Azure Dynamics Announces Second Quarter 2010 Results

    
    -------------------------------------------------------------------------
    -  Azure Dynamics announced revenue of $3.9 million, an improvement of
       215%, over the same quarter 2009. The Company reported a positive
       gross margin of 8% in the quarter

    -  During the quarter, Azure closed an equity investment of more than
       $6.3 million from a Canadian subsidiary of Johnson Controls, Inc.

    -  Azure's cash position improved in the quarter with a cash balance of
       more than $31.8 million at quarter end

    -  Azure has shipped 358 units YTD and expects shipments to increase in
       the second half of 2010
    -------------------------------------------------------------------------
    

OAK PARK, MI, Aug. 12 /CNW/ - Azure Dynamics Corporation's (TSX: AZD) (OTC:AZDDF) - ("Azure" or the "Company"), a leading innovator in the development of environmentally friendly and cost effective hybrid electric and electric technologies for commercial vehicles, today reported its second quarter financial results for the period ending June 30, 2010. The Company also provided an update on corporate and product development activities.

"Although the second quarter is typically a slower selling period, we outperformed our sales expectations on the Balance(TM) Hybrid Electric product. The second quarter 2010 also saw a continuation of the positive trend we've been seeing in terms of margin improvement and our cash on hand improved slightly from last quarter," said Scott T. Harrison, Azure Dynamics Chief Executive Officer. "Most importantly, this was the first quarter where we were able to report a positive gross margin since we fully commercialized our product lines."

"Those who know Azure best are familiar with the importance we place on our strategic partnerships, and this quarter the Company saw significant developments on this front. In May, Azure and Ford Motor Company jointly announced that the Transit Connect Electric program will be expanded to include the European market. In June, Johnson Controls' $6.3 million investment in Azure, at a premium to market, was a meaningful endorsement of our technology by a deeply experienced automotive supplier and a valued Azure partner. Azure also added another highly capable automotive supplier to the Transit Connect Electric team when we named AM General as the upfitter for the project."

"While these relationships were being cultivated and product cost reduction programs were implemented, we continued our concentration on sales. We were pleased to receive new orders for 212 Balance(TM) Hybrid Electric systems in the quarter with a fairly even distribution between shuttle buses and delivery vans. Those new orders along with 128 shipments in the quarter kept product moving at a steady pace - a pace that we expect will continue during the second half of the year," Harrison concluded.

    
    Following are Select Highlights of Second Quarter 2010:

    -  Azure entered into an agreement with a wholly-owned Canadian
       subsidiary of Johnson Controls Inc. which agreed to purchase, on a
       private placement basis, 21,080,000 common shares of Azure at a price
       of CDN$0.30 per common share for gross proceeds of $6,324,000.
       Following the completion of the Equity Investment, Johnson Controls'
       Canadian subsidiary owns approximately 3.4% of the issued and
       outstanding common shares of Azure.

    -  Ford Motor Company and Azure jointly announced that the Ford Transit
       Connect Electric program will be expanded to include the European
       market with shipments beginning in late summer 2011.

    -  AM General, a well known and experienced vehicle manufacturer and
       services provider, was selected to upfit the base Ford Transit Connect
       with the Azure Force Drive(TM) electric drive train components. The
       final assembly will be completed at an AM General Engineering and
       Product Development Center in Livonia, Michigan.

    -  Cintas Corporation, headquartered in Ohio, agreed to purchase 100
       Balance(TM) Hybrid Electric walk-in vans for deployment at its
       California facilities and therefore the units qualify for California's
       Hybrid Voucher Incentive Program funding with incentives of $25,000
       per unit.

    -  Azure announced a 34 unit Balance(TM) Hybrid Electric bus sale via the
       Illinois Department of Transportation (IDOT). IDOT will leverage
       available funding from a Transit Investments for Greenhouse Gas and
       Energy Reduction (TIGGER) Grant.

    -  Azure announced a 24 unit Balance(TM) Hybrid Electric bus sale to King
       County, Washington for its Access Transportation services. King County
       accessed Federal Transit Administration (FTA) stimulus funds to reduce
       acquisition costs.

