UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549



FORM 10-KSB/A
Amendment No. 1



(Mark One)ý

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2007o

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACTFor the transition period
from                                to


Commission File No. 0-28882



WORLD HEART CORPORATION



Canada(State or other Jurisdiction of
Incorporation or Organization)

52-2247240(I.R.S. Employer
Identification No.)7799 Pardee Lane
Oakland, California, USA(Address of Principal Executive Office)

94621(Zip Code)


(510) 563-5000(Issuer's Telephone Number)



Securities registered under Section 12(b) of the Exchange Act:

Title of each class

Name of each exchange on which registeredCommon Shares, no par value

The Nasdaq Stock Market LLC


Securities registered under Section 12(g) of the Exchange Act: None

Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange
Act. o

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure
will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý

The issuer's revenues for its most recent fiscal year ended December 31, 2007 were $2,575,577.

The
aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as of March 12, 2008 was $5,026,575.

The
number of common shares outstanding as of March 12, 2008 was 11,560,776.

DOCUMENTS INCORPORATED BY REFERENCE

Designated portions of registrant's Definitive Proxy Statement for its 2008 Annual Meeting of Shareholders are incorporated by reference into Part III of
this Form 10-KSB.

Transitional
Small Business Disclosure Format (Check
one): Yes o    No ý



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EXPLANATORY NOTE

We are filing this Amendment No. 1 on Form 10-KSB/A for the year ended December 31, 2007 to amend our
Form 10-KSB originally filed with the Securities and Exchange Commission on March 27, 2008. We are filing this amendment solely for the purpose of providing corrected certifications
filed as Exhibits 31.1 and 31.2 which inadvertently omitted the portion of the language in the introduction to the fourth paragraph and in paragraph 4(b) relating to internal control
over financial reporting.

Unless
otherwise expressly stated, this Amendment No. 1 does not reflect events occurring after the filing of the original Form 10-KSB, or modify or update in any way
disclosures contained in the original Form 10-KSB.

TABLE OF CONTENTS

PART I


1Item 1.

Description of Business


1Item 2.

Description of Property


19Item 3.

Legal Proceedings


20Item 4.

Submission of Matters to a Vote of Security Holders


20PART II


21Item 5.

Market for Common Equity and Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities


21Item 6.

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


24Item 7.

Financial Statements


40Item 8.

Change In and Disagreements with Accountants on Accounting and Financial Disclosure


40Item 8A(T).

Controls and Procedures


41Item 8B.

Other Information


42PART III


43Item 9.

Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance With Section 16(a) of the Exchange
Act


43Item 10.

Executive Compensation


43Item 11.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


43Item 12.

Certain Relationships and Related Transactions, and Director Independence


43Item 13.

Exhibits


43Item 14.

Principal Accountant Fees and Services


47SIGNATURES


48EXHIBIT INDEX


49FINANCIAL STATEMENTS


F-1


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PART I

Item 1.    Description of Business.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-KSB includes "forward-looking statements" within the meaning of Section 27A of
the United States Securities Act of 1933, as amended (the Securities Act) and Section 21E of the United States Securities Exchange Act of 1934, as amended (the Exchange Act). The
forward-looking statements include statements regarding our expectations with respect to future development plans for our next generation product candidates, particularly the Levacor
Rotary VAD (Ventricular Assist Device), the timing and scope of pre-clinical testing and clinical trials, our ability to secure additional funding or the ability to form strategic
partnerships, our cost reduction efforts and their impact on our ability to maintain operations, as well as other statements that can be identified by the use of forward-looking language, such as
"believe," "feel," "expect," "may," "will," "should," "seek," "plan," "anticipate," or "intend" or the negative of those terms, or by discussions of strategy or intentions. These forward-
looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results and performance to be materially different from any future results and performance
expressed or implied by these forward-looking statements. Important factors that could cause our actual results to differ materially from those expressed or implied by such forward-looking statements
include:



We
undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required
under applicable securities laws.

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CORPORATE STRUCTURE

Name, Address and Incorporation

WorldHeart Corporation ("Corporation" and collectively with its subsidiaries, "WorldHeart") was incorporated by articles of
incorporation under the laws of the Province of Ontario on April 1, 1996. On December 14, 2005, WorldHeart filed articles of continuance and continued under the laws of Canada. Our head
office is located at 7799 Pardee Lane, Oakland, California, USA, 94621 and our head office telephone number is 510-563-5000. We have an office at Van der Landelaan 27, 6075 GA
Herkenbosch, Netherlands and a research facility at 4750 Wiley Post Way, Suite 120, Salt Lake City, Utah, USA, 84116. Our registered office is located at 40 Elgin Street, Suite 1400,
Ottawa, Ontario, Canada, K1P 5K6 and our telephone number is (613) 238-2000.

Our
articles of incorporation were amended on June 22, 2000, to create a first series of 1,374,750 preferred shares designated as Cumulative Redeemable Convertible Preferred
Shares, Series A (the Series A Shares), in connection with the acquisition by WorldHeart of the Novacor division of Edwards Lifesciences LLC (Edwards). On November 26,
2003, our articles were amended to amend the rights and privileges of the Series A Shares in connection with the conversion by Edwards Lifesciences (U.S.) Inc. of its Series A
Shares as part of our financing transaction completed in September 2003. Our articles were amended again on December 1, 2003, to affect a one common share for seven common shares share
consolidation. WorldHeart filed articles of continuance on December 14, 2005, associated with the reincorporation under the laws of Canada from the Province of Ontario. In conjunction with the
continuance, a new by-law was adopted by our directors. Our articles of incorporation were amended again on May 30, 2007 to affect a one common share for ten common shares
consolidation.

Intercorporate Relationships

World Heart Inc. (WHI) is our wholly owned subsidiary, incorporated under the laws of the State of Delaware on May 22,
2000. WHI acquired the assets and liabilities of the Novacor division of Edwards in June 2000, and is responsible for the manufacturing and primary sales, marketing and support of the Novacor left
ventricular assist system (Novacor LVAS or Novacor) as well as next-generation product development.

World
Heart B.V., a wholly-owned subsidiary, incorporated under the laws of the Netherlands on March 5, 2004, through which we carry on sales, sales support and
distribution in Europe. On October 30, 2007 ownership of WorldHeart B.V. was transferred and it is now a wholly-owned subsidiary of WHI.

2007262
Ontario Inc. (2007262), was an associated research and development company of WorldHeart, incorporated under the laws of the Province of Ontario on November 29,
2001, to carry out specified research and development for us. WorldHeart and New Generation Biotech (Equity) Fund Inc. (NewGen), an Ontario labour-sponsored venture capital corporation, each
held 100 common shares of 2007262. On January 1, 2006, WorldHeart purchased the 100 common shares of NewGen and became the sole shareholder of 2007262. 2007262 was dissolved by articles of
dissolution on March 5, 2007.

BUSINESS OF WORLDHEART

The Corporation

WorldHeart's business is focused on the development and sale of VADs, particularly our Levacor Rotary VAD (Levacor VAD or Levacor).
VADs are mechanical assist devices that supplement the circulatory function of the heart by re-routing blood flow through a mechanical pump allowing for the restoration of normal blood
circulation. WorldHeart believes both pulsatile and rotary pumps are

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required
to treat the full spectrum of the clinical needs of end and late-stage heart failure patients and that pulsatile devices are better suited for end-stage patients with
poor ventricular contractility, who require full support or functional replacement. Alternatively, rotary devices may best meet the clinical needs of late-stage patients, with some
contractility, who require only partial support or an assist.

VADs
are used for treatment of patients with severe heart failure including primarily patients whose hearts are irreversibly damaged and cannot be treated effectively by medical or
surgical means other than transplant. Bridge-to-Transplant therapy involves implanting a VAD in a transplant-eligible patient to maintain or improve the patient's health until
a donor heart becomes available. Destination Therapy is the implanting of a VAD to provide long-term support for a patient not currently eligible for a natural heart transplant.
Bridge-to-Recovery involves use of VADs to restore a patient's cardiac function helping the natural heart to recover and thereby allowing removal of the VAD.

We
are focused on the development of the Levacor Rotary VAD, the next-generation rotary device that we acquired as part of our acquisition of the assets of MedQuest
Products, Inc. (MedQuest) in July 2005. It uses a magnetically-levitated rotor resulting in no moving parts subject to wear, which is expected to provide multi-year support. The
Levacor VAD is in the clinical development stage with an initial human feasibility clinical trial successfully completed in Europe during 2006. Two hospitals in Canada, Toronto General Hospital and
the University of Ottawa Heart Institute, are currently approved to implant the Levacor Rotary VAD as a bridge to cardiac transplant under Health Canada's Therapeutic Product Directorate Special
Access Program. However, no implants have taken place to date and two or three Canadian sites are expected to participate in the pivotal Bridge-to-Transplant clinical study
expected to begin in the U.S. in the third quarter of 2008, subject to availability of additional funding.

The
Novacor LVAS (Novacor), WorldHeart's first generation pulsatile VAD, is commercially available as a Bridge-to-Transplant in Europe, Japan, the United States
and Canada. In Europe, it is also available as an alternative to transplantation and as a Bridge-to-Recovery to support patients whose natural heart may recover. WorldHeart is
currently supporting medical centers and patients utilizing Novacor, but not actively marketing the product.

WorldHeart's
next-generation pulsatile VAD, the Novacor II, is currently in pre-clinical development. The Novacor II is being designed as a smaller implantable
heart assist device to provide long-term pulsatile blood flow to patients suffering from heart failure. The first animal implants of the Novacor II were completed in 2005 and 2006. We
intend to further the development of the Novacor II after completion of the Levacor VAD design, contingent on our ability to fund this program.

The
pediatric VAD (PVAD) is a small, magnetically levitated, axial rotary VAD currently under pre-clinical development. Based on WorldHeart's proprietary technology, it is
intended for use in newborns and infants. The PVAD is being developed by a consortium, including WorldHeart and the University of Pittsburgh and LaunchPoint Technologies with funding provided by the
National Institutes of Health (NIH).

The
technology embodied in the PVAD is intended to form the basis for a small, Minimally Invasive VAD (MiVAD). This device is aimed at providing partial circulatory support to the
relatively large population of patients in early-stage heart failure. Included in this population are patients who do not respond to cardiac resynchronization therapy, and currently have no optimal
available therapeutic option.

Three-Year History and Development of WorldHeart

On May 30, 2007, the Corporation announced that it effected a one-for-ten reverse stock split of its
capital stock. The effect of the reverse stock split has been retroactively applied throughout the financial statements contained herein.

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On
January 31, 2005, we entered into an asset purchase agreement with MedQuest, as amended by amendment no. 1 dated March 22, 2005, under which we agreed to purchase
all of the assets of MedQuest for a total purchase price of approximately $16.0 million plus the assumption of certain liabilities of approximately $3.5 million, subject to certain
conditions, including shareholder approval (the MedQuest Acquisition). In addition, we entered into a purchase agreement with Maverick Venture Management, LLC (Maverick) to complete a private
placement of 0.9 million common shares of WorldHeart at $13.50 per common share for an aggregate purchase price of $12.0 million. The closing of the private placement was contingent on
the closing of the MedQuest Acquisition and other conditions.

On
March 22, 2005, WorldHeart announced that it had ceased to be a "foreign private issuer" as defined under the Exchange Act as a result of the consolidation and relocation of
its headquarter operations to Oakland, California.

On
July 18, 2005, WorldHeart held its annual and special meeting of shareholders and received approval from its shareholders for the MedQuest Acquisition, the issuance of common
shares of WorldHeart to Maverick in the private placement, and a reduction of the exercise price from $15.50 to $10.00 of certain warrants of WorldHeart in connection with the conversion of all of the
convertible debentures and exercise of all of the warrants issued in September 2004. Matters related to the WorldHeart employee stock option plan were also approved, as well as the continuance of
WorldHeart under the Canada Business Corporations Act.

On
July 29, 2005, WorldHeart successfully completed the MedQuest Acquisition, raised approximately $22.7 million in gross financing proceeds from the private placement with
Maverick and the exercise of all the outstanding warrants, and converted all of its convertible debentures. At the closing of the transactions, Maverick and the shareholders of MedQuest held
approximately 33% of the common shares outstanding of WorldHeart. Maverick was given the right to nominate up to two designees to WorldHeart's Board of Directors so long as it holds or controls at
least 25% of our issued and outstanding common shares. Upon completion of the acquisition, WorldHeart retained most of
MedQuest's employees at its facility in Salt Lake City, Utah, which continues to serve as the primary development site for our Levacor Rotary VAD product.

On
December 15, 2005, we reincorporated in Canada from the Province of Ontario. In conjunction with our reincorporation in Canada, Jal S. Jassawalla, President and Chief Executive
Officer, was appointed to the Board of Directors.

On
December 21, 2005, the Board of Directors of WorldHeart approved the accelerated vesting of all outstanding stock options held by current employees or consultants, except for
the options held by the non-employee members of the Board of Directors.

On
March 8, 2006, WorldHeart announced a successful first in human implant of the Levacor VAD. The procedure was performed at St. Luke's Hospital in Thessaloniki, Greece,
as part of the Levacor VAD feasibility trial. On May 10, 2006, a second successful Levacor implant was completed at St. Luke's Hospital in Greece. Both patients were successfully weaned
from the device and discharged from the hospital.

On
November 13, 2006, we entered into a purchase agreement with certain new and current investors for a private placement financing consisting of two tranches. The first tranche
of the financing related to the sale of 1.1 million common shares at $2.50 per share for a total of $2.75 million in gross proceeds to WorldHeart was closed on November 16, 2006.
The second closing for $11.31 million in gross proceeds to WorldHeart, or 4.5 million common shares, took place on December 21, 2006, following shareholder approval received at
our annual and special meeting held on December 20, 2006. Gross proceeds from both tranches of the financing totaled approximately $14.1 million at a price of $2.50 per common share. In
addition, we incurred placement agent fees equal to 6% of the gross

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proceeds
payable in common shares totaling approximately 0.3 million common shares. Under the terms of the transaction, we registered for resale all of the common shares issued in both tranches
of the financing.

On
November 14, 2006, we announced a significant restructuring and realignment of our business operations to better focus on the development of our next-generation
Levacor VAD. The restructuring program reduced manufacturing, selling and administrative costs, primarily associated with the Novacor LVAS product. The program included a reduction in workforce of 41
persons, primarily at our Oakland, California, and Heesch, Netherlands locations. The costs attributable to the restructuring recorded during the year ended December 31, 2006 were
$0.6 million consisting of severance costs and a fixed assets write-down. In addition, WorldHeart wrote-off $4.6 million ($3.5 million and
$1.1 million in the third and fourth quarters of 2006, respectively) of raw material, in-process and finished goods inventory associated
with the Novacor LVAS product, which management has determined will not be utilized in future periods.

On
December 14, 2006, we announced that, consistent with the restructuring program and after discussions with the FDA, we were discontinuing enrollment in our Novacor LVAS RELIANT
Trial. WorldHeart had commenced the RELIANT Trial in 2004 to seek approval for Novacor for Destination Therapy use. On December 14, 2006, we also announced that two clinical teams from
prestigious medical centers in Canada completed the technical and clinical training for use of our Levacor Rotary VAD in Canada. To date, no Levacor devices have been implanted. These centers will
participate in the pivotal Bridge-to Transplant clinical study expected to begin in the U.S. in the third quarter of 2008, subject to availability of additional funding.

On
December 11, 2007, the Corporation and WHI entered into a note purchase agreement with Abiomed, Inc. ("Abiomed") as part of a strategic transaction with Abiomed.
Pursuant to the purchase agreement, Corporation and WHI issued to Abiomed a secured convertible promissory note in the principal amount of up to $5.0 million, funded in two tranches,
$1.0 million of which was funded immediately and $4.0 million of which was funded on January 3, 2008. The note is secured by Corporation and WHI's assets and contains certain
covenants and customary events of default, the occurrence of which could result in an acceleration of the note. The note is convertible into Corporation common shares, in whole or in part, at
Abiomed's option, at approximately $1.75 per share and is subject to anti-dilution adjustments in the event that the Corporation issues securities at a lower effective price at any time.
Unless and until shareholder approval for the purposes of compliance with shareholder approval rules of the NASDAQ Stock Market and Toronto Stock Exchange has been received, the conversion of the note
(including any accrued interest), together with any exercise of the warrant as described below, is limited such that Abiomed will not hold more than 19.9% of Corporation's common shares outstanding at
December 11, 2007. Abiomed subsequently agreed by an amendment entered into in March 2008 not to convert any part of the Note until April 30, 2008. The note will accrue interest at 8%
per annum, which is payable upon payment or conversion of the note, and the interest may also be converted into common shares at the then market value, at the option of Abiomed. After
December 11, 2009, the note is payable on demand, or subject to fulfillment of certain conditions, at Corporation's option.

On
December 11, 2007, Corporation and WHI also entered into a clinical and marketing support services agreement with Abiomed, pursuant to which Abiomed agreed to provide clinical
support and certain marketing services in connection with WorldHeart's products in development. As partial consideration for these clinical and marketing services, Corporation issued to Abiomed a
5-year warrant to purchase up to 3,400,000 common shares of Corporation, exercisable at $0.01 per share. However, until the funding of the second tranche on January 3, 2008, the
warrant was exercisable with respect to only 680,000 common shares of Corporation. Following the funding of the second tranche on January 3, 2008, the warrant was exercisable for an additional
2,720,000 common shares of Corporation. Until and unless shareholder approval has been received, the exercise of the Warrant,

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together
with any conversion of the Note, is limited to 19.9% of the Corporation's common shares outstanding on December 11, 2007. Abiomed subsequently agreed by an amendment entered into in
March 2008 not to exercise any part of the warrant until April 30, 2008.

As
part of the note purchase agreement, Corporation also granted Abiomed a right of first refusal to act as an exclusive worldwide distributor for any WorldHeart product not currently
sold by WorldHeart and a right to designate one nominee to Corporation's board of directors or have an observer present at the Corporation's board meetings. Pursuant to the terms of the related
registration rights agreement entered into on December 11, 2007, Corporation also agreed to register for re-sale common shares underlying the note and the warrant and to file such
registration statement with the Securities and Exchange Commission within 120 days after the date of issuance of the note and the warrant.

Our Products

Our current business is based on several generations of implantable VADs. The current generation, commercially available product is our
Novacor LVAS. Our development-stage VADs include the Levacor VAD and Novacor II product candidates. In addition, WorldHeart is developing the PVAD and a Minimally Invasive VAD (MiVAD) based on PVAD
technology. Specifically:





The Novacor LVAS is our commercially available, implantable, pulsatile VAD, which has been in clinical use for more than
20 years and has been implanted in more than 1,700 patients worldwide. The product is an electromagnetically-driven pump, about the size of a human heart, that provides circulatory support for
patients with life-threatening heart failure by taking over part or all of the workload of the left ventricle of the heart. The Novacor LVAS is self-regulating, responding
instantaneously to the recipient's changing heartbeat and circulatory demands.

Novacor
sales during 2006 did not meet our growth targets and, in November 2006, we announced that we would reduce our commercial efforts on the Novacor to focus our resources on the
development of our Levacor Rotary VAD. In the near-term, WorldHeart will continue to make the Novacor LVAS available to medical centers until inventory is no longer available. The
Corporation is not actively marketing the product.

WorldHeart
commenced an equivalency clinical trial in the second quarter of 2004 in the United States, called the RELIANT Trial to seek approval for the Novacor LVAS for use in
Destination

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Therapy.
In conjunction with the above restructuring and our focus on next-generation technology, we announced in December 2006 that we were discontinuing enrollment in the RELIANT Trial.

Next-Generation VAD Platform

Levacor Rotary VAD

Through the acquisition of MedQuest in July of 2005, we obtained the Levacor Rotary VAD, a fourth-generation, rotary blood pump
intended for a range of circulatory support indications. Unlike the initial generation of rotary pumps with blood-lubricated bearings, the Levacor VAD is a compact, bearingless,
magnetically-levitated, centrifugal pump with an impeller that is completely magnetically levitated. Full magnetic levitation eliminates wear mechanisms within the pump and provides for greater
clearances for more optimized blood flow around the impeller, while eliminating dependence on the patient's blood for suspension. The product's levitation technology employs a unique combination of
passive and single-axis active control, resulting in a system of optimal simplicity.

We
successfully completed an initial human feasibility clinical trial in Europe in 2006. We intend to start U.S. pivotal clinical trials in approximately the third quarter of 2008 and a
CE mark trial in Europe in early 2009, subject to obtaining regulatory approval and the availability of funding. If clinical testing is successfully completed and regulatory approvals are obtained, we
plan to pursue commercial approvals in the United States and Europe.

Pediatric VAD (PVAD)

The PVAD is a small, magnetically levitated, axial rotary VAD intended for use in newborns and infants. It is currently under
development by a consortium, including WorldHeart, the University of Pittsburgh and LaunchPoint Technologies. Development is funded by the National Institutes of Health under a contract awarded to the
University of Pittsburgh. The PVAD is based on the proprietary maglev technology incorporated in the Levacor VAD. Prototype devices have been successfully tested in acute and chronic animal implants.
Completion of development and initiation of clinical trials is dependent on availability of follow-on funding after completion of the current NIH contract in March 2009.

Minimally Invasive VAD (MiVAD)

The MiVAD design is a miniature maglev rotary pump, intended to provide partial circulatory support in patients at an earlier stage of
heart failure than currently used VADs. Its small size would allow placement through minimally invasive techniques, reducing the trauma associated with surgically placed devices. The MiVAD design is
derived from the PVAD, with the motor and impeller geometry appropriately scaled for this particular application. The MiVAD is currently at a conceptual stage. Development activities are expected to
begin mid to late 2008, following completion of activities associated with preparations for the Levacor VAD U.S. clinical study and subject to availability of funding.

Novacor II VAD

Our next-generation pulsatile VAD, Novacor II, has been under development as an implantable, pulsatile VAD. Novacor II is
expected to be approximately half the size of the Novacor LVAS. It is magnetically driven, with no mechanical bearings, allowing for simple operation with no wearing of elements or precision
components. For the fully implantable configuration, its dual-chamber design eliminates the need for volume compensation and the need for external venting and incorporates transcutaneous
power and monitoring (i.e. across-the-skin power and data transfer) and an implanted controller/battery. These features are expected to provide recipients with an
enhanced quality of life by eliminating through-the-skin wires. In conjunction with the restructuring in late 2006, we suspended

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development
of the Novacor II. Subsequent to the development of the Levacor VAD, we expect to resume the development and clinical evaluation of the Novacor II, dependent, in part, on our ability to
fund this program.

Research and Development Expenditures

WorldHeart's research and development expenditures were $9,923,827, $9,002,373 and $7,388,385 in 2007, 2006, and 2005, respectively.
Research and development spending for the Levacor VAD is expected to increase in 2008.

Third-party Reimbursement for VADs

The United States Centers for Medicare and Medicaid Services (CMS) currently provide for public reimbursement of VADs used as a
"bridge-to-transplantation" or as "destination therapy." Many of the state Medicaid programs have also followed CMS and provide for public reimbursement as well. In addition,
the majority of private insurance carriers also provide for coverage for VAD use. In October of 2007, the federal register's final rule from the CMS services allowed for the implementation of Medical
Severity Diagnostic Related Groups (MSDRGs). These MSDRGs replaced the DRG system and have MSDRG payments assigned based on the presence of complications or other diseases a patient may have. The base
payment rate for MSDRG-1 (heart transplant or heart assist system
implantation with major complications and comorbidities) for fiscal year 2008 is $125,190. The average payment for DRG 103 during fiscal year 2007 for the 69 destination therapy centers was $142,000.
In October of 2005, CMS issued HCPCS (healthcare common procedural coding systems) codes to allow for reimbursement of outpatient supplies and replacements. Hospitals now are reimbursed for both
inpatient and outpatients costs.

Japan
and several countries in Europe provide reimbursement for VADs. Reimbursement, however, varies among countries and governmental budget constraints can limit certain reimbursements.

Application of (VADs) in Patient Care



Research is ongoing in the industry for an effective treatment for advanced heart failure. While providing some benefit, therapies such
as medication and transplantation have significant limitations, and alternative emerging technologies are being investigated. The following are treatment methods currently being employed for advanced
heart failure:



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VADs that are either externally placed or implanted have been demonstrated as being effective in supporting blood circulation in
patients with a failing heart. To date, more than 10,000 patients have been supported by VADs.

