QUEBEC CITY, Sept. 7 /CNW Telbec/ - H2O Innovation (2000) Inc. ("H2O", TSX-V: HEO) is pleased to announce the execution, on September 6, 2006, of an arm's length asset purchase agreement between Membrane Systems, Inc., a new wholly owned subsidiary of H2O incorporated under the laws of the State of Delaware, and Membrane Systems Corporation ("MSC"), pertaining to the acquisition of all substantially assets held by MSC (the "Transaction") for an amount of US$2,875,000, payable on closing. This Transaction was previously announced by H2O on May 10, 2006. TSX Venture Exchange Inc. has conditionally approved the Transaction, subject to fulfilling customary conditions. The purchase price may be increased or decreased, on a dollar-for-dollar basis, by an amount, if any, corresponding to the difference between MSC's net book value, as determined pursuant to the closing financial statements, and US$1.0M, and may be adjusted depending on the receivables still outstanding 180 days after the closing. Furthermore, the purchase price shall be increased and additional payments shall be made to MSC on each financial year end for the next three financial years following the closing provided that certain financial objectives are reached. "H2O, having completed, on May 31, 2006, a $10.1 million equity financing with Amsterdams Effectenkantoor BV and benefiting from a solid balance sheet, intends to rely on MSC's notoriety and expertise to position itself as a significant player in the water treatment industry within a growing North American market" said Guy Goulet, President and Chief Executive Officer of H2O. He also added: "With the addition of Mr. Ashwin Desai and his experienced team-mates, we are standing up asides top players in this industry inside the so-called "Membrane Valley" in California; this will result in new opportunities for H2O. We intend to continue to expand our market reach through a growth of our distribution network and other targeted acquisitions". The closing of the Transaction is scheduled to take place on or around September 20, 2006 and is subject to the satisfaction of customary conditions including, among others, the following: << - Obtaining by MSC of all approvals, waivers, consents or releases as are required under applicable laws or agreements to permit the execution and delivery of the asset purchase agreement and the transfer and assignment of the acquired assets to H2O, free of all charges, hypothecs and liens; - The signature of a 3-year consulting agreement with Ashwin Desai, sole shareholder of MSC; and - The approval of all applicable securities regulatory authorities, including the final approval of the TSX Venture Exchange Inc. >> About H2O H2O has become a leader in Canada and is pursuing its market development in drinking water treatment 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, environmental friendly products dedicated to the production of drinking water and the treatment of wastewater and industrial processed water. About MSC Founded in 1990 under the laws of the State of California, MSC designs, manufactures, assembles, supplies and installs water treatment systems/plants for municipalities, industries, private developers and government/military mainly in Florida, California and Mexico. Headquartered in California, MSC's water treatment systems perform such functions as desalination and purifying brackish groundwater in order to meet diverse and specific needs of a wide range of applications. As per signature date, H2O Innovation increases its backlog above $7 Million. Some manufacturing contracts are already being performed in H2O's manufacturing facilities in Ham-Nord (Quebec). Forward looking statements Certain statements in this release are forward looking. These statements are based on H2O's current expectations and involve many risks and uncertainties. H2O undertakes no obligations to publicly update or revise any forward looking statements contained herein. For additional information, please communicate with Mr. Guy Goulet, President and Chief Executive Officer, at (450) 669-3144 (ext. 203) or via email at ggoulet(at)h2oinnovation.com or FrDedDeric DugrDe, Executive Vice-President, at (418) 688-0170 (ext. 22) or via email at fdugre(at)h2oinnovation.com . The TSX Venture Exchange Inc. has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.