fiscal year ended June 30, 2008 can be found on the Company's web site (www.h2oinnovation.com) and Alternext's web site (www.alternext.fr) Also, additional information on the Company can be found on SEDAR at (www.sedar.com)

About H2O Innovation

H2O Innovation's mission is to design, develop, produce and integrate state-of-the-art, environmental friendly products dedicated to the production of drinking water, the treatment of wastewater and industrial processed water, and the reclamation of water.

Prospective disclosures

This press release may contain prospective disclosures representing current expectations of H2O Innovation and are subject to certain risks and uncertainties. H2O Innovation 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.

Contacts: H2O Innovation (2000) Inc. Frederic Dugre President and Chief Executive Officer 418-688-0170 dugre@h2oinnovation.com H2O Innovation (2000) Inc. Annie Lemieux, CA Chief Financial Officer 418-688-0170 alemieux@h2oinnovation.com H2O Innovation (2000) Inc. Stephen Gauthier, CFA Senior Vice-president Corporate financing and Investors relations 514-515-9930 sgauthier@h2oinnovation.com