SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549
                               ------------------

                                    FORM 6-K

                        REPORT OF FOREIGN PRIVATE ISSUER

                    Pursuant to Rule 13a-16 or 15d-16 of the
                         Securities Exchange Act of 1934


                           For the month of: May 2002

                             World Heart Corporation
               (Exact name of registrant as specified in charter)

                                       N/A
                 (Translation of registrant's name into English)

                                     Ontario
                         (Jurisdiction of organization)

                     1 Laser Street, Ottawa, Ontario K2E 7V1
                    (Address of principal executive offices)

                  Registrant's telephone number: (613) 226-4278



Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.

                              Form 20-F  X     Form 40-F
                                       -----             -----


Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

                                   Yes      No   X
                                       ----    -----




If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b):82-________.


<PAGE>


This Form 6-K consists of the following:

Exhibit 1.     Annual  report of World  Heart  Corporation  for its fiscal  year
               ended December 31, 2001







<PAGE>


                                   SIGNATURES

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.


                                       World Heart Corporation


     Date: May 9, 2002                 By: /s/ Ian W. Malone
                                           -----------------------
                                           Name:  Ian W. Malone
                                           Title: Vice President Finance and
                                                  Chief Financial Officer



<PAGE>
EXHIBIT 1  -  ANNUAL REPORT










                                   WORLDHEART


[Photos of Novacor(R) LVAS,  HEARTSAVERVAD(TM) and HEARTSAVERVAD(TM) II omitted,
Photos show HEARTSAVER(TM) and HEARTSAVERVAD(TM) II fit into palm of hand]


THE PULSE OF LIFE

World Heart  Corporation  Audited  Financial  Statements  and
Management's Discussion and Analysis for the year ended December 31, 2001





<PAGE>

TABLE OF
CONTENTS
6
MESSAGE TO
SHAREHOLDERS
8
MANAGEMENT'S                            World Heart  Corporation's  goal is
STATEMENT OF                            to  become  the  world's  principal
RESPONSIBILITY AND                      provider   of   fully   implantable
AUDITORS' REPORT                        heart-assist  devices  that deliver
9                                       pulsatile  circulatory  support for
AUDITED FINANCIAL                       long-term out-of-hospital use.
STATEMENTS
33
MANAGEMENT'S
DISCUSSION
AND ANALYSIS
IBC
SHAREHOLDER
RESOURCES

WORLDHEART'S TECHNOLOGY PLATFORM
AS ILLUSTRATED ON THE FRONT PAGE
Novacor(R)LVAS (Caution: In the United States,
federal law restricts the Novacor(R)LVAS to sale
by or on the order of a physician)
HEARTSAVERVAD Not currently available,
HEARTSAVERVADII Still in development,
not currently available



<PAGE>



                                   WORLDHEART

THE PULSE OF LIFE
WorldHeart is the only medical device company exclusively committed to pulsatile
implantable  ventricular  assist devices o  Today-Novacor(R)  LVAS,  abdominally
implanted, known for its reliability and durability as it takes over part or all
of the  work of the  left  ventricle  o  Tomorrow-  HEARTSAVERVAD(TM),  the only
pulsatile LVAD to be fully implanted in the chest cavity,  designed to offer the
same long-term  performance  while  intending to reduce  infection and enhancing
user comfort and convenience o Future- HEARTSAVERVAD(TM) II, pulstaile just like
the original,  but benefiting  from  technological  advances,  that will make it
smaller, lighter and even longer-lasting.

SECOND OPINIONS
"A left  ventricular  assist  device is an  acceptable  alternative  therapy  in
selected  patients  who are not  candidates  for cardiac  transplantation."  New
England Journal of Medicine, Rose, et al 2001: 345: 1435-43.

"With a left ventricular assist system, patients often become healthier, suffer
far fewer complications and, more importantly, can live longer with a high
quality of life until a transplant is possible." Dr. Richard Pierson, Associate
Professor of Surgery in Cardiac and Thoracic Surgery, Vanderbilt University
Medical Center press release, December 12, 2001.

"[The Novacor(R) LVAS] is the most durable artificial heart that's come along.
It has the best record for long-term patient support." Jack G. Copeland, MD,
University of Arizona, Advances in Heart Assist Devices News Conference, April
4, 2002.

"We've learned a lot from bridge-to-transplant procedures and now we are looking
at the viability of long-term use. This will all lead to better and better heart
pumps,  which are smaller,  quieter and more  comfortable."  Dr.  Renzo  Cecere,
Surgical  Director,  McGill University Health Centre.  Press release,  March 12,
2002

HEART OF GOLD
In 1999, swimmer R.J. Brack was eighteen and training hard to realize his
Olympic dream when he began having breathing difficulties. RJ had developed a
heart abnormality and, in February 2000, RJ went into cardiac arrest. He almost
died. To save his life, a Novacor(R) LVAS was implanted and took over pumping
for his damaged heart. Three months later, RJ received a heart transplant.
Barely six weeks after the transplant, RJ was back in the pool, sights once
again set on gold. In 2001, he competed in the World Transplant Games and won
five gold medals. RJ's spirited determination helped him turn dreams into
reality.

LIVING LONG TERM WITH AN LVAS
In 1981, Jack Fawbush was diagnosed with congestive heart failure. Over the next
twenty years, his condition deteriorated until he was bedridden. " If I had
stayed in hospital on medication, " says Jack, " I might have lived four months.
" He had two options: become a participant in the INTrEPID trial, which would
enable him to receive a Novacor(R) LVAS for long-term support--or die. As a
67-year-old great-grandfather, Jack decided he had a lot more living to do. He
received his life-saving implant in July 2001. Now he's out of hospital working
his farm and enjoying what's closest to his heart--his family.

SETTING THE PACE
Pete Kenyon had been perilously close to death before a Novacor(R) LVAS was
implanted at Yale-New Haven Hospital. The device functioned so well he was able
to leave the hospital, return to work and lead a normal life. For more than
three years, the Novacor(R) LVAS kept him healthy and active while he waited for
a heart transplant. In January 2002, Pete returned to the operating room for a
successful transplant. That makes him a United States record-breaker--the person
who has lived the longest with a heart-assist device. " The Novacor(R) kept me
alive, " he says " For me it was literally the difference between life and
death. "


<PAGE>




"Many  hormonal  and  neurological  connections  between the
heart and the rest of the body are  dependent  on the pulse.
We don't yet know what the brain, kidneys, liver and muscles
are going to do without a pulse."
Dr. Alan Gass,  Director  of  Transplant  Cardiology,  Mount
Sinai Medical Center, New York.  Maclean's  Magazine,  March
25th, 2002


                             MESSAGE TO SHAREHOLDERS

World Heart Corporation (WorldHeart) is dedicated to being the leading provider
of implantable, pulsatile left ventricular assist devices for long-term use by
patients suffering from heart failure. WorldHeart believes that patient comfort
and convenience can be achieved without the trade-off of giving up pulsatile
flow from the device. The family of WorldHeart products, Novacor(R) LVAS (left
ventricular assist system), HeartSaverVAD(TM) (ventricular assist device), and
HeartSaverVAD(TM) II, are designed to provide reliable therapy today, tomorrow
and in the future that supports the body with a pulsing flow of blood matching
the flow of a healthy natural heart.

The year 2001 was the first full year of operation of WorldHeart following the
integration of the Novacor Division of Edwards Lifesciences LLC (Edwards) during
the second half of 2000. This acquisition and the resulting strategic alliance
with Edwards were intended to support the completion of HeartSaverVAD(TM), and
its introduction to the market. The Novacor(R) LVAS was seen as a high quality
device, but with limited market potential.

As the performance of Novacor(R) LVAS and competing devices have been assessed
by WorldHeart, it has become clear that Novacor(R) LVAS is unique in the market
for its reliability, durability and predictability of wear. These
characteristics provide the recipient with a high probability of years of
support without the need for device replacement, and the ability to schedule the
replacement when it is ultimately required, minimizing risks of that procedure.
More than 1,300 patients had received Novacor(R) LVAS by the end of 2001.
Ninety-six of these patients had lived on Novacor(R) LVAS for more than one
year, some for as many as four years. No deaths have ever resulted from device
failure and only 1.3% of pumps have been replaced.

Novacor(R) LVAS is approved without restriction for use by heart failure
patients in Europe, and during 2001 was approved as alternative to transplant in
Japan. It is approved for bridge-to-transplant in the United States, Canada and
a number of other countries. A clinical trial, named INTrEPID (Investigation of
Non-Transplant Eligible patients), was commenced in the United States in March
2000 to support approval as alternative to medical therapy. As the clinical
performance data for Novacor(R) LVAS increased in both numbers and length of
use, and as the limitations of alternative products became more apparent,
WorldHeart decided to invest in expansion of the Novacor(R) LVAS market position
through four actions:

     o    acceleration  of  enrollment  in INTrEPID and expansion of INTrEPID to
          Canada;

     o    development  of  an  inflow  cannulae,  called  ePTFE,  with  improved
          biocompatibility;



<PAGE>



     o    investment in enhancements of the external elements of Novacor(R) LVAS
          to improve patient comfort and convenience,  including smaller, longer
          lasting batteries and more attractive carrying apparel; and


     o    increased  marketing  and sales  focus on long term use of  Novacor(R)
          LVAS within approvals in each market.

Revenues from Novacor(R) LVAS doubled for 2001 over 2000. The impact on revenues
from the investment program of 2001 will be felt in 2002 and following years.
INTrEPID enrollment increased to 37 during the year, including 23 device
recipients and 14 controls. Results were consistent with the study design, and
an increase in enrollment to 55 was authorized by the U.S. Food and Drug
Administration (FDA) early in 2002.

HeartSaverVAD(TM) continued to be the primary focus of research and development
investment in 2001. This product has maintained its unique position in the
competitive landscape, being the only product that is pulsatile, fully
implantable in the chest, and remotely monitored and controlled. Additional
development was required in 2001 to create implanted cables and connectors that
are fully protected against the effects of body fluids during long-term
implantation. The resulting delay in bringing HeartSaverVAD(TM) to trials set
back the expectation of revenue by a year, but there is no indication that the
unique position of HeartSaverVAD(TM) has been challenged.

Refinements in the design and production  systems for the implantable cables and
connectors  continued  through  the year,  with  availability  to  manufacturing
achieved in the first quarter of 2002.  This program  required six months longer
than had been estimated,  reflecting the unique demands of the nature and extent
of power and two-way data flow within  constraints  designed to maintain patient
comfort while achieving maximum reliability.

During the year, manufacturing capacity for HeartSaverVAD(TM) was developed
using Ottawa and Oakland facilities. Production processes and quality control
systems were refined to minimize any gap between release of final cables and
connectors, and the ability to produce high quality product in the required
quantities.

Performance and biocompatibility of HeartSaverVAD(TM) was tested in a series of
in vivo trials, including 17 calves living with the device for periods from 13
to 92 days. The results of these tests were highly satisfactory in key areas,
including thrombosis and hemolysis, and the consistent performance of the device
in matching the physiological demands of the body.

We are disappointed that the time to bring HeartSaverVAD(TM) to clinical trials
was set back a year. However, we are very confident in the quality of the
product being produced and our ability to bring it through pre-clinical trials
and clinical trials. Competitors appear to have chosen to give up delivering a
pulse as the offset to achieving size reduction and associated patient comfort
and convenience. WorldHeart is confident that we will deliver patient comfort
and convenience and provide fully pulsatile flow that matches the ever-changing
needs of the human body.

The early designs of HeartSaverVAD(TM) II, our next generation device to follow
HeartSaverVAD(TM), were evaluated during 2001. HeartSaverVAD(TM) II will be
fully pulsatile, thoracically implantable and remotely monitored and controlled.
It will, however, be significantly smaller, will require smaller and lighter
batteries and will be even longer lasting. This next-generation product is
expected to follow HeartSaverVAD(TM) clinical introduction by about three years.




<PAGE>



The people of WorldHeart bring the highest level of capability and commitment to
the work of building the leader in the delivery of safe, effective and
convenient heart assist devices to those who suffer from heart failure. On
behalf of shareholders, we extend to them our thanks. The shareholders of
WorldHeart have provided to all of us in the Corporation the resources to
succeed. On behalf of the people of WorldHeart, we make to you a commitment to
deliver to the maximum of our abilities.

/s/ Roderick M. Bryden                       /s/ Tofy Mussivand

Roderick M. Bryden                           Dr. Tofy Mussivand
President & Chief Executive Officer          Chairman & Chief Scientific Officer




<PAGE>


Management's Statement of Responsibility

Management is responsible for the preparation of the consolidated financial
statements and all other information in the annual report. The financial
statements have been prepared in accordance with Canadian generally accepted
accounting principles ("GAAP") and reflect management's best estimates and
judgments. The financial information presented elsewhere in the annual report is
consistent with the consolidated financial statements.

Management has developed and maintains a system of internal controls to provide
reasonable assurance that all assets are safeguarded and to facilitate the
preparation of relevant, reliable and timely financial information. Consistent
with the concept of reasonable assurance, the Corporation recognizes that the
relative cost of maintaining these controls should not exceed their expected
benefits.

The Audit Committee, which is comprised of independent directors, reviews the
financial statements, considers the report of the external auditors, assesses
the adequacy of the Corporation's internal controls, and recommends to the Board
of Directors the independent auditors for appointment by the shareholders. The
financial statements were reviewed by the Audit Committee and approved by the
Board of Directors.

The consolidated financial statements were audited by PricewaterhouseCoopers
LLP, the external auditors, in accordance with generally accepted auditing
standards on behalf of the shareholders.

/s/  Roderick M. Bryden                     /s/  Ian W. Malone

Roderick M. Bryden                          Ian W. Malone
President                                   Chief Financial Officer



Auditors' Report to the Shareholders of World Heart Corporation

We have audited the consolidated balance sheets of World Heart Corporation as at
December 31, 2001 and 2000, and the consolidated statements of loss,
shareholders' equity and cash flows for the years ended December 31, 2001, 2000
and 1999. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards
in both Canada and the United States. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Corporation as at December 31,
2001 and 2000 and the results of its operations and its cash flows for the years
ended December 31, 2001, 2000 and 1999 in accordance with Canadian generally
accepted accounting principles.


