Westport Reports Results for Third Quarter Ending December 31, 2004

    News Editors

    VANCOUVER, British Columbia--(BUSINESS WIRE)--Feb. 1, 2005--Westport Innovations Inc. (TSX:WPT) today reported results for its third fiscal quarter ended December 31, 2004 and provided an update on operations.

    Westport's consolidated net loss for the three months ended December 31, 2004 improved to $4.2 million ($0.06 loss per share) from $13.0 million ($0.20 loss per share) during the same period last year on consolidated revenues of $9.2 million and $7.9 million respectively. Loss per share improved by 33% from $0.09 loss per share in the previous quarter primarily because of improved product sales and gross margin. The stronger Canadian Dollar reduced revenues by approximately 8% quarter over quarter, but also had the effect of reducing US dollar expenses and warranty liabilities, resulting in a net $0.4 million in foreign exchange gain in the quarter.

    For the quarter, cash used in operations before changes in non-cash working capital improved to $2.1 million, down from $7.6 million this quarter last year. Cummins Westport Inc. (CWI), contributed approximately $1.3 million this quarter and ended 2004, its first fiscal year under the new joint venture agreement, with a $0.1 million profit on shipments of 1295 units, up approximately 16% from the prior calendar year. Excluding CWI, Westport's cash used in operations before working capital was $3.4 million for the quarter. For the nine months ended December 31, 2004, consolidated cash used in operations before working capital, was $10.5 million. At the current rate of change in this measure, the company should end the year significantly better than its annual goal of $17.5 million. As at December 31, 2004, Westport's cash, short-term investments and accounts receivable, net of accounts payable, totaled $22.8 million.

    "We are pleased with our steady and sustained success in developing our business and managing our path to profitability while continuing to advance our technology programs," said David Demers, Westport's Chief Executive Officer. "Moreover, Westport and CWI are continuing to make significant inroads into new market opportunities, particularly in Asia."

    Business Programs Update

    Cummins Westport Inc.

    In the quarter, CWI announced that Renault Trucks of France, part of the Volvo group, Europe's largest and the world's second largest truck manufacturer, launched its two newest vehicles powered by CWI natural gas engines. Targeted for refuse collection, street cleaning, and urban delivery, the vehicles will be offered by Renault through their extensive European distribution network.

    In late January, shortly after the close of the quarter, CWI received its single largest order, for 450 engines, from CWI's leading Asian customer, Beijing Public Transport Holdings Ltd (BPT). Canadian Prime Minister Paul Martin took part in the announcement of the order in Beijing. With delivery of these engines BPT will be operating over 2600 natural gas buses powered by CWI engines.

    Hugh Foden, CWI's President, commented, "I am proud of CWI's accomplishments this year and I am confident that I will be leaving CWI well positioned for global growth. Our financial results this year demonstrate the great potential of our uniquely scalable business venture."

    Guan Saw, who is currently General Manager for Cummins East Asia International Distributor Business in Beijing, has been appointed the new CWI President effective April 1.

    Westport Program Highlights

    In the quarter, Westport announced two very significant funding awards to advance its High Pressure Direct Injection (HPDI) program for heavy-duty truck engines: a US $1.5 million subcontract with the U.S. Department of Energy's National Renewable Energy Laboratory in October, and a US $1.95 million grant from California's South Coast Air Quality Management District (AQMD) in December. In announcing the award, the AQMD cited Westport's HPDI technology as an important component in the district's efforts to achieve US air quality standards.

    Dr. Michael Gallagher, Westport's President and Chief Operating Officer, said, "These new funding agreements, along with the Isuzu program funding announced in September, are major contributors to Westport's success in reducing its quarterly cash requirements by 72% compared to one year ago. We are continuing to validate the benefits and capabilities of direct injection natural gas trucks in real-world applications while building strategic relationships with customers, industry partners, and policy-makers. This strategy will allow us to enable the market for commercial products with reduced risk and greater certainty of success."

    Westport also continued to advance its hydrogen technology program in the quarter, announcing a new agreement with BMW AG of Munich Germany for supply and development tasks of hydrogen-fueled injection components.