The
following advantages over other treatments generally apply to VADs that are currently approved and in use, including the Novacor LVAS. Although certain advantages may not apply in
every situation or for all patients, we expect that these potential advantages will also apply to our Levacor Rotary VAD and the Novacor II:



Marketing, Manufacturing and Distribution Strategy

Since the acquisition of the Novacor division of Edwards Life Sciences in 2000, WorldHeart has had access to several key medical
centers involved in cardiac transplantation in North America, Europe and Japan. Until our restructuring in November 2006, we sold directly within the United States through a dedicated sales force.
Before 2004, the Novacor LVAS was distributed by Edwards outside the United States. In January 2004, we assumed full sales and support responsibility for the Novacor LVAS primarily in Europe but
excluding Japan. WorldHeart continues to distribute its products through Edwards in Japan and through other distributors in selected markets. Our United States operations have experienced clinical and
technical personnel who support key medical centers, as well as their leading clinicians and medical staff. Approximately 76% and 64% of WorldHeart's 2007 and 2006 revenue came from sales of the
Novacor LVAS in the United States, respectively.

WorldHeart
manufactures, distributes and services its commercial product at its Oakland, California facility. Under the strategic transaction with Abiomed, the Corporation expects to
collaborate with Abiomed in the areas of marketing and clinical support. Abiomed also has the right of first refusal for the distribution of WorldHeart's future products. Abiomed has a large sales and
clinical support team and access to these resources should provide an important benefit to WorldHeart.

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Intellectual Property

We currently hold five active United States patents for the Novacor LVAS and its associated subsystems. A subset of these patents has
also been filed and granted in the major European countries, in Canada and in Japan.

To
date, we have been granted two United States patents for the Novacor II, and patent applications for the Novacor II are pending. One patent has been issued in several European
countries for the Novacor II and corresponding applications are also pending in Europe, Japan and Canada. The Transcutaneous Energy Transfer technology licensed to WorldHeart from the Ottawa Heart
Institute, has been patented in the United States, Canada and the United Kingdom.

WorldHeart
holds numerous patents and licenses to patents related to the Levacor Rotary VAD and other potential future products. WorldHeart has ownership and/or exclusive licenses to ten
patents related to the Levacor implantable blood pump technology. In addition, two patents related to control of rotary blood pumps are non-exclusively licensed. Additional patents are
pending.

We
hold a number of registered trademarks and service marks, including WorldHeart and Novacor. Trademark applications are pending for Levacor and PediaFlow.

We
generally enter into confidentiality and invention agreements with our employees and consultants, and control access to and distribution of information related to our technology and
products, documentation and other proprietary information.

License Agreements

Licenses related to the Levacor Rotary VAD include an exclusive license with the University of Utah on four issued patents and on which
WorldHeart has no future obligations,
an exclusive royalty-based license on four patents with the University of Virginia and an exclusive royalty-based license with the University of Pittsburgh. There is also a royalty-based agreement
with The Heart Lung Institute, LLC, which funded early research of the Levacor VAD.

Competition



In addition to competing with other less-invasive therapies for heart failure, our VADs compete with commercially approved
VADs and VADs under development, sold by a number of companies. Competition from medical device companies is intense and may increase. Many of our competitors have substantially greater financial,
technical, manufacturing, distribution and marketing resources than WorldHeart.

At
present, only two companies in North America have developed implantable, electric VADs approved for commercial sale in the United States: WorldHeart and Thoratec Corporation
(Thoratec). Thoratec has two pulsatile left ventricular assist device models of its HeartMate that have been approved in the United States for commercial sale. One is pneumatically driven (Heartmate
IP LVAS), and the other is electrically driven (HeartMate XVE). The HeartMate XVE has maintained a dominant market share in the United States. In November 2007, Thoratec received an FDA panel
recommendation for the approval of its Heartmate II rotary LVAS for Bridge-to-Transplantation.

Thoratec,
and other companies such as Abiomed, have VADs that are designed for temporary use but are not typically implanted in the body. Their pumps are external and are attached to the
natural heart via connecting tubes running through the recipient's skin and tissue. As described earlier, we now have a strategic relationship with Abiomed with respect to clinical and marketing
services. Abiomed also has the right of first refusal to act as worldwide distributor for any of WorldHeart products not currently sold by WorldHeart.

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In Europe and certain other countries outside North America, several companies including Berlin Heart, Medos Medizentechnik AG, Ventracor Limited, Micromed Inc., Heartware Limited
and Jarvik Heart, Inc. provide VADs.

Future Product Competition



We believe that effective treatment of advanced heart failure will require both rotary and pulsatile pumps to treat the full spectrum
of clinical needs of late and end stage heart failure patients. Further, we believe that rotary devices are better suited for late-stage patients, with some ventricular contractility, who
require only partial support while pulsatile devices are better suited for end-stage patients with poor ventricular contractility, who require functional replacement.



There are a number of rotary flow, VADs in varying stages of development. Thoratec is developing the Heartmate II, a second generation
axial rotary pump that is in advanced clinical development in the United States. Ventracor Limited, an Australian company, is developing the VentrAssist, a third- generation rotary VAD, which is in
clinical development in Australia and the United States. Another Australian company, HeartWare Limited is in clinical development with a third generation rotary device, called the HeartWare HVAD.
Another rotary device, which had been undergoing United States clinical trials and is approved for use in Europe, is the MicroMed DeBakey® VAD being developed by MicroMed
Technology, Inc. The Jarvik 2000 Flowmaker®, developed by Jarvik Heart, is a device at a comparable state of development similar to the MicroMed VAD. The Incor rotary pump from
Berlin Heart is approved for use in Europe.

We
believe that the Levacor Rotary VAD is the most technologically advanced, fourth-generation, rotary pump under development. This bearingless, centrifugal, magnetically-levitated rotor
results in a pump with no moving parts subject to wear, in a small device designed to provide multi-year support. We believe that WorldHeart is currently the only company that has
technologies capable of developing next-generation of both rotary and pulsatile, bearingless VAD systems.

Government Regulations



Most countries, including the United States, Canada and countries that comprise the European Community (EC), require regulatory
approval prior to the commercial distribution of medical devices. In particular, active implantable medical devices generally are subject to rigorous clinical testing as a condition of approval by the
FDA and by similar authorities in Canada, in the EC and in other countries. The approval process for our Levacor Rotary VAD and subsequent products will be expensive and time consuming.



In the United States, the FDA regulates the manufacture, distribution, labeling and promotion of medical devices pursuant to the United
States Federal Food, Drug and Cosmetic Act (FDC Act) and regulations under the FDC Act. The Novacor LVAS, Levacor Rotary VAD and other such devices are regulated as Class III medical devices.
Human clinical trials are conducted pursuant to an Investigational Design Exemption (IDE) in the United States, the results of which must demonstrate, to the satisfaction of the FDA, the safety and
efficacy of the device.

Before
commercial distribution of our devices is permitted in the United States, an application for Pre-market Approval must be approved by the FDA.

11

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In
addition, any medical device distributed in the United States is subject to continuing regulation by the FDA. Products must be manufactured in registered establishments and must be
manufactured in accordance with the Quality System Regulation. Labeling and promotional activities are subject to scrutiny by the FDA and, in certain instances, by the Federal Trade Commission.
Failure to comply with these requirements could result in enforcement action, including seizure, injunction, prosecution, civil penalties, recall and suspension of FDA approval.



The sale and advertising of medical devices in Canada are governed by the Food and Drugs Act (Canada) through the Medical Devices
Regulations, administered by the Medical Devices Bureau of Health Canada (MDB). The current Medical Devices Regulations are undergoing revisions that may align the Canadian regulatory process with
those of Canada's international trading partners. We believe that international harmonization of the regulatory process may accelerate the approval process as it relates to WorldHeart's
next-generation VAD, Levacor Rotary VAD and the Novacor II.

Our
Levacor Rotary VAD and other VADs are classified as Class IV medical devices under the Medical Devices Regulations, requiring WorldHeart to apply for authorization from the
MDB to conduct
clinical investigational testing in Canada. At the conclusion of the clinical trials, we plan to apply for a medical device license that will allow for general marketing of the device.



It is also our intention to market the Levacor Rotary VAD and subsequent products in the EC and other countries. We will be required to
meet the applicable medical devices standards in each such country or region. Although harmonization has been under negotiation for some time among various countries, the approval process varies from
country to country and approval in one country does not necessarily result in approval in another.

The
International Standards Organization (ISO) is a worldwide federation of national bodies, founded in Geneva, Switzerland in 1946. ISO standards are integrated requirements which, when
implemented, form the foundation and framework for an effective quality management system. These standards were developed and published by the ISO. ISO certification is essential to enter Western
European markets. All companies are required to obtain ISO certification and the "CE" mark, in order to market medical devices in Europe. ISO 13485:2003 certification is the most current and
most stringent standard in the ISO series and covers design, production, installation and servicing of products. WorldHeart received ISO 13485:2003 certification in September 2005. WorldHeart
received the "CE" mark for the Novacor LVAS in 1993. Subject to availability of funding, we intend to apply for "CE" marking, an international symbol of quality and compliance, for the Levacor Rotary
VAD and our subsequent products.



We are also subject to various United States federal, provincial, state and local laws and regulations relating to such matters as safe
working conditions, laboratory and manufacturing practices, and the use, handling and disposal of hazardous or potentially hazardous substances used in connection with WorldHeart's research,
development and production work. The manufacture of biomaterials is also subject to compliance with various federal environmental regulations and those of various provincial, state and local agencies.
Although we believe that we are in compliance with these laws and regulations in all material respects, there can be no assurance that we will not be required to incur significant cost to comply with
environmental and health and safety regulations in the future.

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Our Employees

At March 1, 2008, we had 55 full time employees and no part time employees, located primarily in Oakland, California and in Salt
Lake City, Utah. Approximately 80% of our employees are involved with research, development, manufacturing, quality, clinical affairs and regulatory, and 20% are in finance and administration.

We
currently maintain compensation, benefits, equity participation and work environment policies intended to assist in attracting and retaining qualified personnel. We believe that the
success of our business will depend, to a significant extent, on our ability to attract and retain such personnel. We have access to skilled labor resources in Oakland and Salt Lake City where there
are well-developed technology industries. None of our employees are subject to a collective bargaining agreement nor have we experienced any work stoppages.

RISK FACTORS

You should carefully consider the following risk factors in evaluating WorldHeart. Additional risks and uncertainties not presently
known to us or that we currently consider not material may also impair our business, financial condition and results of operations. If any of the events described below actually occurs, our business,
financial condition and results of operations could be materially adversely affected.

Risk Factors Relating to Our Business

We will require significant capital investment to continue our product development programs and to bring future
products and product enhancements to market, and if adequate funding is not available, our financial condition will be adversely affected and we may have to further curtail or eliminate our
development programs and significantly reduce our expenses or be forced to cease operations.

Our
investment of capital has been and will continue to be significant. Developing our technology, future products and continued product enhancements, including those of the Levacor
Rotary VAD and
Novacor II technologies, require a commitment of substantial funds to conduct the costly and time-consuming research and clinical trials necessary for such development and regulatory
approval. We have had difficulties raising the necessary capital, and while we recently completed the issuance of debt with gross proceeds of $5.0 million, we will require additional financings
in the near future. If adequate funds are not available when needed, we may be required to delay, reduce the scope of, or eliminate one or more of our research or development programs or obtain funds
through arrangements with collaborative partners or others that may require us to relinquish rights to certain of our technologies, potential products or products that we would otherwise seek to
develop or commercialize ourselves. In addition, while in November 2006 we announced a significant restructuring and cost reductions initiatives, we may be required to further reduce our operating
expenses, including but not limited to, reductions in salaries and/or elimination of employees and consultants or cease operations. The inability to obtain additional financing or enter into strategic
relationships when needed will have a material adverse effect on our business, financial condition and results of operations.

Restrictions and covenants in our note purchase agreement may limit our ability to operate our business and could prevent us from obtaining needed funds in the
future.

Our
note purchase agreement with Abiomed contains certain covenants with which we must comply that limit our ability to, among other things, borrow additional money, pay dividends or
other distributions to stockholders, make investments, create liens on or sell assets, enter into transactions with affiliates, or engage in mergers. All of these restrictions could affect our ability
to operate our business and may limit our ability to take advantage of potential business opportunities as they arise.

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Our
ability to comply with these provisions of the note purchase agreement may be affected by changes in the economic or business conditions or other events beyond our control. If we do
not comply with these covenants and restrictions, we would be in default under the note. If we default under the note, Abiomed could cause all of our outstanding debt obligations under the note,
together with accrued interest, to become due and payable, and require us to apply all of our cash to repay the indebtedness under the note. If we are unable to repay the indebtedness under the Loan
Agreement when due, Abiomed could proceed against the collateral specified in the security agreements, which includes most of the assets we own, including our intellectual property and certain
portions of the stock and assets of our subsidiaries. As an additional result of such a default, borrowings under other debt instruments that contain cross-acceleration or cross-default provisions may
also be accelerated and become due and payable. If any of these events occur, there can be no assurance that we would be able to make necessary payments to Abiomed or our creditors or that we would be
able to find alternative financing.

We have had substantial losses since incorporation and expect to continue to operate at a loss while our products are under development, and we may never become
profitable.

Since
our inception in 1996, we incurred cumulative losses of approximately $291.0 million, a significant portion of which relates to the costs of internally developed and
acquired technologies. Our research and development expenses have increased significantly over the past year, primarily due to our investment in the development programs for our next generation
products, Levacor Rotary VAD and Novacor II. Our research and development activities will likely result in additional significant losses in future periods. These expenditures include costs associated
with performing pre-clinical testing and clinical trials for our next generation products, continuing research and development, seeking regulatory approvals and, if we receive these
approvals, commencing commercial manufacturing, sales and marketing of our products.

We may be unable to obtain regulatory approvals, which will prevent us from selling our products and generating revenue.

Most
countries, including the United States, Canada and countries in Europe, require regulatory approval prior to the commercial distribution of medical devices. In particular, implanted
medical devices generally are subject to rigorous clinical testing as a condition of approval by the FDA and by similar authorities in Canada (e.g., Health Canada), and in European and other
countries. The approval process is expensive and time consuming. Non-compliance with applicable regulatory requirements can result in, among other things, fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of production, government refusal to grant marketing approval for devices, withdrawal of marketing approvals and criminal
prosecution. The inability to obtain the appropriate regulatory approvals for our products in the United States, Canada and the rest of the world will prevent us from selling our products, which would
have a material adverse effect on our business, financial condition and results of operations.

In
the United States, we commenced our RELIANT Trial in the second quarter of 2004 to support submission of a PMA Supplement to the FDA for the use of the Novacor LVAS for Destination
Therapy. Although in April 2006 we received conditional approval from the FDA to revise the trial inclusion criteria and to reduce the number of patients required for approvability, enrollment in the
RELIANT Trial continued to be slower than anticipated, primarily due to what we believe to be a shift in market demand away from first generation VADs, including our Novacor LVAS, and the loss of
commercial market share to our competitors due to our financial condition. As a result, in December 2006 we discontinued enrollment in the RELIANT Trial to focus our resources on the next generation
products, in particular our Levacor Rotary VAD, which was first used clinically in March 2006 in Europe.

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There
can be no assurance that the FDA, Health Canada or any other regulatory authority will act favorably or quickly in its review of our applications, if and when made, and we may face
significant difficulties and costs obtaining such approvals that could delay or preclude us from selling our next-generation products in the United States, Europe, Canada and elsewhere.
Failure to receive, or delays in receiving, such approvals, including the need for extended clinical trials or additional data as a prerequisite to approval, limitations on the intended use of our
next-generation products, the restriction, suspension or revocation of any approvals obtained or any failure to comply with approvals obtained could have a material adverse effect on our
business, financial condition and results of operations.

We are dependent on a limited number of products.

To
date, all of our revenues have resulted from sales of the Novacor LVAS and related equipment. With our restructuring announced in November 2006, we expect those revenues to continue
to decline. Our future financial performance depends primarily on our ability to realign our resources to focus on the development, regulatory approval, introduction, customer acceptance and sales and
marketing of the Levacor Rotary VAD. Prior to any commercial use, our products currently under development will require significant additional capital for research and development efforts, extensive
pre-clinical and clinical testing and regulatory approval.

New
product development is highly uncertain and unanticipated developments, clinical and regulatory delays, adverse or unexpected side effects or inadequate therapeutic efficacy could
delay or prevent the commercialization of the Levacor Rotary VAD and Novacor II. Any significant delays in, or premature termination of, clinical trials of our products under development would have a
material adverse effect on our business, financial condition and results of operations.

Market acceptance of our technologies and products is uncertain and our selling and distribution capability is limited and has been further reduced by our recent
cost reduction initiatives.

The
Novacor LVAS and our next-generation Levacor Rotary VAD represent ventricular assist technologies that must compete with other products as well as with other therapies
for heart failure, such as medication, transplants, cardiomyoplasty and total artificial heart devices. In addition, although we believe that the Destination Therapy market opportunity for VADs is
significant, adoption rates have continued to be much slower than anticipated.

We
have a limited number of sales and technical support personnel compared with other medical device companies in our industry segment, and our financial condition recently required us
to make significant personnel reductions in those areas, which may put us at a further competitive disadvantage in the marketplace. Failure of our products to achieve significant market acceptance due
to competitive therapies and our very limited selling and distribution could have a material adverse effect on our business, financial condition and results of operations.

We face significant competition and technological obsolescence of our products.

In
addition to competing with other less-invasive therapies for heart failure, including medications and pacing technology, our products, if regulatory approvals are
obtained, will compete with ventricular assist technology being developed and sold by a number of other companies. Competition from medical device companies and medical device subsidiaries of
healthcare and pharmaceutical companies is intense and expected to increase.

Most
of our competitors have financial, technical, manufacturing, distribution and marketing resources substantially greater than ours. Third parties may succeed in developing or
marketing technologies and products that are more effective and more timely than those developed or marketed by us which could render our technology and products non-competitive or
obsolete, or we may not be

15

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able
to keep pace with technological developments or our competitors' time frames, all of which could have a material adverse effect on our business, financial condition and results of operations.

In
addition, companies in similar businesses are entering into business combinations with one another, which may create more powerful or aggressive competitors. We may not be able to
compete successfully as future markets evolve, and we may have to pursue additional acquisitions or other business combinations or strategic alliances. Increased competitive pressure could lead to
lower sales and prices of our products, and this could harm our business, results of operations and financial condition.

There are limitations on third-party reimbursement for the cost of implanting our devices.

Individual
patients will seldom be able to pay directly for the costs of implanting our devices. Successful commercialization of our products will depend in large part upon the
availability of adequate reimbursement for the treatment and medical costs from third-party payers, including governmental and private health insurers and managed care organizations. Consequently, we
expect that our products will typically be purchased by healthcare providers, clinics, hospitals and other users who will bill various third-party payers, such as government programs and private
insurance plans, for the healthcare services provided to their patients.

The
coverage and the level of payment provided by third-party payers in the United States and other countries vary according to a number of factors, including the medical procedure,
third-party payer, location and cost. In the United States, many private payers follow the recommendations for Centers of
Medicare and Medicaid Services, which establish guidelines for governmental coverage of procedures, services and medical equipment.

There
can be no assurance with respect to any markets in which we seek to distribute our products that third-party coverage and reimbursement will be adequate, that current levels of
reimbursement will not be decreased in the future or that future legislation, regulation or reimbursement policies of third-party payers will not otherwise adversely affect the demand for our products
or our ability to sell our products on a profitable basis, particularly if the installed cost of our systems and devices should be more expensive than competing products or procedures. The
unavailability of third-party payer coverage or the inadequacy of reimbursement would have a material adverse effect on our business, financial condition and results of operations.

If we cannot protect our intellectual property, our business could be adversely affected.

Our
intellectual property rights, including those relating to our Levacor Rotary VAD, are and will continue to be, a critical component of our success. The loss of critical licenses,
patents or trade secret protection for technologies or know-how relating to our current product and our products in development could adversely affect our business prospects. Our business
will also depend in part on our ability to defend our existing and future intellectual property rights and conduct our business activities free of infringement claims by third parties. We intend to
seek additional patents, but our pending and future patent applications may not be approved, may not give us a competitive advantage and could be challenged by others. Patent proceedings in the United
States and in other countries may be expensive and time consuming. In addition, patents issued by foreign countries may afford less protection than is available under United States intellectual
property law, and may not adequately protect our proprietary information.

Our
competitors may independently develop proprietary non-infringing technologies and processes that are substantially similar to ours, or design around our patents. In
addition, others could develop technologies or obtain patents, which would render our patents and patent rights obsolete. Claims by competitors and other third parties that our products allegedly
infringe the patent rights of others could have a material adverse effect on our business. We could encounter legal and financial difficulties in enforcing our licenses and patent rights against
alleged infringers. The medical device industry and

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cardiovascular
device market, in particular, is characterized by frequent and substantial intellectual property litigation. Intellectual property litigation is complex and expensive and the outcome of
this litigation is difficult to predict. Any future litigation, regardless of outcome, could result in substantial expense and significant diversion for our technical and management personnel. An
adverse determination in any such proceeding could subject us to significant liabilities or require us to seek additional licenses from third parties, pay damages and/or royalties that may be
substantial or force us to redesign the related product. These alternatives may be uneconomical or impossible. Furthermore, we cannot assure you that if additional licenses are necessary they would be
available on satisfactory terms or at all. Accordingly, an adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing
or selling certain of our products, any of which could have a material adverse effect on our business, financial condition and results of operations.

We are exposed to product liability claims.

Our
business exposes us to an inherent risk of potential product liability claims related to the manufacturing, marketing and sale of the Novacor LVAS, and if and when regulatory
approvals are received, the Levacor Rotary VAD and other future products, by device recipients or by their families. Claims of this nature, if successful, could result in substantial damage awards to
the claimants, which may exceed the limits of any applicable insurance coverage held by us. A successful claim brought against us in excess of, or outside of, our insurance coverage would have a
material adverse effect on our financial condition. Claims against us, regardless of their merit or potential outcome, could also have a material adverse effect on our ability to obtain physician
acceptance of our products, to expand our business or obtain insurance in the future, which could have a material adverse effect on our business and results of operations.

We face risks associated with our manufacturing operations, risks resulting from dependence on third-party manufacturers, and risks related to dependence on sole
suppliers.

The
manufacture of our products is a complex operation involving a number of separate processes and components. Material costs are high and certain of the manufacturing processes
involved are labor-intensive. The conduct of manufacturing operations is subject to numerous risks, including reliance on third-party manufacturers, unanticipated technological problems and delays.
We, or any entity manufacturing products or components on our behalf, may not be able to comply with applicable
governmental regulations or satisfy regulatory inspections in connection with the manufacture of our products, which would have a material adverse effect on our business, financial condition and
results of operations.

We
often depend on single-source third-party manufacturers for several of the components used in our products. We do not have agreements with many of such single-source manufacturers and
purchase these components pursuant to purchase orders placed from time to time in the ordinary course of business. We are substantially dependent on the ability of these manufacturers to provide
adequate inventories of these components on a timely basis and on favorable terms. These manufacturers also produce components for certain of our competitors, as well as other large customers, and
there can be no assurance that such manufacturers will have sufficient production capacity to satisfy our inventory or scheduling requirements during any period of sustained demand, or that we will
not be subject to the risk of price fluctuations and periodic delays. Although we believe that our relationships with our manufacturers are satisfactory and that alternative sources for the components
we currently purchase from single-source suppliers are currently available, the loss of the services of such manufacturers or substantial price increases imposed by such manufacturers, in the absence
of readily available alternative sources of supply, would have a material adverse effect on us. Failure or delay by such manufacturers in supplying components to us on favorable terms could also
adversely affect our operating margins and our ability to develop and deliver our products on a timely and competitive

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basis,
which could have a material adverse effect on our business, financial condition and results of operations.

We are dependent on key personnel.

As
a result of the specialized scientific nature of our business, we are dependent on our ability to attract and retain qualified scientific, technical and key management personnel. We
face intense competition for such persons and we may not be able to attract or retain such individuals. Our restructuring and cost reduction efforts in November 2006 may make it more difficult for us
to attract and retain qualified personnel.

Risk Factors Relating to Our Common Shares

The price of our shares is highly volatile, and if we do not maintain compliance with Nasdaq minimum share
price requirements or other listing requirements, we may be delisted.

As
a small capitalization medical device company, the price of our common shares has been, and is likely to continue to be, highly volatile. Future announcements concerning us or our
competitors, quarterly variations in operating results, introduction of new products, delays in the introduction of new products or changes in product pricing policies by us or our competitors,
acquisition or loss of significant customers, partners, distributors and suppliers, changes in earnings estimates or our ratings by analysts, regulatory developments, or fluctuations in the economy or
general market conditions, among other factors, could cause the market price of our common shares to fluctuate substantially. There can be no assurance that the market price of our common shares will
not decline below its current price or that it will not experience significant fluctuations in the future, including fluctuations that are unrelated to our performance.