/s/  PricewaterhouseCoopers LLP

Pricewaterhouse Coopers LLP
Chartered Accountants
Ottawa, Canada
February 1, 2002



<PAGE>



<TABLE>
<CAPTION>
WORLD HEART CORPORATION
Consolidated Balance Sheets
(Canadian Dollars)
<S>                                                              <C>                 <C>

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

                                                                December 31,         December 31,
                                                                        2001                 2000
-------------------------------------------------------------------------------------------------------------
 ASSETS

 Current assets
  Cash and cash equivalents (note 2)                           $15,345,159            23,624,549
  Short-term investments (note 2)                                6,881,300            22,696,677
  Accounts receivable and other (net of
      allowance for doubtful accounts of $81,800,
      1999 - $100,912) (note 13)                                 4,041,966             2,515,373
  Tax credit receivable (note 3)                                 2,770,000                     -
  Prepaid expenses                                                 698,376               690,122
  Inventory (note 4)                                             8,117,621             9,966,873
                                                              ----------------------------------
                                                                37,854,422            59,493,594
 Cash pledged as collateral for capital lease (note 15)                  -               226,316
 Capital assets (note 5)                                         5,293,824             6,263,544
 Goodwill and other intangible assets (note 6)                  34,734,872            49,941,394
                                                              ----------------------------------

                                                               $77,883,118          $115,924,848
                                                              ==================================

 LIABILITIES AND SHAREHOLDERS' EQUITY

 Current liabilities
  Accounts payable and accrued liabilities (note 13)           $ 9,514,115             6,522,676
  Accrued compensation                                           1,979,902             1,792,925
  Current portion of capital lease (note 15)                       162,487               150,933
                                                              ----------------------------------
                                                                11,656,504             8,466,534
 Future income taxes (note 11)                                           -             4,828,672
 Preferred shares (note 8)                                      65,684,726            55,211,759
 Capital lease obligation (note 15)                                 63,829               226,316
                                                              ----------------------------------
                                                                77,405,059            68,733,281
                                                              ----------------------------------

 Contingencies and commitments (note 14)

 Shareholders' equity
 Common stock
  Issued and outstanding - 14,943,127 common shares
     (2000 - 15,117,427 common shares) (note 9)                 72,902,159            73,752,739
 Special warrants and rights (note 9)                           18,306,665                     -
 Contributed surplus (note 9)                                   38,885,336            36,951,336
 Accumulated deficit                                          (129,616,101)          (63,512,508)
                                                              -----------------------------------
                                                                   478,059            47,191,567
                                                              -----------------------------------


                                                               $77,883,118           $115,924,848
                                                              ===================================

</TABLE>
 Signed on behalf of the Board of Directors
  Original signed by Roderick M. Bryden and Ian Malone


/s/ Roderick M. Bryden                    /s/ Ian W. Malone
----------------------                    --------------------
Director                                  Director



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


<PAGE>


<TABLE>
<CAPTION>
WORLD HEART CORPORATION
Consolidated Statements of Loss
(Canadian Dollars)




                                             Year ended         Year ended             Year ended
                                           December 31,        December 31,           December 31,
                                                   2001               2000                   1999
-------------------------------------------------------------------------------------------------------

<S>                                       <C>                    <C>                  <C>
Revenue                                   $8,252,624           $  4,674,485           $            -
                                        ---------------------------------------------------------------

Cost of goods sold
   Direct materials and labour            (3,925,702)            (2,443,610)                       -
   Overhead and other                     (4,361,356)            (4,825,735)                       -
                                        ---------------------------------------------------------------

                                          (8,287,058)            (7,269,345)                       -
                                        ---------------------------------------------------------------


Gross margin                                 (34,434)            (2,594,860)                       -
                                        ---------------------------------------------------------------



Expenses
   Selling, general and administrative   (13,258,320)            (6,760,277)              (5,629,074)
   Research and development              (33,594,623)           (18,395,885)             (13,034,576)
   Amortization of intangibles           (15,209,647)            (7,491,865)                  (8,000)
                                        ---------------------------------------------------------------
                                         (62,062,590)           (32,648,027)             (18,671,650)
                                        ---------------------------------------------------------------


Loss before the undernoted               (62,097,024)           (35,242,887)             (18,671,650)

Other income (expenses)
   Foreign exchange gain (loss)           (2,913,150)               (16,686)                  58,948
   Investment income                       1,209,125              2,380,983                1,169,961
   Interest expense                       (6,853,763)            (3,049,792)                       -
                                        ---------------------------------------------------------------

Loss before income taxes                 (70,654,812)           (35,928,382)             (17,442,741)

Recovery of future income taxes (note 11)  4,988,244              5,542,960                        -
                                        ---------------------------------------------------------------

Net loss for the year                   $(65,666,568)          $(30,385,422)          $  (17,442,741)
                                        ===============================================================



Weighted average number of common
  shares outstanding (note 10)            15,069,229             14,878,625               13,463,943
                                        ===============================================================

Basic and diluted loss per common share  $     (4.36)          $      (2.04)          $       (1.30)
                                        ===============================================================

</TABLE>



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


<PAGE>






WORLD HEART CORPORATION
Consolidated Statements of Shareholders' Equity
(Canadian Dollars)

<TABLE>
CAPTION>



                                                             Common Stock           Special Warrants and Rights
                                                       Number           Amount          Number         Amount
---------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>            <C>              <C>             <C>
Balance as at December 31, 1998                      12,243,000     $ 30,347,768              -      $       -

Share issues
 Public offering                                      1,780,548       26,548,107              -              -
 Common shares through exercise of options                4,794           42,411              -              -
 Common shares through exercise of warrants             122,197          800,510              -              -

Net loss for the year ended December 31, 1999                 -                -              -              -
                                               ----------------------------------------------------------------------

Balance as at December 31, 1999                      14,150,539       57,738,796              -              -

Value of conversion right attached to
preferred shares (note 8)                                     -                -              -              -
Share issues
 Public offering                                        850,000       15,132,742              -              -
 Common shares through exercise of options               12,282          116,147              -              -
 Common shares through exercise of warrants             104,606          765,054              -              -

Net loss for the year ended December 31, 2000                 -                -              -              -
                                               ----------------------------------------------------------------------

Balance as at December 31, 2000                      15,117,427       73,752,739              -              -
Special warrants issued through private
  placements                                                  -                -      3,027,000     14,886,649
Rights issued through private placement                       -                -        637,000      3,420,016
Warrants issued in connection with government
  grant (note 7)                                              -                -              -              -
Stock options issued for services                             -                -              -              -
Warrants issued for services                                  -                -              -              -
Expired warrants                                              -                -              -              -
Share repurchase                                       (174,300)        (850,580)             -              -
Net loss for the year ended December 31, 2001                 -                -              -              -
                                               ----------------------------------------------------------------------

Balance as at December 31, 2001                      14,943,127     $ 72,902,159      3,664,000   $ 18,306,665
                                               ======================================================================

</TABLE>


<TABLE>
<CAPTION>
                                                                   Warrants,
                                                  Warrants         Options
                                                  and Options    and Contributed    Accumulated     Shareholders'
                                                     Number           Surplus        Deficit            Equity
-----------------------------------------------------------------------------------------------------------------
<S>                                                <C>             <C>             <C>               <C>
Balance as at December 31, 1998                         519,300    $       -       $(15,684,345)  $ 14,663,423

Share issues
 Public offering                                              -            -                  -     26,548,107
 Common shares through exercise of options                    -            -                  -         42,411
 Common shares through exercise of warrants            (147,749)           -                  -        800,510

Net loss for the year ended December 31, 1999                 -            -        (17,442,741)   (17,442,741)
                                             --------------------------------------------------------------------

Balance as at December 31, 1999                         371,551            -        (33,127,086)    24,611,710

Value of conversion right attached to
preferred shares (note 8)                                     -   36,951,336                  -     36,951,336
Share issues
 Public offering                                         85,000            -                  -     15,132,742
 Common shares through exercise of options                    -            -                  -        116,147
 Common shares through exercise of warrants            (112,280)           -                  -        765,054

Net loss for the year ended December 31, 2000                 -            -        (30,385,422)   (30,385,422)
                                             --------------------------------------------------------------------

Balance as at December 31, 2000                         344,271   36,951,336        (63,512,508)    47,191,567
Special warrants issued through private
  placements                                            157,490            -                  -     14,886,649
Rights issued through private placement                       -            -                  -      3,420,016
Warrants issued in connection with government
  grant (note 7)                                        650,000    1,200,000                  -      1,200,000
Stock options issued for services                        34,243      197,000                  -        197,000
Warrants issued for services                            130,000      537,000                  -        537,000
Expired warrants                                       (224,271)           -                  -              -
Share repurchase                                              -            -           (437,025)    (1,287,605)
Net loss for the year ended December 31, 2001                 -            -        (65,666,568)   (65,666,568)
                                             --------------------------------------------------------------------

Balance as at December 31, 2001                  $    1,091,733 $ 38,885,336     $ (129,616,101)   $   478,059
                                             ====================================================================




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

</TABLE>


<PAGE>



WORLD HEART CORPORATION
Consolidated Statements of Cash Flow
(Canadian Dollars)

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------------------
                                                                        Year ended          Year ended           Year ended
                                                                      December 31,        December 31,         December 31,
                                                                              2001                2000                 1999
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                  <C>                 <C>
CASH FLOWS FROM (USED IN)

Operating activities
      Net loss for the year                                      $ (65,666,568)       $ (30,385,422)      $    (17,442,741)
      Items not involving cash -
         Amortization and depreciation                              17,339,528            8,702,580                346,938
         Interest on preferred shares                                6,853,763            3,049,792                      -
         Recovery of future income taxes                            (4,988,244)          (5,542,960)                     -
         Exchange loss on preferred shares                            3,047,835             531,035                      -
         Expenses paid by issuance of options                           734,000                   -                      -
      Net change in operating components of working                   2,056,797           2,021,194                458,493
        capital (note 16)                                        -------------------------------------------------------------
                                                                    (40,622,889)        (21,623,781)           (16,637,310)
                                                                 --------------------------------------------------------------

Investing activities
      Purchase of short-term investments                             (7,381,300)        (90,093,497)           (28,301,236)
      Redemption of short-term investments                           23,196,677          81,077,529             23,191,626
      Payment of expenses relating to the Novacor acquisition                 -          (1,684,689)                     -
      Purchase of capital assets                                     (1,205,121)           (902,398)              (246,620)
      Reduction in collateral pledged for capital lease                 226,316             150,931                140,197
                                                                 --------------------------------------------------------------
                                                                     14,836,572         (11,452,124)            (5,216,033)
                                                                 --------------------------------------------------------------

Financing activities
      Capital lease repayments                                         (150,933)           (140,195)              (130,227)
      Issuance of common shares and/or special
        warrants through public offering                             16,654,418          15,331,875             27,616,299
      Payment of expenses relating to the issue of
          common shares and/or special warrants                      (1,690,672)           (199,133)            (1,068,192)
      Issuance of preferred shares                                            -          29,612,000                      -
      Investment by third party in subsidiary                         3,465,501                   -                      -
      Repurchase of common shares                                    (1,287,605)                  -                      -
      Issuance of common shares through exercise of options                   -             116,147                 42,411
      Issuance of common shares through exercise of warrants                  -             765,054                800,510
                                                                 --------------------------------------------------------------
                                                                     16,990,709          45,485,748             27,260,801
                                                                 --------------------------------------------------------------

Effect of exchange rate changes on cash and cash equivalents            516,218             245,307                      -
                                                                 --------------------------------------------------------------

Increase (decrease) in cash and cash equivalents for the year        (8,279,390)         12,655,150              5,407,458
Cash and cash equivalents beginning of the year                      23,624,549          10,969,399              5,561,941
                                                                 --------------------------------------------------------------

Cash and cash equivalents end of the year                        $   15,345,159      $   23,624,549       $     10,969,399
                                                                 ==============================================================


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

</TABLE>


<PAGE>


1.  Significant Accounting Policies

(a) Basis of presentation

These consolidated financial statements have been prepared by management in
accordance with accounting principles generally accepted in Canada (GAAP), and
include all assets, liabilities, revenues and expenses of World Heart
Corporation (Corporation or WorldHeart) and its subsidiaries.

These principles also conform in all material respects with accounting
principles generally accepted in the United States (US GAAP) except as described
in Note 20.

(b) Nature of operations

The Corporation develops artificial heart technologies through operations in
Oakland, California, United States and Ottawa, Ontario, Canada. WorldHeart is
currently focused on two technologies, Novacor(R) LVAS (Novacor LVAS), which is
currently in commercial production and the HeartSaver Ventricular Assist Device
(HeartSaver), which is currently under development.

The HeartSaver is being developed from licensed artificial heart and related
technologies developed by the Cardiovascular Devices Division (CVD) of the
Ottawa Heart Institute Research Corporation.

On July 11, 1996, with effect at April 1, 1996, the Corporation entered into a
research agreement with CVD (Research Agreement) under which the Corporation
agreed to fund a substantial portion of CVD's remaining research efforts
relating to HeartSaver artificial heart technology, and all of the costs related
to the commercialization of the technology. In exchange, the Corporation has
acquired joint ownership with CVD of any technology arising from CVD's research
pursuant to the Research Agreement after May 15, 1996. CVD has also granted the
Corporation an exclusive twenty-five year license to market the product and
certain other related technologies for an initial license fee of $200,000 and
royalties of 7%.

On June 30, 2000 the Corporation acquired Edwards Novacor LLC (Novacor) from
Edwards Lifesciences LLC (Edwards). As a result of this acquisition, WorldHeart
manufactures and distributes the Novacor LVAS.

(c) Use of estimates

The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.

(d) Cash equivalents and short-term investments

Cash equivalents are defined as highly liquid investments with maturities at
acquisition of three months or less. Short-term investments are those with terms
to maturity in excess of three months but less than one year. All cash
equivalents and short-term investments are classified as available for sale.

(e) Inventory

Inventory of raw materials and work in progress is valued at the lower of
average cost and replacement cost. Finished goods are valued at the lower of
average cost and net realizable value.


<PAGE>


(f) Investment tax credits

Investment tax credits, which are earned as a result of qualifying research and
development expenditures, are recognized when the expenditures are made and
their realization is reasonably assured, and are applied to reduce related costs
and expenses in the year.