    In China, Westport signed a Memorandum of Understanding with Beijing Sinogas Co. Ltd. and Qingdao Sino-Canada S&T Park Co. Ltd. to explore mutual opportunities to develop, market, and sell gaseous- fuelled vehicles and infrastructure solutions in China. Beijing Sinogas Co. Ltd. specializes in the construction of CNG/LNG stations and has registered subsidiaries in 15 Chinese cities. Qingdao Sino-Canada S&T Park Co. is an initiative between the National Research Council of Canada and the Ministry of Science and Technology of China, which was established to facilitate R&D collaboration between the two countries.

    Phil Hodge, Westport's Vice President responsible for China opportunities, commented, "China has recognized the immediate opportunity to use natural gas in transportation applications to reduce urban air pollution and to mitigate its economy's growing dependency on imported oil. We are encouraged by the interest in our technologies and we are in the process of building relationships to allow us to best exploit this opportunity and build shareholder value."

    Westport Innovations Inc. is the leading developer of technologies that allow engines to operate on clean-burning fuels such as natural gas, hydrogen, and hydrogen-enriched natural gas (HCNG). Westport has technology development alliances in place with Ford, MAN, BMW and Isuzu, and an ownership interest in Clean Energy, the largest provider of vehicular natural gas in North America. Cummins Westport Inc., Westport's joint venture with Cummins Inc., manufactures and sells the world's widest range of low-emissions alternative fuel engines for commercial transportation applications such as trucks and buses.

    Westport has scheduled a public conference call for Tuesday, February 1 at 8 am (Pacific Standard Time) to discuss the quarterly results. To access the conference call by telephone, please dial 1-800-936-9754 (North America) or 1-973-935-2048 (International). Alternatively, the webcast of the conference call can be accessed through the Westport web site at www.westport.com and selecting "Our Investors", and then selecting "Conference Calls & AGMs" from the top menu. Replays will be available in streaming audio on the same website shortly after the conclusion of the conference call.

    To view the financials and management's discussion and analysis, please point your browser to the following link: www.westport.com/investor/financial.php.

    Note: This document contains forward-looking statements about Westport's business, operations, technology development or to the environment in which it operates, which are based on Westport's estimates, forecasts and projections. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict, or are beyond Westport's control. Consequently, readers should not place any undue reliance on such forward-looking statements. In addition, these forward-looking statements relate to the date on which they are made. Westport disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Consolidated Financial Statements (Expressed in Canadian dollars)

WESTPORT INNOVATIONS INC.

For the three and nine months ended December 31, 2004 and 2003

WESTPORT INNOVATIONS INC. Consolidated Balance Sheets (Expressed in Canadian dollars) -------------------------------------------------------------------- -------------------------------------------------------------------- December 31, March 31, 2004 2004 -------------------------------------------------------------------- (Unaudited) Assets Current assets: Cash and cash equivalents (note 3) $ 1,277,537 $ 2,105,161 Short-term investments 20,950,554 18,678,441 Accounts receivable (note 7) 6,287,315 5,073,384 Inventory (note 2(b)) 1,594,866 - Prepaid expenses 596,399 532,848 -------------------------------------------------------------------- 30,706,671 26,389,834

Long-term investments 12,206,286 12,206,286

Equipment, furniture, and leasehold improvements 33,251,795 32,584,544 Accumulated amortization (25,977,786) (21,879,862) -------------------------------------------------------------------- 7,274,009 10,704,682

Intellectual property and other intangible assets (note 6(c)) 4,865,586 3,314,160 Accumulated amortization (3,062,018) (2,466,310) -------------------------------------------------------------------- 1,803,568 847,850

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$ 51,990,534 $ 50,148,652 -------------------------------------------------------------------- --------------------------------------------------------------------

Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 5,732,146 $ 3,743,467 Demand instalment loan 2,491,228 3,206,755 Current portion of long-term debt obligations 134,593 214,413 Current portion of warranty liability 3,862,974 3,814,163 -------------------------------------------------------------------- 12,220,941 10,978,798

Long-term debt obligations 726,406 852,561

Deferred lease inducements (note 2(c)) 859,229 189,285

Warranty liability 2,677,378 4,059,744

Shareholders' equity: Share capital: Issued: 73,889,473 (2004 - 64,340,430) common shares (note 4) 230,324,081 213,965,067 Other equity instruments (note 6) 4,996,875 3,007,665 Additional paid in capital (notes 2(a) and 5) 2,576,344 91,770 Deficit (202,390,720) (182,996,238) -------------------------------------------------------------------- 35,506,580 34,068,264 --------------------------------------------------------------------

$ 51,990,534 $ 50,148,652 -------------------------------------------------------------------- --------------------------------------------------------------------

Commitments and contingencies (note 6(c)) See accompanying notes to consolidated financial statements.