Currently
our common shares are quoted on the Nasdaq Capital Market under the symbol "WHRT" and listed on the Toronto Stock Exchange (TSX) under the symbol "WHT." We must satisfy certain
minimum listing maintenance requirements to maintain the Nasdaq quotation, including a series of financial tests relating to shareholders equity or net income or market value, public float, number of
market makers and shareholders, market capitalization, and maintaining a minimum bid price of $1.00 per share.

On
June 20, 2006 we received a letter from Nasdaq Global Market, where our shares were listed at the time, indicating that, for 30 consecutive business days, the bid price of our
common shares had closed below the minimum $1.00 per share requirement for continued listing on Nasdaq and that, in accordance with Nasdaq rules, we had 180 calendar days (until December 18,
2006) to regain compliance. On November 20, 2006, we received a letter from the Nasdaq Global Market indicating that our shareholders' equity did not comply with the minimum $10,000,000
requirement for continued listing on the Nasdaq Global Market. On December 5, 2006, we announced that we applied for transfer of the listing of our common shares to the Nasdaq Capital Market,
which transfer was effective on December 13, 2006.

As
part of the transfer to the Nasdaq Capital Market, we were granted an additional 180-day period, or until June 15, 2007, to regain compliance with the minimum bid
price rules. On May 30, 2007, WorldHeart affected a one-for-ten reverse stock split of our common shares, as previously approved by the Board of Directors and by the
Corporation's shareholders, and regained compliance with Nasdaq before the June 15, 2007 deadline. Since then our stock price continued to decline and our shareholder's equity as of
December 31, 2007 did not meet the requirements of the Nasdaq Capital Market. If we do not regain compliance within the allotted compliance period, our common shares would be delisted from
Nasdaq. At that time, we would be entitled to appeal the staff's determination to a Nasdaq Listing Qualifications Panel. If the common shares were to be delisted, they would trade on the
Over-the-Counter Bulletin Board or in the "pink sheets" maintained by the National Quotation

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Bureau, Inc.,
which are viewed by most investors as less desirable and less liquid market places. This could make trading more difficult for our investors, leading to lower trading volumes and
declines in share price, which would also make it more difficult and expensive for us to raise additional capital. Future reverse stock split may not necessarily result in our regaining compliance
with Nasdaq rules.

The sales of common shares by our shareholders could depress the price of our common shares.

If
our shareholders sell substantial amounts of our common shares in the public market, the market price of our common shares could fall. These sales might also make it more difficult
for us to sell equity or equity related securities at a time and price that we would deem appropriate. All of the common shares we issued in the private placement during the fourth quarter of 2006
have been registered pursuant to a resale registration statement. We have also previously registered for resale shares issued in connection with the MedQuest acquisition and a related private
placement completed in 2005. We also are required to register common shares issuable to Abiomed, pursuant to the conversion of the note or the exercise of the warrant. Sales by these shareholders
could have an adverse impact on the trading price of our common shares.

The concentration of our capital stock ownership, following the completion of the recent private placement, may limit your ability to influence corporate
matters.

Our
common shares are held by a relatively small number of investors. After the completion of our $14.1 million private placement financing in December 2006, our two largest
shareholders collectively beneficially own approximately 53% of our common shares. In addition, if Abiomed were to convert the entire principal balance of the promissory note in full, together with
accrued interest, and exercise its warrant in full, Abiomed would own approximately 45% of our common shares. These investors also have certain rights to designate members of our Board of Directors
and may exercise significant influence over all matters requiring shareholder approval, including elections of directors and significant corporate transactions, such as a merger or other sale of our
Corporation or our assets for the foreseeable future. This concentrated control may limit our ability to influence corporate matters and, as a result, we may take actions that our shareholders do not
view as beneficial.

Because we do not intend to pay, and have not paid, any cash dividends on our common shares, our shareholders will not be able to receive a return on their common
shares unless the value of our common shares appreciates and they sell them.

We
have never paid any cash dividends on our common shares and intend to retain future earnings, if any, to finance the development and expansion of our business. We do not anticipate
paying any cash dividends on our common shares in the foreseeable future. As a result, our shareholders will not be able to receive a return on their common shares unless the value of our common
shares appreciates and they sell them.

Item 2.    Description of Property.

Our Facilities

We consolidated our headquarters, manufacturing and research and development facilities, located in Oakland, California in early 2007
into one building. The leased building has approximately 19,200 square feet whereas we previously leased two buildings totaling 40,000 combined square feet. The new lease became effective
December 1, 2007, after agreed upon restoration work on the vacated building was completed. The new lease expires November 30, 2010.

Our
facility in Salt Lake City, Utah is comprised of 32,888 square feet of research and office space of which 24,044 is leased through January 31, 2011. The additional square feet
of space was added on October 1, 2007 by expanding into an adjacent vacant suite. The lease on this additional space expires January 31, 2013.

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In
late 2007 we terminated our lease for office space in Heesch, Netherlands, which consisted of approximately 2,500 square feet under a lease expiring December 31, 2007. We no
longer lease real property in the Netherlands but instead contract for space and administrative services from a tenant within the same office complex.

We
are not aware of any environmental issues that may affect the use of our properties. We currently have no investments in real estate, real estate mortgages or real estate securities,
and do not anticipate making any such investments. However, our policy with respect to investments in real estate assets may change in the future without a vote of shareholders.

Item 3.    Legal Proceedings.

In the normal course of business, we may be a party to legal proceedings. We are not currently a party to any material legal
proceedings, except as mentioned below.

On
December 21, 2007 our registered office in Ottawa, Ontario, Canada received a claim alleging a breach of a letter of intent we entered into with Network Capital, Inc.
(NCI) in relation to a potential tax monetization transaction. NCI filed its claim in the Court of Queen's Bench of Alberta Judicial District, Canada and seeks specific performance or damages in the
amount of $35 million plus costs. The claim was not properly served and to date no proper service has been made. WorldHeart believes this claim to be without merit and intends to vigorously
defend it.

Item 4.    Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of our security holders during the fourth quarter of the fiscal year ended December 31,
2007.

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PART II

Item 5.    Market for Common Equity and Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities.

Our common shares are traded on the Nasdaq Capital Market under the symbol WHRT and are listed on the Toronto Stock Exchange (TSX)
under the symbol WHT. Our common shares have been trading on one of the Nasdaq exchanges since August 1998. On December 5, 2006, we announced that we applied for a transfer of listing of
our common shares from the Nasdaq Global Market to the Nasdaq Capital Market, which transfer was effective on December 13, 2006. On May 30, 2007, WorldHeart effected a
one-for-ten reverse stock split of its capital stock. The tables below have been adjusted to reflect the reverse stock split.

The
following table sets forth the high and low bid prices for our common shares as reported on the Nasdaq for the periods indicated:

Common Shares2006

High

LowFirst Quarter

$
10.90

$
4.70Second Quarter

$
14.00

$
5.70Third Quarter

$
8.20

$
1.60Fourth Quarter

$
7.00

$
2.60




Common Shares2007

High

LowFirst Quarter

$
5.20

$
3.10Second Quarter

$
4.10

$
1.46Third Quarter

$
3.88

$
1.40Fourth Quarter

$
3.10

$
1.50




Common Shares2008

High

LowJanuary

$
2.77

$
1.60February

$
1.92

$
1.22March 14, 2008

$
1.51

$
1.01


The
following table sets forth the high and low sales prices for our common shares as reported on the TSX for the periods indicated

Common Shares2006

High

LowFirst Quarter

Cdn $
12.50

Cdn $
5.60Second Quarter

Cdn $
15.20

Cdn $
6.40Third Quarter

Cdn $
9.10

Cdn $
2.60Fourth Quarter

Cdn $
7.50

Cdn $
3.30


21

---





Common Shares2007

High

LowFirst Quarter

Cdn $
6.00

Cdn $
3.70Second Quarter

Cdn $
5.00

Cdn $
1.65Third Quarter

Cdn $
3.88

Cdn $
1.41Fourth Quarter

Cdn $
3.87

Cdn $
1.48




Common Shares2008

High

LowJanuary

Cdn $
2.75

Cdn $
1.63February

Cdn $
1.85

Cdn $
0.98March 14, 2008

Cdn $
1.34

Cdn $
1.00


As
of March 1, 2008, the approximate number of holders of record of our common shares was 300 and the approximate number of beneficial holders of our common shares was 7,000.

WorldHeart
has never paid any dividends to shareholders. The note purchase agreement with Abiomed contains covenants restricting the ability for WorldHeart to pay dividends to
shareholders.

In
April 2007, we issued to Genesis Select Corporation 12,500 warrants to purchase common shares in exchange for investor relations advisory services to be provided to WorldHeart.
The warrants, with an exercise price of $3.40 per share, will vest equally in four quarters and will expire on April 2014.

On
December 11, 2007, the Corporation and WHI entered into a note purchase agreement with Abiomed as part of a strategic transaction with Abiomed. Pursuant to the purchase
agreement, Corporation and WHI issued to Abiomed a secured convertible promissory note in the principal amount of up to $5.0 million, funded in two tranches, $1.0 million of which was
funded immediately and $4.0 million of which was funded on January 3, 2008. The note is secured by Corporation and WHI's assets and contains certain covenants and customary events of
default, the occurrence of which could result in an acceleration of the note. The note is convertible into Corporation common shares at Abiomed's option, in whole or in part, at approximately $1.75
per share and is subject to anti-dilution adjustments in the event that the Corporation issues securities at a lower effective price, at any time. Unless and until shareholder approval for
the purposes of compliance with the shareholder approval rules of the NASDAQ Stock Market and the Toronto Stock Exchange has been received, the conversion of the note (including any accrued interest),
together with any exercise of the warrant as described below, is limited such that Abiomed will not hold more than 19.9% of Corporation's common shares outstanding at December 11, 2007. Abiomed
subsequently agreed by an amendment entered into in March 2008 not to convert any part of the Note until April 30, 2008. The note will accrue interest at 8% per annum, which is payable
upon payment or conversion of the note, and the interest may also be converted into common shares at the then market value, at the option of Abiomed. After December 11, 2009, the note is
payable on demand, or subject to fulfillment of certain conditions, at Corporation's option. On December 11, 2007, pursuant to the clinical and marketing support services agreement with
Abiomed, Corporation issued to Abiomed a 5-year warrant to purchase up to 3,400,000 common shares of Corporation, exercisable at $0.01 per share. However, until the funding of the second
tranche on January 3, 2008, the warrant was exercisable with respect to only 680,000 common shares of Corporation. Following the funding of the second tranche on January 3, 2008, the
warrant was exercisable for an additional 2,720,000 common shares of Corporation. Until and unless shareholder approval has been received, the exercise of the Warrant, together with any conversion of
the Note, is limited to 19.9% of the Corporation's common shares outstanding on December 11, 2007. Abiomed subsequently agreed by an amendment entered into in March 2008 not to exercise
any part of the warrant until April 30, 2008. The issuance of the note and the warrant to Abiomed were done in

22

---



reliance
on an exemption from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) of the Act and Rule 506 of Regulation D thereunder.

As
of December 31, 2007, WorldHeart has not engaged in any share repurchases and does not have any publicly announced repurchase programs.

CERTAIN INCOME TAX CONSIDERATIONS



This summary is applicable to a holder or prospective purchaser of common shares who is not (and is not deemed to be) resident in
Canada, does not (and is not deemed to) use or hold the common shares in, or in the course of, carrying on a business in Canada, and is not an insurer that carries on an insurance business in Canada
and elsewhere.

This
summary is based on the current provisions of theIncome Tax Act(Canada), the regulations thereunder, all specific proposals to
amend such Act and regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof and WorldHeart's understanding of the published administrative and
assessing practices and policies of the Canada Revenue Agency. This summary does not otherwise take into account any change in law or administrative practice, whether by judicial, governmental,
legislative or administrative action, nor does it take into account provincial, territorial or foreign income tax consequences, which may vary from the Canadian federal income tax considerations
described herein.

This
summary is of a general nature only and it is not intended to be, nor should it be construed to be, legal or tax advice to any holder of the common shares and no representation with
respect to Canadian federal income tax consequences to any holder of common shares is made herein. Accordingly, prospective purchasers and holders of the common shares should consult their own tax
advisers with respect to their individual circumstances.



Canadian withholding tax at a rate of 25.0% (subject to reduction under the provisions of any relevant tax treaty) will be payable on
dividends paid or credited to a holder of common shares. Under the Canada-U.S. income tax treaty, the withholding tax rate is generally reduced to 15.0% for a holder entitled to the
benefits of the treaty (or 5.0% if the holder is a corporation that owns at least 10.0% of the common shares).



Subject to the provisions of a relevant tax treaty, capital gains realized by a holder on the disposition or deemed disposition of
common shares held as capital property will not
be subject to Canadian tax unless the common shares are taxable Canadian property (as defined in theIncome Tax Act(Canada)), in which case the capital
gains will be subject to Canadian tax at rates which will approximate those payable by a Canadian resident. Common shares will not be taxable Canadian property to a holder provided that, at the time
of the disposition or deemed disposition, the common shares are listed on a prescribed stock exchange (which currently includes the TSX) unless such holder, persons with whom such holder did not deal
at arms length or such holder together with all such persons, owned 25.0% or more of the issued shares of any class or series of shares of WorldHeart at any time within the 60 month period
immediately preceding such time.

Under
the Canada-U.S. income tax treaty, a holder entitled to the benefits of the treaty and to whom the common shares are taxable Canadian property will not be subject to
Canadian tax on the disposition or deemed disposition of the common shares unless at the time of disposition or deemed

23

---



disposition,
the value of the common shares is derived principally from real property situated in Canada.

EQUITY COMPENSATION PLAN INFORMATION

The discussion under the above heading in our definitive proxy statement for the 2008 Annual Meeting of Shareholders is incorporated
herein by reference to such proxy.

Item 6.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

INTRODUCTION

World Heart Corporation and its subsidiaries are collectively referred to as WorldHeart. The following Management Discussion and
Analysis of Financial Condition and Results of Operations was prepared by management and discusses material changes in WorldHeart's financial condition and results of operations and cash flows for the
years ended December 31, 2007, 2006 and 2005. Such discussion and comments on the liquidity and capital resources should be read in conjunction with the information contained in the
accompanying audited consolidated financial statements prepared in accordance with U.S. GAAP. In this discussion, all amounts are in United States dollars (U.S. dollars) unless otherwise
stated.

The
discussion and comments contained hereunder include both historical information and forward-looking information. The forward-looking information, which generally is information
stated to be anticipated, expected, or projected by management, involves known and unknown risks, uncertainties and other factors that may cause the actual results and performance 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: our ability to raise
additional funding, numerous uncertainties and time delays inherent in the development of products, particularly our Levacor Rotary VAD; WorldHeart's need to establish reimbursement mechanisms and
product acceptance from third-party payers; extensive government regulation of our products; rapid developments in technology by competitors some of whom have significantly greater financial,
production and marketing resources; and slower than anticipated growth in the Destination Therapy market, as well as other risks and uncertainties set forth under the heading "Risk Factors" and
elsewhere in this Annual Report on Form 10-KSB.

OVERVIEW

WorldHeart is engaged in development of mechanical circulatory support systems focused on developing and commercializing implantable
ventricular assist devices (VADs), which are mechanical pumps that allow for the restoration of normal blood circulation to patients suffering from advanced heart failure. WorldHeart believes that it
has a broad technology platform of next-generation products for long-term circulatory support and that both rotary and pulsatile pumps are required to treat the full spectrum
of clinical needs of late and end stage heart failure patients. WorldHeart believes that rotary devices are better suited for late-stage patients with some contractility who require only
partial support. Alternatively, pulsatile devices are better suited to a smaller segment of end-stage patients with poor ventricular contractility who require full support or functional
replacement.

WorldHeart
to date derives most of its revenue from its Novacor LVAS and related peripheral equipment, which it sells, directly to medical clinics and hospitals in the United States,
Europe and Canada and through a distributor in certain other countries. The Novacor LVAS is commercially approved as a Bridge-to-Transplant device in the United States and
Canada. In Europe, the Novacor LVAS has unrestricted approval for use as an alternative to transplantation, Bridge-to-Transplantation and to support patients who may be able to
recover the use of their natural heart. In Japan, the device

24

---



is
commercially approved for use in cardiac patients at risk of imminent death from non-reversible left ventricular failure for which there is no alternative except heart transplantation.

In
July 2005, WorldHeart acquired the assets of MedQuest Products, Inc. (MedQuest) including a rotary VAD, now called the Levacor Rotary VAD. In conjunction with the
acquisition, WorldHeart raised approximately $22.7 million in gross financing proceeds from a private placement with Maverick and the exercise of certain warrants and also converted all of its
remaining convertible debentures from an earlier financing. Pre-clinical testing of the Levacor VAD was accelerated after the acquisition, with successful initial human feasibility use in
Europe in 2006.

In
November 2006, WorldHeart announced a restructuring plan, which included a reduction of commercial operations associated with the Novacor LVAS, and a refocusing of its
resources on the development of its next generation products, particularly the Levacor Rotary VAD. WorldHeart also reduced its workforce and has consolidated its facilities in Oakland, in an effort to
reduce expenses. A Bridge-to-Transplant pivotal trial is expected to begin in the United States in approximately the third quarter of 2008, subject to available funding.

WorldHeart
is also developing a next-generation implantable pulsatile VAD, called the Novacor II. Development work on the Novacor II achieved an important
milestone with successful initial animal implants completed in 2005 and 2006. Further development work on the Novacor II is expected to resume after completion of the development of Levacor
Rotary VAD and subject to additional funding availability.

Research
and development by WorldHeart's competitors is proceeding on several rotary flow devices. Certain of these devices have received the CE mark in Europe and are advancing through
clinical trials in the United States and Europe. WorldHeart believes that its Levacor VAD is the most advanced fourth-generation rotary device under development.

Although
the Destination Therapy patient population continues to be largely untreated by cardiac assist devices, and the adoption rates have been slower than anticipated, we believe that
the Destination
Therapy market will evolve more rapidly when devices are evaluated clinically and as experience with next-generation VADs increases.

SELECTED FINANCIAL INFORMATION
In thousands (000's) except for per share amounts

Year Ended December 31,2007

2006Net revenue

$
2,576

$
8,616Net (loss) for the year


(18,564
)

(20,085
)Net (loss) applicable to common shareholders


(18,564
)

(20,085
)Basic and diluted (loss) per share


(1.61
)

(3.45
)Total assets


3,248


20,498Shareholders' equity (deficit)


(1,091
)

14,706


25

---



SUMMARY OF QUARTERLY RESULTS
In thousands (000's) except for per share amounts

Three Months EndedDecember 31,
2007

September 30,
2007

June 30,
2007

March 31,
2007Net revenue

$
348

$
531

$
849

$
848Net loss for the period


(7,639
)

(3,018
)

(4,477
)

(3,430
)Net loss applicable to common shareholders


(7,639
)

(3,018
)

(4,477
)

(3,430
)Basic and diluted loss per share

$
(0.66
)
$
(0.26
)
$
(0.39
)
$
(0.30
)




Three Months EndedDecember 31,
2006

September 30,
2006

June 30,
2006

March 31,
2006Net revenue

$
956

$
1,387

$
2,988

$
3,285Net loss for the period


(5,136
)

(7,619
)

(3,888
)

(3,442
)Net loss applicable to common shareholders


(5,136
)

(7,619
)

(3,888
)

(3,442
)Basic and diluted loss per share

$
(0.77
)
$
(1.37
)
$
(0.70
)
$
(0.61
)


Amounts
from March 31, 2007 to March 31, 2006 have been restated to give effect to a one-for-ten reverse stock split completed in May 2007.
See Note 4 to the consolidated financial statements.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2007 COMPARED WITH THE YEAR ENDED DECEMBER 31, 2006
In thousands (000's)

Year Ended December 31,2007

2006Revenue

$
2,576

$
8,616Cost of goods sold


(3,369
)

(10,201
)Gross margin


(793
)

(1,585
)Operating expensesSelling, general and administrative


6,337


8,664Research and development


9,924


9,002Clinical and marketing support


1,756


Restructuring costs





646Amortization of intangibles


191


192Total operating expenses


18,208


18,504Operating loss before the undernoted


(19,001
)

(20,089
)Other income (expense)Foreign exchange (loss) gain


(38
)

55Investment and other income


965


192Loss on disposal of assets


(5
)

(248
)Interest expense related to beneficial conversion feature


(485
)

5Net loss applicable to common shareholders

$
(18,564
)
$
(20,085
)


26

---



Revenue.The sale of Novacor LVAS implant kits and related peripheral equipment and services accounts for substantially all of WorldHeart's revenues. WorldHeart
primarily sells its products directly, except for a few countries where we sell through distributors.

The
composition of revenue in thousands ($000's), except for units, is as follows:

Year Ended December 31,2007

2006$

Units

$

UnitsImplant kits

$
1,109


16

$
5,148


74Peripherals and other


1,467





3,468Revenue

$
2,576




$
8,616


Net
revenue for the year ended December 31, 2007, decreased by $6.0 million, or 70%, compared with 2006. Implant kit revenue in 2007 decreased by $4.0 million, or
78%, compared with 2006. During 2007 and 2006, the average price per kit was approximately $69,000. In the fourth quarter of 2007, net revenue of $0.3 million was significantly below net
revenue of $1.0 million in the fourth quarter of 2006. The overall reduction in revenue is due to the Corporation's decision in late 2006 to move towards the next generation of product, the
Levacor Rotary VAD, and phase out the existing technology, Novacor.

Peripherals
and other revenues, including Novacor LVAS hardware and peripheral sales, services and other revenue for the year ended December 31, 2007, were $1.5 million, a
decrease of 58%, compared with peripherals and other revenue of $3.5 million recorded in the year ended December 31, 2006.

Implant
kits recognized as revenue in the year ended December 31, 2007, were 16, compared with 74 in the year ended December 31, 2006. WorldHeart recognized revenue on 12
implant kits in the United States in 2007, compared with 45 implant kits in 2006. In Europe, Canada and the rest-of-world, WorldHeart recognized revenue on 4 implant kits in
2007, compared with 29 in 2006.

At
December 31, 2007, we had zero balance in deferred Novacor kit and peripherals revenue, as compared with $0.1 million in deferred revenue at December 31, 2006.
With the November 2006 restructuring plan and reduced commercial efforts on our Novacor LVAS program, we expect implant kit and peripherals revenue to continue to decrease in future periods.

Cost of goods sold.For the years ended December 31, 2007 and December 31, 2006, the cost of goods sold exceeded revenue (131% and 118% as a
percentage of revenue, respectively). The cost of goods sold for the year ended December 31, 2007 and December 31, 2006, include write-offs totaling $1.4 million and
$4.6 million, respectively, related to redundant Novacor inventories, slightly offset by a decrease in warranty provision of $0.1 million in 2007.

Selling, general and administrative.Selling, general and administrative expenses consist primarily of payroll and related expenses for executives, sales,
accounting and administrative personnel. Other administrative expenses include professional fees, communication expenses, insurance premiums, public reporting costs and other general corporate
expenses.

27

---



The
composition of selling, general and administrative expenses in thousands ($000's) is as follows:

Year Ended December 31,2007

2006Selling

$
1,122

$
3,471General and administrative


5,215


5,193Total

$
6,337

$
8,664


Selling,
general and administrative expense for the year ended December 31, 2007 decreased by $2.4 million, or 27% versus the same period in 2006. Selling expenses
decreased due to the elimination of the domestic sales group in November 2006 and reduced selling expenses in Europe. Selling expenses are expected to remain at this level in 2008.

General
and administrative expenses remained approximately at the same level in 2007 compared to 2006 and are expected to remain at current levels in the following year.

Research and development.Research and development expenses consist principally of salaries and related expenses for research personnel, prototype manufacturing,
testing, clinical trial, material purchases and regulatory affairs incurred at our Oakland and Salt Lake City facilities.

Research
and development expenses for the year ended December 31, 2007 increased by $0.9 million, or 10%, compared with the year ended December 31, 2006. The
increase was due to research, development and clinical costs related to the Levacor Rotary VAD and non-cash stock based compensation expense offset by a reduction in Novacor related
expenses which would include reduction in workforce, depreciation of retired or sold equipment, production labor credits that are higher with no absorption from manufacturing. In 2006, the full year
impact of the Levacor development program, primarily at our Salt Lake City operations was realized, with resulting expenses in 2007 of $5.4 million compared to $5.7 million in 2006.
Development work and related expenses on our
next-generation Levacor Rotary VAD are expected to increase with additional animal studies and human clinical trials, primarily in the United States and Canada.