    -  The North Central Texas Council of Governments (NCTCOG) ordered 18
       Balance(TM) Hybrid Electric shuttle buses for deployment in five
       different rural transit systems. The units are partially funded via an
       American Recovery and Reinvestment Act of 2009 Transit Capital
       Assistance program grant.

    -  Azure Dynamics received a follow-on order from Metro Mobility for nine
       additional Balance(TM) Hybrid Electric shuttle buses to join the 15
       Azure buses already at work in its fleet.

    -  Azure announced 28 additional new Balance(TM) Hybrid Electric van and
       bus orders from both new and repeat customers across North America.
       Notable body manufacturers Champion Bus Inc., and Glaval Bus both
       participated in their inaugural Azure sale.
    

Financial Results

Revenue for the second quarter of 2010 totaled $3.9 million compared to $1.2 million in the second quarter of 2009. For the six months ended June 30, 2010, revenue totaled $6.7 million compared to $1.8 million in the same period a year ago. Net loss for the second quarter of 2010 was $6.4 million, or $(0.01) per share, compared to a loss of $6.7 million or $(0.02) per share in the second quarter of 2009. Net loss for the six months ended June 30, 2010 was $10.9 million, or $(0.02) per share, compared to a loss of $14.1 million or $(0.04) per share in the same period a year ago.

Before contributions, the Company's engineering, operations and product development expenses for the quarter totaled $5.4 million (including $3.0 million in product development costs), compared to $3.3 million for the same period in 2009 (including $0.8 million in product development costs). For the first half of 2010, before contributions, the Company's engineering and R&D expenses totaled $10.7 million (including $5.8 million in product development costs), compared to $7.1 million in the first half of 2009 (including $2.0 million in product development expenses).

As of June 30, 2010, the Company's net cash and cash equivalents totaled $31.8 million, and working capital totaled $28.0 million, compared to cash and cash equivalents of $2.4 million, and working capital of $6.9 million, as at June 30, 2009, and cash and cash equivalents of $33.6 million, and working capital of $31.7 million, as at December 31, 2009.

Azure recorded revenue from 128 units (48 LEEP(TM), 57 Balance(TM), 23 Force(TM) Drive and 1 CitiBus) during the quarter, compared to 68 for the same period in 2009. For the first half of 2010, the Company recorded revenue from 358 units (224 LEEP, 90 Balance(TM) Hybrid Electric, 44 Force Drive(TM) systems and 1 G1 CitiBus) compared to 110 for the same period of 2009.

    
    Q2 2010 Product Development Updates

    Balance(TM) Hybrid Electric
    ---------------------------

    -  The Company continued development and testing of advancements to the
       current production Balance(TM) Hybrid system which will reduce the
       cost and weight versus the current system.
    -  The design validation testing for the model year (MY) 10.5 design
       release, including upgraded inverters and JC-S lithium-ion batteries
       was completed within the second quarter.
    -  The MY10.5 pre-production build was completed in May and the
       production build commenced in June for the stripped chassis variant.
       The shuttle bus MY10.5 variant is scheduled for production start in
       the third quarter, 2010.
    -  Testing on MY11 design release including major advancements to the
       Company's industry leading belt-starter-generator (BSG) system which
       will now include an integral clutch at the crankshaft, was completed
       in the quarter. The clutched BSG system allows Azure's Balance(TM)
       Hybrid to run the auxiliary vehicle systems including power steering,
       power brakes and A/C compressors when the engine is off and the
       vehicle is in electric mode.
    -  The Company continued its development and testing of the lithium-ion
       battery pack from JC-S. Third generation prototype (C-Samples) battery
       packs were received and tested in the Azure development vehicles.

    Transit Connect Electric:
    -------------------------

    -  The show vehicle produced in the first quarter continues to be
       demonstrated at various shows across the country and has received
       positive press for its driving characteristics.
    -  Within the second quarter Azure produced prototype vehicles for
       occupant safety and crash testing. Front and rear impact tests were
       completed and demonstrated the effectiveness of Azure's mechanical
       integration design and correlated the simulation model.
    -  The validation prototype (VP) design phase was progressed in the
       quarter preparing for the VP build in the third quarter.
    -  In May, Azure completed the preliminary CAD packaging assessment for
       the European variants of the Transit Connect Electric including both
       right hand and left hand drive platforms.
    -  The company also entered into a contract with a European Certification
       Authority, the VCA, and completed the homologation test plan which
       will be followed by Azure to complete a whole vehicle type approval
       for the European Union.