WESTPORT INNOVATIONS INC. Consolidated Statements of Operations and Deficit (Expressed in Canadian dollars) -------------------------------------------------------------------- Three months ended Nine months ended December 31 December 31 ------------------------------------------------------ 2004 2003 2004 2003 -------------------------------------------------------------------- (Unaudited) (Unaudited) (Unaudited) (Unaudited)

Product revenue $ 7,030,516 $ 7,285,570 $ 17,129,110 $ 17,091,159 Parts revenue 2,211,330 611,886 6,917,987 2,079,608 --------------------------------------------------------------------

9,241,846 7,897,456 24,047,097 19,170,767

Cost of revenues and expenses: Cost of revenues 5,692,734 5,296,710 16,422,731 12,907,057 Research and development (notes 6 and 7) 4,836,980 7,815,811 13,974,224 21,579,935 General and administrative (note 6) 966,307 1,072,025 3,941,621 3,670,083 Sales and marketing (note 6) 771,496 1,841,268 2,589,209 4,868,255 Foreign exchange gain (408,976) (355,053) (730,241) (1,189,364) Amortization 1,578,002 1,730,145 4,802,605 5,101,524 Bank charges and interest on capital leases 75,657 71,979 223,034 246,972 -------------------------------------------------------------------- 13,512,200 17,472,885 41,223,183 47,184,462 --------------------------------------------------------------------

Loss before undernoted (4,270,354) (9,575,429) (17,176,086) (28,013,695)

Interest and other income 172,791 230,558 333,435 588,200

Restructuring costs - (457,400) - (457,400) Write down of equipment, furniture, and leasehold improvements (58,678) (3,219,469) (58,678) (3,219,469)

-------------------------------------------------------------------- Loss for the period (4,156,241) (13,021,740) (16,901,329) (31,102,364)

Deficit, beginning of period as reported (198,234,479) (163,355,021) (182,996,238) (145,274,397)

Cumulative adjustment for change in accounting for stock-based compensation (note 2) - - (2,493,153) - --------------------------------------------------------------------

Deficit, beginning of period as adjusted (198,234,479) (163,355,021) (185,489,391) (145,274,397) --------------------------------------------------------------------

Deficit, end of period $(202,390,720) $(176,376,761) $(202,390,720)$(176,376,761) -------------------------------------------------------------------- --------------------------------------------------------------------

Basic and diluted loss per share $ 0.06 $ 0.20 $ 0.25 $ 0.54

Weighted average common shares outstanding 73,888,504 63,856,453 67,891,683 57,325,646

-------------------------------------------------------------------- -------------------------------------------------------------------- See accompanying notes to consolidated financial statements.

WESTPORT INNOVATIONS INC. Consolidated Statements of Cash Flows (Expressed in Canadian dollars) -------------------------------------------------------------------- Three months ended Nine months ended December 31 December 31 ------------------------------------------------------ 2004 2003 2004 2003 -------------------------------------------------------------------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Cash provided by (used in):

Operations: Loss for the period $ (4,156,241) $ (13,021,740) $ (16,901,329)$ (31,102,364) Items not involving cash: Amortization 1,578,002 1,730,145 4,802,605 5,101,524 Stock-based compensation expense (note 6(a)) 213,250 1,377 685,832 164,667 Lease inducement benefit (expense) (84,537) 137,662 25,941 137,662 Write down of equipment, furniture, and leasehold improvements 58,678 3,219,469 58,678 3,219,469 Accretion of TPC warrants (note 6(b)) 285,714 285,714 857,142 857,143 -------------------------------------------------------------------- (2,105,134) (7,647,373) (10,471,131) (21,621,899) Change in non-cash operating working capital: Accounts receiv- able (2,546,560) 2,559,147 (1,213,931) 4,230,313 Inventory (1,175,624) - (1,594,866) - Prepaid expenses and other current assets 102,415 (18,800) (63,551) (214,522) Accounts payable and accrued liabilities 1,558,705 503,675 1,988,679 (3,561,493) Warranty liability (1,045,622) 199,517 (1,333,555) (184,017) -------------------------------------------------------------------- (5,211,820) (4,403,834) (12,688,355) (21,351,618)