Restructuring costs.On November 14, 2006, we announced a significant restructuring and realignment of our business designed to control spending and better
position WorldHeart to changing market conditions and diminished demand for our first-generation Novacor LVAS.

We
reduced our manufacturing program and downsized selling and administrative personnel numbers associated with the Novacor LVAS, although we will continue to support the product for
existing patients and medical centers. The restructuring also included a reduction in WorldHeart's workforce by 41 people. Employee reductions occurred primarily in the related manufacturing and sales
departments. Restructuring expenses of about $646,000, including $470,000 severance-related charges and $176,000 related to the disposal of fixed assets, were incurred in the fourth quarter of 2006.
At December 31, 2007, all severance related liabilities had been settled and WorldHeart incurred no restructuring costs in fiscal 2007.

In
August 2004, WorldHeart approved a separate plan to consolidate the Ottawa, Canada, operations into our facilities in Oakland, California, where the Novacor LVAS was
manufactured. This consolidation reduced ongoing business expenses in 2004 and 2005 and benefited operational efficiency and effectiveness. The restructuring was completed by the end of
June 2005. The total restructuring costs of $2.1 million were incurred and paid through 2005.

Acquired in-process research and development.During the third quarter of 2005, we recorded a one-time, non-cash charge of
$18.1 million to expense the in-process research and development acquired from MedQuest. We had estimated the value of the Levacor Rotary VAD project using an

28

---



income
approach and applied risk-adjusted discount rates to the estimated future revenue and expenses attributable to this technology and the MagLev Plus at the time of the acquisition. We
determined at the time of the acquisition that these projects had no alternative future use and therefore, as required under SFAS 142, we expensed the amounts immediately. There was no acquired
in-process research and development expense recorded in 2006 and 2007.

Amortization of intangibles.For the years ended December 31, 2007 and December 31, 2006, amortization
of intangibles were $191,000. Amortization expense is related to the $766,000 value assigned to the MedQuest workforce acquired in July 2005 and are being amortized over a four-year
period.

Goodwill impairment.The purchase of Novacor from Edwards in 2000 resulted in the recording of goodwill of $17.2 million. Since then, management has
performed an annual impairment assessment on our goodwill in accordance with SFAS 142. At December 31, 2005, we determined that the fair value of our goodwill was impaired and,
accordingly, we recorded a goodwill impairment charge of $17.2 million in the fourth quarter of 2005. The impairment was largely a result of slower than anticipated adoption of the Novacor LVAS
product. There was no goodwill impairment in 2006 and 2007.

Foreign exchange.During the year ended December 31, 2007, a foreign exchange loss of approximately $38,000 was recorded compared to a foreign exchange gain
of approximately $55,000 for the year ended December 31, 2006. The change in foreign exchange in 2007, compared with the previous year, related primarily to fluctuations in the relative value
of the U.S. dollar compared with the Euro and the Canadian dollar. We anticipate that foreign exchange gains and losses will diminish in 2008 with reduced Novacor commercial activity in Europe and in
Canada.

Investment and other income (expense).Investment and other income (expense) was $965,000 and $192,000 for 2007 and 2006, respectively. For 2007, investment income
of $350,000 resulted from interest earned on our invested cash. For 2006, investment and other income resulted primarily from interest earned on our invested cash. For 2007, other income was $615,000
which consisted primarily of $425,000 in deferred revenue taken into income and $190,000 from a reduction of a reserve. We anticipate a decrease in other income and do not foresee adjustments that
will be taken into income in the future.

Loss on disposal of assets.During the years ended December 31, 2007 and 2006, losses of approximately $5,000 and $248,000 on disposal of assets were
recorded, respectively.

Interest expense.In December 2007, we recorded interest expense of $485,000, of which $481,000 related to the beneficial conversion feature of the
$1.0 million convertible note issued to Abiomed on December 11, 2007. $4,000 was accrued interest expense calculated at 8% of $1.0 million convertible note. On January 3,
2008, we received the second tranche of funding of $4.0 million. We expect to record, in the first quarter, additional interest expense related to the beneficial conversion feature of
the $4.0 million note totaling approximately $1.9 million. We also expect to record accrued interest on the $5.0 million convertible note, with a maximum amount of approximately
$800,000, based on a two-year maturity period with an 8% rate of interest per annum, calculated based on a 360- day calendar year.

Clinical and marketing support.On December 11, 2007, we issued a 5-year warrant to Abiomed to purchase up to 3,400,000 common shares of
Corporation, exercisable at $0.01 per share. Until the funding of the second tranche on January 3, 2008, the warrant was exercisable with respect to only 680,000 common shares of the
Corporation. Following the funding of the second tranche on January 3, 2008, the warrant was exercisable for an additional 2,720,000 common shares of the Corporation. In December 2007,
we recorded warrant expense of $1.8 million related to the fair value of the warrant issued to Abiomed. We expect to record approximately $6.5 million in additional warrant expense
during the first quarter of 2008 related to the warrant issued to Abiomed. There was no such charge recorded in 2006. (See Note 19)

29

---





RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2006 COMPARED WITH THE YEAR ENDED DECEMBER 31, 2005
In thousands (000's)

Year Ended December 31,2006

2005Revenue

$
8,616

$
11,646Cost of goods sold


(10,201
)

(8,479
)Gross margin


(1,585
)

3,167Operating expensesSelling, general and administrative


8,664


12,041Research and development


9,002


7,388Restructuring costs


646


333Amortization of intangibles


192


339Acquired in-process research and development





18,147Goodwill impairment





17,180Total operating expenses


18,504


55,428Operating loss before the undernoted


(20,089
)

(52,261
)Other income (expense)Foreign exchange (loss) gain


55


(144
)Investment income


192


369Loss on disposal of assets


(248
)

(1
)Interest and financing expenses


5


(797
)Net loss for the year


(20,085
)

(52,834
)Effect of warrant exchange





(5,860
)Net loss applicable to common shareholders

$
(20,085
)
$
(58,694
)


Revenue.The sale of Novacor LVAS implant kits and related peripheral equipment and services accounts for substantially all of WorldHeart's revenues. WorldHeart
primarily sells its products directly, except for a few countries where we sell through distributors.

The
composition of revenue in thousands ($000's), except for units, is as follows:

2006

2005$

Units

$

UnitsImplant kits

$
5,148


74

$
7,600


118Peripherals and other


3,468





4,046Revenue

$
8,616




$
11,646


Net
revenue for the year ended December 31, 2006, decreased by $3.0 million, or 26%, compared with 2005. Implant kit revenue in 2006 decreased by $2.5 million, or
32%, compared with 2005. During 2006 the average price per kit was $69,600, compared with $64,400 during 2005, reflecting primarily a reduction in discounted sales in 2006. In the fourth quarter of
2006, net revenue of $1.0 million was significantly below net revenue of $3.6 million in the fourth quarter of 2005.

Peripherals
and other revenues, including Novacor LVAS hardware and peripheral sales, services and other revenue for the year ended December 31, 2006, were $3.5 million, a
decrease of 14%, compared with peripherals and other revenue of $4.0 million recorded in the year ended December 31,

30

---



2005.
In the fourth quarter of 2006, peripherals and other revenues were $0.5 million, compared with peripherals and other revenue of $1.2 million for the fourth quarter of 2005.

Implant
kits recognized as revenue in the year ended December 31, 2006, were 74, compared with 118 in the year ended December 31, 2005. WorldHeart recognized revenue on 45
implant kits in the United States in 2006, compared with 87 implant kits in 2005. In Europe, Canada and the rest-of-world, WorldHeart recognized revenue on 29 implant kits in
2006, compared with 31 in 2005.

At
December 31, 2005, 11 of our Novacor implant kits had been shipped and invoiced, however, the revenue was deferred as the transactions did not meet our revenue recognition
criteria. Revenue was recognized on 10 of these kits during 2006. At December 31, 2006, there was one remaining Novacor kit and some peripherals in deferred revenue, resulting in a year end
balance of $0.1 million. Based on our November 2006 restructuring plan, we reduced our commercial efforts on our Novacor LVAS program and expect implant kit and peripherals revenue to
continue to decrease in future periods

Cost of goods sold.For the year ended December 31, 2006, the cost of goods sold exceeded revenue (118% as a percentage of revenue), compared with cost of
goods sold as a percentage of revenue of 73% at December 31, 2005. The cost of goods sold for the year ended December 31, 2006, includes write-offs totaling
$4.6 million in the third and fourth quarter of 2006 related to redundant Novacor inventories and an increase in warranty provision of $0.2 million.

Selling, general and administrative.Selling, general and administrative expenses consist primarily of payroll and related expenses for executives, sales,
accounting and administrative personnel. Other administrative expenses include professional fees, communication expenses, insurance premiums, public reporting costs and other general corporate
expenses.

The
composition of selling, general and administrative expenses in thousands ($000's) is as follows:

Year Ended December 31,2006

2005Selling

$
3,471

$
5,776General and administrative


5,193


6,265Total

$
8,664

$
12,041


Selling,
general and administrative expense for the year ended December 31, 2006 decreased by $3.4 million, or 28%, versus the same period in 2005. Selling expenses for the
year ended December 31, 2006 decreased by $2.3 million, or 40%, compared with the same period in 2005. Selling expenses decreased due to lower sales commissions on reduced Novacor sales,
the elimination of the domestic sales group in November 2006 and reduced selling expenses in Europe. Selling expenses are expected to continue to decrease in 2007.

General
and administrative expenses decreased by $1.1 million, or 17%, for the year ended December 31, 2006, compared with 2005. These reductions are primarily due to cost
savings associated with the consolidation of our North American Novacor operations in December 2005, as well as reduced consulting fees, insurance and non-cash, stock option-related
compensation expenses in 2006. Administrative expenses are expected to remain at current levels in the next several quarters.

Research and development.Research and development expenses consist principally of salaries and related expenses for research personnel, prototype manufacturing,
testing, clinical trial, material purchases and regulatory affairs incurred at our Oakland and Salt Lake City facilities.

31

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Research
and development expenses for the year ended December 31, 2006 increased by $1.6 million, or 22%, compared with the year ended December 31, 2005. In 2006,
the full year impact of the Levacor development program, primarily at our Salt Lake City operations was realized, with resulting expenses in 2006 $3.3 million higher than in 2005, offset
somewhat by lower research expenses associated with the Novacor product at our Oakland operations. The overall research and development cost increase during 2006 consisted primarily of salaries and
supplies, offset somewhat by $0.5 million decrease in non-cash, stock option-related compensation expense and a $0.7 million credit in the fourth quarter of 2006 associated
with the successful outcome of a Canadian tax appeal. Development work and related expenses on our next-generation Levacor Rotary VAD are expected to increase with additional animal
studies and human clinical trials, primarily in the United States and Canada.

Restructuring costs.On November 14, 2006, we announced a significant restructuring and realignment of our business designed to control spending and better
position WorldHeart to changing market conditions and diminished demand for our first-generation Novacor LVAS.

We
reduced our manufacturing program and downsized selling and administrative personnel numbers associated with the Novacor LVAS, although we will continue to support the product for
existing patients and medical centers. The restructuring also included a reduction in WorldHeart's workforce by 41 people. Employee reductions occurred primarily in the related manufacturing and sales
departments. Restructuring expenses of about $646,000, including $470,000 severance-related charges and $176,000 related to the disposal of fixed assets, were incurred in the fourth quarter of 2006.
At December 31, 2006, $91,000 of the $470,000 severance related charges had been disbursed, with the remaining $379,000 included in accounts payable and accrued liabilities.

In
August 2004, WorldHeart approved a separate plan to consolidate the Ottawa, Canada, operations into our facilities in Oakland, California, where the Novacor LVAS was
manufactured. This consolidation reduced ongoing business expenses in 2004 and 2005 and benefited operational efficiency and effectiveness. The restructuring was completed by the end of
June 2005. The total restructuring costs of $2.1 million were incurred and paid through 2005.

Acquired in-process research and development.During the third quarter of 2005, we recorded a one-time, non-cash charge of
$18.1 million to expense the in-process research and development acquired from MedQuest. We had estimated the value of the Levacor Rotary VAD project using an income approach and
applied risk-adjusted discount rates to the estimated future revenue and expenses attributable to this technology and the MagLev Plus at the time of the acquisition. We determined at the
time of the acquisition that these projects had no alternative future use and therefore, as required under SFAS 142, we expensed the amounts immediately. There was no acquired
in-process research and development expense recorded in 2006.

Amortization of intangibles.Amortization of intangibles for the year ended December 31, 2006 was $191,000 compared with $338,000 in 2005. Amortization
expense in 2006 related to the $766,000 value assigned to the MedQuest workforce acquired in July 2005. In the first two quarters of 2005, we recorded amortization of $255,000 related to the
intangible assets purchased with the Novacor business. At the end of the second quarter of 2005 these assets had been fully amortized. In the second half of 2005, we recorded $83,000 in amortization
expense related entirely to the value assigned to the value of the MedQuest workforce. These intangibles are being amortized over a four-year period.

Goodwill impairment.The purchase of Novacor from Edwards in 2000 resulted in the recording of goodwill of $17.2 million. Since then, management has
performed an annual impairment assessment on our goodwill in accordance with SFAS 142. At December 31, 2005, we determined that the fair value of our goodwill was impaired and,
accordingly, we recorded a goodwill impairment charge of $17.2 million in the fourth quarter of 2005. The impairment was largely a result of slower than anticipated adoption of the Novacor LVAS
product. There was no goodwill impairment in 2006.

32

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Foreign exchange.During the year ended December 31, 2006, a foreign exchange gain of approximately $55,000 was recorded, compared with a loss of $144,000
for the year ended December 31, 2005. The change in foreign exchange in 2006, compared with the previous year, related primarily to fluctuations in the relative value of the U.S. dollar
compared with the Euro, and reductions in certain Canadian dollar denominated assets throughout the first half of 2005. We anticipate that foreign exchange gains and losses will diminish in 2007 with
reduced Novacor commercial activity in Europe.

Investment and other income (expense).Investment and other income (expense) was $191,000 and $370,000 for 2006 and 2005, respectively. For 2006, investment income
of $224,000 resulted from interest earned on our invested cash, offset somewhat by a bad debt expense of $33,000. For 2005, investment income was $245,000 and other income, consisting of the write off
of long term liabilities at two medical centers, which, as determined during the period, were no longer payable, was $125,000. The decrease in investment income in 2006 was due to lower average
invested cash balances in 2006, compared with 2005.

Loss on disposal of assets.During the year ended December 31, 2006, a loss of approximately $248,000 on disposal of assets was recorded compared with a
loss on disposal of assets of less than $1,000 for the year ended December 31, 2005.

Interest expense and financing expenses.In 2006 we recorded a credit of $5,000 due primarily to a deferred gain on a foreign loan. In 2005, interest expenses and
other financing costs, related primarily to non-cash interest and accretion associated with the convertible debentures, were $797,000. All outstanding debentures were converted in
July 2005 resulting in a significant expense reduction for the remainder of 2005. We anticipate minimal interest expenses in 2007.

Effect of warrant exchange.We recorded a one-time charge of $5.9 million in the third quarter of 2005 resulting from a reduction in the
exercise price of approximately 1.1 million warrants originally issued, in a private placement in September 2004. The exercise price of these warrants was reduced by $5.50 from $15.50 to
$10.00. There was no such charge recorded in 2006.

Stock option acceleration.In December 2005, the Board of Directors of WorldHeart approved the accelerated vesting of all outstanding stock options held by
current employees or consultants, except for the options held by the non-employee members of the Board of Directors. The purpose of the acceleration of vesting was to improve employee
morale and to minimize the amount of compensation expense in future periods following the adoption by WorldHeart of SFAS 123(R) in 2006. This program resulted in a reduction of
pre-tax charges under SFAS 123(R) of $3.4 million, of which $2.0 million and $1.4 million would have been recognized in fiscal 2006 and 2007, respectively. The
accelerated vesting of stock options in 2005 resulted in a non-cash charge of $4.9 million, reflected in the footnote disclosure in the notes to the consolidated financial
statements.

OFF-BALANCE SHEET ARRANGEMENTS

None

LIQUIDITY AND CAPITAL RESOURCES

Historically, WorldHeart has funded operations through the sale of equity and issuance of debt instruments. Combined with revenues,
these funds have provided us with the resources to operate our business, attract and retain key personnel, fund our research and development program and clinical trials, apply and obtain the necessary
regulatory approvals and develop our technology and products.

Liquidity.At December 31, 2007, WorldHeart had cash and cash equivalents of $0.7 million, compared with $12.2 million at December 31,
2006, a decrease of $11.5 million. This decrease was

33

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primarily
due to cash outflows from operations. In December 2007, we received net cash of $1.0 million as part of a note purchase agreement with Abiomed.

During
2007, cash used to fund operating activities was $12.1 million, consisting primarily of the net loss for the period of $18.6 million offset by non-cash
charges related to:



Investing
activities for 2007 used cash of $0.5 million for capital asset purchases.

With
the receipt of the proceeds from the Abiomed note, based on our current operating expenses and projected sales of our Novacor LVAS product, we believe we have sufficient cash to
fund operations through April, 2008. As a result, there is substantial doubt about the ability of WorldHeart to continue as a going concern.

We
are continuing to aggressively explore all strategic and financing alternatives, including equity financing transactions and corporate collaborations. Equity financings could include,
but are not limited to, private investments in public equity transactions, convertible debentures and strategic equity investment by interested companies. Corporate collaborations could include
licensing of one or more of our products, co-funding of our products or potential sale of WorldHeart or its subsidiaries. We have completed a restructuring program initiated in the fourth
quarter of 2006 re-aligning our spending to focus on our key development program, the Levacor Rotary VAD, have further reduced spending and will continue to carefully manage our overall
cash usage. While WorldHeart has been and is exploring all opportunities to improve its financial condition, there is no assurance that these programs will be successful. If we are not successful in
securing additional funding or implementing strategic alternatives in the very near term, we will not be able to continue operations.

Our
long-term working capital and capital requirements will depend upon numerous factors, including the following: our continued ability to generate Novacor LVAS sales
without an active selling effort and staff; the rate of investment in our next-generation technologies, particularly the Levacor Rotary VAD; the clinical trial costs and the approval
process for our next-generation products; our general efforts to improve operational efficiency, conserve cash and implement other cost conservation programs.

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CONTRACTUAL OBLIGATIONS

The following table sets forth WorldHeart's contractual obligations as of December 31, 2007:

Total

Less than
1 year

1-3 Years

3-5 Years

ThereafterOperating lease obligations

$
1,786,542

$
540,956

$
1,075,431

$
163,703

$
6,4528% secured convertible promissory note

$
5,000,000




$
5,000,000Other long term obligations

$
75,000


75,000








Total

$
6,861,542

$
615,956

$
6,075,431

$
163,703

$
6,452


Other
long-term obligations primarily include payments due under a license agreement.

Operating Leases

WorldHeart's headquarters and manufacturing facilities were previously contained in two buildings in Oakland, California, the lease for
which expired on April 30, 2007. On July 20, 2007, WorldHeart and its landlord entered into a compromise agreement, concerning the terms of certain restoration obligations with respect
to the premises under the prior lease. Pursuant to the terms of the compromise agreement, WorldHeart was required to perform agreed-upon restoration work on one of the two buildings it
occupied under the prior lease, which work was completed as of December 1, 2007. Following completion, the building was returned to the landlord and the new lease became effective with respect
to the one remaining building that the Corporation continues to occupy and will expire on December 1, 2010. The restoration obligations were satisfied by the landlord drawing down $750,000 from
a letter of credit which was in place in connection with the premises under the prior lease. In addition, the landlord agreed to apply $100,000 of a $150,000 security deposit under the prior lease
towards the security deposit under the new lease and has returned the balance, plus all accrued interest, to WorldHeart.

The
Salt Lake City facility lease expired on January 31, 2008 and has been extended to January 31, 2011. On October 1, 2007 we expanded into an adjacent vacant
suite. The lease on this additional space expires January 31, 2013. The Salt Lake City facility security deposits total $14,200.

Novacor LVAS Royalties

The Corporation is committed, under the Novacor LVAS royalty agreement, to make royalty payments to certain employees. Royalties are
payable on annual consolidated gross revenues at a rate of 0.808% up to a cumulative maximum of $3,232,000. Cumulative royalty payments to December 31, 2007, 2006 and 2005 total $1,212,400,
$1,190,800 and $1,121,225, respectively. Royalty payments were $21,600 in 2007, $69,575 in 2006 and $94,041 in 2005.

Technology Partnerships Canada Contribution Agreement

During 2002, WorldHeart entered into a shared funding program with Technology Partnerships Canada (TPC) under which the Canadian
government shares costs of certain research and development activities. Funding in the amount of $6.6 million was claimed. Effective January 1, 2004, repayment is in the form of
royalties on annual consolidated gross revenues at a rate of 0.65% for a nine-year period ending December 31, 2012. If during this period royalty payments reach the maximum of
$20.3 million, no further repayments will be required. If the royalty payments do not exceed $20.3 million during this period, they will continue until 2015 or until the maximum is
reached, whichever comes first. In connection with the agreement, we also granted TPC 9,286 warrants to purchase an equivalent number of our common shares exercisable until December 4, 2006, at
an exercise price of $290.50 per share. These warrants expired, unexercised, in December 2006.

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CAPITAL EXPENDITURES

2007

2006

2005Capital Expenditures

$
465,254

$
118,273

$
306,296


Capital
expenditures for 2007 increased from 2006, primarily due to the addition of a clean room at the Salt Lake R&D facility and improvements to the remaining leased building at the
Oakland corporate offices. WorldHeart anticipates that capital expenditures for 2008 will continue to increase slightly, assuming additional funding has been obtained.

At
December 31, 2007, WorldHeart occupied facilities in Oakland, California and Salt Lake City, Utah. WorldHeart's Oakland, California headquarters facility consists of
approximately 19,200 square feet of manufacturing, research and office space. The lease for the facility became effective December 1, 2007, for a term of three years, expiring
December 1, 2010. The Salt Lake City facility consists of 32,888 square feet of research and office space, 24,044 square feet of which is pursuant to a lease that previously expired on
January 31, 2008, and has been extended for an additional three years, until January 31, 2011. In October 2007, we added 8,844 additional square feet of space by expanding into an
adjacent vacant suite. The lease on this additional space expires January 31, 2013. WorldHeart's European location was previously in Heesch, Netherlands. The Heesch lease was signed in 2004 for
a three-year term expiring on December 31, 2007. This lease was terminated early and WorldHeart's European office and warehouse are now located at Herkenbosch, Netherlands, where
WorldHeart has contracted with a third party to provide space and administrative services. The former Ottawa, Canada facility originally comprised 22,755 square feet of manufacturing, research, and
office space with a lease that originally expired on December 31, 2006. The Ottawa location was closed and the building lease was terminated as part of the restructuring plan in
August 2004.

MARKET RISK

WorldHeart is subject to investment risk on investments that it makes with excess cash.

Investment
risk is mitigated by close adherence to an established investment policy, which has been approved by the Board of Directors. The policy sets liquidity criteria, and counter
party risk diversification criteria and restricts investments to investment grade quality instruments of AA or better or R1 medium or better in the case of commercial paper. Income exposure resulting
from a decline in interest rates is not significant due to the short term maturity of investments, all of which were in money market funds during 2007.

WorldHeart
has assets and liabilities in foreign currencies, including primarily the Euro and Canadian dollar. WorldHeart's current foreign currency exposure is immaterial. However, it
may, in the future, enter into foreign exchange contracts in order to mitigate its foreign exchange risks. WorldHeart did not enter into foreign exchange forward contracts or hedging transactions in
2007.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

WorldHeart's management makes certain assumptions and estimates that impact the reported amounts of assets, liabilities and
stockholders' equity, and revenues and expenses. These assumptions and estimates are inherently uncertain. Management judgments that are currently the most critical are related to revenue recognition,
inventory valuation, valuation of goodwill and long-lived assets, restructuring and stock based compensation. Below, we describe these policies as well as the estimates involved. For a
more detailed discussion on accounting policies, see the notes to the audited consolidated financial statements.

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Revenue recognition

Revenue from product and service sales is recognized when all of the following criteria are met: persuasive evidence of an agreement
exists; delivery has occurred or services have been rendered; the price is fixed and determinable; and collection is reasonably assured. WorldHeart occasionally rents certain in-hospital
equipment to customers. Rental income is included in revenue when earned. WorldHeart provides for returns based on prior experience.

