Azure Dynamics Reports on Progress and Releases 2004 Third Quarter Results.

TORONTO -- Azure Dynamics Corporation (TSX:AZD & LSE:ADC) ("Azure" or the "Company") a leading developer of hybrid electric powertrains for commercial vehicles is pleased to announce its results for the three months ended September 30, 2004 ("quarter").

"In the third quarter of 2004, Azure completed a major financing, securing access to approximately $11.5 million in funds, and the Company's shares and certain warrants were listed on the Alternative Investment Market ("AIM") of the London Stock Exchange in August 2004," said Mr D. Campbell Deacon, Deputy Chairman and CEO. "From a financing and shareholder base perspective, our platform to grow the Company is in sound shape," he added. "Our technical reputation has been enhanced by the positive reception of new products launched this year - the electric Renault Master in March 2004, the London black taxi in June 2004 and the all-electric eMercury launched in July 2004," he stated. "Our immediate product focus has turned to the development work required to launch our first-to-market product, Azure's G1 powertrain to be applied in the Purolator delivery van. Although there are always challenges to overcome to ensure the successful launch of a new product, we remain confident that our goal of full-scale production of the G1 product in 2005 will be achieved".

Azure is developing its G1 and G2 series hybrid electric and all-electric powertrain technology for commercial vehicles and is evaluating several alternatives whereby it can develop an efficient and a cost effective parallel solution for this market to compliment its proven series technology. The goal is to have a broad product offering with which to satisfy the complete range of market demand for hybrid electric and electric commercial vehicles. The status of the Company's various product programs is as follows:

G1 Powertrain

Base product - Purolator

- Main focus of the development team;

- Currently building confirmation prototypes;

- Initial delivery of 30 units to Purolator is anticipated to commence late 2004;

- Commercial production is expected to commence in the 2nd half of 2005.

Canada Post Program

- Seven trucks built;

- Operated thousands of kilometres in-service and testing;

- Recently upgraded to Nickel Metal Hydride batteries (product component shift by Azure to capture longer life benefits and performance enhancements from this technology).

eMercury (now "Modec")

- Two all-electric prototypes of the new ground-up designed delivery vehicles, powered with Azure's technology, launched in July 2004;

- Third prototype with G1 series hybrid powertrain completed in September 2004;

- Vehicles are being used for testing and customer demonstration purposes and have been driven for over eight thousand miles;

- In October 2004, LTI sold its interest in the eMercury program to Modec Ltd. - a UK company with access to the multi-million funding required to achieve commercial production;

- Commercial production of the all-electric version is expected to commence mid-2006;

- The vehicles were awarded the "Eco Van of The Year Award 2004" by What Van?, a United Kingdom publication, in October 2004.

G2 Powertrain

London Taxi

- The series hybrid black taxi was launched in June 2004;

- Two prototypes are undergoing tests and customer demonstrations, one in England and one in Canada;

- Initial modeling of the hybrid electric taxi indicates favourable economics;

- A third 'second-generation' taxi is in the planning and design stage with a view to determining timing of potential commercial development.

Renault Master

- The all-electric delivery Renault Master van, built in conjunction with

Leyland Product Development and Renault Trucks UK, was launched in March 2004;

- The van is being used for customer demonstration purposes;

- This vehicle was awarded second place in the "Eco Van of The Year Award 2004" by What Van?.

Parallel Powertrain

- The G1 and G2 project for the development of a parallel HEV system for demonstration to the United States Postal Service is in the design and planning stage;

- Azure also expects to make its series hybrid technology available to USPS in the first quarter of 2005.

Statement of Operations Discussion

For the quarter ended September 30, 2004, the Company incurred a net loss of $2,552,900 ($0.03 per share) compared to a net loss of $1,255,251 ($0.03 per share) in 2003; for the nine months ended September 30, 2004 the cumulative net loss was $5,469,449 ($0.07 per share) compared to $2,674,516 ($0.06 per share) in 2003. The loss is higher in 2004, when compared to 2003, as the Company has increased its activity levels to progress its ongoing customer and development programs. Contributions from customers, sponsors and government funding, have helped offset the higher expenditure levels; contributions totalled $2.0 million for the nine months ended September 30, 2004 compared to $1.3 million for the comparable period in 2003.

The Company's interim financial statements and Management's discussion and analysis are available for inspection at www.sedar.com or on the Company's website. An extract of the interim financial statements is attached to this press release.

Azure Dynamics Corporation provides Hybrid Electric Vehicle technology for light and medium duty commercial vehicles in urban areas. Azure is a public company trading on both the TSX Exchange in Canada as well as the AiM market in London. The Company is currently working with various partners and customers worldwide including Purolator Courier Ltd., Canada Post, London Taxis International, Modec, Leyland Product Development, Renault Trucks UK and the United States Postal Service. Azure has employees based in North America and Europe.

Note: The foregoing information may contain forward-looking statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results to be materially different from any future results, performance or achievements expressed or implied by such statements. Such factors include, but are not limited to the ability to raise the capital required for product development and operations, product development delays, changing environmental regulations, the ability to attract and retain business partners, competition from other developers of hybrid electric vehicle control systems, competition from other advanced or existing power technologies and evolving markets for power for transportation vehicles. These factors should be considered carefully and readers should not place undue reliance on Azure's forward-looking statements. Investors are encouraged to review the risks detailed from time to time in the Company's filings with regulatory authorities.