Investments: Purchase of equipment, furniture, and leasehold improvements (64,712) (632,924) (283,902) (2,279,694) Purchase of short-term investments, net 5,456,681 5,946,630 (2,272,113) 2,014,359 -------------------------------------------------------------------- 5,391,969 5,313,706 (2,556,015) (265,335)

Financing: Issue of common shares, net of issuance costs (34,188) (21,750) 15,248,248 22,056,047 Repayment of demand instalment loan (238,509) (153,507) (715,527) (811,403) Repayment of long-term debt obligations (36,117) (44,206) (205,975) (289,723) Leasehold inducement, net 90,000 - 90,000 - -------------------------------------------------------------------- (218,814) (219,463) 14,416,746 20,954,921 --------------------------------------------------------------------

Increase (decrease) in cash and cash equivalents (38,665) 690,409 (827,624) (662,032)

Cash and cash equivalents, beginning of period 1,316,202 1,629,558 2,105,161 2,981,999 --------------------------------------------------------------------

Cash and cash equivalents, end of period $ 1,277,537 $ 2,319,967 $ 1,277,537 $ 2,319,967 -------------------------------------------------------------------- --------------------------------------------------------------------

Supplementary information

Interest paid $ 57,402 $ 62,410 $ 153,060 $ 219,598

Non-cash transactions: Shares issued on exercise of performance share units - 1,657,338 1,003,629 1,657,338 Shares to be issued on acquisition of intellectual property and other intangible assets (note 6(c)) - - 1,551,426 - Leasehold improvements acquired through leasehold inducement 551,000 - 551,000 -

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See accompanying notes to consolidated financial statements.

WESTPORT INNOVATIONS INC. Notes to Consolidated Financial Statements (unaudited) (Expressed in Canadian dollars)

Three and nine months ended December 31, 2004 and 2003

    1. Basis of presentation:

    The unaudited consolidated balance sheet as at December 31, 2004 and the unaudited consolidated statements of operations and deficit and cash flows for the three and nine months ended December 31, 2004 and 2003 have been prepared in accordance with Canadian generally accepted accounting principles for interim financial statements. The accompanying unaudited consolidated financial statements do not include all information and footnote disclosures required under Canadian generally accepted accounting principles for annual financial statements. These financial statements have been prepared, except as disclosed in note 2(a), on a basis consistent with, and should be read in conjunction with, the consolidated financial statements and notes thereto for the fiscal year ended March 31, 2004. Certain comparative figures have been reclassified to conform with the basis of presentation adopted in the current year.

    These consolidated financial statements have been presented on a going concern basis, which assumes the realization of assets and the settlement of liabilities in the normal course of operations. To date, the Company has financed its operations primarily by equity financing and margins on the sale of products and parts. If, the Company does not have sufficient funding from internal or external sources, it may be required to delay, reduce or eliminate certain research and development programs, and forego acquisition of certain equipment. The future operations of the Company are dependent upon its ability to produce, distribute and sell an economically viable product to attain profitable operations.

    In the opinion of management, all adjustments (consisting solely of normal recurring accruals) considered necessary for a fair presentation of the financial position, results of operations and cash flows as at December 31, 2004 and for all periods presented, have been included.

    2. Accounting policies:

    a) Stock-based compensation:

    In November 2003, the Accounting Standards Board ("AcSB") amended Handbook Section 3870 - "Stock-based compensation and other Stock-based Payments". Amended HB 3870 requires that stock based compensation related to stock options granted to employees and directors be accounted for using the fair value method and recognized as stock-based compensation in results from operations over the vesting period. Effective for the Company's fiscal year beginning April 1, 2004, the Company adopted these amended recommendations of HB 3870. As permitted by HB 3870, the Company has retroactively adopted the fair value method of accounting for these awards without restatement of prior periods. Adoption of amended HB 3870 resulted in an increase to the opening deficit and share capital as of April 1, 2004 of $2,493,153 and $67,753 respectively to reflect the cumulative effect of the change on prior periods with a corresponding increase in additional paid in capital of $2,425,400. Prior to adoption of amended HB 3870, the Company recognized stock based compensation for options granted to employees and directors using the intrinsic value method which had resulted in no stock-based compensation expense related to such grants.