For
multiple-element offerings, WorldHeart allocates the proceeds to the elements based on their relative fair values. Revenue from each element is recognized when the product is
delivered or services are deemed to have been completed.

The
Levacor Rotary VAD product was initially shipped to clinical centers during the fourth quarter of 2006 and has been paid for by those centers. WorldHeart has treated these payments
as deferred clinical fees. Within a period of one year, these clinical fees have been recognized as income.

Certain
products are covered by a limited warranty. Warranty costs are based on historical experience and estimated and recorded when the related sales are recognized. Any additional
costs are recorded when incurred or when they can reasonably be estimated.

Inventory valuation

During 2007, WorldHeart wrote-down the carrying value of its inventory by $1.4 million. Management estimated future
usage of inventory on hand by projecting future sales of its Novacor product, and using these to predict raw material parts and components that would be consumed in shipping of manufactured products
to meet these sales. Future write-downs may be required based on actual sales achieved and will be recorded when they can be reasonable determined.

Valuation of goodwill and long-lived assets

In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," WorldHeart
reviews the carrying value of long-lived 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 revenue and/or profits, changes in technology, significant litigation or other items.

WorldHeart
performs an impairment test of goodwill, at least, annually (in accordance with SFAS no. 142 "Goodwill and other Intangible assets). At December 31, 2005, in
evaluating whether there was an impairment of goodwill, management compared the carrying amounts of such assets with the related enterprise value. Enterprise value was used to measure the value of the
goodwill. Estimates of the enterprise value at December 31, 2005 were determined in part by a discounted cash flow valuation using estimates of revenue and net income, a 30% discount rate and
an eight-year period. The fair value method and the revenue multiples method were also factored into the estimate of enterprise value. Upon completion of its goodwill impairment test,
WorldHeart determined that the entire amount of the Novacor goodwill was impaired. A goodwill impairment charge of $17.2 million was recorded in 2005. There was no goodwill as of
December 31, 2007 and 2006.

Stock Based Compensation

WorldHeart accounts for its stock option plan in accordance with the Financial Accounting Standards Board's (FASB) Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock Based Compensation, Revised." Stock options issued to employees and in lieu of cash to non-employees for
services performed are recorded at the fair value of the options at the time they are issued and are expensed as service is provided. The fair value of options granted is determined using the
Black-Scholes model. Use of this model requires management estimates and assumptions

37

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regarding: expected
option life (estimated at six years), volatility (based on historical average daily stock prices), risk free interest rate (estimated based on United States Treasury rates),
and dividend yields (nil). Option forfeitures are estimated at 15% based on our historical forfeiture rates.

OUTSTANDING SHARE DATA

The outstanding share data as at December 31, 2007, 2006, and 2005, is adjusted to reflect the one for ten reverse stock split
completed in May 2007, is as follows:

Number of shares outstanding2007

2006

2005Common shares


11,507,275


11,507,275


5,547,955Options to purchase common shares


1,040,644


662,140


680,380Warrants to purchase common shares


1,909,876


1,242,778


1,304,836Debentures convertible to common shares


571,722





Accrued interest convertible to common shares


2,540








On
December 11, 2007, Corporation and WHI issued to Abiomed a secured convertible promissory note in the principal amount of up to $5 million, funded in two tranches,
$1.0 million of which was funded immediately and $4.0 million of which was funded on January 3, 2008. The note is convertible into Corporation common shares at Abiomed's option,
in whole or in part, at approximately $1.75 per share and is subject to anti-dilution adjustments in the event that the Corporation issues securities at a lower effective price, at any
time. The note will accrue interest at 8% per annum, which is payable upon payment or conversion of the note, and the interest may also be converted into
common shares at the then market value, at the option of Abiomed. During the fourth quarter of 2006, 5,620,000 common shares were issued in a private placement transaction. The 2006 reduction in
warrants was primarily due to 12,571 warrants repurchased by the Corporation during 2006 and expiration of approximately 25,400 warrants in 2007. In conjunction with the acquisition of MedQuest in
July 2005, 1,065,500 warrants were exercised and 1,089,110 debentures were converted into common shares. On December 11, 2007, pursuant to the clinical and marketing support services
agreement with Abiomed, Corporation issued to Abiomed a 5-year warrant to purchase up to 3,400,000 common shares of Corporation, exercisable at $0.01 per share. Until the funding of the
second tranche on January 3, 2008, the warrant was exercisable with respect to only 680,000 common shares of Corporation. Following the funding of the second tranche on January 3, 2008,
the warrant was exercisable for an additional 2,720,000 common shares of the Corporation. Until and unless shareholder approval has been received, the exercise of the Warrant, together with any
conversion of the Note, is limited to 19.9% of WorldHeart's common shares outstanding on December 11, 2007. Abiomed subsequently agreed by an amendment entered into in March 2008 not to
convert any part of the Note and not to exercise any part of the warrant until April 30, 2008.

NEW ACCOUNTING PRONOUNCEMENTS

In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48 ("FIN 48"),
"Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, Accounting for Income Taxes." FIN 48 clarifies the accounting for income taxes by prescribing
the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on de-recognition,
measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The interpretation applies to all tax positions related to income taxes subject to FASB
Statement No. 109. FIN 48 is effective for fiscal years beginning after December 15, 2006. Differences between the amounts recognized in the statements of financial position prior
to the adoption of FIN 48 and the amounts reported after adoption should be accounted for as a cumulative-effect adjustment recorded to the

38

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beginning
balance of retained earnings. The adoption of FIN 48 did not have a material impact on the Corporation's consolidated financial statements.

In
September 2006, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair
value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. This statement does not require any new fair value measurements
in accounting pronouncements where fair value is the relevant measurement attribute. However, for some entities, the application of this statement will change current practice for financial statements
issued for fiscal years beginning after November 15, 2007. The Corporation is currently evaluating the impact of the adoption of SFAS 157 on its definition and measurement of fair value
and disclosure requirements.

In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities". SFAS No. 159 permits an entity to choose, at
specified election dates, to measure eligible financial instruments and certain other items at fair value that are not currently required to be measured at fair value. An entity shall report
unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. Upfront costs and fees related to items for which the fair value
option is elected shall be recognized in earnings as incurred and not deferred. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between
entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after
January 1, 2008 and interim periods within those fiscal years. At the effective date, an entity may elect the fair value option for eligible items that exist at that date. The entity shall
report the effect of the first remeasurement to fair value as a cumulative-effect adjustment to the opening balance of retained earnings. The Corporation has not elected the fair value option for
eligible items that existed as of January 1, 2008.

In
June 2007, the FASB's Emerging Issues Task Force reached a consensus on EITF Issue No. 07-3, "Accounting for Nonrefundable Advance Payments for Goods or
Services to Be Used in Future Research and Development Activities" that would require nonrefundable advance payments made by the Corporation for future R&D activities to be capitalized and recognized
as an expense as the goods or services are received by the Corporation. The Corporation does not expect EITF Issue No. 07-3 to have a material impact on WorldHeart's consolidated
results of operations or financial condition.

In
December 2007, the FASB issued SFAS No. 141R, "Business Combinations," which changes how business acquisitions are accounted. SFAS No. 141R requires the acquiring
entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities assumed in a business combination. Certain provisions of this standard will, among other things, impact the determination of
acquisition-date fair value of consideration paid in a business combination (including contingent consideration); exclude transaction costs from acquisition accounting; and change
accounting practices for acquired contingencies, acquisition-related restructuring costs, in-process research and development, indemnification assets, and tax benefits. For WorldHeart,
SFAS No. 141R is effective for business combinations and adjustments to an acquired entity's deferred tax asset and liability balances occurring after December 31, 2008. The Corporation
does not expect SFAS No. 141R to have a material impact on WorldHeart's financial statements, in the near term.

In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51," which establishes new
standards governing the accounting for and reporting of noncontrolling interests (NCIs) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this
standard indicate, among other things, that NCIs (previously referred to as minority interests) be treated as a separate

39

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component
of equity, not as a liability; that increases and decrease in the parent's ownership interest that leave control intact be treated as equity transactions, rather than as step acquisitions or
dilution gains or losses; and that losses of a partially owned consolidated subsidiary be allocated to the NCI even when such allocation might result in a deficit balance. This standard also requires
changes to certain presentation and disclosure requirements. For WorldHeart, SFAS No. 160 is effective beginning January 1, 2009. The Corporation does not expect SFAS No. 160R to
have a material impact on WorldHeart's financial statements, in the near term.

In
December 2007, the FASB ratified the Emerging Issues Task Force consensus on EITF Issue No. 07-1, "Accounting for Collaborative Arrangements" that discusses
how parties to a collaborative arrangement (which does not establish a legal entity within such arrangement) should account for various activities. The consensus indicates that costs incurred and
revenues generated from transactions with third parties (i.e. parties outside of the collaborative arrangement) should be reported by the collaborators on the respective line items in their
income statements pursuant to EITF Issue No. 99-19, "Reporting Revenue Gross as a Principal Versus Net as an Agent." Additionally, the consensus provides that income statement
characterization of payments between the participants in a collaborative arrangement should be based upon existing authoritative pronouncements; analogy to such pronouncements if not within their
scope; or a reasonable, rational, and consistently applied accounting policy election. EITF Issue No. 07-1 is effective beginning January 1, 2009 and is to be applied
retrospectively to all periods presented for collaborative arrangements existing as of the date of adoption. The Corporation is currently evaluating the impacts and disclosures of this standard, but
would not expect EITF Issue No. 07-1 to have a material impact on the Corporation's consolidated results of operations or financial condition.

Item 7.    Financial Statements.

The financial statements required to be filed pursuant to this Item 7 are included in this Annual Report on
Form 10-KSB on pages F-1 to F-34.

Item 8.    Change In and Disagreements with Accountants on Accounting and Financial Disclosure.

On May 9, 2007, PricewaterhouseCoopers LLP finalized its notification to World Heart that it would not stand for
re-election as WorldHeart's independent auditors. PricewaterhouseCoopers LLP have been the Corporation's auditors since its inception, and WorldHeart was primarily serviced from
PricewaterhouseCoopers LLP's offices in Ottawa, Canada, the original location of WorldHeart's head office. However, with the move of WorldHeart's head office to California,
PricewaterhouseCoopers LLP and WorldHeart found it increasingly challenging to efficiently serve WorldHeart. The decision to change accounting firms was approved by the Audit Committee of the
Corporation's Board of Directors and the change in auditors became effective after the filing of the Corporation's 10-QSB on May 14, 2007.

PricewaterhouseCoopers LLP's
reports on WorldHeart's financial statements for the fiscal years ended December 31, 2006 and 2005 contained no adverse opinion or disclaimer
of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, except that their opinions were modified with respect to uncertainty regarding the ability of
WorldHeart to continue as a going concern.

During
WorldHeart's two most recent fiscal years and through the subsequent interim period prior to May 14, 2007: (i) there were no disagreements between WorldHeart and
PricewaterhouseCoopers LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements(s) if not resolved to the
satisfaction of PricewaterhouseCoopers LLP, would have caused PricewaterhouseCoopers LLP to make reference to the subject matter of the disagreement(s) in connection with its report; and
(ii) there were no "reportable events," as that term is defined in Item 304(a)(1)(iv)(B) of Regulation S-B.

40

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World
Heart provided PricewaterhouseCoopers LLP with a copy of its Current Report on Form 8-K, and requested that PricewaterhouseCoopers LLP furnish it
with a letter addressed to the Securities and Exchange Commission stating whether PricewaterhouseCoopers LLP agreed with the above statements. A copy of this letter, dated May 14, 2007,
is filed as Exhibit 16.1 hereto.

On
May 9, 2007, World Heart engaged the registered public accounting firm of Burr, Pilger & Mayer LLP as its new independent auditor. World Heart has not consulted
with Burr, Pilger & Mayer LLP, during World Heart's two most recent fiscal years or subsequent interim period prior to May 14, 2007, regarding the application of accounting
principles to a specified transaction, either completed or proposed, or any of the matters or events set forth in Items 304(a)(2)(i) and (ii) of Regulation S-B, except that
Burr, Pilger & Mayer LLP provided input to World Heart with respect to the preparation of the income tax note in World Heart's audited financial statements included in its Annual Report
on Form 10-KSB, as amended, for the year ended December 31, 2006.

Several
accounting firms were contacted by WorldHeart and audit proposals were discussed. The Audit Committee's decision to engage a regional accounting firm, that specializes in audits
of smaller pubic companies, was primarily related to WorldHeart's continued consolidation of its operations in the United States, including its plans to reincorporate in the United States. The Audit
Committee believes that, as WorldHeart is a relatively small, primarily domestic, public company, it may be better serviced by a regional accounting firm.

Item 8A(T).    Controls and Procedures.

Evaluation of disclosure controls and procedures.Based on their evaluation of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2007, our president and chief executive officer and our chief financial officer have
concluded that our disclosure controls and procedures are effective such that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is
(i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and (ii) accumulated and communicated to our
management, including our chief executive officer and our chief financial officer, as appropriate to allow timely decisions regarding disclosure. A control system cannot provide absolute assurance,
however, that the objectives of the control systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have
been detected.

Changes in internal controls over financial reporting:There was no change in our internal controls over financial reporting that occurred during the period
covered by this report, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

Management's Annual Report on Internal Control Over Financial Reporting:Our management is responsible for establishing and maintaining adequate internal control
over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles. Because of
inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide no reasonable
assurance of achieving their control objectives. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our
management, including our principal executive officer and principal accounting officer, conducted an evaluation of the effectiveness of our internal control over financial reporting
using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)

41

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in
Internal ControlIntegrated Framework. Based on its evaluation, our management concluded that as of December 31, 2007 our internal control over financial reporting is effective.
The Corporation engaged an outside consulting firm specializing in Sarbanes-Oxley Act of 2002, section 404 compliance starting the process of establishing compliance with Public Company
Accounting Oversight Board (PCAOB) audit standard #5.

This
annual report does not include an attestation report of the Corporation's registered public accounting firm regarding internal control over financial reporting. Management's report
was not subject to attestation by the Corporation's registered public accounting firm pursuant to temporary rules of the SEC that permit the Corporation to provide only the management's report in this
annual report.

Item 8B.    Other Information.

None.

42

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PART III

Item 9.    Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance With Section 16(a) of the Exchange Act.

The information relating to our directors, nominees for election as directors, and executive officers under the headings "Election of
Directors," "Executive Officers," "Corporate Governance" and "Section 16(a) Beneficial Ownership Reporting Compliance" in our definitive proxy statement for the 2008 Annual Meeting of
Shareholders is incorporated herein by reference to such proxy statement.

We
have adopted a written code of business conduct and ethics that applies to our principal executive officer and principal financial and accounting officer, or persons performing
similar functions. We intend to disclose any amendments to, or waivers from, our code of business conduct and ethics that are required to be publicly disclosed pursuant to rules of the Securities and
Exchange Commission and Nasdaq by filing such amendment or waiver with the Securities and Exchange Commission.

Item 10.    Executive Compensation.

The discussion under the heading "Report on Executive Compensation and Composition of the Compensation Committee", "Compensation of
Executive Officers", "Summary Compensation Table", "Narrative Disclosures to Summary Compensation Table," "Outstanding Equity Awards at Fiscal Year-End Table," "Director Compensation
Table" and "Narrative Disclosure to Director Compensation Table" in our definitive proxy statement for the 2008 Annual Meeting of Shareholders is incorporated herein by reference to such proxy
statement.

Item 11.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The discussion under the heading Equity Compensation Plan Information" and "Security Ownership of Certain Beneficial Owners and
Management" in our definitive proxy statement for the 2008 Annual Meeting of Shareholders is incorporated herein by reference to such proxy statement.

Item 12.    Certain Relationships and Related Transactions, and Director Independence.

The discussion under the heading U.S. "Certain Relationships and Related Transactions, and Director Independence" in our definitive
proxy statement for the 2008 Annual Meeting of Shareholders is incorporated herein by reference to such proxy statement.

Item 13.    Exhibits

Exhibit 2.1

Asset Purchase Agreement between World Heart Corporation and MedQuest, dated as of January 31, 2005 (incorporated by reference to the Corporation's Report on Form 6-K dated February 1, 2005).Exhibit 3.1

Article of Continuance, dated December 14, 2005 (incorporated by reference to the Corporation's report on Form 8-K dated December 14, 2005 (Commission File No. 000-28882)).Exhibit 3.2

Amendment to Articles, dated May 30, 2007 (incorporated by reference to the Corporation's report on Form 8-K dated May 31, 2007 (Commission File No. 000-28882)).Exhibit 3.4

By-laws of the Corporation (incorporated by reference to the Corporation's report on Form 8-K dated December 21, 2005 (Commission File No. 000-28882)).


43

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Exhibit 4.1

Form of Common Share Certificate (incorporated by reference to the Corporation's report on Form 8-K dated December 14, 2005 (Commission File No. 000-28882)Exhibit 4.2

Registration Rights Agreement, dated September 22, 2003, between the Corporation and the purchasers named therein (incorporated by reference to Exhibit 4.2 to the Corporation's Registration Statement on Form F-3 (Commission File
No. 333-111512)).Exhibit 4.3

Warrant Indenture, dated September 22, 2003, between the Corporation and CIBC Mellon Trust Company (incorporated by reference to Exhibit 4.3 to the Corporation's Registration Statement on Form F-3 (Commission File
No. 333-111512)).Exhibit 4.4

U.S. Purchase Agreement for Units, dated September 22, 2003 (incorporated by reference to Exhibit 4.4 to the Corporation's Registration Statement on Form F-3 (Commission File No. 333-111512)).Exhibit 4.5

Agency Agreement, dated September 22, 2003, between the Corporation and Research Capital Corporation (incorporated by reference to Exhibit 4.5 to the Corporation's Registration Statement on Form F-3 (Commission File No. 333-111512)).Exhibit 4.7

Registration Rights Agreement, dated September 15, 2004, between the Corporation and the purchasers named therein (incorporated by reference to Exhibit 4.2 to the Corporation's Registration Statement on Form F-3 (Commission File
No. 333-119750)).Exhibit 4.9

Purchase Agreement, dated as of January 31, 2005, between the Corporation and Maverick Venture Management, LLC (incorporated by reference to the Corporation's Report on Form 6-K dated February 1, 2005).Exhibit 4.10

Registration Rights Agreement dated as of July 29, 2005, between the Corporation, MedQuest Products, Inc. and Maverick Venture Management, LLC. (incorporated by reference to Exhibit 4.1 to the Corporation's Form 10-QSB for
the period ended June 30, 2005 (Commission File No. 000-28882)).Exhibit 4.11

Form of Registration Rights Agreement dated as of November 13, 2006, between the Corporation and the investors named therein (incorporated by reference to Exhibit 4.1 to the Corporation's Form S-3 (Commission File No. 333-138872)).Exhibit 4.12

Form of Purchase Agreement, dated as of November 13, 2006, between the Corporation and the investors named therein (incorporated by reference to Exhibit 4.2 to the Corporation's Report on Form S-3 (Commission File No. 333-138872)).Exhibit 10.1

Restated and Amended Distribution Agreement, dated December 31, 2003, between the Corporation and Edwards Lifesciences LLC (incorporated by reference to Exhibit 99.1 to Amendment No. 1 the Corporation's Registration Statement on
Form F-3 (Commission File No. 333-111512)).Exhibit 10.2

Consulting Agreement, dated July 13, 2004, between the Corporation and Synergistic Business Solutions (incorporated by reference to Exhibit 10.2 to the Corporation's Form 10-KSB/A for the year ended December 31, 2004 (Commission
File No. 000-28882)).Exhibit 10.3

Letter Agreement, dated June 23, 2000, as amended on October 12, 2004, between the Corporation and Phillip J. Miller (incorporated by reference to Exhibit 10.7 to the Corporation's Form 10-KSB/A for the year ended December 31,
 2004 (Commission File No. 000-28882)).


44

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Exhibit 10.4

Letter Agreement, dated October 6, 2003, as amended on October 12, 2004, between the Corporation and John Marinchak (incorporated by reference to Exhibit 10.6 to the Corporation's Form 10-KSB/A for the year ended December 31,
2004 (Commission File No. 000-28882)).Exhibit 10.5

Employment and Arbitration Agreement dated 2006 between the Corporation and Petrus Jansen (incorporated by reference to the Corporation's Form 10-QSB for the period ended June 30, 2006 (Commission File No. 000-28882)).Exhibit 10.6

Letter Agreement dated June 23, 2000, as amended on October 28, 2004, between the Corporation and Jal S. Jassawalla (incorporated by reference to Exhibit 10.1 to the Corporation's Form 10-QSB for the period ended March 31,
2005 (Commission File No. 000-28882)).Exhibit 10.7

Letter Agreement dated January 24, 2005, between the Corporation and Pratap Khanwilkar (incorporated by reference to Exhibit 10.3 to the Corporation's Form 10-QSB for the period ended June 30, 2005 (Commission File
No. 000-28882)).Exhibit 10.8

Letter Agreement, dated May 19, 2005, between the Corporation and John Vajda (incorporated by reference to Exhibit 10.1 to the Corporation's Form 10-QSB for the year ended June 30, 2005 (Commission File No. 000-28882)).Exhibit 10.9

Letter Agreement dated May 27, 2005, between the Corporation and A. Richard Juelis (incorporated by reference to Exhibit 10.1 to the Corporation's Form 10-QSB for the period ended June 30, 2005 (Commission File
No. 000-28882)).Exhibit 10.10

Form of indemnification agreement (incorporated by reference to the Corporation's report on Form 8-K dated December 21, 2005 (Commission File No. 000-28882)).Exhibit 10.11

License Agreement dated March 31, 1999, as amended on June 8, 2005, between the Corporation and the University of Utah Research Foundation (incorporated by reference to the Corporation's report on Form 10-KSB for the year ended
December 31,2005 (Commission File No. 000-28882)).Exhibit 10.12

License Agreement dated March 31, 1999, between the Corporation and the University of Virginia Patent Foundation (incorporated by reference to the Corporation's report on Form 10-KSB for the year ended December 31,2005 (Commission File
No. 000-28882)).Exhibit 10.13

License Agreement dated February 13, 2002, between the Corporation and University of Pittsburgh (incorporated by reference to the Corporation's report on Form 10-KSB for the year ended December 31,2005 (Commission File
No. 000-28882)).Exhibit 10.14

Operating Agreement of Heart Lung Institute, LLC dated October 13,1998, as amended July 15, 2005, between the Corporation and the Heart and Lung Research foundation (incorporated by reference to the Corporation's report on
Form 10-KSB for the year ended December 31,2005 (Commission File No. 000-28882)).Exhibit 10.15

World Heart Corporation 2006 Equity Incentive Plan (formerly known as World Heart Corporation Employee Stock Option Plan) (incorporated by reference to Exhibit 99.2 to the Corporation's Form 8-K dated December 20, 2006 (Commission
File No. 000-28882)).Exhibit 10.16

Form of Stock Option Grant Notice to World Heart Corporation 2006 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 to the Corporation's Form 8-K dated February 7, 2007 (Commission File No. 000-28882)).