(g) Capital assets

Capital assets are recorded at cost. Amortization is calculated using the
following rates and bases:

Furniture and fixtures                  20% declining balance
Computer equipment and software         30% declining balance
Manufacturing and research equipment    20% declining balance
Leased equipment                        Straight-line over the lease term
Leasehold improvements                  Straight-line over the lease term

The carrying value of capital assets is assessed annually and/or when factors
indicating a possible impairment are present. If an impairment is determined to
exist, the assets are reported at the lower of carrying value or net recoverable
amount.

(h) Goodwill and other intangible assets

Goodwill and intangible assets are amortized on a straight-line basis. Goodwill
is amortized over its estimated useful life of 5 years. Other intangible assets,
consisting of purchased technology, patents, trademarks and other identified
rights, are amortized over their legal or estimated useful lives, whichever is
shorter, which generally ranges from 3 to 5 years.

The Corporation's policy is to review the carrying amounts of goodwill and other
intangible assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Such events or circumstances
might include a significant decline in market share, a significant decline in
profits, rapid changes in technology, significant litigation or other items. In
evaluating the recoverability of goodwill and other intangible assets,
management's policy is to compare the carrying amounts of such assets with the
undiscounted estimated future operating cash flows. In the event an impairment
exists, an impairment charge would be determined by comparing the carrying
amounts of the asset to the applicable undiscounted estimated future cash flows.
In addition, the remaining amortization period for the impaired asset would be
reassessed and revised if necessary.

(i) Income taxes

Income taxes are provided for using the liability method whereby future tax
assets and liabilities are recognized using current tax rates on the difference
between the financial statement carrying amounts and the respective tax basis of
assets and liabilities. The Corporation provides a valuation allowance on future
tax assets when it is more likely than not that such assets will not be
realized.

(j) Common stock

Common stock is recorded as the net proceeds received on issuance after
deducting all share issue costs.


<PAGE>


(k) Revenue recognition

Revenue from product sales is recognized when all of the following criteria are
met: persuasive evidence of an agreement exists, delivery has occurred, the
price is fixed and determinable and collection is reasonably assured. The
Corporation provides for returns based on prior experience.

(l) Stock-based compensation

The Corporation has a stock option plan as described in Note 9. No compensation
expense is recognized when capital stock or stock options are issued to
employees. Any consideration paid by employees on exercise of stock options or
purchase of capital stock is credited to share capital.

Stock options issued in lieu of cash to non-employees for services performed are
expensed at the value of the options at the time they are issued, which is their
fair value.

(m) Research and development costs

Research costs, including research performed under contract by third parties,
are expensed as incurred. Development costs are also generally expensed as
incurred unless such costs meet the criteria under GAAP for deferral and
amortization. To qualify for deferral, the costs must relate to a technically
feasible, identifiable product that the Corporation intends to produce and
market, there must be a clearly defined market for the product and the
Corporation must have the resources, or access to the resources, necessary to
complete the development. The Corporation has not deferred any such development
costs to date.

(n) Government assistance

Government assistance is recognized when the expenditures that qualify for
assistance are made and the Corporation has complied with the conditions for the
receipt of government assistance. Government assistance is applied first to
reduce the carrying value of any assets and next to reduce eligible expenses
incurred in the year. A liability to repay government assistance, if any, is
recorded in the period when the conditions arise that cause the assistance to
become repayable.

(o) Foreign currency translation

Monetary assets and liabilities denominated in foreign currencies are translated
into Canadian dollars at exchange rates prevailing at the balance sheet date.
Non-monetary items and any related amortization of such items are translated at
the rates of exchange in effect when the assets were acquired or obligations
occurred. All other income and expense items are translated at average exchange
rates prevailing during the year. Exchange gains and losses are included in net
loss for the year.

Translation of the financial statements of integrated foreign operations are
translated in accordance with the policies noted above.


<PAGE>


2.  Cash and Cash Equivalents and Short-Term Investments

The Corporation's cash equivalents and short-term investments consist of highly
liquid, highly rated financial instruments. These cash equivalents and
short-term investments are held with four Canadian financial institutions. The
Corporation has established guidelines relative to credit ratings,
diversification, and terms to maturity designed to mitigate this risk and
provide safety and liquidity:

<TABLE>
<CAPTION>
                                                   2001                                2000
                                     ------------------------------------------------------------------------

                                           Cash and                             Cash and
                                               Cash        Short-term               Cash         Short-term
                                        Equivalents        Investments       Equivalents        Investments
                                     ------------------------------------------------------------------------

<S>                                  <C>                  <C>               <C>                <C>

Cash                                   $  4,016,860         $         -     $  2,772,693        $          -

Asset backed notes held                                               -
  with financial institutions            11,328,299                           18,566,191          11,796,841

Corporate securities                              -           6,881,300        2,511,981          10,899,836
                                      ----------------------------------------------------------------------
                                         15,345,159           6,881,300       23,850,865          22,696,677

Cash pledged as collateral
  for capital lease                               -                   -         (226,316)                  -
                                      ----------------------------------------------------------------------

                                       $ 15,345,159         $ 6,881,300     $ 23,624,549        $ 22,696,677
                                      ======================================================================

</TABLE>


3.  Tax Credit Receivable

Starting in the third quarter of fiscal 2001, the Corporation recorded an
Ontario Business Research Institute (OBRI) tax credit receivable of $2,770,000.
This research tax credit was applied to reduce research and development expenses
during the quarter. The province of Ontario permits this refundable tax credit
for scientific research and development expenditures incurred in the province as
part of an eligible research institute contract. This tax credit is subject to
review and acceptance by the Ontario Ministry of Finance.

4.  Inventory

                                            2001                   2000
                                    --------------------------------------------

    Raw materials                     $ 2,226,013            $ 4,614,224
    Work in progress                    3,359,268              2,742,580
    Finished goods                      2,532,340              2,610,069
                                    --------------------------------------------

                                      $ 8,117,621            $ 9,966,873
                                    ============================================



<PAGE>


5.  Capital Assets

<TABLE>
<CAPTION>
                                                                       2001
                                                 -------------------------------------------------------------
                                                                              Accumulated            Net Book
                                                               Cost          Amortization               Value
                                                 -------------------------------------------------------------
<S>                                              <C>                         <C>                  <C>

    Furniture and fixtures                              $   651,794           $   264,813         $   386,981
    Computer equipment and software                       2,007,386               698,462           1,308,924
    Manufacturing and research equipment                  5,999,479             2,480,656           3,518,823
    Leasehold improvements                                  753,042               673,946              79,096
                                                 -------------------------------------------------------------

                                                        $ 9,411,701           $ 4,117,877         $ 5,293,824
                                                 =============================================================

</TABLE>


<TABLE>
<CAPTION>
                                                                       2000
                                                 -------------------------------------------------------------
                                                                              Accumulated            Net Book
                                                               Cost          Amortization               Value
                                                 -------------------------------------------------------------
<S>                                              <C>                         <C>                  <C>
    Furniture and fixtures                              $   706,579           $   173,633         $   532,946
    Computer equipment and software                       1,329,781               286,404           1,043,377
    Manufacturing and research equipment                  5,500,269             1,135,153           4,365,116
    Leasehold improvements                                  735,685               413,580             322,105
                                                 -------------------------------------------------------------

                                                        $ 8,272,314           $ 2,008,770         $ 6,263,544
                                                 =============================================================

</TABLE>

6.  Goodwill and Other Intangible Assets

<TABLE>
<CAPTION>
                                                                                     2001
                                                 --------------------------------------------------------------
                                                                               Accumulated            Net Book
                                                               Cost            Amortization               Value
                                                 --------------------------------------------------------------
<S>                                              <C>                         <C>                  <C>
   Purchased technology                                $ 17,043,321           $  7,853,793         $  9,189,528
   Other intangible assets                               18,454,585              9,084,760            9,369,825
   Goodwill                                              21,941,116              5,765,597           16,175,519
                                                 --------------------------------------------------------------

                                                       $ 57,439,022           $ 22,704,150         $ 34,734,872
                                                 ==============================================================

</TABLE>


<PAGE>

<TABLE>
<CAPTION>
                                                                                   2000
                                                 --------------------------------------------------------------
                                                                              Accumulated            Net Book
                                                               Cost           Amortization               Value
                                                 --------------------------------------------------------------
<S>                                              <C>                         <C>                  <C>
   Purchased technology                                $ 17,043,321           $ 2,617,932         $ 14,425,389
   Other intangible assets                               18,454,585             3,050,920           15,403,665
   Goodwill                                              21,941,116             1,828,776           20,112,340
                                                 -------------------------------------------------------------

                                                       $ 57,439,022           $ 7,497,628         $ 49,941,394
                                                 =============================================================

</TABLE>

7.  Technology Partnerships Canada Grant

On November 2, 2001, the Corporation was approved for a grant from Technology
Partnerships Canada ("TPC"). The amount to be received pursuant to this grant is
equal to the lesser of $9.98 million and 31.1% of the eligible costs incurred by
the Corporation in connection with the prototype development and clinical trials
of HeartSaverVAD. These costs are subject to review and acceptance by Industry
Canada. The Corporation is required to pay TPC a royalty equal to 1% of gross
revenues from the first version of HeartSaverVAD for a period of six years from
commencement of commercial sales. If by the end of this period cumulative
royalties have not reached $19.7 million, the royalty period will continue for a
further four years, or until cumulative royalties are $19.7 million, whichever
occurs first. The royalties are payable from sales of the product. As part of
this agreement, TPC received warrants for 650,000 common shares of WorldHeart,
exercisable until December 4, 2006 at an exercise price of $6.61 per share.

At December 31, 2001, no warrants had been exercised. The Corporation has
recorded the warrants at their fair value, which is estimated to be $2.5
million.

During the quarter ended December 31, 2001, the Corporation recognized $1.2
million as receivable from TPC relating to the prototype development and
clinical trials of HeartSaverVAD.

8.  Preferred Shares

(a) Authorized

Authorized preferred stock of the Corporation consists of an unlimited number of
shares issuable in series.

(b) Issued

On June 30, 2000 the Corporation issued redeemable, convertible preferred shares
to Edwards Lifesciences LLC (Edwards) for US$20.0 million that are convertible
at Edward's option after June 30, 2006 into 1,374,570 common shares
(representing a per share conversion price of US $14.55), plus additional common
shares for the accumulated but unpaid dividends to the date of conversion,
without payment of additional consideration. These preferred shares are
non-voting except that Edwards can


<PAGE>

elect one director of the Corporation. These shares are callable for cash at the
face amount plus accumulated but unpaid dividends at the Corporation's option at
any time up to June 30, 2007, at which time they are mandatorily redeemable for
the face amount of US$20.0 million plus accumulated dividends. Dividends
accumulate at 5% per year for the first three years and 10% per year for years
four through seven.

Also on June 30, 2000, World Heart Inc. issued redeemable, cumulative
participating Series A preferred shares to Edwards in connection with the
Corporation's acquisition of Novacor. These Series A shares are non-voting.
Dividends accumulate at 4% per year on the subscription price of US$58.0 million
for the first three years and accumulate at 7% per year thereafter until
maturity on June 30, 2015 at which time they are mandatorily redeemable for the
face amount of US$58.0 million plus accumulated dividends. Edwards is entitled
to receive 25% of any dividends declared to the common shareholders of World
Heart Inc. The shares are redeemable at the Corporation's option for cash plus
accumulated but unpaid dividends at any time after three years. For a one-year
period commencing June 30, 2002, Edwards will have the right to put the Series A
shares to the Corporation in exchange for 4,981,128 of the Corporation's common
shares. This conversion right is subject to dilution protection should the
Corporation issue shares or options at less than fair market value. Edwards has
waived such rights with respect to the Corporation's sale of Special Warrants on
December 19, 2001.

The convertible preferred shares and the Series A shares (together the Preferred
Shares) are accounted for in accordance with their substance and are presented
in the financial statements as their debt and equity components, measured at
their respective fair values at the time of issue. The debt components have been
calculated at the present value of the required dividend payments discounted at
12%, being the estimated interest rate that would have been applicable to
non-convertible debt at the time the Preferred Shares were issued. Interest
expense is determined on the debt components as the amount necessary to increase
the debt components to their face amount at maturity.

The Preferred Shares carry a preference upon liquidation of the Corporation in
an amount equal to the par value plus accumulated but unpaid dividends, after
which the Preferred Shares share ratably with the common shares. The equity
component is shown as contributed surplus.

(c) Edwards Lifesciences Agreements

In conjunction with Edwards investment in the Preferred Shares and the
Corporation's acquisition of Novacor, the Corporation has entered into a
distribution agreement (the Distribution Agreement) with Edwards whereby Edwards
will be the sole distributor, except in the United States, of the Corporation's
heart assist and heart replacement products for a period of five years
commencing July 1, 2000. As a result of the Distribution Agreement, WorldHeart
is committed to paying a minimum of US$2.0 million annually to Edwards in
guaranteed gross margin on sales in any year that Edwards' purchases are less
than US$10.0 million. The Corporation accounts for any shortfall of the
guaranteed gross margin on sales as a reduction of revenues.

During the year ended December 31, 2001, revenue included $3,622,102 (2000 -
$1,961,539) resulting from sales to Edwards. The obligation accrued for the
shortfall of the guaranteed gross margin on sales and included as a reduction of
revenues was $833,880 (2000 - $498,576).

The Corporation has also entered into a supply agreement with Edwards whereby
Edwards will be the sole supplier of certain components to the heart assist and
heart replacement products of the Corporation for a period of five years
commencing July 1, 2000. For the year ended December 31, 2001, purchases


<PAGE>

from Edwards for components were $ 1,050,000 (2000 - $549,325). These amounts
are included in cost of goods sold.

Other purchases from Edwards for research and development materials and support
and other services amounted to $881,066 (2000 - $87,347).


9.  Shareholders' Equity

Common stock

(a) Authorized

Authorized common stock of the Corporation consists of an unlimited number of
shares.

(b) Issued

In May 1999, the Corporation issued 1,780,548 common shares for net proceeds of
$26,548,107, after deducting issue costs of $2,830,935.

On March 17, 2000, the Corporation issued 850,000 common shares for net proceeds
of $15,132,742, after deducting issue costs of $199,133.

Share Repurchase

Commencing on September 17, 2001 and ending on October 12, 2001, the Corporation
purchased 174,300 of its common shares at market prices on the Nasdaq National
Market (NASDAQ) for a total cost of $1,287,606. Of this total amount paid,
$437,025 has been charged directly to deficit, representing a premium paid on
redemption of common shares with the balance being charged to share capital.

