MISSISSAUGA, ON, Oct. 30, 2008 (Canada NewsWire via COMTEX) -- TSXV: HGS

Hy-Drive Technologies Ltd. announces that a series of tests used to determine fuel efficiency as well as emissions performance under the supervision of accredited validation laboratories have now been completed. Fuel economy tests followed industry standard SAE J1321 Type II, test format procedures, while particulate emissions test procedures followed the SAE J1667 protocol. As previously announced, Hy-Drive had determined that it would only announce performance results subsequent to accredited third party validation.

Hy-Drive is pleased to report verified results from repeated sample trials conducted over the past several months on diesel engines in the 5.9-7.3Â litre size. Testing for both fuel performance and particulate emissions were all positive, with a range of performance results now documented. Average fuel savings in excess of 20% with commensurate emissions reductions were recorded. These results are notable as they represent an important directional sign that supports the validity of Hy-Drive's HGS (Hydrogen Generating System) technology, and are an indication of performance repeatability.

Hy-Drive has also initiated testing on Class 7 type engines, and while yet early in the process, validated preliminary results are encouraging. This progress represents an important milestone as the company moves ever closer towards completing the development of HGS product targeted to service Hy-Drive's initial primary market - high fuel use - Class 8 size highway tractors.

Hy-Drive also announces that it has entered into a non-binding Memorandum of Understanding ("MOU") with an arm's length developer of enhancements for diesel engines. Pursuant to the MOU, Hy-Drive will acquire certain intellectual property assets (the "IP Assets") from the vendor which, in turn, will be used to further refine the hydrogen control system being used within Hy-Drive's HGS product. In addition, the vendor will also be engaged to collaborate with Hy-Drive relative to further developments.

In consideration for the purchase of the IP Assets, Hy-Drive will issue the vendor 3,250,000 common shares at a price of $0.36 per share and a corresponding number of common share purchase warrants. The warrants will be issued in series, with 1,950,000 warrants exercisable at a price of $4.50 per share, 975,000 warrants exercisable at a price of $5.00, and 325,000 warrants exercisable at a price of $8.00. Warrants priced at $4.50 will be exercisable for a period of two (2) years from their date of issue, other warrants will be exercisable for a period of five (5) years from their date of issue.

In addition to a four month regulatory hold period, the securities issued upon acquisition of the IP Assets will be subject to a contractual escrow arrangement, whereby the securities will only be released from escrow to the vendor upon the satisfaction of two conditions: (1) the earlier of (i) two years from the date of issuance; or (ii) when Hy-Drive's share price exceeds $4.50 for a period of 60 consecutive days; and (2) Hy-Drive reports two consecutive quarters of revenue related to the development of technology utilizing the IP Assets. In addition, the consideration paid to the vendor will be subject to a purchase price adjustment whereby up to 80% of the securities issued to vendor may be cancelled if certain conditions are not met prior to the securities being eligible for release from escrow.

The acquisition of the IP Assets remain subject to receipt of all regulatory approvals, including that of the TSX Venture Exchange as well as the parties entering into a definitive agreement.

As previously announced Hy-Drive elected to pause broad HGS product roll-out and instead re-set pre-shipment quality control to substantially higher standards. Rigorous in-house technical test procedures for both individual components and whole HGS units are equally contributing towards the development of a more robust product. This focused approach is expected to benefit Hy-Drive customers by delivering higher product reliability.

Hy-Drive's President and C.E.O Hugo Sorensen commented that "while testing showed a range of fuel improvement with some variance from engine to engine, HGS technology demonstrated repeatable improvement in both fuel economy and reduced emissions. We recognize that these encouraging results have been long awaited however, the process has been a very cautious and disciplined approach towards better understanding engine operating performance. There is more work and diligent testing to be done however, as a result of these advances Hy-Drive is in a better position to proceed towards staged commercialization for on-highway diesel tractors."

Ongoing performance testing as well as selective expansion of customer trials will continue. The company intends to announce additional disclosure with respect to product performance following receipt of further validation test results.