45

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Exhibit 10.17

Form of Restricted Stock Award Agreement to World Heart Corporation 2006 Equity Incentive Plan (incorporated by reference to Exhibit 99.2 to the Corporation's Form 8-K dated February 7, 2007 (Commission File No. 000-28882)).Exhibit 10.18

Form of Performance Share Grant Notice and Agreement to World Heart Corporation 2006 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 to the Corporation's Form 8-K filed on March 14, 2007 (Commission File
No. 000-28882)).Exhibit 10.19

Summary of Bonus Program for Certain Executive Officers (incorporated by reference to Exhibit 99.2 to the Corporation's Form 8-K filed on March 14, 2007 (Commission File No. 000-28882)).Exhibit 10.20

Incentive Compensation Agreement with A. Richard Juelis, dated April 6, 2007 (incorporated by reference to Exhibit 10.20 to the Corporation's Form 10-QSB for the quarter ended March 31, 2007 (Commission File
No. 000-28882)).Exhibit 10.21

Compromise Agreement with Oakland Associates, LP dated July 20, 2007, and Standard Industrial Commercial Single Tenant Lease Agreement (incorporated by reference to Exhibit 10.21 to the Corporation's Form 10-QSB for the quarter
Ended June 30, 2007 (Commission File No. 000-28882)).Exhibit 10.22

Employment Agreement by and among World Heart Corporation and David Pellone. (filed as an exhibit to the Current Report on Form 8-K filed on September 4, 2007 and incorporated herein by reference (Commission File No. 000-28882)).Exhibit 10.23

Note Purchase Agreement dated December 11, 2007 between the registrant, World Heart Inc., a wholly-owned subsidiary of the registrant, and ABIOMED, Inc. (filed as an exhibit to the Current Report on Form 8-K filed on
December 13, 2007 and incorporated herein by reference (Commission File No. 000-28882)).Exhibit 10.24

8% Secured Convertible Promissory Note dated December 11, 2007 (filed as an exhibit to the Current Report on Form 8-K filed on December 13, 2007 and incorporated herein by reference (Commission File No. 000-28882)).Exhibit 10.25

Canadian Security Agreement dated December 11, 2007 between the registrant ABIOMED, Inc. (filed as an exhibit to the Current Report on Form 8-K filed on December 13, 2007 and incorporated herein by reference (Commission File
No. 000-28882)).Exhibit 10.26

U.S. Security Agreement dated December 11, 2007 between World Heart Inc., a wholly-owned subsidiary of the registrant, and ABIOMED, Inc. (filed as an exhibit to the Current Report on Form 8-K filed on December 13, 2007 and
incorporated herein by reference (Commission File No. 000-28882)).Exhibit 10.27

Common Shares Warrant dated December 11, 2007 (filed as an exhibit to the Current Report on Form 8-K filed on December 13, 2007 and incorporated herein by reference (Commission File No. 000-28882)).Exhibit 10.28

Clinical and Marketing Support Services Agreement dated December 11, 2007 between the registrant, World Heart Inc., a wholly-owned subsidiary of the registrant, and ABIOMED, Inc. (filed as an exhibit to the Current Report on
Form 8-K filed on December 13, 2007 and incorporated herein by reference (Commission File No. 000-28882)).


46

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Exhibit 10.29

Registration Rights Agreement dated December 11, 2007 between the registrant and ABIOMED, Inc. (filed as an exhibit to the Current Report on Form 8-K filed on December 13, 2007 and incorporated herein by reference (Commission File
No. 000-28882)).Exhibit 14.1

Amended and Restated Code of Conduct of the Corporation, adopted on October 26, 2004. (incorporated by reference to Exhibit 99.1 to the Corporation's Form 10-KSB for the year ended December 31, 2004 (Commission File No
000-28882).Exhibit 16.1

Letter Regarding Change in Certifying Accountant (filed as an exhibit to the Current Report on Form 8-K filed on May 14, 2007 and incorporated herein by reference (Commission File No. 000-28882)).Exhibit 21.1

List of All Subsidiaries of World Heart Corporation.**Exhibit 23.1

Consent of Independent Registered Public Accounting FirmBurr, Pilger & Mayer LLP.*Exhibit 23.2

Consent of Independent AuditorsPricewaterhouse Coopers LLP.*Exhibit 24.1

Power of Attorney (reference is made to the signature page to this Form 10-KSB).**Exhibit 31.1

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*Exhibit 31.2

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*Exhibit 32.1

Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350.*Exhibit 32.2

Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350.*


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Item 14.    Principal Accountant Fees and Services.

The discussion under the heading "Appointment of Auditors" in our definitive proxy statement for the 2008 Annual Meeting of
Shareholders in incorporated herein by reference to such proxy statement.

47

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the
undersigned, duly authorized.

WORLD HEART CORPORATION (Registrant)By  /s/JAL S. JASSAWALLAPresident and Chief Executive Officer (Signature and Title)Date: July 16, 2008


In
accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and dates indicated.

Name

Title

Date/s/JAL S. JASSAWALLAJal S. Jassawalla

President, Chief Executive Officer and Director (principal executive officer)

July 16, 2008


By:

/s/JAL S. JASSAWALLAJal S. Jassawalla

Attorney-in-Fact

July 16, 2008


48

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EXHIBIT INDEX

Exhibit 2.1

Asset Purchase Agreement between World Heart Corporation and MedQuest, dated as of January 31, 2005 (incorporated by reference to the Corporation's Report on Form 6-K dated February 1, 2005).Exhibit 3.1

Article of Continuance, dated December 14, 2005 (incorporated by reference to the Corporation's report on Form 8-K dated December 14, 2005 (Commission File No. 000-28882)).Exhibit 3.2

Amendment to Articles, dated May 30, 2007 (incorporated by reference to the Corporation's report on Form 8-K dated May 31, 2007 (Commission File No. 000-28882)).Exhibit 3.4

By-laws of the Corporation (incorporated by reference to the Corporation's report on Form 8-K dated December 21, 2005 (Commission File No. 000-28882)).Exhibit 4.1

Form of Common Share Certificate (incorporated by reference to the Corporation's report on Form 8-K dated December 14, 2005 (Commission File No. 000-28882)).Exhibit 4.2

Registration Rights Agreement, dated September 22, 2003, between the Corporation and the purchasers named therein (incorporated by reference to Exhibit 4.2 to the Corporation's Registration Statement on Form F-3 (Commission File
No. 333-111512)).Exhibit 4.3

Warrant Indenture, dated September 22, 2003, between the Corporation and CIBC Mellon Trust Company (incorporated by reference to Exhibit 4.3 to the Corporation's Registration Statement on Form F-3 (Commission File
No. 333-111512)).Exhibit 4.4

U.S. Purchase Agreement for Units, dated September 22, 2003 (incorporated by reference to Exhibit 4.4 to the Corporation's Registration Statement on Form F-3 (Commission File No. 333-111512)).Exhibit 4.5

Agency Agreement, dated September 22, 2003, between the Corporation and Research Capital Corporation (incorporated by reference to Exhibit 4.5 to the Corporation's Registration Statement on Form F-3 (Commission File No. 333-111512)).Exhibit 4.7

Registration Rights Agreement, dated September 15, 2004, between the Corporation and the purchasers named therein (incorporated by reference to Exhibit 4.2 to the Corporation's Registration Statement on Form F-3 (Commission File
No. 333-119750)).Exhibit 4.9

Purchase Agreement, dated as of January 31, 2005, between the Corporation and Maverick Venture Management, LLC (incorporated by reference to the Corporation's Report on Form 6-K dated February 1, 2005).Exhibit 4.10

Registration Rights Agreement dated as of July 29, 2005, between the Corporation, MedQuest Products, Inc. and Maverick Venture Management, LLC. (incorporated by reference to Exhibit 4.1 to the Corporation's Form 10-QSB for
the period ended June 30, 2005 (Commission File No. 000-28882)).Exhibit 4.11

Form of Registration Rights Agreement dated as of November 13, 2006, between the Corporation and the investors named therein (incorporated by reference to Exhibit 4.1 to the Corporation's Form S-3 (Commission File No. 333-138872)).Exhibit 4.12

Form of Purchase Agreement, dated as of November 13, 2006, between the Corporation and the investors named therein (incorporated by reference to Exhibit 4.2 to the Corporation's Report on Form S-3 (Commission File No. 333-138872)).


49

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Exhibit 10.1

Restated and Amended Distribution Agreement, dated December 31, 2003, between the Corporation and Edwards Lifesciences LLC (incorporated by reference to Exhibit 99.1 to Amendment No. 1 the Corporation's Registration Statement on
Form F-3 (Commission File No. 333-111512)).Exhibit 10.2

Consulting Agreement, dated July 13, 2004, between the Corporation and Synergistic Business Solutions (incorporated by reference to Exhibit 10.2 to the Corporation's Form 10-KSB/A for the year ended December 31, 2004 (Commission
File No. 000-28882)).Exhibit 10.3

Letter Agreement, dated June 23, 2000, as amended on October 12, 2004, between the Corporation and Phillip J. Miller (incorporated by reference to Exhibit 10.7 to the Corporation's Form 10-KSB/A for the year ended December 31,
 2004 (Commission File No. 000-28882)).Exhibit 10.4

Letter Agreement, dated October 6, 2003, as amended on October 12, 2004, between the Corporation and John Marinchak (incorporated by reference to Exhibit 10.6 to the Corporation's Form 10-KSB/A for the year ended December 31,
2004 (Commission File No. 000-28882)).Exhibit 10.5

Employment and Arbitration Agreement dated 2006 between the Corporation and Petrus Jansen (incorporated by reference to the Corporation's Form 10-QSB for the period ended June 30, 2006 (Commission File No. 000-28882)).Exhibit 10.6

Letter Agreement dated June 23, 2000, as amended on October 28, 2004, between the Corporation and Jal S. Jassawalla (incorporated by reference to Exhibit 10.1 to the Corporation's Form 10-QSB for the period ended March 31,
2005 (Commission File No. 000-28882)).Exhibit 10.7

Letter Agreement dated January 24, 2005, between the Corporation and Pratap Khanwilkar (incorporated by reference to Exhibit 10.3 to the Corporation's Form 10-QSB for the period ended June 30, 2005 (Commission File
No. 000-28882)).Exhibit 10.8

Letter Agreement, dated May 19, 2005, between the Corporation and John Vajda (incorporated by reference to Exhibit 10.1 to the Corporation's Form 10-QSB for the year ended June 30, 2005 (Commission File No. 000-28882)).Exhibit 10.9

Letter Agreement dated May 27, 2005, between the Corporation and A. Richard Juelis (incorporated by reference to Exhibit 10.1 to the Corporation's Form 10-QSB for the period ended June 30, 2005 (Commission File
No. 000-28882)).Exhibit 10.10

Form of indemnification agreement (incorporated by reference to the Corporation's report on Form 8-K dated December 21, 2005 (Commission File No. 000-28882)).Exhibit 10.11

License Agreement dated March 31, 1999, as amended on June 8, 2005, between the Corporation and the University of Utah Research Foundation (incorporated by reference to the Corporation's report on Form 10-KSB for the year ended
December 31, 2005 (Commission File No. 000-28882)).Exhibit 10.12

License Agreement dated March 31, 1999, between the Corporation and the University of Virginia Patent Foundation (incorporated by reference to the Corporation's report on Form 10-KSB for the year ended December 31, 2005 (Commission
File No. 000-28882)).Exhibit 10.13

License Agreement dated February 13, 2002, between the Corporation and University of Pittsburgh (incorporated by reference to the Corporation's report on Form 10-KSB for the year ended December 31, 2005 (Commission File
No. 000-28882)).


50

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Exhibit 10.14

Operating Agreement of Heart Lung Institute, LLC dated October 13,1998, as amended July 15, 2005, between the Corporation and the Heart and Lung Research foundation (incorporated by reference to the Corporation's report on
Form 10-KSB for the year ended December 31, 2005 (Commission File No. 000-28882)).Exhibit 10.15

World Heart Corporation 2006 Equity Incentive Plan (formerly known as World Heart Corporation Employee Stock Option Plan) (incorporated by reference to Exhibit 99.2 to the Corporation's Form 8-K dated December 20, 2006 (Commission
File No. 000-28882)).Exhibit 10.16

Form of Stock Option Grant Notice to World Heart Corporation 2006 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 to the Corporation's Form 8-K dated February 7, 2007 (Commission File No. 000-28882)).Exhibit 10.17

Form of Restricted Stock Award Agreement to World Heart Corporation 2006 Equity Incentive Plan (incorporated by reference to Exhibit 99.2 to the Corporation's Form 8-K dated February 7, 2007 (Commission File No. 000-28882)).Exhibit 10.18

Form of Performance Share Grant Notice and Agreement to World Heart Corporation 2006 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 to the Corporation's Form 8-K filed on March 14, 2007 (Commission File
No. 000-28882)).Exhibit 10.19

Summary of Bonus Program for Certain Executive Officers (incorporated by reference to Exhibit 99.2 to the Corporation's Form 8-K filed on March 14, 2007 (Commission File No. 000-28882)).Exhibit 10.20

Incentive Compensation Agreement with A. Richard Juelis, dated April 6, 2007 (incorporated by reference to Exhibit 10.20 to the Corporation's Form 10-QSB for the quarter ended March 31, 2007 (Commission File
No. 000-28882)).Exhibit 10.21

Compromise Agreement with Oakland Associates, LP dated July 20, 2007, and Standard Industrial Commercial Single Tenant Lease Agreement (incorporated by reference to Exhibit 10.21 to the Corporation's Form 10-QSB for the quarter
Ended June 30, 2007 (Commission File No. 000-28882)).Exhibit 10.22

Employment Agreement by and among World Heart Corporation and David Pellone. (filed as an exhibit to the Current Report on Form 8-K filed on September 4, 2007 and incorporated herein by reference (Commission File No. 000-28882)).Exhibit 10.23

Note Purchase Agreement dated December 11, 2007 between the registrant, World Heart Inc., a wholly-owned subsidiary of the registrant, and ABIOMED, Inc. (filed as an exhibit to the Current Report on Form 8-K filed on
December 13, 2007 and incorporated herein by reference (Commission File No. 000-28882)).Exhibit 10.24

8% Secured Convertible Promissory Note dated December 11, 2007 (filed as an exhibit to the Current Report on Form 8-K filed on December 13, 2007 and incorporated herein by reference (Commission File No. 000-28882)).Exhibit 10.25

Canadian Security Agreement dated December 11, 2007 between the registrant ABIOMED, Inc. (filed as an exhibit to the Current Report on Form 8-K filed on December 13, 2007 and incorporated herein by reference (Commission File
No. 000-28882)).Exhibit 10.26

U.S. Security Agreement dated December 11, 2007 between World Heart Inc., a wholly-owned subsidiary of the registrant, and ABIOMED, Inc. (filed as an exhibit to the Current Report on Form 8-K filed on December 13, 2007 and
incorporated herein by reference (Commission File No. 000-28882)).


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Exhibit 10.27

Common Shares Warrant dated December 11, 2007 (filed as an exhibit to the Current Report on Form 8-K filed on December 13, 2007 and incorporated herein by reference (Commission File No. 000-28882)).Exhibit 10.28

Clinical and Marketing Support Services Agreement dated December 11, 2007 between the registrant, World Heart Inc., a wholly-owned subsidiary of the registrant, and ABIOMED, Inc. (filed as an exhibit to the Current Report on
Form 8-K filed on December 13, 2007 and incorporated herein by reference (Commission File No. 000-28882)).Exhibit 10.29

Registration Rights Agreement dated December 11, 2007 between the registrant and ABIOMED, Inc. (filed as an exhibit to the Current Report on Form 8-K filed on December 13, 2007 and incorporated herein by reference (Commission File
No. 000-28882)).Exhibit 14.1

Amended and Restated Code of Conduct of the Corporation, adopted on October 26, 2004. (incorporated by reference to Exhibit 99.1 to the Corporation's Form 10-KSB for the year ended December 31, 2004 (Commission File No
000-28882).Exhibit 16.1

Letter Regarding Change in Certifying Accountant (filed as an exhibit to the Current Report on Form 8-K filed on May 14, 2007 and incorporated herein by reference (Commission File No. 000-28882)).Exhibit 21.1

List of All Subsidiaries of World Heart Corporation.**Exhibit 23.1

Consent of Independent Registered Public Accounting FirmBurr, Pilger & Mayer LLP.*Exhibit 23.2

Consent of Independent AuditorsPricewaterhouse Coopers LLP.*Exhibit 24.1

Power of Attorney (reference is made to the signature page to this Form 10-KSB).**Exhibit 31.1

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*Exhibit 31.2

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*Exhibit 32.1

Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350.*Exhibit 32.2

Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350.*


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52

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WORLD HEART CORPORATION

PageManagement's Statement of Responsibility

F-2Auditors' Report to the Shareholders of World Heart Corporation2007

F-3Auditors' Report to Shareholders of World Heart Corporation2006 and 2005

F-4AUDITED CONSOLIDATED FINANCIAL STATEMENTS:Consolidated Balance Sheets as of December 31, 2007 and 2006

F-5Consolidated Statements of Operations for the years ended December 31, 2007, 2006 and 2005

F-6Consolidated Statements of Shareholders' Equity (Deficit) for the years ended December 31, 2007, 2006 and 2005

F-7Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005

F-8Notes to Consolidated Financial Statements

F-9


F-1

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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 generally accepted accounting principles in the United States ("U.S. 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 consolidated 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 consolidated financial statements were reviewed by the
Audit Committee and approved by the Board of Directors.

The
2007 consolidated financial statements were audited by Burr, Pilger & Mayer LLP, the 2006 and 2005 financial statements were audited by Pricewaterhouse
Coopers LLP, the external auditors, on behalf of the shareholders.

Original signed by:

Original signed by:Jal S. Jassawalla

David PelloneChief Executive Officer

Chief Financial Officer


March 27,
2008

F-2

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AUDITORS' REPORT TO THE SHAREHOLDERS OF WORLD HEART CORPORATION        Report of Independent Registered Public Accounting Firm

To
the Board of Directors and Shareholder of World Heart Corporation:

We
have audited the accompanying consolidated balance sheet of World Heart Corporation and its subsidiaries as of December 31, 2007, and the related consolidated statements of
operations, shareholders' equity (deficit) and cash flow for the year then ended. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is
to express an opinion on these consolidated financial statements based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of the
Corporation's internal control over financial reporting. 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. We believe our audit provide a
reasonable basis for our audit opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of World Heart Corporation and its subsidiaries
at December 31, 2007 and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States.

The
accompanying consolidated financial statements have been prepared assuming that the Corporation will continue as a going concern. As discussed in Note 1 to the financial
statements, the Corporation has suffered recurring losses that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also
described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As
discussed in Note 13 to the consolidated financial statements, effective January 1, 2007, the Corporation adopted the provisions of Financial Accounting Standards Board
Interpretation No. 48, Accounting for Uncertainty in Income TaxesAn Interpretation of FASB Statement No. 109. As discussed in Note 10 to the consolidated financial
statements, effective January 1, 2006, the Corporation adopted the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004) Share-based Payment.

Burr,
Pilger & Mayer LLP

San
Francisco, CA
March 20, 2008

F-3

---



AUDITORS' REPORT TO THE SHAREHOLDERS OF WORLD HEART CORPORATION

We have audited the accompanying consolidated balance sheet of World Heart Corporation and its subsidiaries as of December 31,
2006 and the related consolidated statements of operations, shareholders' equity and cash flow for the years ended December 31, 2006 and 2005.
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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about 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. We believe our audits provide a reasonable basis for our audit opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of World Heart Corporation and its subsidiaries
at December 31, 2006 and the results of their operations and their cash flows for the years ended December 31, 2006 and 2005 in conformity with accounting principles generally accepted
in the United States.

The
accompanying financial statements have been prepared assuming that the Corporation will continue as a going concern. As discussed in Note 1 to the financial statements, the
Corporation has suffered recurring losses that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in
Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Ottawa, Canada

PRICEWATERHOUSECOOPERS LLPMarch 29, 2007

Chartered Accountants, Licensed Public Accountants


F-4

---





WORLD HEART CORPORATION        CONSOLIDATED BALANCE SHEETS        (United States Dollars)

December 31,
2007

December 31,
2006ASSETSCurrent assetsCash and cash equivalents

$
664,504

$
12,216,671Trade and other receivables


175,170


2,297,769Inventory


864,314


3,088,359Prepaid expenses


191,464


455,9021,895,452


18,058,701Long-term assetsCash pledged as collateral for lease





750,000Property and equipment


808,383


950,470Intangible assets


299,340


490,764Other long-term assets


244,420


247,7871,352,143


2,439,021Total assets

$
3,247,595

$
20,497,722LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilitiesAccounts payable and accrued liabilities

$
1,938,531

$
3,526,448Accrued site restoration


31,000


876,000Accrued compensation


1,318,091


919,146Deferred clinical fees





309,998Deferred revenue


50,618


159,801Total liabilities


3,338,240


5,791,393Long-term liabilitiesConvertible debenture


1,000,000


1,000,000


Commitments and Contingencies (Note 14)Shareholders' equity (deficit)Common stock, no par value, 11,507,275 shares issued and outstanding at December 31, 2007 and December 31, 2006


290,750,131


290,750,131Additional paid-in-capital


5,142,339


2,375,497Cumulative other comprehensive income


(6,285,577
)

(6,285,577
)Accumulated deficit


(290,697,538
)

(272,133,722
)Total shareholders' equity (deficit)


(1,090,645
)

14,706,329Total liabilities and shareholders' equity (deficit)

$
3,247,595

$
20,497,722


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

F-5

---





WORLD HEART CORPORATION        CONSOLIDATED STATEMENTS OF OPERATIONS        (United States Dollars)

Year Ended
December 31,
2007

Year Ended
December 31,
2006

Year Ended
December 31,
2005Revenue

$
2,575,577

$
8,616,038

$
11,645,954Cost of goods sold


(3,368,753
)

(10,200,695
)

(8,478,855
)Gross profit


(793,176
)

(1,584,657
)

3,167,099Operating expensesSelling, general and administrative


6,336,658


8,664,306


12,041,345Research and development


9,923,827


9,002,373


7,388,385Clinical and marketing support


1,755,666





Restructuring costs





646,057


333,030Amortization of intangibles


191,424


191,424


338,507Acquired in-process research and development








18,147,341Goodwill impairment








17,179,643Total operating expenses


18,207,575


18,504,160


55,428,252Operating loss


(19,000,751
)

(20,088,817
)

(52,261,152
)Other income (expenses)Unrealized foreign exchange gain (loss)


(38,486
)

54,761


(144,268
)Investment and other income


965,390


191,344


369,671Loss on disposal of property and equipment


(4,635
)

(247,640
)

(959
)Interest expense related to beneficial conversion feature


(485,334
)

5,303


(797,067
)Net loss


(18,563,816
)

(20,085,049
)

(52,833,775
)Effect of warrant exchange








(5,860,250
)Net (loss) applicable to common shareholders

$
(18,563,816
)
$
(20,085,049
)
$
(58,694,025
)Weighted average number of common shares outstanding basic and diluted


11,507,275


5,822,731


3,336,932Basic and diluted loss per common share(1)

$
(1.61
)
$
(3.45
)
$
(17.59
)


---

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

F-6

---





WORLD HEART CORPORATION        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)        (United States Dollars)

Common Stock(1)Additional
Paid-in Capital

Cumulative Other
Comprehensive
Income

Accumulated
Deficit

Shareholders'
Equity
(Deficiency)Number

AmountBalance as at December 31, 2004


1,574,456


214,616,061


11,451,267


(6,285,577
)

(193,354,648
)

26,427,103Common shares issued upon exercise of warrants


1,065,500


20,884,420


(10,229,420
)







10,655,000Common shares issued in private placement


888,889


12,000,000











12,000,000Common shares issued upon conversion of convertible debentures and interest


1,089,110


14,769,475


(5,821,370
)







8,948,105Common shares issued to purchase MedQuest assets MedQuest assets


930,000


14,694,000











14,694,000Effect of warrant exchange








5,860,250





(5,860,250
)

Non-cash stock compensation








880,038








880,038Registration fees





(55,954
)










(55,954
)Warrants repurchased








(2,000
)







(2,000
)Net loss for the year ended December 31, 2005














(52,833,775
)

(52,833,775
)Balance as at December 31, 2005


5,547,955


276,908,002


2,138,765


(6,285,577
)

(252,048,673
)

20,712,517Common shares issued in private placement


5,959,320


14,055,000











14,055,000Non-cash stock compensation








237,732








237,732Registration fees





(212,871
)










(212,871
)Warrants repurchased








(1,000
)







(1,000
)Net loss for the year endedDecember 31, 2006














(20,085,049
)

(20,085,049
)Balance as at December 31, 2006


11,507,275

$
290,750,131


2,375,497

$
(6,285,577
)
$
(272,133,722
)
$
14,706,329Non-cash stock compensation








530,161








530,161Genesis warrants issued for services








125








125Fair value of beneficial conversion feature for convertible debenture








480,890








480,890Warrants issued in connection with support services agreement








1,755,666








1,755,666Net loss for the year ended December 31, 2007














(18,563,816
)

(18,563,816
)Balance as at December 31, 2007


11,507,275

$
290,750,131

$
5,142,339

$
(6,285,577
)
$
(290,697,538
)
$
(1,090,645
)


---

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

F-7

---





WORLD HEART CORPORATION        CONSOLIDATED STATEMENTS OF CASH FLOW        (United States Dollars)

Year Ended December 31,CASH FLOWS FROM (USED IN)

2007

2006

2005Operating activitiesNet loss for the period

$
(18,563,816
)
$
(20,085,049
)
$
(52,833,775
)Adjustments to reconcile net loss to net cash used in operations:Amortization and depreciation


677,552


772,803


1,033,441Loss on disposal of property and equipment


121,213


247,640


959Acquired in-process research and development








18,147,341Goodwill impairment








17,179,643Write down on capital





176,324


Write down of inventory


1,426,183


4,625,824


Non-cash expense on stock options


530,286


237,732


880,038Non-cash interest on debt


480,890





778,603Non-cash expense on warrants


1,755,666





Long-term receivable








318,553Unrealized foreign exchange gain (loss)


63,814


(5,997
)

65,168Change in operating components of working capital


1,442,134


1,847,371


(1,236,970
)Cash used in operating activities


(12,066,078
)

(12,183,352
)

(15,666,999
)Investing activitiesRedemption (purchase) of short-term investments








4,999,035Purchase of capital assets


(465,254
)

(118,273
)

(306,296
)Repayment of bridge loan in connection with MedQuest Acquisition








(3,500,000
)Transaction costs paid in connection with MedQuest Acquisition








(1,255,696
)Cash used in investing activities


(465,254
)

(118,273
)

(62,957
)Financing activitiesConvertible debenture proceeds


1,000,000





Common shares issued through private placement





14,055,000


12,000,000Common shares issued through exercise of warrants








10,655,000Repurchase of warrants





(1,000
)

(2,000
)Payment of expenses related to convertible debentures, financing, exercise of warrants and issuance of shares





(212,871
)

(55,955
)Cash provided by financing activities


1,000,000


13,841,129


22,597,045Effect of exchange rates on cash and cash equivalents


(20,835
)

15,485


(24,175
)Increase (decrease) in cash and cash equivalents for the period


(11,552,167
)

1,554,989


6,842,915Cash and cash equivalents, beginning of the period


12,216,671


10,661,682


3,818,767Cash and cash equivalents, end of the period

$
664,504

$
12,216,671

$
10,661,682Supplementary Cash Flow InformationIncome taxes paid

$
900

$
900

$
900Convertible debentures settled with the issuance of common shares








8,627,117Accrued interest on convertible debentures settled with the issuance of common shares








320,988Purchase of MedQuest assets with issuance of common shares








14,694,000


F-8

---





WORLD HEART CORPORATION        NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. GOING CONCERN

These consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern, which assume that World Heart Corporation ("WorldHeart" or
"the Corporation") will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations.