All repurchased shares have been cancelled.

Employee Stock Option Plan

The Corporation has an employee stock option plan (ESOP). The maximum number of
shares that may be reserved and set aside under options to eligible persons
pursuant to the ESOP may not exceed 2,320,000 common shares. The maximum number
of common shares at any time available for issuance under the ESOP, or pursuant
to other outstanding options, to any one person may not exceed 2% of the common
shares then issued and outstanding. The ESOP is administered by a committee
appointed by the Board of Directors. The option exercise price for all options
issued under the ESOP is based on the fair market value on the date of grant.
The options generally vest in equal portions over either a five-year period or
three-year period and must be exercised within a four-year period from each date
of vesting.

During 2000, the Corporation granted to executives options outside the ESOP for
40,000 common shares. The options vest ratably over one year from the date of
grant or over a three year period.


<PAGE>

Special Warrants Offerings

On December 19, 2001, pursuant to a private placement, the Corporation issued
3,027,000 special warrants (the "Special Warrants") for net proceeds of
$14,886,649 after deducting expenses of the placement of $1,761,851.

Each Special Warrant is convertible without additional consideration into one
common share of the Corporation and one warrant to purchase one common share.
Each warrant is exercisable at a price of $6.01 for a period of 24 months from
the date the Special Warrants are exercised or are deemed to have been
exercised.

The Corporation granted the Underwriters 112,280 underwriters' warrants and the
US Agents 45, 210 underwriters' warrants (collectively the "Underwriters'
Warrants") to acquire an aggregate of 157,490 underwriters' compensation options
(the "Underwriters" Compensation Options"). Each Underwriters' Compensation
Option entitles the holder to acquire one common share of the Corporation and
one Underwriters' underlying warrant (the "Underwriters' underlying Warrants")
at an exercise price of $6.05 per share. The Underwriters' Compensation Options
are exercisable for a four-year period ending December 19, 2005. Each
Underwriters' Underlying Warrant entitles the holder to acquire one common share
at an exercise price of $6.01 per share at any time for a period ending 24
months from the date of issue.

On January 17, 2002, the Corporation filed a final short-form prospectus with
Canadian securities regulatory authorities to qualify the 3,027,000 common
shares and 3,027,000 warrants issuable upon the exercise of the Special Warrants
and 157,490 Underwriters' Compensation Options upon the exercise of the
Underwriters' Warrants. All of the Special Warrants were deemed to have been
exercised by the holders on January 24, 2002.

Rights related to 2007262 Ontario Inc.

On December 19, 2001, WorldHeart incorporated 2007262 Ontario Inc. ("2007262")
to carry out specified research and development related to the HeartSaver
Implanted Controller, the HeartSaver External Controller and all the software
developed to control, monitor and power the HeartSaver VAD. WorldHeart and New
Generation Biotech (Equity) Fund Inc. ("NewGen"), an Ontario labour sponsored
venture capital corporation, subscribed for an equal number of common shares of
2007262. Additionally, NewGen subscribed for 637,000 Series 1 preferred shares
(the "Series 1 Shares") of 2007262 for net proceeds of $3,420,016 after
deducting expenses of the placement of $83,484. WorldHeart sold to 2007262
certain technology in exchange for 100,000 Series 2 preferred shares (the
"Series 2 Shares") of 2007262 and a promissory note in the amount of $2,000,000.

The promissory note was repaid to WorldHeart from the proceeds of the Series 1
preferred shares and the balance of the Series 1 preferred share proceeds is to
be used to improve and enhance the technology transferred by WorldHeart.



<PAGE>


NewGen may redeem the Series 1 preferred shares at any time and 2007262 may
redeem the Series 1 preferred shares at any time after the earlier of the date
that the remaining proceeds are expended on the research and development of the
technology and March 19, 2003 ("the Earliest Redemption Date"). The redemption
price of these shares is an amount equal to the fair market value at the time of
redemption of 637,000 common shares and 637,000 common share purchase warrants
of WorldHeart, exercisable at $6.01 per common share until December 19, 2003,
(the "Redemption Amount"). The Redemption Amount may be paid at WorldHeart's
option either in cash or by delivery of the 637,000 common shares and 637,000
common share purchase warrants.

WorldHeart may redeem its Series 2 preferred shares at any time and 2007262 may
redeem them at any time after the Earliest Redemption Date by WorldHeart
delivering to 2007262 the consideration, in cash or in kind, to fund the Series
1 preferred share Redemption Amount and 2007262 delivering to WorldHeart the
technology and all improvements and enhancements. The Series 1 preferred shares
are automatically redeemed if the Series 2 preferred shares are redeemed.

2007262 has been accounted for as a research and development arrangement.
WorldHeart has recorded the NewGen funding as contributed surplus and the
amounts expended by 2007262 from the NewGen funding as research and development
expenses in the period. The unexpended balance as at December 31, 2001 of
$1,465,501 has been included in cash and cash equivalents.

Warrants Issued to Technology Partnerships Canada

During the year ended December 31, 2001, the Corporation granted Technology
Partnerships Canada 650,000 warrants to purchase an equivalent number of common
shares of WorldHeart, exercisable until December 4, 2006 at an exercise price of
$6.61 per share, as described in Note 7.



<PAGE>


Stock Option and Warrant Activity

The following table presents the number of options and warrants outstanding and
the weighted average exercise price:

<TABLE>
<CAPTION>

                                     Employees                Non-Employees
                           ------------------------- ---------------------------
                           ------------- ----------- ------------ --------------
                                Options  Weighted        Options  Weighted      Warrants      Weighted      Total
                                      #  average              #    average             #      average
                                         exercise                 exercise                    exercise
                                            price                    price                      price
                                                $                        $                          $
<S>                                 <C>      <C>           <C>         <C>           <C>           <C>          <C>

Outstanding at
   December 31, 1998            243,885      8.16       12,500        6.80       519,300         9.43      775,685
Granted                         286,694     12.41       39,587       12.39             -            -      326,281
Exercised                        (4,794)     8.85            -           -      (147,749)        8.65     (152,543)
Cancelled                        (1,500)    12.00            -           -             -            -       (1,500)
Forfeited                       (29,400)    10.66       (4,000)      12.00             -            -      (33,400)
                           ------------- ----------- ------------ -------------- ------------ ------------ -----------
                           ------------- ----------- ------------ -------------- ------------ ------------ -----------

Outstanding at
   December 31, 1999            494,885     10.46       48,087       10.97       371,551         9.73      914,523
Granted                         581,693     16.77       11,500       20.50        85,000        20.40      678,193
Exercised                       (12,248)     9.45          (34)      12.65      (112,280)        7.86     (124,562)
Cancelled                      (161,000)    17.20            -           -              -           -     (161,000)
Forfeited                      (139,672)    15.25       (3,105)      12.65              -           -     (142,777)
                           ------------- ----------- ------------ -------------- ------------ ------------ -----------
                           ------------- ----------- ------------ -------------- ------------ ------------ -----------

Outstanding at
   December 31, 2000            763,658     12.99       56,448        12.82      344,271       12.98      1,164,377
Granted                         537,195     10.67       68,243        10.79      937,490        6.71      1,542,928
Exercised                             -         -            -            -            -           -              -
Cancelled                             -         -            -            -            -           -              -
Forfeited                      (133,967)    11.30       (9,256)       10.80     (224,271)      10.31      (367,494)
                           ------------- ----------- ------------ -------------- ------------ ------------ -----------
                           ------------- ----------- ------------ -------------- ------------ ------------ -----------

Outstanding at
   December 31, 2001          1,166,886     12.11       115,435       11.78    1,057,490       7.98      2,339,811
                           ------------- ----------- ------------ -------------- ------------ ------------ -----------
                           ------------- ----------- ------------ -------------- ------------ ------------ -----------
</TABLE>



<TABLE>
<CAPTION>

                                                                         Options
                                                                 Employees        Non-Employees            Warrants
<S>                                                                    <C>                  <C>               <C>
Weighted average exercise price:
         December 31, 1999                                           10.46                10.97             9.73
         December 31, 2000                                           13.01                12.82            12.98
         December 31, 2001                                           12.13                11.78             7.98

Number of exercisable options and warrants:
         December 31, 1999                                           67,203               21,900         371,551
         December 31, 2000                                          154,279               30,404         344,271
         December 31, 2001                                          165,566               40,083       1,057,490

Range of exercise prices at December 31, 2001:
         From                                                       $  5.23               $  5.23        $  6.01
         To                                                           21.83                 21.83          20.40

Range of expiry dates at December 31, 2001:
         From                                                March 31, 2002         March 31, 2002         March 17, 2002
         To                                               November 20, 2009      February 22, 2009       December 4, 2006

</TABLE>

<TABLE>
The following table presents information about the outstanding options and
warrants at December 31, 2001:

            Range of                            Number                Weighted average      Weighted average
           exercise price                  outstanding                  exercise price         life in years
        ---------------------- --------- ------------------ ------- ----------------------- ---------------------
        ---------------------- --------- ------------------ ------- ----------------------- ---------------------
<S>                     <C>                           <C>                          <C>                    <C>
            $   5.23 to                           949,973                       $ 6.51                   4.4
            6.80
                6.81 to 9.25                      218,737                         8.46                   2.4
                9.26 to 12.50                     648,012                        10.90                   3.9
               12.51 to 15.00                     132,824                        12.71                   3.9
               15.01 to 18.00                     288,442                        16.99                   5.5
               18.01 to 21.83                     101,823                        20.42                   1.0
                                         ------------------         ----------------------- ---------------------

                                                 2,339,811                         $ 10.16                   4.0
                                         ==================         ======================= =====================
</TABLE>

10.  Earnings Per Share

For all of the years presented, diluted loss per share equals basic loss per
share due to the anti-dilutive effect of convertible preferred shares, employee
stock options and warrants. These instruments could potentially dilute basic
earnings per share in the future by being converted into common shares:

<TABLE>
<CAPTION>

                                                             Number of common shares to be issued on exercise or
                                                                                  conversion
                                                                          2001               2000            1999
                                                             ------------------ ------------------ ---------------
<S>                                                                       <C>                 <C>             <C>
Convertible preferred shares                                         6,355,698          6,355,698               -
Employee stock options                                               1,282,321            820,106         542,972
Warrants, including special warrants                                 8,542,980            344,271         371,551
                                                             ------------------ ------------------ ---------------

Total potentially dilutive instruments                              16,180,999          7,520,075         914,523
                                                             ================== ================== ===============
</TABLE>



<PAGE>


11.  Income Taxes

The Corporation operates in several tax jurisdictions. Its income is subject to
varying rates of tax and losses incurred in one jurisdiction cannot be used to
offset income taxes payable in another. A reconciliation of the combined
Canadian federal and provincial income tax rate with the Corporation's effective
tax rate is as follows:

<TABLE>

                                                              Year ended           Year ended          Year ended
                                                              December 31,        December 31,        December 31,
                                                                    2001                2000                1999
                                                       -------------------- ------------------- -------------------
 <S>                                                                  <C>                <C>                 <C>
Domestic loss                                              $ (24,291,044)       $ (16,600,519)     $ (17,442,741)
United States' loss                                          (46,202,777)         (18,796,828)                 -
                                                       -------------------- ------------------- -------------------

Loss before income taxes                                   $ (70,493,821)       $ (35,397,347)     $ (17,442,741)
                                                       ==================== =================== ===================

Expected statutory rate                                           41.74%               43.95%             44.62%
Expected recovery of income tax                            $ (29,430,000)       $ (15,557,000)    $   (7,779,000)
Effect of foreign tax rate differences                           320,000              546,000                  -
Permanent differences                                          6,210,000            1,359,000             97,000
Provincial income tax incentives                                       -             (571,000)          (352,000)
Increase in valuation allowance                               14,870,000            8,010,000          8,034,000
Effect of changes in SR&ED carryforwards                         980,000              368,000                  -
Effect of tax rate changes                                     1,170,000              283,000                  -
Effect of exchange rate differences                              892,000               19,000                  -
                                                       -------------------- ------------------- -------------------

Recovery of income taxes                                   $ (4,988,000)        $ (5,543,000)    $             -
                                                       ==================== =================== ===================
</TABLE>

The Canadian statutory income tax rate of 41.74% is comprised of federal income
tax at 28.12% and provincial income tax at 13.62%. For the year ended December
31, 2001, the recovery of income taxes relates entirely to the United States
operations. For the year ended December 31, 2001, permanent differences relate
primarily to imputed interest expense on the Preferred Shares and goodwill
amortization for which no temporary difference arises.

<PAGE>


The primary temporary differences affecting future taxes are approximately as
follows:

<TABLE>
                                                                                         2001                2000
                                                                            ------------------- -------------------
<S>                                                                                       <C>                 <C>
 Future tax assets:
     SR&ED expenditures                                                          $ 16,610,000      $   15,590,000
     Net operating losses                                                          23,780,000           9,770,000
     Investment tax credits                                                         5,170,000           4,040,000
     Share issue costs                                                              3,810,000           3,230,000
     Asset basis differences                                                        1,390,000             600,000
                                                                            ------------------- -------------------

                                                                                   50,760,000          33,230,000
     Less: valuation allowance                                                    (44,190,000)        (29,320,000)
                                                                            ------------------- -------------------

                                                                                    6,570,000           3,910,000
Future tax liabilities:
     Asset basis differences                                                       (6,570,000)         (8,740,000)
                                                                            ------------------- -------------------

Net future income tax liability                                             $               -      $    (4,830,000)
                                                                            =================== ===================
</TABLE>


As at December 31, 2001, the Corporation has unclaimed Scientific Research and
Experimental Development (SR&ED) expenditures, income tax loss carryforwards and
investment tax credits. The unclaimed amounts and their expiry dates are as
follows:

<TABLE>
                                                                      2001                2000               1999
                                                        ------------------- -------------------- ------------------
<S>                                                                   <C>                 <C>                 <C>
SR&ED expenditures (carried forward
      without expiry)                                         $ 39,800,000        $ 35,500,000       $ 20,000,000
Income tax loss carryforwards:
     Federal (Canada)      (expire 2003-2008)                   28,300,000          14,300,000         12,000,000
     Provincial            (expire 2003-2008)                   36,800,000          25,800,000         20,000,000
     United States         (expire 2010-2015)                   32,700,000           9,600,000                  -
Investment tax credits     (expire 2006-2010)                    8,900,000           7,200,000          4,400,000
</TABLE>


12.  Acquisition


On June 30, 2000 the Corporation acquired Novacor from Edwards for a total
purchase price of approximately $62.5 million, consisting of $58.9 million
Series A cumulative participating preferred shares (Series A shares) of
WorldHeart Inc., plus expenses related to the transaction of $3.6 million. The
acquisition was accounted for using the purchase method and, therefore,
Novacor's operating results have been included in the consolidated financial
statements from the date of acquisition.