    Low Emission Electric Power (LEEP(TM)):
    ---------------------------------------

    -  During the quarter the company released further upgrades to the
       LEEP(TM) Freeze software to improve performance based in experience
       with a greater number of units in the field.
    -  The company delivered an additional prototype LEEP(TM) Lift system in
       the quarter for further market development and model year updates.

    Force Drive(TM) Electric Components:
    ------------------------------------

    -  During the second quarter, the Company continued to progress on
       performance and specification upgrades to its inverters.
    -  The initial design validation testing on the prototype inverters
       including vehicle level testing was successfully completed in the
       quarter.
    -  Volume production of the air-cooled inverters for the Balance(TM)
       Hybrid MY10.5 production commenced in June, liquid cooled versions for
       the Transit Connect are in validation testing.

    Operational Updates
    -------------------

    -  In support of the European launch of the Transit Connect Electric,
       Azure took steps to reopen its European operation, Azure Dynamics UK
       LTD and open an interim office in the UK close to Ford's Dunton
       headquarters in England.
    -  Ricardo Espinosa was named our new Managing Director of Azure Europe
       and is in the process of transferring from his role as Vice President
       of Engineering out of our Boston office, to the UK.
    

Conclusion:

"The significant developments of the second quarter were directly aligned with our stated strategic priorities. The AM General relationship reflects Azure's approach of limiting internal manufacturing costs by leveraging existing industry capacity with established partners eager to be involved in electric propulsion. For product cost reductions, we were able to implement programs to reduce cost and improve margin. Our channel distribution strategy earned inaugural sales from two new body vendors and saw repeat network sales accelerating. And, of course, key partnerships with Ford and JCI were deepened and expanded, and we continue to explore further expansions of these and other relationships."

The Company's fiscal 2010 second quarter financial statements and MD&A are available at www.sedar.com or on the Company's website at www.azuredynamics.com.

Conference Call

Please join Scott Harrison, Azure Dynamics Chief Executive Office, and Ryan Carr, Chief Financial Officer for an earnings call today, August 12th, at 5:00 PM EST. Interested listeners can access the call toll free at 1-800-786-6018. It is recommended that you access the call at least fifteen minutes before the scheduled start time. An accompanying presentation will be posted to the company's website, www.azuredynamics.com, immediately prior to the call.

For those unable to participate in the live conference, a call replay will be posted on Azure's site by Monday August 16th.

For more information on how Azure Dynamics products are Driving a World of Difference, please visit www.azuredynamics.com.

About Azure Dynamics

Azure Dynamics Corporation (TSX: AZD)(OTC: AZDDF) is a world leader in the development and production of hybrid electric and electric components and powertrain systems for commercial vehicles. Azure is strategically targeting the commercial delivery vehicle and shuttle bus markets and is currently working internationally with various partners and customers. The Company is committed to providing customers and partners with innovative, cost-efficient, and environmentally-friendly energy management solutions. For more information please visit www.azuredynamics.com.

The TSX Exchange does not accept responsibility for the adequacy or accuracy of this release.

Forward-looking Statements

This press release contains forward-looking statements. More particularly, this press release contains statements concerning Azure's business development strategy, projected commercial revenues and product deliveries.

The forward-looking statements are based on certain key expectations and assumptions made by Azure, including expectations and assumptions concerning achievement of current timetables for development programs, target market acceptance of Azure's products, current and new product performance, availability and cost of labor and expertise, and evolving markets for power for transportation vehicles. Although Azure believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Azure can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, the risks associated with Azure's early stage of development, lack of product revenues and history of losses, requirements for additional financing, uncertainty as to commercial viability, uncertainty as to product development and commercialization milestones being met, uncertainty as to the market for Azure's products and unproven acceptance of Azure's technology, competition for capital, product market and personnel, uncertainty as to target markets, dependence upon third parties, changes in environmental laws or policies, uncertainty as to patent and proprietary rights, availability of management and key personnel, and acquisition integration risk. These risks are set out in more detail in Azure's annual information form which can be accessed at www.sedar.com.