During
the year ended December 31, 2007, the Corporation incurred a net loss of $18.6 million and used cash in its operations of $12.1 million. At
December 31, 2007, WorldHeart had cash and cash equivalents of $0.7 million and current liabilities of $3.3 million. The Corporation expects to continue to generate operating
losses at least through 2008 and 2009. As a result, there is substantial doubt about the ability of the Corporation to meet its obligations as they come due and the appropriateness of the use of
accounting principles applicable to a going concern.

On
December 11, 2007, the Corporation and WHI entered into a note purchase agreement with Abiomed as part of a strategic transaction with Abiomed. Pursuant to the purchase
agreement, Corporation and WHI issued to Abiomed a secured convertible promissory note in the principal amount of up to $5 million, funded in two tranches, $1.0 million of which was
funded immediately and $4.0 million of which was funded on January 3, 2008. The note is secured by Corporation and WHI's assets and contains certain covenants and customary events of
default, the occurrence of which could result in an acceleration of the note. The note is convertible into Corporation common shares at Abiomed's option, in whole or in part, at approximately $1.75
per share and is subject to anti-dilution adjustments in the event that the Corporation issues securities at a lower effective price, at any time. Unless and until shareholder approval for
the purposes of compliance with the shareholder approval rules of the NASDAQ Stock Market and the Toronto Stock Exchange has been received, the conversion of the note (including any accrued interest),
together with any exercise of the warrant issued to Abiomed, is limited such that Abiomed will not hold more than 19.9% of Corporation's common shares outstanding at December 11, 2007. Abiomed
subsequently agreed by an amendment entered into in March 2008 not to convert any part of the Note and not to exercise any part of the warrant until April 30, 2008. The note will accrue
interest at 8% per annum, which is payable upon payment or conversion of the note, and the interest may also be converted into common
shares at the then market value, at the option of Abiomed. After December 11, 2009, the note is payable on demand, or subject to fulfillment of certain conditions, at Corporation's option.

Despite
the funds received from Abiomed, the Corporation will be required to raise additional capital to allow for the on-going satisfaction of its obligations on a timely
basis. WorldHeart intends to explore various financing alternatives, including equity financing transactions and corporate collaborations, during 2008 to meet this cash requirement. Equity financings
could include, but are not limited to, private investments in public equity transactions or strategic equity investments by interested companies. Corporate collaborations could include licensing our
products for upfront and milestone payments, or co-development and co-funding of our products. There can be no assurance that the alternatives the Corporation plans to explore
will be successful.

These
consolidated financial statements do not reflect adjustments in the carrying values of assets and liabilities, the reported revenues and expenses, and the balance sheet
classifications used that would be necessary if the going concern assumption were not appropriate. These adjustments could be material.

F-9

---



WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. NATURE OF OPERATIONS OF THE CORPORATION

WorldHeart is developing mechanical circulatory support systems focused on developing and commercializing implantable ventricular assist devices (VADs), which are mechanical pumps that
allow for the restoration of normal blood circulation to patients suffering from advanced heart failure. WorldHeart has facilities in Oakland, California, Salt Lake City, Utah and Herkenbosch,
Netherlands. WorldHeart currently derives its revenue from its Novacor LVAS (left ventricular assist system) and related peripheral equipment which it manufactures and sells directly to medical
clinics and hospitals in the United States, Europe and Canada and through distributors in other countries. The Corporation is
focusing on the development of its next-generation Levacor Rotary VAD and expects to realize cost recoveries in 2008 from the use of Levacor in FDA conditional approved "pivotal clinical
trials". Such recoveries are expected to be an important part of our overall operating cash flows.

3. SIGNIFICANT ACCOUNTING POLICIES



These consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in
the United States (U.S. GAAP), and include all assets, liabilities, revenues and expenses of the Corporation and its wholly owned subsidiaries; WHI and World Heart B.V. All material
intercompany transactions and balances have been eliminated.



The preparation of these consolidated financial statements in conformity with U.S. 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 these estimates.



Cash equivalents and short-term investments include money market funds, debt instruments of commercial enterprises,
financial institutions and government entities. The Corporation has established guidelines relative to credit ratings, diversification and maturities that are intended to mitigate risk and provide
liquidity. Cash equivalents include highly liquid and highly rated investments with maturity periods of three months or less when purchased. Short-term investments include those
investments with maturities in excess of three months but less than one year. As of December 31, 2007 and 2006 there are no short-term investments.



Inventory is valued at the lower of average cost or net realizable value.

F-10

---



WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)



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

Furniture and fixtures

20% declining balanceComputer equipment and software

30% declining balanceManufacturing and research equipment

30% declining balanceLeasehold improvements

Straight-line over the shorter of the lease term or estimated life


The
carrying value of capital assets is assessed when factors indicating a possible impairment are present. The Corporation records an impairment loss in the period when it is determined
that the carrying amounts may not be recoverable. The impairment loss would be calculated as the amount by which the carrying amount exceeds the undiscounted future cash flows from the asset.



Goodwill and intangible assets with an indefinite life are not amortized but are tested for impairment on at least an annual basis as
required under Statement of Financial Accounting Standard No. 142 ("SFAS 142"). Intangible assets with a definite life are amortized over their legal or estimated useful lives, whichever
is shorter.

The
Corporation reviews the carrying amounts of intangible assets with a definite life 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, changes in technology, significant litigation or other items. The
Corporation records an impairment loss in the period when it is determined that the carrying amounts may not be recoverable. The impairment loss would be calculated as the amount by which the carrying
amount exceeds the undiscounted future cash flows from the asset.

The
impairment test for goodwill is a two-step process. Step one consists of a comparison of the fair value of a reporting unit with its carrying amount, including the
goodwill allocated to the reporting unit. Measurement of the fair value of a reporting unit is based on one or more fair value measures including the Corporation's market capitalization, present value
techniques of estimated future cash flows and estimated amounts at which the unit as a whole could be bought or sold in a current transaction between willing parties. If the carrying amount of the
reporting unit exceeds the fair value, step two requires the fair value of the reporting unit to be allocated to the underlying assets and liabilities of that reporting unit, resulting in an implied
fair value of goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss equal to the excess is recorded in net earnings
(loss). This test is performed on the last business day of December in each year.



Income taxes are provided for using the asset and liability method whereby deferred 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 the assets and liabilities. The Corporation provides a

F-11

---



WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

valuation
allowance on deferred tax assets when it is more likely than not that such assets will not be realized.

The
Corporation adopted the provisions of FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes("FIN 48"),
on January 1, 2007. Previously, the Corporation had accounted for tax contingencies in accordance with SFAS No. 5,Accounting for
Contingencies. As required by Interpretation 48, which clarifies SFAS No. 109,Accounting for Income Taxes, the
Corporation recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For
tax positions meeting this standard, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate
settlement with the relevant tax authority. At the adoption date, the Corporation applied Interpretation 48 to all tax positions for which the statute of limitations remained open.



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



Revenue from product and service sales is recognized when all of the following criteria are met: persuasive evidence of an agreement
exists; delivery has occurred or services have been rendered; the price is fixed or determinable; and collection is reasonably assured.

For
multiple-element offerings, where VSOE has been established, the Corporation allocates the proceeds to the elements based on their relative fair values. Revenue from each element is
recognized when the product is delivered or services rendered. The Corporation provides for returns based on prior experience. The cost of implant kits and equipment is charged to cost of sales upon
delivery. The Corporation also rents certain in-hospital equipment to customers. Rental income is included in revenue when earned.

The
Corporation has provided certain customers with deferred payment terms. Certain products are covered by a limited warranty. Warranty costs are based on historical experience and
estimated and recorded when the related sales are recognized. Any additional costs are recorded when incurred or when they can reasonably be estimated.



Effective January 1, 2006, the Corporation adopted Statement of Financial Accounting Standards ("SFAS") No. 123 (Revised
2004) ("SFAS 123 (R)"), "ShareBased Payment". SFAS 123(R) requires the recognition of the fair value of stock compensation as an expense in the calculation of net income.
WorldHeart recognizes the stock compensation expense over the vesting period of the individual equity instruments. Stock options issued in lieu of cash to non-employees for services
performed are recorded at the fair value of the options at the time they are issued and are expensed as service is provided.

WorldHeart
has elected the modified prospective transition method for adopting SFAS 123 (R). Under this method, the provisions of SFAS 123 (R) apply to all
stock-based awards granted after the effective date. The unrecognized expense of awards not yet vested as of January 1, 2006, the date of

F-12

---



WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

SFAS 123
(R) adoption by the Corporation, are also recognized as an expense in the calculation of net income.

Prior
to January 1, 2006, the Corporation accounted for its stock option plan in accordance with the Financial Accounting Standards Board's (FASB) Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock Based Compensation," and Accounting Principles Board Opinion No. 25 ("APB25"), "Accounting for Stock Issued to
Employees." No compensation expense was recognized when shares were issued at prevailing market prices or options were issued to employees with exercise prices at the grant date equal to prevailing
market prices. Any consideration paid by employees on the exercise of stock options or purchase of capital stock was credited to share capital.



Research and development costs, including research performed under contract by third parties, are expensed as incurred. The Levacor
Rotary VAD product was initially shipped to clinical centers during the fourth quarter of 2006 and has been paid for by those centers. WorldHeart had treated these payments as deferred clinical fees
at December 31, 2006. In 2007, these payments were recognized as other income.



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 to reduce the carrying value of any assets acquired or to reduce eligible expenses incurred. A liability to
repay government assistance, if any, is recorded in the period when conditions arise that causes the assistance to become repayable. The Corporation did not receive any government assistance for the
years ended December 31 2007, 2006 and 2005.



The consolidated financial statements of the Corporation are presented in U.S. dollars. Since January 1, 2004, the functional
currency of the Corporation has been the US dollar. The financial statements of the Corporation's subsidiaries are translated into U.S. dollars as follows: monetary assets and liabilities are
translated 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 incurred; and all 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.



The accompanying consolidated financial statements contain certain reclassifications to conform to the presentation used in the current
period. The reclassifications had no impact on shareholders' equity, working capital, gross profit or net income.

The
Corporation has reclassified some prepaid expenses from December 31, 2006 to conform with the 2007 presentation of other long-term assets. As a result of this
reclassification, December 31, 2006,

F-13

---



WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

prepaid
expense was reduced by, and other long-term assets were increased by, $247,787. This reclassification had no impact on results of operations, cash flows from operations, earnings
per share, total current assets, total assets, or shareholders' equity.



Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the
period presented. Diluted earnings per share is computed using the weighted average number of common shares outstanding during the periods plus the effect of dilutive securities outstanding during the
periods. For the years ended December 31, 2007, 2006 and 2005, basic earnings per share is the same as diluted earnings per share as a result of the Company's common stock equivalents being
anti-dilutive due to the Company's net loss.



Shipping and handling costs are billed to customers and recovered from the customers and recorded as credit to freight costs.

4. REVERSE STOCK SPLIT

On May 30, 2007, the Corporation announced that it effected a one-for-ten reverse stock split of its capital stock. The reverse stock split was previously
approved by the Corporation's Board of Directors and by the Corporation's shareholders.

Pursuant
to the reverse stock split, each holder of the Corporation's common shares on May 30, 2007, the date of effectiveness of the reverse stock split, became entitled to
receive one new common share in exchange for every ten old common shares held by such shareholder.

The
effect of the reverse stock split has been retroactively applied throughout the financial statements contained herein.

5. INVENTORY

December 31,2007

2006Raw Materials

$
231,850

$
266,182Work in progress


280,363


1,219,133Finished goods


352,101


1,603,044$
864,314

$
3,088,359


Inventory
or consignment at customer sites at December 31, 2007 and 2006 was $121,700 and $33,430, respectively.

6. PROPERTY AND EQUIPMENT

During 2007 the Corporation wrote-off certain of its property and equipment and booked $121,213 as a loss on the disposal of property and equipment. During 2006, the
Corporation wrote-off certain of its property and equipment. $247,640 was booked as a loss on the disposal of property and equipment

F-14

---



WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. PROPERTY AND EQUIPMENT (Continued)

and
$176,324 was written off as restructuring costs. During 2005, the Corporation recorded $959 as a loss on disposal of property and equipment.

2007Cost

Accumulated
Amortization

Net Book
ValueFurniture and fixtures

$
139,977

$
(98,667
)
$
41,310Computer equipment and software


601,873


(436,946
)

164,927Manufacturing and research equipment


2,276,771


(1,911,041
)

365,730Leasehold improvements


509,848


(273,432
)

236,416$
3,528,469

$
(2,720,086
)
$
808,383




2006Cost

Accumulated
Amortization

Net Book
ValueFurniture and fixtures

$
183,857

$
(100,824
)
$
83,033Computer equipment and software


564,609


(369,531
)

195,078Manufacturing and research equipment


3,223,634


(2,551,275
)

672,359Leasehold improvements


267,980


(267,980
)

$
4,240,080

$
(3,289,610
)
$
950,470


Depreciation
expense for the years ended December 31, 2007, 2006 and 2005 was $486,128 and $581,379 and $671,366, respectively.

7. INTENTIONALLY LEFT BLANK

8. INTANGIBLE ASSETS

The cost and accumulated amortization of the Corporation's intangible assets as of December 31, 2007 and December 31, 2006 are as follows:

December 31, 2007Cost

Accumulated
Amortization

Net Book
ValuePurchased technology

$
6,191,698

$
6,191,698

$
Other intangible assets


5,137,242


4,837,902


299,340$
11,328,940

$
11,029,600

$
299,340


F-15

---



WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. INTANGIBLE ASSETS (Continued)



December 31, 2006Cost

Accumulated
Amortization

Net Book
ValuePurchased technology

$
6,191,698

$
6,191,698

$
Other intangible assets


5,137,242


4,646,478


490,764$
11,328,940

$
10,838,176

$
490,764


The
net book value of other intangible assets of $299,340, $490,764 and $682,188 at December 31, 2007, 2006 and 2005, respectively, relate to the $765,669 value assigned to the
MedQuest workforce acquired in July 2005, and are net of $191,424, $191,424 and $83,481 in amortization expense recognized in 2007, 2006, and 2005 respectively. The purchased technology and other
intangible assets that relate to the Corporation's Novacor product have been fully amortized since December 2005.

9. INDIRECT TAXES PAYABLE

The Corporation accrued $832,000 in 2004 related to a sales tax assessment received from the Province of Ontario during that year. The amount was included in research and development
expenses in 2004 as the assessment related to taxes assessed on certain of those expenses incurred in the prior years. The Corporation paid $488,918 during 2005, and appealed the tax assessment. In
March 2007, WorldHeart received a letter from the Ministry of Finance for Ontario recommending a resolution of the appeal with a favorable outcome for WorldHeart. The Corporation recorded the effect
of this outcome at December 31, 2006, resulting in a net receivable from the Ministry of $391,000. A refund of $455,000 was received from the Ministry of Finance for Ontario in April 2007.

10. SHAREHOLDERS' EQUITY



Authorized common shares of the Corporation consist of an unlimited number of shares with no par value.



Authorized preferred shares of the Corporation consist of an unlimited number of shares issuable in series. WorldHeart had no
outstanding preferred shares at December 31, 2007, 2006 and 2005.



The Corporation has an employee stock option plan (ESOP). The maximum number of shares reserved and set aside under options to eligible
persons pursuant to the ESOP could not exceed 150,186 common shares. At December 31, 2004, options for 78,905 common shares were granted. In addition, on September 23, 2004, the
Corporation granted, subject to shareholder approval, an increase in the number of options available under the plan to 238,373 common shares to employees, officers, directors and consultants, and
granted additional options to employees, officers, directors and consultants. This grant was conditional on the forfeiture by the employees, officers, directors and consultants of 25,169 options for
common shares already issued and outstanding under the ESOP. The maximum number of common shares at any time available for issuance under the ESOP, or pursuant to

F-16

---



WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. SHAREHOLDERS' EQUITY (Continued)

other
outstanding options, to any one person was 5% of the common shares then issued and outstanding. The Compensation Committee appointed by the Board of Directors administers the ESOP. The exercise
price for all options issued under the ESOP was based on the fair market value of the common share price which is the closing price quoted on the Nasdaq Stock Exchange on the last trading day before
the date of grant. The options generally vest annually in equal portions over either a five-year period or a three-year period and must be exercised within a
four-year to a six-year period from each date of vesting.

On
July 18, 2005, shareholders approved two resolutions amending the ESOP. The first resolution increased the number of common shares of the Corporation reserved for issuance from
150,186 common shares to 977,251 common shares. Shareholders also approved the second resolution to remove the restriction providing that the aggregate number of options reserved for issuance to any
one person shall not exceed 5% of the issued and outstanding common shares.

On
December 21, 2005, the Board of Directors of WorldHeart approved the accelerated vesting of all outstanding stock options held by current employees or consultants, except for
the options held by the non-employee members of the Board of Directors. The accelerated options had exercise prices ranging from $9.80 to $599.95 per share and a weighted average exercise
price of $17.70 per share. The purpose of the acceleration of vesting was to improve employee morale and to minimize the amount of compensation expense in future periods following the adoption of
SFAS 123 (R) by WorldHeart.

Of
the 680,000 options to purchase shares of the Corporation's common shares, 630,000 options became immediately exercisable on December 21, 2005 as a result of the acceleration.
Vesting was not accelerated for 52,000 options previously granted to non-employee directors. No changes were made to the exercise price of any outstanding options.

On
December 20, 2006, the Corporation's shareholders approved the 2006 Equity Incentive Plan, which amended and restated the World Heart Corporation Employee Stock Option Plan, to
allow the issuance of restricted stock awards, restricted stock unit awards, stock appreciation rights, performance shares and other share-based awards, in addition to stock options, under the Plan
and to increase the number of common shares reserved pursuant to the Plan by an additional 500,000 shares. The 977,251 common shares available under the Plan prior to the amendment and restatement
were registered on Forms S-8 filed with the Securities and Exchange Commission on June 21, 2001 (No. 333-63580) and April 13, 2006
(No. 333-133258). The additional 500,000 shares approved by the shareholders on December 20, 2006, were registered on Form S-8 on January 17, 2007
(No. 333-7140041).

On
March 8, 2007 the Compensation Committee of the Board of Directors approved a 2007 Performance Bonus plan for its employees. The bonus will be earned based on achievement of
goals related to the Corporation's business. The maximum bonus is approximately $848,000 and will be paid 25% in cash and 75% in common shares. The total award is paid twenty-five percent
(25%) in cash and seventy-five percent (75%) in the Corporation's common shares (determined by dividing the cash equivalent of the bonus by the price per share on the day before the date
of grant. The cash and stock payments are fully vested when paid, which shall be as soon as possible after the Compensation Committee determines that the performance goals have been achieved, but no
later than March 15, 2008. The Corporation estimates the earned bonus, based on achievement of goals, to be approximately $635,000 and has recorded such amount as expense in 2007 and a
liability at December 31, 2007.

F-17

---



WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. SHAREHOLDERS' EQUITY (Continued)

On
May 30, 2007, the Corporation's Board of Directors and shareholders approved the filing of articles of amendment to effect a one-for-ten reverse stock
split of its capital stock. Pursuant to the reverse stock split, each holder of the Corporation's common shares on May 30, 2007, the date of effectiveness of the reverse stock split, became
entitled to receive one new common share in exchange for every ten old common shares held by such shareholder. The effect of he reverse split has been retroactively applied throughout the financial
staments and footnotes contained herein.

Stock-based Compensation

On January 1, 2006, WorldHeart adopted FAS 123(R) using the modified prospective transition method. Under this method,
the provisions of FAS 123(R) apply to all stock-based awards granted after the effective date. The unrecognized expense of awards not yet vested as of January 1, 2006 are recognized as
an expense in the calculation of net income. As FAS 123(R) requires that stock-based compensation expense be based on awards that are ultimately expected to vest, stock-based compensation for
2007 has been reduced for estimated forfeitures. When estimating forfeitures, voluntary termination behaviors well as trends of actual option forfeitures are considered. To the extent actual
forfeitures differ from our current estimates, cumulative adjustments to stock-based compensation expense are recorded.

WorldHeart
uses the Black-Scholes valuation model for estimating the fair value of stock compensation. The stock-based compensation expense for the years ended December 31, 2007
and 2006 was as follows:

December 31,2007

2006Selling, general and administrative

$
361,317

$
233,890Research and development


168,844


3,842$
530,161

$
237,732


The
unrecognized expense of awards not yet vested was $827,464 and the related stock-based compensation expense will be recognized over the following eleven quarters beginning
January 1, 2008.

The
aggregate intrinsic value is calculated as the difference between the exercise price of the options and the quoted price of our common shares that were in the money at
December 31, 2007. At December 31, 2007, the aggregate intrinsic value of all outstanding options was $12,300 with a weighted average remaining contractual term of approximately
6.2 years. Of the 1,040,644 outstanding options, exercisable options were 669,453 with a weighted average remaining contractual life of 5.0 years and 371,191 were unvested with a
weighted average remaining contractual life of 8.3 years. No options were exercised under our stock option plan during 2007.

F-18

---



WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. SHAREHOLDERS' EQUITY (Continued)

A
summary of the status and changes of our non-vested options related to our ESOP as of the year ended December 31, 2007 is presented below. The weighted average grant
date fair value on non-vested shares represent the gross value of unvested options.

Shares

Weighted Average
Grant-Date Fair ValueNonvested at January 1, 2007


29,350

$
9.50Granted


388,700


3.02Vested


(42,158
)

7.23Forfeited


(4,700
)

7.68Nonvested at Decmeber 31, 2007


371,191

$
3.00


Valuation Assumptions

WorldHeart calculated the fair value of each option award on the date of grant using the Black-Scholes option pricing model. The
weighted average fair value of the options granted during the years ended December 31, 2007, 2006 and 2005 was $3.02, $8.40 and $9.40, respectively. For 2007, 2006 and 2005, the following
weighted average assumptions were utilized:

2007

2006

2005Expected option life, in years


5.5


5.5


6Volatility


99
%

95
%

83
%Risk free interest rate


5.0
%

4.52
%

4.17
%Dividend yield


Nil


Nil


Nil


The
dividend yield of zero is based on the fact that WorldHeart has never paid cash dividends and has no present intention to pay cash dividends. Expected volatility is based on the
historical volatility of the Corporation's common shares over the period commensurate with the expected life of the options. The risk free interest rate is based on average rates for five and seven
year treasury notes as published by the Federal Reserve.