<PAGE>


The allocation of the purchase price was based on an independent valuation and
was allocated among the identifiable tangible and intangible assets based on the
fair market value of those assets as follows:

<TABLE>
<S>                                                                        <C>
      Consideration given                                      $   62,485,000
                                                            -------------------

      Fair value of identifiable net assets acquired:
      Net tangible assets                                          15,519,000
      Purchased technology                                         17,043,000
      Other intangible assets                                      18,255,000
      Future income taxes                                         (10,273,000)
                                                            -------------------

                                                                   40,544,000
                                                            -------------------

      Goodwill                                                  $  21,941,000
                                                            -------------------
</TABLE>


Purchased technology was valued using a risk adjusted cash flow model, under
which future cash flows were discounted taking into account risks related to
existing and future markets and an assessment of the life expectancy of the
technology. Other intangible assets consist of Novacor's work force, customer
base, patents and trademarks. The excess of the purchase price over the
identifiable assets was allocated to goodwill.


The following table presents pro-forma financial information for the years ended
December 31, 2000 and 1999 as though the acquisition of Novacor had occurred at
the beginning of the year ended December 31, 1999. The pro-forma financial
information has been restated to account for the change in accounting policy
described in Note 18.

<TABLE>
<S>                                                                            <C>                      <C>

                                                                          Year ended              Year ended
                                                                        December 31,           December  31,
                                                                                2000                    1999
                                                                 ----------------------- ------------------------
                                                                                      (Unaudited)
     Total revenue                                                     $    9,938,000            $ 15,222,000
     Loss before income taxes                                              59,021,000              64,396,000
     Net loss for the year                                                 59,021,000              54,123,000

     Basic and diluted loss per share                                  $       (3.97)            $     (4.02)
</TABLE>


13.  Related Party Transactions

CVD is considered a related party by virtue of the fact that the Chairman and
Chief Scientific Officer of the Corporation is also the Director of CVD.

The following related party amounts are included in amounts receivable and
accounts payable and accrued liabilities:

<TABLE>

                                                         2001                   2000                  1999
                                               ---------------- ----- ---------------- ---- -----------------
<S>                                                     <C>                      <C>                     <C>
      Due from CVD                                   $ 69,195             $  188,276            $  175,454
                                               ================ ===== ================ ==== =================
      Due to CVD                                   $  483,279              $ 443,089             $ 218,510
                                               ================ ===== ================ ==== =================
</TABLE>
During the year ended December 31, 2001, the Corporation paid $1,000,000 (2000 -
$1,000,000, 1999 - $7,600,000) for research and development fees to CVD under
the Research Agreement described in Note 1(b). In addition, the Corporation paid
$150,000 (2000 - $150,000, 1999 - $150,000) to CVD relating to the research
chair under the Research Agreement.

During the year ended December 31, 2001, the Corporation incurred salary expense
of $484,387 (2000 - $670,271, 1999 - $2,509,055) relating to employees that have
been seconded by the Corporation to CVD. These funds were reimbursed by CVD to
the Corporation.

14.  Contingencies and Commitments

(a)  Research Agreement

The Corporation's research funding to CVD under the Research Agreement described
in Note 1(b) was $18.1 million for the period April 1, 1996 to December 31,
2001.

Under the Research Agreement, the Corporation has agreed to fund, to the extent
reasonable (and to the extent funding is not available from other sources), any
additional research and development costs incurred by CVD in connection with
such product development, and to the extent reasonable, the costs of the
product's commercialization. The Research Agreement provides that any funding
for research and development of the HeartSaver provided by the Corporation in
excess of $33.0 million will be creditable against any future CVD royalty
entitlement over a period up to ten years, with interest at 8% per annum from
the year in which such excess is provided. The Research Agreement stipulates
that the parties will negotiate to establish payment terms for repayment of any
remaining balance, provided that if agreement as to such payment terms is not
reached then such remaining balance shall become due and repayable by CVD within
twelve months following the end of the respective ten-year period.

The Corporation has also agreed with CVD to fund $150,000 per year for the
period from July 1, 1996 to June 30, 2002 for a research chair in medical
devices at the University of Ottawa Heart Institute.

(b)  Operating Leases

The Corporation is committed to minimum lease payments for office facilities and
equipment as follows:
<TABLE>
                    <S>                        <C>                 <C>

               Year ended December 31,         2002      $    733,262
                                               2003            94,244
                                               2004             5,171
                                               2005             5,171
                                               2006               431
</TABLE>

15.  Capital Lease Obligation

In December 1997, the Corporation entered into a capital lease with a sixty-five
month term with interest charged at a floating rate equal to the prevailing rate
for Bankers' Acceptances plus 3%.

The Corporation has provided a $250,720 letter of credit in favour of the lessor
to cover the term of the lease (2000 - $419,130, 1999 - $575,450). In the past,
as collateral for this letter of credit, the Corporation pledged cash and cash
equivalents (2000 - $226,316, 1999 - $377,247). The Corporation no longer
pledges any amount as collateral.

<PAGE>

The minimum lease payments, prior to any adjustment for changes in interest
rates, are as follows:

<TABLE>
                    <S>                           <C>                 <C>

               Year ended December 31,            2002      $     173,796
                                                  2003             64,923
                                                                 --------
                                                                  238,719
               Less: amount representing interest                 (12,403)
                                                                 --------

               Capital lease obligation                     $     226,316
                                                                 ========
</TABLE>

16.  Net Change in Operating Components of Working Capital

The net change in operating components of working capital is comprised of:

<TABLE>

<S>                                               <C>                 <C>                 <C>

                                                  Year ended          Year ended          Year ended
                                                 December 31,        December 31,        December 31,
                                                        2001                2000                1999
                                                -----------------------------------------------------

Accounts receivable and other                    $  (3,096,593)       $ (2,871,227)       $  (214,013)
Prepaid expenses                                        (8,254)           (143,723)          (110,350)
Inventory                                            1,849,252           1,580,137                   -
Accounts payable and accrued liabilities             3,125,415           2,783,026             453,468
Accrued compensation                                   186,977             672,981             329,388
                                                ------------------------------------------------------

                                                 $   2,056,797        $  2,021,194        $    458,493
                                                ======================================================
</TABLE>

17.  Segmented Information

Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
Corporation's chief decision maker in deciding how to allocate resources and
assess performance. The Corporation's chief decision maker is the Chief
Executive Officer.

The Corporation's reportable segments are its commercial operations related to
the sale of the Novacor LVAS and related components and its research and
development activities focused mainly on development of the HeartSaver. On June
30, 2000, the Corporation acquired Novacor whose commercial operations now
comprise the Corporation's commercial operations segment.

The accounting policies of the Corporation's operating segments are the same as
those described in Note 1. The Corporation does not use a measure of segment
assets to assess performance or allocate resources. As a result, segment asset
information is not presented.

<PAGE>

The following presents segmented operation results for the year ending December
31, 2001:

<TABLE>

<S>                                                 <C>                 <C>                           <C>

                                                  Commercial         Research and
                                                  Operations          Development                Total
                                                  ------------------------------------------------------

Revenue                                           $  8,252,624       $          -         $   8,252,624
                                                  ------------------------------------------------------

Cost of goods sold
     Direct materials and labour                    (3,925,702)                 -            (3,925,702)
     Overheard and other                            (4,361,356)                 -            (4,361,356)
                                                  ------------------------------------------------------
                                                    (8,287,058)                 -            (8,287,058)
                                                  ------------------------------------------------------

Gross margin                                           (34,434)                 -               (34,434)
                                                  ------------------------------------------------------
Expenses
     Selling, general and administrative            (5,824,004)        (7,434,316)          (13,258,320)
     Research and development                                -        (33,594,623)          (33,594,623)
                                                  ------------------------------------------------------

                                                    (5,824,004)       (41,028,939)          (46,852,943)
                                                  ------------------------------------------------------

Loss before the undernoted                        $ (5,858,438)     $ (41,028,939)          (46,887,377)
                                                  ==================================
   Amortization of intangibles                                                              (15,209,647)
     Other income (expenses), net                                                            (8,557,788)
     Recovery of future income taxes                                                          4,988,244
                                                                                          --------------

Net loss for the year                                                                     $ (65,666,568)
                                                                                          ==============
</TABLE>

<PAGE>

The following presents segment operating results for the year ending December
31, 2000:
<TABLE>
<S>                                               <C>                  <C>                      <C>

                                               Commercial             Research and                Total
                                               Operations             Development                 Total
                                             ----------------------------------------------------------

Revenue                                      $  4,674,485                       -         $    4,674,485
                                             ------------------------------------------------------------

Cost of goods sold
     Direct materials and labour               (2,443,610)                      -            (2,443,610)
     Overheard and other                       (4,825,735)                      -            (4,825,735)
                                             ------------------------------------------------------------
                                               (7,269,345)                      -            (7,269,345)
                                             ------------------------------------------------------------

Gross margin                                   (2,594,860)                      -            (2,594,860)
                                             ------------------------------------------------------------


Expenses
     Selling, general and administrative       (1,894,622)             (4,865,655)           (6,760,277)
     Research and development                           -             (18,395,885)          (18,395,885)
                                             ------------------------------------------------------------
                                               (1,894,622)            (23,261,540)          (25,156,162)
                                             ------------------------------------------------------------
Loss before the undernoted                   $ (4,489,482)          $ (23,261,540)          (27,751,022)
                                             ===========================================
     Amortization of intangibles                                                             (7,491,865)
     Other income (expenses), net                                                              (685,495)
     Recovery of future income taxes                                                          5,542,960
                                                                                          --------------

Net loss for the year                                                                     $ (30,385,422)
                                                                                          ==============
</TABLE>

<PAGE>


The following presents segment operating results for the year ending December
31, 1999:

<TABLE>

<S>                                         <C>                          <C>                    <C>
                                               Commercial                     Research and
                                               Operations                     Development                Total
                                               ----------------------------------------------------------------

Revenue                                        $                 -        $           -          $          -
                                               ----------------------------------------------------------------

Cost of goods sold
     Direct materials and labour                                 -                    -                     -
     Overheard and other                                         -                    -                     -
                                               ----------------------------------------------------------------
                                                                 -                    -                     -
                                               ----------------------------------------------------------------

Gross margin                                                     -                    -                     -
                                               ----------------------------------------------------------------

Expenses
     Selling, general and administrative                         -           (5,629,074)           (5,629,074)
     Research and development                                    -          (13,034,576)          (13,034,576)
                                               ----------------------------------------------------------------
                                                                 -          (18,663,650)          (18,663,650)
                                               ----------------------------------------------------------------
Loss before the undernoted                     $                  -       $ (18,663,650)          (18,663,650)
                                               ===========================================
     Amortization of intangibles                                                                       (8,000)
     Other income (expenses), net                                                                   1,228,909
     Recovery of future income taxes                                                                        -
                                                                                            -------------------

Net loss for the year                                                                           $ (17,442,741)
                                                                                            ===================
                                                                                            ===================
</TABLE>

<PAGE>


The following geographic area data includes revenue based on product shipment
destination and long-lived assets based on physical location. The Corporation
has a location in Canada and the United States:

<TABLE>

<CAPTION>
                                                       For the year ended December 31,
                                   2001                             2000                              1999
                      ----------------------------------------------------------------- ---------------------------------
                         Revenue         Long-lived                       Long-lived        Revenue         Long-lived
                                          assets          Revenue           assets                            assets
                      ----------------------------------------------------------------- ---------------------------------
<S>                 <C>             <C>              <C>              <C>               <C>               <C>
                       $                                                                      -
Canada                     158,974     $  1,529,433     $      93,963   $    5,241,966     $                  $ 1,009,719
United States            5,463,618       38,776,263          2,712,946      50,962,972        -                         -
Netherlands              3,463,912               -           2,366,152               -        -                         -
Less:  Edwards fee        (833,880)              -            (498,576)              -        -                         -
                      ---------------------------------------------------------------------------------------------------
                       $ 8,252,624    40,305,696        $    4,674,485   $  56,204,938     $  -               $ 1,009,719
                      ===================================================================================================
</TABLE>

At December 31, 2001, two customers had accounts receivable balances greater
than 10% of the Corporation's total accounts receivable balance. At December 31,
2000, three customers had accounts receivable balances greater than 10% of the
Corporation's accounts receivable balance. During 2001, three customers
accounted for 35% of the total revenue for the year. During 2000, one customer
accounted for 11% of the total revenue for the year. No customer accounted for
more than 10% of the total revenue in 1999.

18.  Change in Accounting Policy for Foreign Currency Translation

In November 2001, the Accounting Standards Board ("AcSB") of the Canadian
Institute of Chartered Accountants ("CICA") approved amendments to CICA Handbook
Section 1650, "Foreign Currency Translation" that requires exchange gains or
losses arising on the translation or settlement of a foreign currency
denominated monetary item or a non-monetary item carried at market to be
included in the determination of net income for the current period. Previously,
unrealized translation gains and losses on non-current monetary assets and
liabilities were deferred and amortized over the remaining life of the monetary
item. The Corporation has adopted this new pronouncement in the quarter ended
December 31, 2001 and has restated the prior period financial statements.

The effect of this restatement on the financial statements was to decrease
deferred foreign exchange loss and increase net loss by $3,047,835 (2000 -
$531,035, 1999 - $nil). The effect of this change is to increase basic and
diluted loss per common share by $0.20 (2000 - $0.03, 1999 - $nil).

19.  Financial Instruments
     ---------------------
Financial instruments recognized in the balance sheet consist of cash and cash
equivalents, short-term investments, accounts receivable and other, accounts
payable and accrued liabilities, a capital lease and preferred shares. The
Corporation does not hold or issue financial instruments for trading purposes.

The Corporation invests the majority of its excess cash in high-grade
instruments and diversifies the concentration of cash among different financial
institutions.