    b) Inventories:

    The Company's inventory consists of CWI engine products. Inventories are stated at the lower of cost, on a specific identification basis, or net realizable value.

    c) Deferred lease inducements:

    The Company renegotiated its existing long-term lease agreements for its corporate offices and research facilities in 2004 and 2005 that included certain lease inducements that are accounted for in accordance with EIC-21 "Accounting for Lease Inducements by the Lessee". These inducements included capital leasehold improvements and other costs funded by the lessor and periods with reduced rental payments. The lease inducement benefits are amortized on a straight-line basis over the term of the lease as a reduction to rental expense. Leasehold improvements acquired as part of the lease inducement are amortized over the term of the lease.

    3. Cash and cash equivalents:

    A total of $676,118 in cash has been set aside as security for certain capital lease and other long-term debt obligations. This amount will be reduced as the principal amounts owing on these obligations are paid down.

    4. Share capital:

    On September 10, 2004, the Company entered into a bought deal financing agreement with a syndicate of investment dealers for 9,000,000 units consisting of 9,000,000 common shares and 4,500,000 common share purchase warrants (the "Warrants"). The units were priced at $1.80 per unit for gross proceeds of $16,200,000 and net proceeds of $15,104,866, which is being used for research and development expenditures and general corporate purposes. On September 29, 2004, the financing successfully closed. Each Warrant entitles the holder to acquire, on or before March 29, 2006, one common share of the Company upon payment of $2.10 per share.

    5. Share purchase options:

-------------------------------------------------------------------- Nine months ended Nine months ended December 31, 2004 December 31, 2003 ------------------------ ------------------------ Share Weighted Share Weighted options average options average exercise exercise price price -------------------------------------------------------------------- Outstanding, beginning of year 3,254,688 $ 3.93 3,811,909 $ 4.61 Granted 326,810 1.98 827,473 1.60 Exercised (74,694) (1.88) (37,837) (1.50) Cancelled (1,022,230) (3.85) (1,113,299) (3.12) --------------------------------------------------------------------

Outstanding, end of year 2,484,574 $ 3.80 3,488,246 $ 3.82 -------------------------------------------------------------------- --------------------------------------------------------------------

Exercisable, end of year 2,041,751 $ 4.15 2,875,748 $ 3.95 -------------------------------------------------------------------- --------------------------------------------------------------------

    Effective April 1, 2004, the Company recognizes stock-based compensation for employees using the fair value method (note 2(a)). The Company adopted this policy retroactively without restatement. Had compensation cost for the three and nine months ended December 31, 2003 for employee share options granted on or after April 1, 2002 been determined based on fair value at the grant dates of the share options and charged to operations over the vesting period of the options consistent with the recommendations in amended HB 3870, net loss and net loss per share for the three and nine months ended December 31, 2003 would be as follows:

-------------------------------------------------------------------- December 31, 2003 ----------------------------- Three months Nine months --------------------------------------------------------------------

As reported:

Net loss $ 13,021,740 $ 31,102,364

Net loss per share Basic and diluted $ 0.20 $ 0.54

Stock-based compensation $ 1,377 $ 164,667 --------------------------------------------------------------------

Pro-forma:

Net loss $ 13,078,167 $ 31,895,742

Net loss per share Basic and diluted $ 0.20 $ 0.56

Stock-based compensation $ 57,804 $ 958,045

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

    The fair value of options granted for purposes of stock-based compensation has been determined using the Black-Scholes option pricing formula using the following weighted average assumptions: expected dividend yield - nil%; expected stock price volatility - 68.40% (2003 - 93.43%); risk free interest rate - 3.49% (2003 - 3.14%); expected life of options - 4 years (2003 - 4 years). The average fair value of options granted for the three and nine months ended December 31, 2004 was $0.87 (2003 - $1.21) and $1.11 (2003 - $1.10).