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                                          Azure Dynamics Corporation
                                     (A Development Stage Enterprise)
                                         Consolidated Balance Sheets

                             September 30  December 31  September 30
                                     2004         2003          2003
As at                          (Unaudited)    (Audited)   (Unaudited)
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                                        $            $             $

ASSETS

Current
  Cash and cash equivalents     9,032,576    9,075,219     1,320,724
  Accounts receivable             268,422      337,794       155,499
  Contributions receivable        842,224      780,459             -
  Inventory and related
   prepayments                    603,802            -             -
  Prepaid expenses                343,595       61,655        20,003
  Deferred financing costs              -            -       182,029
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                               11,090,619   10,255,127     1,678,255

Employee loans                          -       91,727       107,799
Deferred costs                    530,084            -             -
Property and equipment            509,696      162,048       184,665
Other assets                      112,698      117,279       115,154
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                               12,243,097   10,626,181     2,085,873

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LIABILITIES AND SHAREHOLDERS' EQUITY

Current
  Accounts payable and
   accrued liabilities          1,488,372      567,692       753,653
  Convertible debentures                -            -     2,070,772
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                                1,488,372      567,692     2,824,425
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Shareholders' equity
  Share capital                29,633,074   23,991,665    11,850,125
  Special warrants                      -            -        90,000
  Convertible debentures                -            -       177,500
  Contributed surplus             692,074      167,798        86,489
  Deficit                     (19,570,423) (14,100,974)  (12,942,666)
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                               10,754,725   10,058,489      (738,552)
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                               12,243,097   10,626,181     2,085,873

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(a) Certain comparative numbers have been restated as described
    in Note 3(e).



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                                          Azure Dynamics Corporation
                                     (A Development Stage Enterprise)
         Unaudited Consolidated Statements of Operations and Deficit

                           For the three             For the nine
                            months ended             months ended
                            September 30             September 30
                         2004         2003         2004         2003
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                            $            $            $            $

Revenue
 Other                 60,869        9,540      147,959       23,390

Expenses
 Research and
  development, net  1,333,797      703,418    2,212,635    1,058,864
 Selling and
  marketing           454,844      140,862    1,189,914      434,627
 General and
  administrative      579,767      250,756    1,694,426      834,667
 Rent and ancillary   200,784       53,606      382,612      167,442
 Amortization of
  property and
  equipment and
  other assets         44,577       43,924      137,821      130,081
 Accretion expense on
  convertible debentures    -       32,272            -       32,272
 Amortization of
  deferred financing costs  -       39,953            -       39,953
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                    2,613,769    1,264,791    5,617,408    2,697,906
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Net loss for
 the period        (2,552,900)  (1,255,251)  (5,469,449)  (2,674,516)

Deficit, beginning
 of period        (17,017,523) (11,687,415) (14,100,974) (10,268,150)
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Deficit, end
 of period        (19,570,423) (12,942,666) (19,570,423) (12,942,666)

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Loss per share
 - basic                (0.03)       (0.03)       (0.07)       (0.06)

Weighted average
 number of shares
 - basic           87,322,084   45,044,375   83,592,765   45,024,998

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(a) No fully diluted earnings per share have been disclosed, as these
    would be anti dilutive.

(b) Certain comparative numbers have been restated as described
    in Note 3(e).



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                                          Azure Dynamics Corporation
                                     (A Development Stage Enterprise)
                     Unaudited Consolidated Statements of Cash Flows

                           For the three             For the nine
                            months ended             months ended
                            September 30             September 30
                         2004         2003         2004         2003
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                            $            $            $            $

Cash flows from
 operating activities
  Net loss for
   the period      (2,552,900)  (1,255,251)  (5,469,449)  (2,674,516)
  Adjustments for:
   Amortization of
    property and
    equipment and
    other assets       44,577       43,924      137,821      130,081
   Common shares
    issued in exchange
    for services            -        6,250       27,500       18,750
   Stock option
    compensation
    expense           126,153       25,122      467,718       86,489
   Accretion expense
    on convertible
    debentures              -       32,272            -       32,272
   Amortizaton of
    deferred financing
    costs                   -       39,953            -       39,953
  Changes in non-cash
   working capital
   items             (340,794)    (153,357)      42,545     (456,436)
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                   (2,722,964)  (1,261,087)  (4,793,865)  (2,823,407)

Cash flows from
 financing activities
  Issuance of
   common shares
  (net of costs)    2,648,298       36,220    7,072,826       36,220
  Alternative
   Investment Market
   listing costs     (211,790)           -     (967,443)           -
  Capital Assurance
   Agreement costs   (965,000)           -     (965,000)           -
  Research and
   Development
   sponsorship funds
   received                 -            -            -    1,000,000
  Convertible
   debentures funds
   received
  (net of costs)            -    1,994,019            -    1,994,019
  Repayment of
   obligations under
   capital lease            -       (2,573)           -       (9,796)
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                    1,471,508    2,027,666    5,140,383    3,020,443

Cash flows from
 investing activities
  Acquisition of
   property and
   equipment          (64,404)      (5,636)    (451,444)      (8,882)
  Acquisition of
   other assets       (17,999)     (24,159)     (29,444)     (48,990)
  Changes in loans
   to employees             -      150,966       91,727      150,966
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                      (82,403)     121,171     (389,161)      93,094

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Increase (decrease) in
  cash and cash
  equivalents      (1,333,859)     887,750      (42,643)     290,130

Cash and cash
 equivalents,
 beginning
 of period         10,366,435      432,974    9,075,219    1,030,594
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Cash and cash
 equivalents,
 end of period      9,032,576    1,320,724    9,032,576    1,320,724

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(a) Certain comparative numbers have been restated as described in
    Note 3(e).

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

Azure Dynamics Corporation (TSX:AZD) (LSE:ADC)