<PAGE>

(a)       Fair value
          ----------
The Corporation believes that the carrying values of its financial instruments
other than the capital lease and the preferred shares approximates their fair
values because of their short terms to maturity. The Corporation believes that
the carrying value of the capital lease obligation also approximates fair value
because of its floating market rate of interest. The Corporation believes that
the carrying value of the preferred shares also approximates fair value based
originally on an independent valuation and that their imputed 12% rate of
interest approximates market.

The Corporation claims qualified Scientific Research and Experimental
Development ("SR&ED") deductions and related investment tax credits based on
management's interpretation of the applicable legislation in the Income Tax Act
of Canada. These claims are subject to review and acceptance by Canada Customs
and Revenue Agency.

(b)      Interest rate risk
         ------------------

The Corporation is subject to interest rate risks because of the short-term to
maturity of its cash equivalents and short-term investments and the floating
rate nature of its capital lease.

(c)      Foreign exchange risk
         ---------------------

The Corporation enters into various foreign exchange contracts to protect the
Corporation from the risk that the investments held are not adversely affected
by changes in currency exchange rates. These contracts are short-term in nature.
At December 31, 2000, the Corporation had outstanding a foreign exchange forward
contract to sell US$4.1 million at an exchange rate of US$1 for $1.54 maturing
on January 10, 2001. As at December 31, 2001, the Corporation had no outstanding
foreign exchange financial instruments.

(d)      Credit risk

Financial instruments that potentially subject the Corporation to a
concentration of credit risk consist of cash and accounts receivable. The
Corporation has a limited number of customers, all of which operate in the
health care industry. As at December 31, 2001 approximately 14% (2000 - 49%) of
the accounts receivable balance was due from Edwards. The Corporation performs
ongoing credit evaluations of its customers' financial condition and, generally,
requires no collateral from its customers. The Corporation maintains an
allowance for doubtful accounts receivable based upon the expected collectiblity
of accounts receivable.

20.   United States Accounting Principles

The consolidated financial statements have been prepared in accordance with
Canadian GAAP. These principles differ, as they affect the Corporation, for the
year ended December 31, 2001 and 2000 in the following material respects from US
GAAP. There were no differences in reported cash flows for the periods
presented.


<PAGE>



(a)      Balance sheets
         ---------------
<TABLE>

                                                                        December 31, 2001   December 31, 2000
                                                                       ---------------------------------------
<S>                                                                   <C>                <C>
ASSETS
   Current assets                                                          $  37,854,422    $     59,493,594
   Cash pledged as collateral for capital lease                                        -             226,316
   Capital assets                                                              5,293,824           6,263,544
   Goodwill and other intangible assets (1)                                   30,216,648          42,188,399
                                                                       ---------------------------------------

                                                                           $  73,364,894    $    108,171,853
                                                                       =======================================

LIABILITIES AND SHAREHOLDERS' EQUITY
   Current liabilities                                                     $   11,656,504   $      8,466,534
   Capital lease obligation                                                        63,829            226,316
   Deferred income taxes                                                                -          5,066,840
   Obligation under a research and development arrangement (6)                  3,420,016                  -
                                                                       ---------------------------------------

                                                                               15,140,349         13,759,690
                                                                       ---------------------------------------

Preferred shares (2)                                                          105,319,402         92,671,602

Shareholders' Equity
   Common stock (4)                                                           121,565,309        122,415,889
   Special warrants and rights                                                 14,886,649                  -
   Accumulated deficit (3 & 4)                                               (183,546,815)      (120,675,328)
                                                                       ---------------------------------------

                                                                              (47,094,857)         1,740,561
                                                                       ------------------- -------------------

                                                                           $   73,364,894     $  108,171,853
                                                                       =======================================
</TABLE>




<PAGE>


(b) Statements of loss for the years ended December 31, 2001, 2000 and 1999
-----------------------------------------------------------------------

<TABLE>

<S>     <C>    <C>    <C>    <C>    <C>    <C>
                                                                   Year ended          Year ended            Year ended
                                                                   December 31,        December 31,          December 31,
                                                                      2001                2000                  1999
                                                                -----------------------------------------------------------

Net loss in accordance with Canadian GAAP                         $  (65,666,568)   $  (30,385,422)       $  (17,442,741)
Adjustments to reconcile to US GAAP:
Write-off of purchased in-process research
     and development (1)                                                       -         9,036,448)                    -
Amortization of purchased in-process research and development
     (1)                                                               3,234,771           1,283,453                   -
Interest on preferred shares (2)                                       6,853,763           3,049,792                   -
Foreign exchange translation on preferred shares (2)                  (1,926,777)           (508,507)                  -
Recovery of deferred income taxes                                      3,175,957          (3,287,960)                  -
Foreign exchange translation on deferred income taxes                    112,003                   -                   -
                                                                -----------------------------------------------------------

Net loss and comprehensive loss in accordance with US GAAP           (54,216,851)        (38,885,092)        (17,442,741)
Accretion on preferred shares (2)                                     (7,071,611)         (3,080,000)                  -
                                                                -----------------------------------------------------------

Net loss applicable to common shareholders                         $ (61,288,462)      $ (41,965,092)     $  (17,442,741)
                                                                ===========================================================

Loss per common share

Weighted average number of common shares outstanding                  15,168,879          14,878,625          13,463,943
                                                                ==================  =======================================

Basic and diluted loss per common share                                  $ (4.04)           $  (2.82)           $  (1.30)
                                                                ==================  =======================================
</TABLE>

(c)      Footnotes

(1)  Under US GAAP acquired in-process research and development is required to
     be expensed if the related technology has not reached technological
     feasibility and does not have an alternative future use. Under Canadian
     GAAP this amount is capitalized and amortized over its useful life. This
     also results in a difference in the related deferred income taxes.
(2)  Under US GAAP mandatorily redeemable convertible preferred shares are
     recorded as mezzanine financing at their fair value on the date of issue
     and excluded from both shareholders' equity and long-term debt. Dividends
     are accumulated on these shares at the average dividend rate and this
     amount, together with the amount necessary to accrete the fair value to the
     redemption price on maturity, are charged first to retained earnings; if no
     retained earnings, then to accumulated paid-in capital; if no accumulated
     paid-in capital, then to accumulated deficit. Under Canadian GAAP these
     shares are treated as compound instruments and divided into their debt and
     equity components based on their fair value at the time of issue and
     dividends and imputed interest related to the debt component are charged to
     earnings. The different presentation on the balance sheet results in a
     difference in exchange as, under Canadian GAAP the amount in shareholders'
     equity is translated at historical rates and the amount in long-term debt
     is translated at current rates. Under US GAAP, the full amount is
     translated at current rates.




<PAGE>

(3)  Under US GAAP, the difference between the issue price and initial public
     offering (IPO) price of shares issued within a one-year period prior to the
     IPO is generally accounted for as an expense and charged against earnings
     for the period with a corresponding and equal amount recorded as paid-in
     capital. This difference of $48,663,150 increased the accumulated deficit
     and capital stock reported for the period ended December 31, 1996 under US
     GAAP, with no difference reported in total shareholders' equity.
(4)  Under US GAAP the Corporation's policy is to review the carrying amounts of
     goodwill and other intangible assets in a manner consistent with that
     described in note 1 (h), except that, in the event an impairment exists, an
     impairment charge would be determined by comparing the carrying amounts of
     the asset to the applicable estimated future cash flows, discounted at a
     risk-adjusted interest rate.
(5)  Under US GAAP net loss includes depreciation and amortization relating to
     capital assets and goodwill and other intangible assets of $2,937,228 and
     $11,971,751 respectively for 2001 (2000 - $1,210,715 and $6,208,412
     respectively; 1999 - $455,204 and $8,000 respectively).
(6)  Under US GAAP, the obligation under the research and development
     arrangement is classified as a liability. Under Canadian GAAP, this amount
     is reflected as equity as NewGen will receive equity securities of the
     Corporation upon completion of the R&D arrangement.



<PAGE>

(d)  Share based compensation
     ------------------------

The Corporation has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" (SFAS 123). The Corporation applies Accounting Principles Board
opinion No. 25, "Accounting for Stock Issued to Employees", in accounting for
its stock option grants and accordingly, because the exercise price of employee
stock options equals the market price of the underlying common shares on the
date of grant, no compensation expense has been recognized for grants made
during the period.

Had compensation costs been determined based on the fair value of options on the
date of grant, consistent with the methodology prescribed under SFAS 123, the
Corporation's net loss and loss per share would have increased to the following
pro-forma amounts:

<TABLE>


                                                           Year ended          Year ended         Year ended
                                                           December 31,        December 31,       December 31,
                                                                  2001                2000                1999
                                                      -----------------------------------------------------------
<S>                                                <C>                   <C>                 <C>
Net loss under US GAAP                                  $  (54,216,851)     $ (38,885,092)      $ (17,442,741)
Estimated share based compensation costs                    (1,612,087)          (877,224)            (430,141)
                                                      -----------------------------------------------------------

Pro forma net loss                                         (55,828,938)       (39,762,316)        (17,872,882)
Accretion on preferred shares                               (7,071,611)        (3,080,000)                  -
                                                      -----------------------------------------------------------

Net loss applicable to common shareholders              $  (62,900,549)     $ (42,842,316)      $ (17,872,882)
                                                      ===========================================================

Pro forma basic loss per share                                 ($4.15)            ($2.88)              ($1.33)
                                                      ===========================================================
</TABLE>


The weighted average fair value of the options issued during the year ended
December 31, 2001 was $3.70 (2000 - $7.52, 1999 - $8.67). This fair value of
each option granted during 2001, 2000 and 1999 is estimated on the date of the
grant using the Black-Scholes model with the following weighted average
assumptions:




                                      2001       2000        1999
                                      ----------------------------

Expected option life, in years          7          7           7
Volatility                             75%        75%        66.6%
Risk free interest rate                 6%         6%           5%
Dividend yield                         Nil        Nil          Nil





<PAGE>

(e)  New accounting pronouncements

In July 2001, the Canadian Institute of Chartered Accountants ("CICA") issued
Section 1581 "Business Combinations"" which replaces Section 1580 "Business
Combinations," and requires all business combinations to use the purchase method
of accounting, and Section 3062 "Goodwill and Other Intangible Assets", which
requires intangible assets with an indefinite life and goodwill to be tested for
impairment on an annual basis. Goodwill and indefinite life intangibles will no
longer be amortized. Intangible assets with a definite life will continue to be
amortized over their useful life. The new Sections are consistent with those
recently issued by the Financial Accounting Standards Board (FASB) in the United
States. For the Corporation these pronouncements will be effective for the
fiscal year beginning January 1, 2002 and will be applied prospectively. The
Corporation is evaluating the effect of this pronouncement on the financial
statements.

In November 2001, the CICA issued Section 3870 "Stock-Based Compensation and
Other Stock-Based Payments". The new Section requires that stock-based payments
to non-employees and direct awards of stock to employees and non-employees be
accounted for using a fair value-based method of accounting. The Section also
requires enterprises to account for stock appreciation rights ("SARs") and
similar awards to be settled in cash by measuring, on an ongoing basis, the
amount by which the quoted market price exceeds the option price. The new
Section encourages, but does not require, the use of the fair value-based method
to account for all other stock-based transactions with employees. The new
Section is based on FASB Statement No. 123, Accounting for Stock-based
Compensation, which is one of the two US standards covering stock-based
compensation arrangements in that country. For the Corporation this
pronouncement will be effective for the fiscal year beginning January 1, 2002
and will apply to awards granted on or after that date.

In December 2001, the CICA issued AcG 13 - "Hedging Relationships" ("AcG 13").
The guideline presents the view of the Canadian Accounting Standards Board on
the identification, designation, documentation and effectiveness of hedging
relationships, for the purpose of applying hedge accounting. The guideline is
effective for all fiscal years beginning on or after January 1, 2002, which is
the fiscal year beginning December 1, 2002 for the Corporation. The Corporation
does not believe that the adoption of this guideline will have a material impact
on its results of operations or financial position, as it does not apply hedge
accounting.

<PAGE>



World Heart Corporation

Management's Discussion and Analysis of Financial Condition and Results of
Operations

Introduction

The following discussion explains material changes in the Corporation's
financial condition and results of operations for the year ended December 31,
2001 with comparisons to the years ended December 31, 2000 and 1999. The
following discussion of World Heart Corporation's results of operations and of
its liquidity and capital resources should be read in conjunction with the
information contained in the consolidated financial statements and related notes
to the financial statements. World Heart Corporation, and its subsidiaries are
collectively referred to as "WorldHeart" or the "Corporation". In this
discussion, references to "dollars" or "$" or "Cdn$" are to Canadian dollars and
references to "US dollars" or "US $" are to United States dollars.

The discussion contains both historical information and forward-looking
information. The forward-looking information, which generally is information
stated to be anticipated, expected, or projected by the Corporation, involves
known and unknown risks, uncertainties and other factors that may cause the
actual results and performance of the Corporation to be materially different
from any future results and performance expressed or implied by such
forward-looking information. Potential risks and uncertainties include, without
limitation, the uncertainties inherent in the development of new products for
use in the human body, the Corporation's need for significant additional
funding, the Corporation's need to establish reimbursement mechanisms and
product acceptance from third-party payers, extensive government regulation of
the Corporation's products, and rapid developments in technology, including
developments by competitors.

Overview

WorldHeart is a global medical device company currently focused on the
development and commercialization of pulsatile ventricular assist devices
through operations in Oakland, California, United States and Ottawa, Ontario,
Canada. WorldHeart is currently focused on two technologies, Novacor(R) LVAS
(Novacor LVAS) and HeartSaverVAD(TM) (HeartSaver).

The HeartSaver is being developed from licensed artificial heart and related
technologies developed by the Cardiovascular Devices Division (CVD) of the
Ottawa Heart Institute Research Corporation. During 1996, the Corporation
entered into a research agreement with CVD under which the Corporation agreed to
fund a substantial portion of CVD's remaining research efforts relating to the
HeartSaver artificial heart technology, and all of the costs related to the
commercialization of the technology.