    6. Other equity instruments:

-------------------------------------------------------------------- December 31, March 31, 2004 2004 -------------------------------------------------------------------- (Unaudited)

Value assigned to performance share units (a) $ 1,445,449 $ 1,864,808 Value assigned to TPC warrants (b) 2,000,000 1,142,857 Shares to be issued (c) 1,551,426 - --------------------------------------------------------------------

$ 4,996,875 $ 3,007,665 -------------------------------------------------------------------- --------------------------------------------------------------------

    a) Share units:

    Pursuant to the Company's 2003 Share Unit Plan (the "2003 Plan"), the Company may issue up to 2,500,000 common shares with each unit ("Unit") exercisable into one common share of the Company for no additional consideration. Any employee, contractor, director or executive officer of the Company who is selected by the Board of Directors of the Company is eligible to participate in the 2003 Plan. The Executive Plan sets out provisions where the Units will be granted to the Company's executive management if specific performance milestones are achieved as established by the Human Resources and Compensation Committee in consultation with the Company's management. These performance milestones are focused on achievement of key cash management, profitability and revenue growth objectives. Each Unit vests 1/3 on the grant date and 1/3 on each anniversary thereafter for a period of two years.

    During the three and nine months ended December 31, 2004, nil and 1,197,728 Units have been granted by the Company. During the three and nine months ended December 31, 2003, nil and 78,225 Units were granted. During the three and nine months ended December 31, 2004, nil and 474,349 Units were exercised and as at December 31, 2004 there are 1,104,879 performance share units outstanding. The stock-based compensation associated with the 2003 Plan and the stock option plan (note 5), is included in operating expenses as follows:

-------------------------------------------------------------------- Three months ended Nine months ended December 31 December 31 ---------------------------------------------------- 2004 2003 2004 2003 -------------------------------------------------------------------- Research and development $ 71,820 $ 1,377 $ 176,241 $ 30,878 General and administrative 136,490 - 481,551 133,789 Sales and marketing 4,940 - 28,040 - -------------------------------------------------------------------- $ 213,250 $ 1,377 $ 685,832 $ 164,677 -------------------------------------------------------------------- --------------------------------------------------------------------

    b) TPC warrants:

    Under the terms of the agreement with Technology Partnerships Canada ("TPC"), warrants with a fair value of $4,000,000 based on the Black-Scholes pricing model will be issued on September 30, 2006. The value of the warrants is being recognized on a straight-line basis to September 30, 2006. For the three and nine months ended December 31, 2004, accretion totaling $285,714 (2003 - $285,714) and $857,142 (2003 - $857,143), respectively, has been included in research and development expenses.

    c) Shares to be issued:

    On July 3, 2002, the Company purchased substantially all of the assets of GVH Entwicklungsgesellchaft fur Verbrennungsmotoren and Energietechnik mbH ("GVH"), of Dortmund, Germany. Additional consideration relating to the GVH acquisition of up to Euros 3,850,886 (approximately $5,789,000) may be payable when three pre-defined milestones are achieved and announced. This contingent consideration was excluded from the purchase equation. Two of the three milestones relate to the issuance of patents regarding hot surface ignition. The third milestone relates to the Company entering into an agreement with an engine manufacturer to commercialize hot surface ignition technology. This contingent consideration will be paid for through the issuance of shares of the Company. The shares will be issued and priced only when the pre-defined milestones are achieved and not before July 3, 2006. If any milestone is achieved prior to July 3, 2006, the Company will accrue a corresponding amount to be paid as an increase to Intellectual Property, and as an increase to Shareholders' Equity, classified as shares to be issued. In April 2004, one of the milestones was achieved and up to Euros 962,722 ($1,551,426 Canadian) worth of shares are currently issuable after July 3, 2006. This amount has been accrued as shares to be issued with a corresponding increase in intellectual property.

