Mr. Frederic Dugre reports

H2O INNOVATION REPORTS FISCAL YEAR 2013 THIRD QUARTER RESULTS - COMPANY RECORDS NET EARNINGS FOR A FOURTH CONSECUTIVE QUARTER

H2O Innovation Inc. has released its results for the third quarter of fiscal year 2013 ended on March 31, 2013. For a fourth consecutive quarter, the company is profitable and is recording net earnings of $86,834. "Our focus to maintain profitability while increasing revenues is the result of continuous efforts in controlling the level of expenses, improving our project execution and expanding into new markets. The initiatives undertook in the past years to increase the level of consumables and services revenues combined with the changes implemented since June 30, 2012, meant to enhance our operations are finally paying off. Today, our business model has been proven viable. Any revenue increase impacts positively our operating earnings as the fixed charges tend to remain the same, showing high scalability potential in our business. Nevertheless, many challenges remain as we continue to seek operational excellence in project execution and further growth in targeted markets," stated Frederic Dugre, president and chief executive officer of H2O Innovation.

The company's revenues are above the $9-million mark for a fifth consecutive quarter. Revenues for the third quarter of fiscal year 2013 totalled $9.9-million, representing 2.5-per-cent decrease, as compared with revenues of $10.2-million for the same quarter of fiscal year 2012. Revenues from projects reached $5.9-million compared with $6.7-million in the corresponding period of the previous fiscal year, representing an 11.8-per-cent decrease. Nearly 40 per cent of these $5.9-million revenues come from three projects in the oil and gas sector in Western Canada and nearly 20 per cent come from municipal projects in the United States.

Revenues from sales of specialty chemicals and consumables increased by $500,000 for this quarter, reaching $4.0-million compared with $3.5-million in the comparable quarter in fiscal year 2012, representing a 15.5-per-cent growth. The maple syrup production season has reached its peak during this third quarter, which boosted the company's sales of consumables by approximately 20 per cent. The company also started to provide operation assistance services for a drinking water production unit and a waste water plant in Northern Alberta. Since June 30, 2012, 11 out of 13 projects delivered and commissioned have integrated the company's specialty chemicals and consumables or are using the company's service program for their system operations. "These 11 projects represent a conversion rate of 84.6 per cent, which clearly reflects the impact of a better integrated approach in our business model, allowing us to grow, strengthen and retain our customer relationships over years to come," added Mr. Dugre.

The company generated net earnings of $86,834 or 0.01 cent per share compared with a net loss of $7,951,400 or 12.7 cents per share for the same period in fiscal year 2012. This improvement is attributable to three main factors. First, the company maintained a high level of revenues, which generated satisfying gross profit margin. Second, management closely monitors the selling, general and administrative expenses and is diligent in finding additional savings. Finally, the company did not suffer from a goodwill impairment charge, an impairment of intangible assets and changes in fair value of contingent considerations in the third quarter of fiscal year 2013 compared with the third quarter of fiscal year 2012.

                        CONSOLIDATED RESULTS																

                       			  Three-month periods ended on March 31, 
                               			   2013                     2012

Revenues                  			  $9,966,644              $10,222,312
Gross profit              			   2,515,477                2,700,507
Gross profit                   		  	25.2%                    26.4%
Operating expenses           		  	218,394                  177,749
Selling expenses             		  	853,744                  993,043
Administrative expenses     			   925,700                1,022,044
Net earnings (loss)          			   86,834               (7,651,400)
Basic and diluted earnings
(loss) per share              			   0.001                   (0.127)
Adjusted EBITDA            			    530,026                  563,603
Adjusted EBIDTA                			   5.3%                     5.5%

The company secured $2.6-million in new bookings for water treatment projects over the quarter. These new bookings, combined with the realized revenues from water treatment projects during the quarter, have brought down the backlog at $15.4-million as at March 31, 2013. "Many opportunities in both territories and applications are composing the company's sales pipeline; we maintain strong bidding activities, and management efforts are aimed at growing the company's sales backlog above the $20-million mark before our year-end," stated Mr. Dugre. These efforts include the strategic hiring of David Faber as director of systems sales United States, who has already taken the lead of the U.S. systems sales, and the hiring of a sales manager based in British Columbia to develop a sales network and promote the company's products and services in Western Canada.

The company's ratio of selling, operating and administrative expenses as a whole over revenues amounted to 20.0 per cent for this quarter, down from 21.4 per cent for the corresponding quarter of the previous fiscal year. The improvement of this ratio is partly the result of the important reorganization initiated since June 30, 2012. The company was able to maintain the volume of business during this third quarter of fiscal year 2013, and its efforts show the benefit and scalability of its business model. Over all, the company's selling, general and administrative expenses show a decrease of approximately $195,000 compared with the corresponding quarter of fiscal year 2012.

Adjusted earnings before interest, taxes, depreciation and amortization for the quarter was recorded at $530,026, or 5.3 per cent of revenues, compared with $563,603, or 5.5 per cent of revenues, for the same period ended March 31, 2012. While the level of revenues decreased from $10.2-million to $9.9-million and the gross profit declined from 26.4 per cent to 25.2 per cent during the third quarter of fiscal year 2013 compared with the period ended March 31, 2012, the reduction of selling, general and administrative expenses was sufficient to maintain a positive adjusted EBITDA above the $500,000 mark.

Operating activities used $1,073,407 in cash for the period ended March 31, 2013, compared with $419,247 of cash used during the corresponding period ended March 31, 2012. The decline is mainly attributable to the negative change in working capital items, which effect has been offset by the improvement in net earnings in the third quarter of fiscal year 2013 as compared with the corresponding period ended March 31, 2012. "We anticipate an improvement in the working capital items during the next quarter because of the expected milestones to be reached within invoicing and manufacturing activities," stated Mr. Dugre.

Over the nine-month period ended March 31, 2013, the company's revenues totalled $29.4-million, compared with $24.3-million for the corresponding period ended March 31, 2012, showing a solid organic growth of 20.6 per cent. During this same period the company recorded net earnings amounting to $845,384 and a positive adjusted EBITDA of $1,818,607, compared with a net loss of $8,954,127 and an adjusted EBITDA of $491,505 for the corresponding period of fiscal year 2012. For the nine-month period ended March 31, 2013, the company generated $1,160,757 of cash flows from its operating activities, compared with $744,717 used by its operating activities for the corresponding period of fiscal year 2012.

The third-quarter financial report is available on the company's website and on the New York Stock Exchange Euronext Alternext's site.

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