On June 30, 2000, the Corporation, through World Heart Inc., a wholly owned
subsidiary of World Heart Corporation, acquired the business, including assets
and liabilities of Edwards Novacor LLC (Novacor) from Edwards Lifesciences LLC
(Edwards). The total purchase price of the acquisition was approximately $62.5
million, which included $58.9 million of Series A cumulative participating
preferred shares of World Heart Inc. The acquisition was accounted for using the
purchase method with World Heart Inc.'s operating results included in the
consolidated financial statements from June 30, 2000.




<PAGE>

As a result of the acquisition, WorldHeart manufactures and distributes the
Novacor LVAS. The Corporation sells this product internationally through
Edwards, with the exception of the United States where the Corporation sells
directly. Prior to the acquisition, the Corporation had no commercial sales.

During 2001, significant progress was made toward delivering the Corporation's
key strategic objectives:

     o    Extensive animal and bench testing of the HeartSaver and commencement
          of production in the fourth quarter of final prototypes incorporating
          several refinements designed to enhance performance and reliability.
     o    Completing and testing of several product enhancements to the
          NovacorLVAS that are expected to provide increased convenience for the
          recipient, and result in lower overall costs for the health care
          system.
     o    Increased clinical acceptance and sales of Novacor LVAS in the United
          States.
     o    Accelerated enrollment in the INTrEPID clinical trial, designed to
          demonstrate the Novacor LVAS' effectiveness as an alternative to
          medical therapy.

Results of Operations

All financial information is prepared in accordance with generally accepted
accounting principles ("GAAP") in Canada and is stated in Canadian dollars.

<TABLE>

                                                                   Consolidated results of operations

                                            Year ended         As a       Year ended       As a      Year ended
                                            December 31,       % of       December 31,     % of     December 31,
                                                   2001       revenue            2000     revenue          1999
                                         -----------------------------------------------------------------------------
<S>                                        <C>              <C>         <C>             <C>             <C>
Revenue                                       $8,252,624                   $4,674,485                         $  -
                                         -----------------------------------------------------------------------------

Cost of goods sold
    Direct materials and labour               (3,925,702)        48%       (2,443,610)        52%-
    Overhead and other                        (4,361,356)        53%       (4,825,735)       103%                -
                                         -----------------------------------------------------------------------------
                                               8,287,058)       101%       (7,269,345)       155%                -
                                         -----------------------------------------------------------------------------

Gross margin                                     (34,434)                  (2,594,860)                           -

Selling, general and administrative          (13,258,320)                  (6,760,277)                  (5,629,074)
Research and development                     (33,594,623)                 (18,395,885)                 (13,034,576)
Amortization of intangibles                  (15,209,647)                  (7,491,865)                      (8,000)
Interest income                                1,209,125                    2,380,983                    1,169,961
Interest expense and foreign exchange         (9,766,913)                  (3,066,478)                      58,948
Recovery of future income taxes                4,988,244                    5,542,960
                                         -----------------------------------------------------------------------------

Net loss                                    $(65,666,568)                $(30,385,422)           $     (17,442,741)
                                         =============================================================================
</TABLE>


<PAGE>

Revenues and cost of goods sold

Revenues for the fiscal year ended December 31, 2001 reflect commercial
activities relating to Novacor LVAS for the full fiscal year. Revenues for the
fiscal year ended December 31, 2000 reflect the six-month period from July 1,
2000 to December 31, 2000. As mentioned above, there were no commercial
activities prior to the June 30, 2000 acquisition of Novacor. Revenues in 2001
were lower than anticipated due to delays in completing enhancements to the
Novacor LVAS and a voluntary recall of ePTFE conduits due to potential for
handling and use damage. Enhancements to the product as well as a
re-introduction of the ePTFE inflow conduit in the first half of 2002 are
expected to have a positive impact on sales, particularly in Europe.

The direct materials and labour attributable to the sales in 2001 result in a
contribution margin, excluding overhead, of 53%, which is a slight improvement
over the 2000 fiscal year (48%). There has been a significant decline in the
overhead and other components of cost of goods sold from the prior fiscal year.
As a percentage of revenues, these costs have declined from 103% in 2000 to 54%
in 2001. The Corporation undertook initiatives during the year to improve the
utilization of excess manufacturing capacity in its Oakland facility by using it
to accommodate expanding research and development activities, primarily related
to the HeartSaver. In fiscal 2000, this excess capacity was included in
manufacturing overhead and, therefore, included in inventory costs and cost of
sales. With the expansion of research and development activities, some of these
costs are now included in research and development expenses. The gross margin is
anticipated to continue to improve as the sales volume of the Novacor LVAS
increases.

Revenues are net of amounts payable under a distribution agreement with Edwards
in the amount of $833,880 (2000 - $498,576). The Corporation is committed to
paying a minimum of US $2 million annually to Edwards in guaranteed gross margin
on sales in any year that Edwards' purchases from WorldHeart are less than US
$10million. The Corporation accounts for any shortfall of the guaranteed gross
margin as a reduction of revenues.

The Corporation reports commercial activities and research activities as
operating segments. There have been no revenues or costs of goods sold as a
result of research activities since inception of the Corporation. Of the
commercial activities, approximately 60% of revenues were generated in the
United States (52% in 2000) with the balance in Europe and Canada.

Selling, general and administrative

Selling, general and administrative expenses consist primarily of payroll and
related expenses for executives, accounting, marketing, and administrative
personnel, professional fees, communications, promotional activities, costs
associated with meeting multi-jurisdictional regulatory requirements, insurance,
occupancy and other general corporate expenses.

Selling, general and administrative expenses for the 2001 fiscal year increased
96% from the prior year. Approximately 50% of this increase relates to
increasing the awareness of the Corporation and its products. A further 27% of
this increase is due to there being six months of activity relating to the


<PAGE>



Oakland operation during 2000 compared to 12 months of activity in 2001. Other
factors include an increase in the cost of managing the expanded organization.

The increase in expenses in 2000 from 1999 was related primarily to
administrative activities in supporting the Novacor LVAS including marketing,
finance and human resource activities. The company purchased Novacor in June of
2000 and, as a result, the 2000 figures have 6 months of selling, general and
administrative activities relating to the Novacor LVAS.

The Corporation will continue to increase its marketing and promotional activity
as enhancements to the Novacor LVAS are introduced during the first half of 2002
and as the HeartSaverVAD approaches clinical trails.

Research and development

Research and development expenses consist principally of payroll and related
expenses for development staff, prototype manufacturing, testing, configuration
of equipment, trial expenses, regulatory affairs and quality control with
respect to prototype development.

During the year, the Corporation received a favourable ruling in respect of its
eligibility for a refundable tax credit that relates to research and development
expenditures made in the period from May 1997 to September 30, 2001 and
management concluded that collection was now probable, therefore, this amount
was recorded as receivable. The tax credit has been applied against research
expenses for the 2001 fiscal year. The claim is currently being audited. Of the
total amount accrued of $2.77 million, $150,000 relates to the 2001 fiscal year
and $2.62 million relates to the 1997 through 2000 fiscal years.

Research and development expenses increased by 83% from 2000 after recognizing
the above noted refundable tax credit of approximately $2.8 million in 2001.
Excluding this credit, research and development expenses for the year were
approximately $36.5 million, an increase of 98% over the $18.4 million expended
in the 2000 fiscal year. A significant portion of the increase relates to there
only being six months of activity relating to the Oakland operation in the 2000
fiscal year. The increase is also the result of expenses relating to the
INTrEPID trial for Novacor LVAS (alternate to medical therapy in the United
States), research activities undertaken to further the development of HeartSaver
and commencement of formal pre-clinical trials of HeartSaver. As previously
discussed, the Corporation also improved the utilization of excess manufacturing
capacity in the Oakland facility to accommodate expanding research and
development activities. As a result of this expansion in research and
development activities in the Oakland operation, focused mainly on the
HeartSaver, a higher proportion of overhead costs have been allocated to these
activities.

Research and development expenses increased by 41% in 2000 from 1999. A
significant portion of this increase was the result of the research activities
undertaken by World Heart Inc. to further the development of HeartSaver. In
addition, the Corporation continued its in vivo tests of HeartSaver and
increased the production of systems for the series of pre-clinical trials that
were conducted in the first half of 2001.

Research and development expenditures relating to the HeartSaver will be focused
on the remaining technical issues and both preclinical and clinical trials in
2002. With respect to the Novacor LVAS, focus will be on completing and
introducing certain product enhancements, reintroducing the ePTFE conduit in
Europe and restarting a clinical trial in the United States for this conduit, as
well as the completion of the current Novacor LVAS United States clinical trial,
named INTrEPID, for alternative to




<PAGE>



medical therapy use of the Novacor LVAS . Research activities related to the
next generation of HeartSaver (HeartSaver II) are also expected to commence in
the 2002 fiscal year. Research and development expenditures in general are not
expected to increase in 2002. Increases in expenditures relating to the
above-noted activities will be offset by reductions in expenditures on the
current HeartSaver and, accordingly, significant net incremental research and
development expenditures are not anticipated.

With respect to the HeartSaver, it is anticipated that CVD will direct the
conduct of formal pre-clinical and clinical trials under contract with
WorldHeart. In addition, CVD will participate in research and development for
WorldHeart in developing the next generation of HeartSaver and other
technologies.

Amortization of intangibles

During 2000, as a result of the acquisition of Novacor from Edwards for a total
purchase price of approximately $62.5 million, the consolidated financial
statements reflected a significant increase in intangible assets. The resulting
amortization for the 2001 fiscal and 2000 fiscal year were $15.2 million and
$7.5 million respectively. The 2000 fiscal year reflects six months of
amortization from June 30, 2000, the date of acquisition. The intangible assets
are amortized on a straight-line basis and will continue to result in
significant annual expenses. Goodwill was being amortized over its estimated
useful life of 5 years. Other intangible assets, consisting of purchased
technology, patents, trademarks and other identified rights, are amortized over
their legal or estimated useful lives, whichever is shorter, which range from 3
to 5 years. Due to changes in accounting pronouncements (Canadian Institute of
Chartered Accountants Section 3062 "Goodwill and Other Intangible Assets"),
which will be adopted by the Corporation in its fiscal year beginning January 1,
2002, it is expected that amortization will be significantly reduced in the
future as goodwill and indefinite life intangibles will no longer be amortized.
However, they will be subject to impairment testing on adoption and annually
thereafter.

Interest income

Interest income primarily represents interest earned by the Corporation on its
cash equivalents and short-term investments.

Interest income in 2001 decreased 49% from 2000. This is due to lower average
cash equivalent and short-term investment balances during the year and a lower
interest rate environment compared to prior years. Although the Corporation
completed a successful special warrants offering for net proceeds of $14,886,649
and benefited from the investment by a third party into a research and
development entity in the amount of $3.4 million, these events did not happen
until December 2001 and, as a result, the Corporation earned very little income
on these funds in the year.

Interest income in 2000 increased 104% over 1999 due to the receipt of net
proceeds of over $15 million from an equity issue in March 2000 and the proceeds
from the issuance of convertible preferred shares for US$20 million to Edwards
in June 2000.



<PAGE>



Other expenses

Other expenses include gains and losses on foreign exchange and interest expense
on the convertible preferred shares.

The preferred shares are being accounted for in accordance with their substance
and are presented in the financial statements as their debt and equity
components measured at their respective fair values at the time of issue. The
debt components have been calculated as the present value of the interest
payments discounted at 12%, approximating the interest rate that would have been
applicable to non-convertible debt at the time the preferred shares were issued.
Interest expense is determined on the debt components as the amount necessary to
increase the debt component to its face amount at maturity. Total interest
expense for the 2001 fiscal year was approximately $6.9 million. The
corresponding amount for the 2000 fiscal year, which included six months of
interest, was approximately $3 million.

In November 2001, the Accounting Standards Board ("AcSB") of the Canadian
Institute of Chartered Accountants ("CICA") approved amendments to CICA Handbook
Section 1650, "Foreign Currency Translation" that requires exchange gains or
losses arising on the translation or settlement of a foreign currency
denominated monetary or non-monetary item carried at market to be included in
the determination of net income for the period. Previously, unrealized
translation gains and losses on non-current monetary assets and liabilities were
deferred and amortized over the remaining life of the monetary item. The
Corporation has adopted this new pronouncement in the quarter ended December 31,
2001 and has restated the prior period financial statements to give retroactive
effect to this change in accounting standards. The effect of this restatement on
the financial statements was to decrease deferred foreign exchange loss and
increase net loss by $3,047,835 (2000 - $531,035, 1999 - $nil).

Recovery of future income taxes

The Corporation has recognized future income tax recovery amounts on the losses
incurred in the United States. For the 2001 and 2000 fiscal years these amounts
were $5.0 million and $5.5 million, respectively. This recovery is calculated as
41.05% of the net loss of World Heart Inc. The Canadian operations have both
operating loss carryforwards and scientific research and experimental
development expenditure carryforwards available to offset future income taxes.
The benefit of these carryforwards has not been recorded in the financial
statements.





Capital Expenditures

<TABLE>

                                       Year ended                  Year ended                   Year ended
                                     December 31,                December 31,                 December 31,
                                             2001                        2000                         1999
<S>                            <C>                               <C>                         <C>
Capital expenditures                   $1,205,121                    $902,398                     $246,620
                               ------------------          ------------------            ------------------

</TABLE>

Capital expenditures increased slightly in 2001. Expenditures during the year
were primarily for office equipment, computer and systems equipment,
manufacturing equipment and testing equipment related to pre-clinical and
clinical trials.

No significant or unusual capital expenditures were made during 2000 or 1999.

At December 31, 2001, WorldHeart occupied three locations. The main Ottawa
location comprises 22,755 square feet of manufacturing and office space with a
lease that is being renewed on an annual basis on terms consistent with prior
years. There is a satellite office in Ottawa with approximately 4,700 square
feet and a lease that expires in December 2003. The third location is in Oakland
with two buildings and approximately 40,000 square feet of manufacturing and
office space. The Oakland leases expire on April 30, 2002; the Corporation is
currently negotiating to assume these leases and to extend the term.


Employees

The Corporation is committed to employing qualified personnel with appropriate
expertise in its research and development and its business operations. At
December 31, 2001, the Corporation employed 252 full-time staff and consultants.

In addition to these staff members, there are approximately 58 clinical and
professional staff and volunteers, affiliated with CVD, involved in delivering
the HeartSaver project.


Market Risk

The following summarizes the Corporation's investment instruments entered into
for other than trading purposes at December 31, 2001.