The forward-looking statements contained in this press release are made as of the date hereof and Azure undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

    
    -------------------------------------------------------------------------
                                                  Azure Dynamics Corporation
                                                 Consolidated Balance Sheets
                                    (Stated in thousands or Canadian dollars)

                                                        June 30  December 31
                                                           2010         2009
    As at                                            (unaudited)    (audited)
    -------------------------------------------------------------------------
                                                              $            $
    ASSETS

    Current
      Cash and cash equivalents                          31,819       33,588
      Accounts receivable                                 2,563        2,632
      Contributions receivable                              520            -
      Inventory (Note 3)                                  5,326        5,215
      Prepaid expenses                                      938          974
                                                   --------------------------
                                                         41,166       42,409

    Restricted cash                                       1,067        1,041
    Property and equipment                                5,449        5,277
    Intangible assets                                     6,170        6,755
    Goodwill                                              2,932        2,932
                                                   --------------------------

                                                         56,784       58,414

    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY

    Current
      Accounts payable and accrued liabilities           12,859        9,837
      Customer deposits & deferred revenue                  165          746
      Current portion of notes payable                       68           66
      Current portion of obligations under
       capital leases                                       108           99
                                                   --------------------------
                                                         13,200       10,748
    Long-term
      Obligations under capital leases                      142          117
      Customer deposits & deferred revenue                  610          644
      Notes payable                                       2,048        2,055
                                                   --------------------------
                                                         16,000       13,564
                                                   --------------------------
    Shareholders' equity
      Share capital (Note 4)                            208,554      202,250
      Contributed surplus (Note 4)                        7,714        7,139
      Deficit                                          (175,484)    (164,539)
                                                   --------------------------
                                                         40,784       44,850
                                                   --------------------------

                                                         56,784       58,414

    -------------------------------------------------------------------------

    Nature of operations and going concern (Note 1)
    Commitments (Note 6)

    Approved on behalf of the Board:


    "signed D. Campbell Deacon"           Director
    -------------------------------
    D. Campbell Deacon


    "signed James C. Gouin"               Director
    -------------------------------
    James C. Gouin

    The accompanying notes are an integral part of these consolidated
financial statements.



    -------------------------------------------------------------------------
                                                  Azure Dynamics Corporation
      Consolidated Statements of Operations, Comprehensive Loss, and Deficit
      (Stated in thousands of Canadian dollars, except per share amounts and
                                                            number of shares)


                              For the three months        For the six months
                                             ended                     ended
                                           June 30                   June 30
                                        (unaudited)               (unaudited)

                                 2010         2009         2010         2009
    -------------------------------------------------------------------------
                                    $            $            $            $

    Revenues                    3,868        1,228        6,715        1,801

    Cost of sales               3,567        2,403        6,583        3,510

                        -------------------------- --------------------------
    Gross margin                  301       (1,175)         132       (1,709)
                        -------------------------- --------------------------

    Expenses
      Engineering, research,
       development and
       related costs, net       3,774        3,274        5,518        7,114
      Selling and
       marketing                  573          423        1,088          985
      General and
       administrative           2,223        2,063        4,556        4,146
                        -------------------------- --------------------------
    Total expenses              6,570        5,760       11,162       12,245

                        -------------------------- --------------------------
    Loss from operations       (6,269)      (6,935)     (11,030)     (13,954)

      Interest and other
       income, net                136          140          273          287
      Interest expense            (24)         (28)         (50)         (59)
      Other income/
       (expense)                   11          (93)           -         (618)
      Foreign currency
       (losses)/gains            (215)         254         (138)         261
                        -------------------------- --------------------------

    Net loss and
     comprehensive loss
     for the period            (6,361)      (6,662)     (10,945)     (14,083)

    Deficit, beginning
     of period               (169,123)    (144,152)    (164,539)    (136,731)
                        -------------------------- --------------------------

    Deficit, end
     of period               (175,484)    (150,814)    (175,484)    (150,814)

    -------------------------------------------------------------------------

    Loss per share -
     basic and diluted          (0.01)       (0.02)       (0.02)       (0.04)

    Weighted average
     number of shares -
     basic and diluted    608,198,963  379,405,157  606,671,969  379,390,747
    -------------------------------------------------------------------------

    The accompanying notes are an integral part of these consolidated
financial statements.