    7. Research and development expenses:

    Research and development expenses are recorded net of program funding received or receivable. For the three and nine months ended December 31, 2004 and 2003, the following research and development expenses had been incurred and program funding received or receivable:

-------------------------------------------------------------------- Three months ended Nine months ended December 31 December 31 -------------------------------------------------------- 2004 2003 2004 2003 --------------------------------------------------------------------

Research and development expenses $ 5,674,637 $ 8,862,692 $ 17,888,721 $ 28,101,053 Program funding (837,657) (1,046,881) (3,914,497) (6,521,118) --------------------------------------------------------------------

Total research and development expense $ 4,836,980 $ 7,815,811 $ 13,974,224 $ 21,579,935 -------------------------------------------------------------------- --------------------------------------------------------------------

    In the three and nine months ended December 31, 2004, program funding is comprised mainly of funding from TPC, Sustainable Development Technology Canada, and National Renewable Energy Laboratory, which was used to fund research and demonstration projects including the adaptation of the Company's technology to diesel engines. In the three and nine month periods ended December 31, 2003, program funding is comprised mainly of funding from TPC which was used to fund research projects including the adaptation of the Company's technology to diesel engines. At December 31, 2004, $2,919,398 (March 31, 2004 - $2,508,874) of funding earned by the Company based on the terms of various funding agreements has not yet been received and is included in accounts receivable.

    8. Investment in Cummins Westport Inc.:

    The consolidated financial statements include the Company's 100% share of the revenues, expenses, assets and liabilities of the joint venture, Cummins Westport Inc., as follows:

-------------------------------------------------------------------- December 31, March 31, 2004 2004 -------------------------------------------------------------------- (Unaudited) Current assets: Cash and cash equivalents $ 182,011 $ 574 Accounts receivable 2,827,441 2,676,956 Inventory 1,594,866 - Prepaid expenses and other current assets 81,025 187,190 --------------------------------------------------------------------

$ 4,685,343 $ 2,864,720 -------------------------------------------------------------------- --------------------------------------------------------------------

Current liabilities: Accounts payable and accrued liabilities $ 3,589,026 $ 650,720 Current portion of warranty liability 3,862,974 3,814,163 --------------------------------------------------------------------

$ 7,452,000 $ 4,464,883 -------------------------------------------------------------------- --------------------------------------------------------------------

Long-term liabilities: Warranty liability $ 2,677,378 $ 4,059,744 -------------------------------------------------------------------- --------------------------------------------------------------------

Three months ended Nine months ended December 31 December 31 --------------------------- -------------------------- 2004 2003 2004 2003 -------------------------------------------------------------------- (Unaudited) (Unaudited) (Unaudited) (Unaudited)

Product revenue $ 6,835,492 $ 7,285,570 $ 16,439,620 $ 16,807,937 Parts revenue 2,211,330 611,886 6,917,987 2,079,607 --------------------------------------------------------------------

9,046,822 7,897,456 23,357,607 18,887,544

Cost of revenues and expenses: Cost of revenue 5,497,710 5,296,710 15,734,902 12,569,591 Research and development 1,385,372 5,159,312 5,087,341 16,218,032 General and administrative 177,865 302,679 1,007,889 670,168 Sales and marketing 672,000 1,593,509 2,494,437 3,806,575 -------------------------------------------------------------------- 7,732,947 12,352,210 24,324,569 33,264,366 --------------------------------------------------------------------

Income (loss) before undernoted 1,313,875 (4,454,754) (966,962) (14,376,822)

Write down of equipment, furniture, and leasehold improvements - (2,631,045) - (2,631,045) --------------------------------------------------------------------

Income (loss) for the period $ 1,313,875 $ (7,085,799) $ (966,962) $(17,007,867) -------------------------------------------------------------------- --------------------------------------------------------------------

    9. Segmented information:

    The Company currently operates in one operating segment which involves the research and development and related commercialization of engines and fuel systems operating on gaseous fuels. The majority of the Company's equipment, furniture and leasehold improvements are located in Canada. For the three and nine months ended December 31, 2004, 83% (2003 - 92%) and 69% (2003 - 89%) respectively of the Company's revenue was from sales in North America, 7% (2003 - 8%) and 16% (2003 - 10%) respectively from sales in China, and 10% (2003 - 0%) and 15% (2003 - 1%) respectively from the rest of the world.



    Westport Innovations Inc. (TSX:WPT)

--30--CCN/na*

CONTACT: Westport Innovations Inc. Alexis Zehr Investor Relations & Communications (604) 718-2046 Email: invest@westport.com Website: www.westport.com

KEYWORD: CALIFORNIA NEW YORK CHINA GERMANY INTERNATIONAL CANADA ASIA PACIFIC EUROPE INDUSTRY KEYWORD: AUTOMOTIVE TRANSPORTATION MANUFACTURING EARNINGS SOURCE: Westport Innovations Inc.

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