<TABLE>


                                         Total       Rate Range          Maturity Dates
Cash equivalents
Short-term asset backed notes
<S>                                <C>            <C>                 <C>
                                      $11,328,299    1.9% to 2.28%       January 4, 2002 to February 21, 2002
Short-term investments
Corporate securities                   $6,881,300    1.78% to 3.08%      June 15, 2002 to September 24, 2003

</TABLE>

Market risk is mitigated by close adherence to an established investment policy,
which has been approved by the Board of Directors. The policy sets conservative
criteria with respect to liquidity and counter-party diversification. Management
believes the Corporation is not significantly exposed to capital risk as the
portfolio consists of high quality instruments that are short term in nature and
are well diversified. There exists modest income exposure to a decline in
interest rates. This is not significant due to the short terms to maturity of
the instruments held.

Liquidity and Capital Resources

Since inception, the Corporation has financed its operations largely through
public and private securities issues. New funding in 2001 resulted in issuing
3,027,000 special warrants through a private placement for net proceeds of $14.9
million. Each special warrant was convertible into one common share and one
warrant to purchase a common share. Subsequent to year end the special warrants
were converted. In addition, during 2001 the Corporation and New Generation
Biotec (Equity) Fund ("NewGen"), an Ontario labour sponsored venture capital
investment fund, subscribed for an equal number of common shares of 2007262
Ontario Inc. ("2007262"). In return for preferred shares and a promissory note
in the amount of $2.0 million, the Corporation transferred certain technology
and assets to 2007262. The promissory note was paid to the Corporation prior to
year end and the remainder of the cash is to be used to fund research and
development activities. NewGen purchased preferred shares in 2007262 for gross
proceeds of $3.5 million. The Corporation consolidated 2007262 Ontario Inc. into
its results for the year ended December 31, 2001.

In 2000, the Corporation issued 850,000 common shares for net proceeds of $15
million and as part of the Novacor acquisition, the Corporation issued
convertible preferred shares for US$20 million. The preferred shares are
convertible at US$14.55 into 1,374,570 common shares, plus additional common
shares for the accumulated but unpaid dividends to the date of conversion. Also
during 2000, 12,282 shares were issued for $116,147 upon the exercise of stock
options issued under the Employee Stock Option Plan. Additionally, during 2000,
common shares were issued for $765,054 to underwriters of previous equity issues
who exercised a portion of their compensation warrants.

At December 31, 2001, the Corporation had working capital of $26.2 million (2000
- $51.0 million). The Corporation had cash, cash equivalents and short-term
investments of $22.2 million (2000 - $46.5 million). In 2000, $226,316 was
pledged as collateral for the capital lease arrangement; there is no longer cash
pledged with respect to this lease arrangement. The decrease in working capital
is due to lower cash equivalent and short-term investment balances at year end,
which is the result of expenditures being higher in 2001 and less funding being
raised during the year than in 2000.

The Corporation does not expect the expenditures for 2002 to exceed what was
expended in 2001. Sources of short term funding include: sales of the Novacor
LVAS, funding from the Canadian Federal Government under the Technology
Partnerships Canada program, and an amount receivable from the Province of
Ontario under the Ontario Business Research Institute Tax Credit program.


The Corporation's obligations and commitments to make payments are as follows.

<TABLE>


                                                               Payments Due by Period

---------------------------------- ----- ------------- ------------- -------------- ------------ ------------
<S>                               <C>        <C>     <C>           <C>           <C>              <C>
Contractual Obligations                         Total   Less than 1        1 - 3       4 - 5       After 5
                                                               year        years       years         years
---------------------------------- ----- ------------- ------------- -------------- ------------ ------------
Capital Lease Obligations                   $ 238,899   $   173,976    $    64,923   $        -       $    -
---------------------------------- ----- ------------- ------------- -------------- ------------ ------------
Operating Leases                              838,279       733,262         99,415        5,602            -
---------------------------------- ----- ------------- ------------- -------------- ------------ ------------
Guaranteed Distribution Fees       (1)      8,000,000     2,000,000      4,000,000    2,000,000            -
---------------------------------- ----- ------------- ------------- -------------- ------------ ------------

</TABLE>



<PAGE>

(1) These amounts relate to the US $2 million minimum gross profit guarantee
under the distribution agreement with Edwards . US $2 million per year is the
maximum exposure; the shortfall offset against revenue in 2001 was US $547,369
(2000 - US $332,074). The 2001 shortfall includes an accrual for 2002 in the
amount of $318,000; no amounts have been accrued for years subsequent to 2002.

<TABLE>



                                                    Amount of Commitment Expiration Per Period
--------------------------------------------------- ---------------------------------------------------------
<S>                                         <C>        <C>           <C>        <C>           <C>
Other Commercial Commitments                     Total   Less than 1    1 - 3       4 - 5        After 5
                                               Amounts          year    years       years          years
                                             Committed
------------------------------------- -- -------------- ------------- ------------ ------------ -------------
Standby Letters of Credit                     $250,720      $250,720
------------------------------------- -- -------------- ------------- ------------ ------------ -------------
</TABLE>


In the short term, current cash on hand along with sales of the Novacor LVAS,
funding under the Technology Partnerships Canada program and a provincial tax
credit receivable are anticipated to be sufficient to fund operations. Longer
term, additional financing will be required prior to full commercialization of
HeartSaver. The Corporation has no current arrangements with respect to sources
of additional financing, and there can be no assurance that additional financing
will be available to the Corporation when needed, on commercially reasonable
terms, or at all. In addition, any incremental equity financing may involve
substantial dilution to the Corporation's then existing shareholders. In the
event the Corporation is unable to secure additional financing during the 2002
fiscal year there is a cost reduction plan in place such that the funds
anticipated to be available are sufficient to fund the Corporation through the
next fiscal year.

Critical Accounting Policies

The Corporation's critical accounting policies are as follows:

     o    Estimating future sales to ascertain if an obligation exists under the
          Edwards' distribution agreement
     o    Estimating slow moving and obsolete inventory
     o    Valuation of intangible assets and goodwill
     o    Accounting for government assistance
     o    Tax credit receivable o Income taxes

Under a distribution agreement with Edwards, the Corporation is committed to
paying a minimum of US $2 million to Edwards in guaranteed gross margin. The
Corporation's policy is to accrue as payable the shortfall in the US $ 2 million
guaranteed gross profit for the year or a future year when, based on estimated
future sales to Edwards , it appears likely that the guaranteed gross profit
margin will not be met. If sales to Edwards were to drop from the current
estimates, the amount ultimately owed would be greater than the current
estimate.

The Corporation has established reserves for slow moving inventory based on an
analysis done relative to inventory items. To the extent inventory movement is
not as anticipated, the current inventory reserve needed for slow moving items
may be higher or lower than that reserved at December 31, 2001.



<PAGE>

The Corporation's policy is to review the carrying amounts of goodwill and other
intangible assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Such events or circumstances
might include a significant decline in market share, a significant decline in
profits, rapid changes in technology, significant litigation or other items.
Management does not believe that events or changes in circumstances indicate
that an impairment has occurred and, as a result, no impairment has been
recorded.

Government assistance is recognized when the expenditures that qualify for
assistance are made and the Corporation has complied with the conditions for
receipt of government assistance. Government assistance is applied first to
reduce the carrying value of any assets and next to reduce eligible expenses
incurred in the year. A liability to repay government assistance, if any, is
recorded in the period when the conditions arise that cause the assistance to
become repayable. A receivable in the amount of $1.2 million was accrued at year
end with respect to expenditures made during the period October 1, 2001 through
December 31, 2001 under a grant from Technology Partnerships Canada. This was
based on actual expenditures and labour incurred on eligible activities and a
computation of eligible overhead. Subsequent to year end, the amount of the
claim was revised upward to reflect an increase in the portion of overhead costs
the Corporation is eligible to claim. Also subsequent to year end, the payment
from Technology Partnerships Canada was received for the two-month period ended
November 30, 2001 in the amount of $1,103,863 and a letter was received
approving payment for the three-month claim period ended February 28, 2002 in
the amount of $1,999,145.

Under the Ontario Business Research Institute tax credit program, the
Corporation accrued a tax credit receivable in the amount of $2.7 million during
the current year. The amount accrued was based on research payments made to CVD
under a research agreement between CVD and the Corporation. This amount is
currently being audited.

As part of the process of preparing the Corporation's consolidated financial
statements, the Corporation is required to estimate the income taxes in each of
the jurisdictions in which it operates. This process involves estimating the
Corporation's current tax exposure together with assessing temporary differences
resulting from differing treatment of items for tax and accounting purposes. The
Corporation has future income tax assets, the principal components of which are
undeducted Scientific Research and Experimental Development expenditures and net
operating loss carry forwards. The Corporation believes sufficient uncertainty
exists regarding the realizability of these future income tax assets such that a
valuation allowance has been taken on the entire amount. Assumptions regarding
the realizability of these future income tax assets are revisited at each
balance sheet date. Any changes in the Corporation's overall operating
environment and financial performance could result in adjustments to the
valuation allowance.


Other Factors

WorldHeart's business and future depends on the timely completion of the
INTrEPID clinical trial of the Novacor LVAS as alternative to medical therapy
and on the commercial success of HeartSaver. This success is expected to be
assisted by the increased sales of Novacor LVAS. Both devices provide pulsatile
blood flow and HeartSaver is designed to be fully implantable in the chest
cavity. Pulsatile VADs, using pumps that are either externally placed or
abdominally implanted, have been demonstrated to be effective in supporting the
blood circulation of patients with failing hearts. Although Novacor LVAS has
been implanted in more than 1300 patients, there can be no assurance that
HeartSaver will also prove safe and effective until successful clinical trials
have been completed.



<PAGE>


Pulsatile VADs

WorldHeart has several competitors with commercially approved pulsatile VADs
having pumps that are externally located or abdominally implanted. The devices
developed by the Corporation's competitors are now primarily used as bridges to
transplant. Some of the Corporation's existing known competitors have
significantly greater financial, production and marketing resources than the
Corporation. WorldHeart believes HeartSaver is the only pulsatile device that is
currently at an advanced stage of development and that is fully implantable in
the chest cavity.

Non-pulsatile VADs

Research and development is proceeding in several centres for non-pulsatile
continuous flow assist devices. Some of these devices are currently being tested
in humans. It has not been determined whether these non-pulsatile devices will
be acceptable for long-term use. If proven safe and effective, and subject to
regulatory approval, non-pulsatile assist devices approved for long-term use
could have an adverse effect on the market for WorldHeart's devices.


Clinical Trials for HeartSaver

It is management's plan to conduct pre-clinical testing and initiate a Canadian
and a European clinical trial of HeartSaver in 2002. There can be no assurance
that the pre-clinical trial will be successful or that regulatory approval will
be received in order to commence clinical trials during 2002 for HeartSaver.


Commercial Sales of Novacor LVAS

As noted above, sales of Novacor LVAS contribute approximately 48% of revenue to
overhead and other indirect costs of producing the Novacor LVAS product. At
current volumes, however, total costs of production exceed total revenues. To
the extent that the Corporation falls short of meeting sales forecasts, there
could be an adverse effect on the overhead absorption from sales and on the
Corporation's net cash consumption.


Outlook

The Corporation expects to incur further losses from operations at least until
2004 as it progresses into the clinical phase of its HeartSaver research and
development program. In addition, increased marketing and manufacturing expenses
will result as WorldHeart launches its enhanced Novacor LVAS product and
completes the INTrEPID clinical trial. These increases will be potentially
offset by increased interest income as well as increasing revenues generated
from Novacor LVAS sales and initial sales of HeartSaver after it receives
regulatory approval in individual countries.


     Accounting Policies

Significant differences between GAAP in Canada and the United States are
presented in Note 20 to the consolidated financial statements.


<PAGE>


SHAREHOLDER RESOURCES


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<S>                                                     <C>

The Board of Directors                                        Annual Meeting
                                                              The Annual Meeting will be held on June 10th, 2002
Dr. Tofy Mussivand                                            at 4:00 PM in the Drawing Room of the Chateau
Chairman and Chief Scientific Officer                         Laurier Hotel, 1 Rideau Street, Ottawa, Ontario.

Roderick M. Bryden                                            World Heart Corporation
President and Chief Executive Officer                         1 Laser Street, Ottawa, Ontario, K2E 7V1
                                                              Telephone: (613) 226-4278 Fax: (613) 226-4744
Ian W. Malone                                                 www.worldheart.com
Vice-President Finance and Chief Financial Officer
                                                              World Heart Inc.
Michael A. Mussallem                                          7799 Pardee Lane, Oakland, CA 94621
Chairman and Chief Executive Officer,                         Telephone: (510) 563-5000 Fax: (510) 563-5005
Edwards Lifesciences Corporation LLC                          www.worldheart.com
Former Chief Executive Officer, Novacor

Richard Lesher                                                NASDAQ: WHRT TSE: WHT
Former President and Chief Operating Officer
United States Chamber of Commerce                             Shareholder Contact: Corinna de Beer
                                                              Manager, Investor Relations
Dr. Donald S. Beanlands M.D., FPCP(C)                         Telephone: (613) 226-4278 Fax: (613) 723-8522
Deputy Director General                                       investors@worldheart.com
University of Ottawa Heart Institute
Professor Emeritus, University of Ottawa                      Legal Counsel (Canada): McCarthy Tetrault
                                                              The Chambers, 40 Elgin Street, Suite 1400
                                                              Ottawa, Ontario, K1P 5K6
C. Ian Ross
Senior Director of Administration                             Legal Counsel (US): White & Case LLP
Richard Ivey School of Business                               1155 Avenue of the Americas
University of Western Ontario                                 New York, New York 10036-2787
                                                              Auditors: PricewaterhouseCoopers LLP
                                                              Chartered Accountants
                                                              99 Bank Street, Ottawa, Ontario, K1P 1E4

                                                              Transfer Agent and Registrar: CIBC Mellon Trust Company
                                                              Shareholder Inquiries - Attention: Investor Correspondence
                                                              P. O. Box 7010, Adelaide Street Postal Station
                                                              Toronto, Ontario, M5C 2W9 CANADA
                                                              Answer Line: (416) 643-5500 or 1-800-387-0825
                                                              Facsimile: (416) 643-5660
                                                              Website: www.cibcmellon.com
                                                              Email: inquiries@cibcmellon.com
                                                                     ------------------------


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