“During 2006, we successfully developed strategic relationships with industry leaders such as Ford in our commercial vehicle segment, StarTrans in our shuttle bus segment and Kidron in our Low Emission Electric Power (“LEEP”) or components segment, to drive market penetration in these product areas,” said D. Campbell Deacon, Chairman of the Company’s Board of Directors. “We are now seeing positive market traction resulting from these relationships. In the first quarter, we signed on twelve StarTrans distributors that will give us access to a distributor network covering approximately 70% of the targeted shuttle bus market in the U.S. and Canada. There was also a significant development subsequent to the end of the quarter as we signed a supply agreement with a value in excess of $7.0 million with Electro Autos Eficaces of Mexico for 1,000 electric vehicle systems for Mexico City’s municipal automobile fleet.”

Corporate

On April 17, 2007 the Company announced the appointment of Scott T. Harrison as Chief Executive Officer. D. Campbell Deacon, retiring Chief Executive Officer, became Chairman of the Board of Directors and Thomas N. Davidson, outgoing Chairman, will retire from the Board of Directors in June 2007. These changes were made to ensure that the Company has the appropriate skills to successfully transition from the development stage to commercial production. Mr. Harrison has extensive production and supply chain experience with both new and established products in the automotive industry.

In an effort to reduce costs as well as ease interaction with major suppliers and strategic partners, Azure will establish a new corporate head office and development center in the heartland of the North American automotive industry. The new location will be selected to ensure the Company can leverage its relationship with Ford and capitalize on the significant opportunities in the mid-sized truck market. The office in Toronto as well as the Kenilworth facility in the UK will be closed. The scope of work with Ford as well as other OEM’s makes the establishment of this new facility a compelling action at this stage of the Company’s development. In addition these practical moves are expected to provide cost savings in excess of $1.6 million annually. The cost savings are related to both fixed costs for facilities and people as well as in variable costs, such as travel.

During the quarter under review, Management continued to consider strategic proposals from potential industry partners. Although the calibre of the potential partners has been very impressive, it is Management’s assessment (supported by the Board) that the proposals to date do not adequately recognise the value of the Company. This view has been reinforced by recent new customer developments and by the heightened level of interest in the industry in general. The Company will continue to evaluate all alternatives as it progresses.

Financial Results

Revenue for the first quarter of 2007 totalled $0.2 million compared to $1.1 million in the first quarter of 2006. The revenue was lower in the first quarter of 2007 due to decreased activities in funded engineering contracts in the Boston operation as the Company is now focused on its core production programs. Net loss for the first quarter of 2007 was $6.5 million, or $(0.03) per share, compared to a loss of $4.6 million or $(0.03) per share in the first quarter of 2006. The net loss is higher in the 2007 quarter primarily due to lower margin contribution due to lower revenues and higher levels of engineering and operational activities as the development of the Ford P1 parallel hybrid vehicle and ramp-up of the G1 series production progresses.

Before contributions, the Company’s engineering, research and development (“R&D”) expenses in the quarter totalled $4.2 million (including $2.7 million in product development costs), compared to $2.7 million for the same period in 2006 (including $1.6 million in product development costs). During the quarter, the Company progressed its P1 development and continued the final engineering and production activities associated with the G1 delivery vans and shuttle bus.

As of March 31, 2007, the Company’s net cash and cash equivalents totalled $21.5 million, and working capital totalled $26.1 million, compared to cash and cash equivalents of $27.2 million, and working capital of $32.5 million, as at December 31, 2006.

Product Developments

The main developments in core product lines for the first quarter of 2007 included the following:

G1 Series (7,500 to 16,000 lbs. gross vehicle weight, “GVW”)

Purolator has completed the introduction of the 30 new hybrid delivery vans into their fleet operations in the first part of 2007; their combined fleet of Azure hybrid vehicles now totals 49;
Delivered nine hybrid cab-chassis to StarTrans where they are in-progress to produce G1 hybrid shuttle buses (the CitiBus Hybrid Senator HD or “CitiBus”).
P1 Parallel (10,000 – 19,000 lbs. GVW)

Advanced the P1 parallel hybrid vehicle through the initial concept phase, including the build and testing of alternative design prototypes. The selected concept is now undergoing detailed design work which will include building, testing and optimizing further design prototypes. Demonstration prototypes will be scheduled for customer in-service trials in mid-2007. Thereafter, a quantity of pre-production units for lead customers is anticipated to be built, commencing in late-2007 with full production commencing in 2008. It is intended, subject to formal agreement, to distribute the hybridized chassis through Ford’s distribution channels.
Other product developments

In the process of designing and building the initial prototype of the LEEP system with a refrigerated truck body supplied by Kidron. The LEEP system is expected to be in production by the second-half of 2007.
On April 9, 2007, the Company entered into a supply agreement with Electro Autos Eficaces of Mexico (“EAE”) for 1,000 electric drive systems for integration into the Nissan Tsuru sedan for use in Mexico City’s municipal fleet. The first converted vehicle was completed in April 2007 and was unveiled at the International Electric Vehicle Forum on May 8, 2007 in Mexico City.