    -------------------------------------------------------------------------
                                                  Azure Dynamics Corporation
                                       Consolidated Statements of Cash Flows
                                    (Stated in thousands of Canadian dollars)


                              For the three months        For the six months
                                             ended                     ended
                                           June 30                   June 30
                                        (unaudited)               (unaudited)

                                 2010         2009         2010         2009
    -------------------------------------------------------------------------
                                    $            $            $            $

    Cash flows from
     operating activities
      Net loss for the
       period                  (6,361)      (6,662)     (10,945)     (14,083)
      Adjustments for:
        Amortization of
          property and
          equipment               246          255          489          535
        Amortization of
         intangible assets        328          353          654          702
        Unrealized foreign
         currency losses/
         (gains)                  250         (195)          62          (83)
        Stock option
         compensation
         expense                  148           87          469          264
        Deferred share units
         compensation
         expense                   59           60          116          122
                        -------------------------- --------------------------
                               (5,330)      (6,102)      (9,155)     (12,543)

      Changes in non-cash
       working capital
       items                     (241)         808        1,827        1,436
                        -------------------------- --------------------------
    Total cash flows
     from operating
     activities                (5,571)      (5,294)      (7,328)     (11,107)
                        -------------------------- --------------------------

    Cash flows from
     financing activities
      Issuance of
       common shares
       (net of costs)           6,309            1        6,293            1
      Principal payments
       on notes payable           (16)         (17)         (33)         (36)
      Repayment of
       obligations under
       capital lease              (30)         (72)         (94)         (95)
                        -------------------------- --------------------------
    Total cash flows
     from financing
     activities                 6,263          (88)       6,166         (130)
                        -------------------------- --------------------------

    Cash flows from
     investing
     activities
      Acquisition of
       property and
       equipment                 (434)         (28)        (535)         (35)
      Acquisition of
       intangible
       assets                     (34)         (60)         (68)        (124)
      Sale of property
       and equipment                -           35            -           35
      Changes in
       restricted cash            (12)          62          (12)          62
                        -------------------------- --------------------------
    Total cash flows
     from investing
     activities                  (480)           9         (615)         (62)
                        -------------------------- --------------------------

    Increase/(Decrease)
     in cash and cash
     equivalents                  212       (5,373)      (1,777)     (11,299)

    Exchange impact
     on cash held in
     foreign currency               3          (69)           8          (61)

    Cash and cash
     equivalents,
     beginning of
     period                    31,604        7,885       33,588       13,803

                        -------------------------- --------------------------

    Cash and cash
     equivalents, end
     of period                 31,819        2,443       31,819        2,443
                        -------------------------- --------------------------
                        -------------------------- --------------------------

    Supplemental cash
     flow information

    Cash paid for
     interest                      24           21           50           43
    Cash paid for taxes            13            -           13            -
                        -------------------------- --------------------------
                        -------------------------- --------------------------
    Non cash investing
     and financing
     activities:
      Vehicles and
       equipment
       acquired under
       capital lease                -           24          126           24
                        -------------------------- --------------------------
                        -------------------------- --------------------------


    The accompanying notes are an integral part of these consolidated
financial statements.
    

SOURCE AZURE DYNAMICS CORPORATION

For further information: For further information: Ryan Carr, Chief Financial Officer, 248-658-7506, Email: rcarr@azuredynamics.com; Mike Elwood, Vice President-Marketing, (905) 607-3486 x6203, Email: melwood@azuredynamics.com; Pat Liebler, Liebler Group, (313) 832-4376, Email: pat@lieblergroup.com

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