F-19

---



WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. SHAREHOLDERS' EQUITY (Continued)



The following table summarizes the number of options and warrants outstanding and the weighted average exercise prices:

Employees

Non-EmployeesOptions
#

Weighted average
exercise price
$

Options
#

Weighted average
exercise price
$

Warrants
#

Weighted average
exercise price
$

Total
#Outstanding at December 31, 2004


75,087


118.50


3,818


136.80


2,442,423


41.50


2,521,328Granted


579,914


12.72


58,800


13.30








638,714Exercised














(1,065,500
)

15.50


(1,065,500
)Repurchased














(72,087
)

59.30


(72,087
)Cancelled


(36,769
)

157.40


(470
)

81.90








(37,238
)Outstanding at December 31, 2005


618,232


16.90


62,148


20.30


1,304,836


61.80


1,985,217Granted


15,450


10.96














15,450Exercised




















Repurchased














(12,571
)

86.10


(12,571
)Expired


(21,568
)

98.40


(356
)

419.10


(49,487
)

143.50


(71,411
)Forfeited


(11,766
)

12.70














(11,766
)Outstanding at December 31, 2006


600,349


12.30


61,792


18.00


1,242,778


58.22


1,904,918Granted


351,200


3.93


37,500


3.87


692,500


0.07


1,081,200Expired


(4,974
)

300.00


(2,189
)

116.70


(25,402
)

108.33


(32,565
)Forfeited


(3,034
)

5.54














(3,034
)Outstanding at December 31, 2007


943,541

$
11.71


97,103

$
10.57


1,909,876

$
4.84


2,950,519


F-20

---



WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. SHAREHOLDERS' EQUITY (Continued)



OptionsEmployees

Non-Employees

WarrantsWeighted average exercise price of exercisable options and warrants:December 31, 2005

$
16.90

$
20.30

$
61.80December 31, 2006

$
17.80

$
15.30

$
58.20December 31, 2007

$
16.08

$
13.25

$
4.84Number of exercisable options and warrants:December 31, 2005


566,222


62,148


1,304,836December 31, 2006


571,889


61,792


1,242,778December 31, 2007


601,410


68,043


1,909,876Range of exercise prices of all options and warrants at December 31, 2007:From

$
2.31

$
3.40

$
0.01To

$
599.00

$
599.00

$
113.30Range of expiry dates of all options and warrants at December 31, 2007:From


Jan. 4, 2008


Jan. 1, 2008


Jan. 29, 2008To


Aug. 28, 2017


Mar. 17, 2017


Apr. 13, 2014




Range of exercise price

Number outstanding

Weighted average exercise price

Weighted average remaining life in years$.01 to $2.35


695,300

$
0.06


5.1$2.36 to $3.60


68,600

$
3.39


8.2$3.61 to $4.20


313,600

$
4.10


8.2$4.21 to $12.00


112,634

$
11.13


4.9$12.01 to $15.50


540,678

$
13.74


5.0$15.51 to $75.50


1,144,442

$
75.07


0.7$75.51 to $115.00


73,444

$
106.12


0.5$115.01 to $599


1,822

$
310.58


0.42,950,520

$
35.42


3.7


The
above table summarizes information about the outstanding options and warrants as at December 31, 2007:

The
pro forma net loss and net loss per share in the table below reflects for fiscal 2005 (before the adoptions of FAS 123R in January 2006), approximately $5.8 million of
compensation expense recorded

F-21

---



WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. SHAREHOLDERS' EQUITY (Continued)

with
$3.4 million due to WorldHeart's acceleration of unvested, out-of-the-money options in December 2005 and $1.5 million due to options vesting
during 2005.

2005Net loss applicable to common shareholders

$
(58,694,025
)Adjustment for stock-based costs under the fair value method


(4,970,236
)Adjusted pro forma net loss

$
(63,664,261
)Reported basic and diluted loss per share

$
17.60Pro forma basic loss per share

$
19.08


11. RESTRUCTURING

As of December 31, 2007, all balances in accrued liabilities related to the 2006 restructuring were paid.

On
November 14, 2006, in response to the changing market demand for its first-generation Novacor LVAS, the Corporation approved a plan to restructure its business reducing its
spending and refocusing on development of its Levacor Rotary VAD. The Corporation completed the majority of the restructuring by December 31, 2006.

Restructuring
costs through December 31, 2006, were as follows:

Employee Severance

Fixed Asset Write down

TotalCosts accrued during 2006

$
469,733

$
176,324

$
646,057Costs paid or settled in 2006


(90,686
)

(176,324
)

(267,010
)Balance in accrued liabilities at December 31, 2006

$
379,047

$


$
379,047


In
addition, the Corporation wrote off approximately $4.6 million of raw material, in-process and finished goods inventory associated with the Novacor LVAS product in
the third and fourth quarter of 2006, which management has determined will not be utilized in future periods.

F-22

---



WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. LOSS PER COMMON SHARE

For all of the years presented, diluted loss per share equals basic loss per share due to the anti-dilutive effect of convertible debentures, options and warrants, as
applicable.

Number of common shares to be issued on exercise or conversion2007

2006

2005Employee and non-employee stock options


1,040,644


662,140


680,380Warrants


1,909,876


1,242,778


1,304,836Convertible debentures


571,722





Total potentially dilutive instruments


3,522,242


1,904,918


1,985,216


13. 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. The Corporation had both a financial accounting and tax basis loss for the year ended December 31, 2007 and has no provision for income taxes for the year.

A
reconciliation of the combined Canadian federal and provincial income tax rate with the Corporation's effective tax rate is as follows:

December 31,2007

2006

2005Canadian loss

$
(2,747,758
)
$
(874,000
)
$
(26,813,000
)United States' loss


(14,823,232
)

(19,126,000
)

(24,169,000
)European loss


(992,825
)

(85,000
)

(1,852,000
)Loss before income taxes


(18,563,815
)

(20,085,000
)

(52,834,000
)Expected statutory rate


32.12
%

32.12
%

36.12
%Expected recovery of income tax


(5,962,697
)

(6,450,000
)

(19,084,000
)Effect of foreign tax rate differences


(261,869
)

(1,492,000
)

(1,281,000
)Permanent differences


308,550


(860,000
)

6,354,000Change in valuation allowance


7,114,790


8,358,000


15,240,000Effect of changes in carry forwards


(3,370,065
)

4,218,000


371,000Effect of tax rate changes





(4,403,000
)

Effect of exchange rate differences


2,171,291


629,000


(1,600,000
)Recovery of income taxes

$


$


$



The
Canadian statutory rate was 32.12% for 2006 and 2007 and was 36.16% for 2005. For the years ended December 31, 2006 and 2005, the permanent differences relate primarily to
imputed interest expense on the Preferred Shares and goodwill amortization.

F-23

---



WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. INCOME TAXES (Continued)

The
primary temporary differences affecting deferred taxes and their approximate effects are as follows:

2007

2006

2005Deferred tax assets:SR&ED expenditures

$


$
12,300,000

$
10,410,000Net operating losses


38,027,000


56,797,000


45,810,000Investment tax credits


1,119,000


5,825,000


5,610,000Share issue costs





704,000


5,240,000Asset basis differences


6,658,000


7,526,000


7,740,00045,804,000


83,152,000


74,810,000Less: valuation allowance


(45,804,000
)

(83,152,000
)

(74,810,000
)Deferred tax liabilities:Asset basis differences








Net deferred income tax liability

$


$


$



As
at December 31, 2007, the Corporation has unclaimed Scientific Research and Experimental Development (SR&ED) expenditures, income tax loss carryforwards and investment tax
credits that were eliminated per FIN 48 analysis. As a result of the adoption of FIN 48 in 2007, management determined that the Canadian and European deferred tax assets, totaling
$45.3 million, were not likely to be realized and they have been derecognized. The valuation allowance previously associated with these deferred tax assets has also been eliminated.

2007

2006

2005SR&ED expenditurescarried forward without expiry

$


$
28,684,000

$
28,816,205Income tax loss carryforwards:Federal (Canada) (expire 2006-2026)





55,288,000


61,484,493Provincial (expire 2006-2025)





54,859,000


62,568,187United States (expire 2010-2026)


95,959,000


82,354,000


62,400,000Europe





3,148,000


3,103,820Investment tax credits (expire 2006-2012)





7,093,000


7,203,480


Effective
January 1, 2007, the Corporation adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN No. 48"), which
prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on
a tax return. The cumulative effect of adopting FIN No. 48 resulted in no FIN No. 48 liability on the balance sheet. At the adoption date of January 1, 2007, the Corporation had
$45.3 million of unrecognized tax benefits.

The
Corporation recorded no FIN No. 48 liability for uncertain income tax positions for the period ended December 31, 2007. The Corporation adopted a policy to include
penalties and interest expense related to income taxes as a component of other expense and interest expense, respectively, if they are incurred. For the period ended December 31, 2007, no
penalties or interest expense related to income tax positions were recognized. As of December 31, 2007, no penalties or interest related to income tax

F-24

---



WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. INCOME TAXES (Continued)

positions
were accrued. The Corporation does not anticipate that any of the unrecognized tax benefits will increase or decrease significantly over the next twelve months.

A
reconciliation of the unrecognized tax benefits for the year ended December 31, 2007 is as follows:

Balance at January 1, 2007

$
45,342,149Additions based on tax positions related to the current year


Additions for tax positions of prior years


Reductions for tax positions of prior years


Settlements


Lapse of statute of limitations


Balance at December 31, 2007

$
45,342,149


As
of December 31, 2007, none of the unrecognized tax benefits could affect the Corporation's income tax provision or effective tax rate.

14. COMMITMENTS AND CONTINGENCIES



The Corporation is committed to minimum lease payments for office facilities, equipment, licenses and debt as follows:

Year

Lease payments

Promissory Note

Licenses and other2008

$
540,956

$


$
75,0002009


545,077


5,000,000


02010


530,354





02011


87,612





02012


76,091





0Thereafter


6,452$
1,786,542

$
5,000,000

$
75,000


Total
rent expense for the years ended December 31, 2007, 2006, and 2005 was $851,746, $972,071 and $1,084,866 respectively.

WorldHeart's
headquarters and manufacturing facilities were previously contained in two buildings in Oakland, California, the lease for which expired on April 30, 2007. On
July 20, 2007, WorldHeart and its landlord entered into a compromise agreement, concerning the terms of certain restoration obligations with respect to the premises under the prior lease.
Pursuant to the terms of the compromise agreement, WorldHeart was required to perform agreed-upon restoration work on one of the two buildings it occupied under the prior lease, which work
was completed as of December 1, 2007. Following completion, the building was returned to the landlord and the new lease became effective with respect to the one remaining building that the
Corporation continues to occupy and will expire on December 1, 2010. The restoration obligations were satisfied by the landlord drawing down $750,000 from a letter of credit which was in place
in connection with the premises under the prior lease. In

F-25

---



WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. COMMITMENTS AND CONTINGENCIES (Continued)

addition,
the landlord agreed to apply $100,000 of a $150,000 security deposit under the prior lease towards the security deposit under the new lease and has returned the balance, plus all accrued
interest, to WorldHeart.



The Corporation is committed under the Novacor LVAS royalty agreement to make royalty payments to certain employees. Royalties are
payable on annual consolidated gross revenues at a rate of 0.808% up to a cumulative maximum of $3,232,000. Cumulative royalty payments to December 31, 2007 total $1,212,400. In 2006,
cumulative royalty payment totaled $1,190,800 and in 2005, they totaled $1,121,225. Royalty payments were $21,600 in 2007, $69,575 in 2006 and $94,041 in 2005.



During 2002, the Corporation entered into a shared funding program with Technology Partnerships Canada (TPC) under which the Canadian
government shares costs of certain research and development activities. Through December 31, 2005, the Corporation claimed funding in the amount of approximately $6.6 million. Effective
January 1, 2004, repayment would be in the form of
royalties payable on annual consolidated gross revenues at a rate of 0.65% for a nine-year period ending December 31, 2012. If during this period royalty payments reach the maximum
of $20.3 million no further repayments will be required. If the royalty payments do not exceed $20.3 million during this period they will continue until 2015 or until the maximum is
reached, whichever comes first. Royalty expenses for the period ended December 31, 2007 total $15,000. In connection with the agreement, the Corporation also granted TPC 9,286 warrants to
purchase an equivalent number of common shares of the Corporation, exercisable until December 4, 2006, at an exercise price of $290.50 per share. These warrants expired, unexercised in December
2006.



Effective April 1, 1996, the Corporation entered into a research agreement with the Cardiovascular Devices Division (CVD) of the
Ottawa Heart Institute Research Corporation (Research Agreement) under which the Corporation agreed to fund a substantial portion of CVD's remaining research efforts relating to artificial heart
technology. The Corporation acquired joint ownership with CVD of the technology arising from CVD's research under the Research Agreement and an exclusive twenty-five year license to market
the product and certain other related technologies for an initial license fee of $147,544 and royalties of 7%. The Corporation is no longer focused on developing or commercializing this technology and
as a result is not expected to make any royalty payments to CVD.

The
Corporation's research funding to CVD under the Research Agreement was $13,400,000 for the period from April 1, 1996 to December 31, 2004. No payments were made during
2005 or 2006. Additionally, a former officer of WorldHeart currently employed at CVD has made additional claims for certain payments, which WorldHeart disputed. In August 2007, a settlement and
release of claims was agreed to between parties. A payment of $245,000 was made to the former officer of WorldHeart resulting in an expense reduction of $300,000, which was expensed and eliminating
the accrued liability for this former officer. All receivables and accrued liabilities related to CVD were written off as part of the settlement. The Corporation does not anticipate any future
payments under the Research Agreement, as it is not pursuing development of the CVD artificial heart technology.

F-26

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WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. COMMITMENTS AND CONTINGENCIES (Continued)



In the normal course of business, we may be a party to legal proceedings. We are not currently a party to any material legal
proceedings, except as mentioned below.

On
December 21, 2007 our registered office in Ottawa, Ontario, Canada received a claim alleging a breach of a letter of intent we entered into with Network Capital, Inc.
(NCI) in relation to a potential tax monetization transaction. NCI filed its claim in the Court of Queen's Bench of Alberta Judicial District, Canada and seeks specific performance or damages in the
amount of $35 million plus costs. The claim was not properly served and to date no proper service has been made. WorldHeart believes this claim to be without merit and intends to vigorously
defend it.

15. NET CHANGE IN OPERATING COMPONENTS OF WORKING CAPITAL AND SUPPLEMENTAL CASH FLOW DISCLOSURE

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

December 31,2007

2006

2005Accounts and other receivables

$
2,330,362

$
1,545,018

$
341,768Prepaid expenses and other long term assets


266,004


74,362


(184,180
)Inventory


802,528


478,877


(103,470
)Accounts payable and accrued liabilities


(2,352,084
)

(371,875
)

(754,091
)Accrued compensation


395,324


120,989


(536,997
)$
1,442,134

$
1,847,371

$
(1,236,970
)


15. 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 has one operating segment for the purpose of making operating decisions and assessing performance and operates in several geographic locations.

F-27

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WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. SEGMENTED INFORMATION (Continued)



The following geographic data provides revenue based on product shipment destination and long-lived assets based on
physical location. The Corporation has locations in the United States and Europe:

2007

2006Revenue

Long lived
Assets

Revenue

Long lived
AssetsUnited States

$
1,843,714

$
1,343,743

$
5,539,427

$
1,397,838Europe


371,893


8,400


1,948,259


43,396Canada


259,770





865,159


Japan


100,200





263,193


Total

$
2,575,577

$
1,352,143

$
8,616,038

$
1,441,234


During
2007, Thomas Jefferson University Hospital, Syncardia, Cleveland Clinic Foundation and University of Maryland accounted for 15%, 13%, 11% and 11% of revenue respectively. During
2006, LDS Hospital accounted for 13% of revenue and during 2005 Edwards Life Sciences accounted for 5% of revenue.

16. FINANCIAL INSTRUMENTS

Financial instruments recognized in the balance sheet at December 31, 2007, consist of cash and cash equivalents, trade and other receivables, accounts payable and certain accrued
liabilities. The Corporation does not hold or issue financial instruments for trading purposes. During 2007, the Corporation invested all of its excess cash in money market funds.



The Corporation believes that the carrying values of its financial instruments approximate their fair values because of their short
terms to maturity.



During 2007, all of WorldHeart's investments were in money market funds with no interest rate risk. The Corporation may be subject to
interest rate risks in the future if it purchases longer-term investments.



WorldHeart has assets and liabilities in foreign currencies; primarily the Euro and Canadian dollar. The Corporation's current foreign
currency exposure is not significant due to the nature of the underlying assets and liabilities.



Financial instruments that potentially subject the Corporation to a concentration of credit risk consist of cash, cash equivalents,
short-term investments and accounts receivable. The Corporation has

F-28

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WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. FINANCIAL INSTRUMENTS (Continued)

established
guidelines for cash, cash equivalents and short-term investments relative to credit ratings, diversification and maturities that are intended to maintain safety and liquidity.
The Corporation has a limited number of customers, all of which operate in the health-care industry. 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 collectibility of accounts
receivable.

17. NEW ACCOUNTING PRONOUNCEMENTS

In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes, an interpretation
of FASB Statement No. 109, Accounting for Income Taxes." FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to
meet before being recognized in the financial statements. FIN 48 also provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The interpretation applies to all tax positions related to income taxes subject to FASB Statement No. 109. FIN 48 is effective for fiscal years
beginning after December 15, 2006. Differences between the amounts recognized in the statements of financial position prior to the adoption of FIN 48 and the amounts reported after
adoption should be accounted for as a cumulative-effect adjustment recorded to the beginning balance of retained earnings. The adoption of FIN 48 did not have a material impact on the
Corporation's consolidated financial statements.

In
September 2006, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair value,
establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. This statement does not require any new fair value measurements in
accounting pronouncements where fair value is the relevant measurement attribute. However, for some entities, the application of this statement will change current practice for financial statements
issued for fiscal years beginning after November 15, 2007. The Corporation is currently evaluating the impact of the adoption of SFAS 157 on its definition and measurement of fair value
and disclosure requirements.

In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities". SFAS No. 159 permits an entity to choose, at
specified election dates, to measure eligible financial instruments and certain other items at fair value that are not currently required to be measured at fair value. An entity shall report
unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. Upfront costs and fees related to items for which the fair value
option is elected shall be recognized in earnings as incurred and not deferred. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between
entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal years. At the effective date, an entity
may elect the fair value option for eligible items that exist at that date. The entity shall report the effect of the first remeasurement to fair value as a cumulative-effect adjustment to the opening
balance of retained earnings. The Corporation has not elected the fair value option for eligible items that existed as of January 1, 2008.

F-29

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WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

17. NEW ACCOUNTING PRONOUNCEMENTS (Continued)

In
June 2007, the FASB's Emerging Issues Task Force reached a consensus on EITF Issue No. 07-3, "Accounting for Nonrefundable Advance Payments for Goods or Services to
Be Used in Future Research and Development Activities" that would require nonrefundable advance payments made by the Corporation for future R&D activities to be capitalized and recognized as an
expense as the goods or services are received by the Corporation. The Corporation does not expect EITF Issue No. 07-3 to have a material impact on WorldHeart's consolidated results
of operations or financial condition.

In
December 2007, the FASB issued SFAS No. 141R, "Business Combinations," which changes how business acquisitions are accounted. SFAS No. 141R requires the acquiring entity
in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement
objective for all assets acquired and liabilities assumed in a business combination. Certain provisions of this standard will, among other things, impact the determination of
acquisition-date fair value of consideration paid in a business combination (including contingent consideration); exclude transaction costs from acquisition accounting; and change
accounting practices for acquired contingencies, acquisition-related restructuring costs, in-process research and development, indemnification assets, and tax benefits. For WorldHeart,
SFAS No. 141R is effective for business combinations and adjustments to an acquired entity's deferred tax asset and liability balances occurring after December 31, 2008. The Corporation
does not expect SFAS No. 141R to have a material impact on WorldHeart's financial statements, in the near term.

In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51," which establishes new standards
governing the accounting for and reporting of noncontrolling interests (NCIs) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard
indicate, among other things, that NCIs (previously referred to as minority interests) be treated as a separate component of equity, not as a liability; that increases and decrease in the parent's
ownership interest that leave control intact be treated as equity transactions, rather than as step acquisitions or dilution gains or losses; and that losses of a partially owned consolidated
subsidiary be allocated to the NCI even when such allocation might result in a deficit balance. This standard also requires changes to certain presentation and disclosure requirements. For WorldHeart,
SFAS No. 160 is effective beginning January 1, 2009. The Corporation does not expect SFAS No. 160R to have a material impact on WorldHeart's financial statements, in the near
term.

In
December 2007, the FASB ratified the Emerging Issues Task Force consensus on EITF Issue No. 07-1, "Accounting for Collaborative Arrangements" that discusses how
parties to a collaborative arrangement (which does not establish a legal entity within such arrangement) should account for various activities. The consensus indicates that costs incurred and revenues
generated from transactions with third parties (i.e. parties outside of the collaborative arrangement) should be reported by the collaborators on the respective line items in their income
statements pursuant to EITF Issue No. 99-19, "Reporting Revenue Gross as a Principal Versus Net as an Agent." Additionally, the consensus provides that income statement
characterization of payments between the participants in a collaborative arrangement should be based upon existing authoritative pronouncements; analogy to such pronouncements if not within their
scope; or a reasonable, rational, and consistently applied accounting policy election. EITF Issue No. 07-1 is effective beginning January 1, 2009 and is to be applied
retrospectively to all periods presented for collaborative arrangements existing as of the date of adoption. The Corporation is currently evaluating the impacts and disclosures of this standard, but

F-30

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WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

17. NEW ACCOUNTING PRONOUNCEMENTS (Continued)

would
not expect EITF Issue No. 07-1 to have a material impact on the Corporation's consolidated results of operations or financial condition.

Warrant and certain stock options denominated in Canadian dollars

Effective January 1, 2004, WorldHeart determined that its functional currency had changed from the Canadian dollar to the U.S.
dollar because the majority of its business operations and investors were in the United States. Concurrent with change in functional currency, WorldHeart adopted the U.S. dollar as its reporting
currency. Prior to January 1, 2004 the functional and reporting currency was the Canadian dollar.

WorldHeart
had primarily financed its operations from the sale of equity and debt securities that have been denominated in U.S. and Canadian dollars. As part of these financings,
WorldHeart has issued warrants to purchase common shares that have also been denominated in U.S. and Canadian dollars, and therefore, had warrants outstanding at December 31, 2007, 2006 and
2005 that are denominated in both currencies.

The
SEC and FASB have issued recent interpretations for U.S. GAAP that suggest warrants whose exercise price is different for the entity's functional currency cannot be classified
as equity and should be treated as derivatives, which would be recorded as liabilities and carried at their fair value. Changes in the fair value from period to period would be recorded as a gain or
loss in the statement of operations.

The
recent SEC and FASB interpretations relate to FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" and Emerging Issue Task Force ("EITF")
"EITF 00-19 "Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in a Company's Own Stock". The FASB has initiated a project to determine the
accounting treatment for certain equity instruments with elements of foreign currency risk. There has not been further guidance with respect to U.S. GAAP accounting for such items to date.

WorldHeart
is awaiting the results of the FASB's project and had not, therefore, recorded warrants outstanding that have exercise prices in Canadian dollars, as derivatives. If the
Corporation had recorded such instruments as derivatives, it would have reported an incremental gain in net income of approximately $0.1 million, $0.2 million and $9.9 million
related to these instruments in the statement of operations for the years ended December 31, 2007, 2006 and 2005, respectively, under U.S. GAAP. The amounts were calculated using the
Black-Scholes option pricing model. The Corporation used the following assumptions to value the instruments: a 0% dividend rate for all periods presented, volatility of 99%, 93% and 83% for fiscal
2007, 2006 and 2005, the actual exercise price of each instrument, the actual Corporation closing stock price for December 31, 2007, 2006 and 2005, the estimated remaining life of the
underlying warrant at December 31, 2007, 2006 and 2005, and the Canadian risk free interest rate based on the estimated remaining life of the related warrant.

18. MEDQUEST ACQUISITION

On July 29, 2005, the Corporation completed its acquisition (MedQuest Acquisition) of MedQuest Products, Inc. (MedQuest), the developer of the Levacor Rotary VAD, a small
rotary pump, for aggregate consideration of 0.9 million common shares plus the assumption of $3.5 million in debt and the payment of transaction costs of WorldHeart. The acquisition was
accounted for as an acquisition of

F-31

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WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. MEDQUEST ACQUISITION (Continued)

assets
as the operations of MedQuest did not meet the definition of a business as defined in Emerging Issues Task Force Issue (EITF) Abstract No. 98-3 "Determining Whether a
Non-monetary Transaction Involves Receipt of Productive Assets or of a Business". Assets acquired and liabilities assumed were recorded at their estimated fair values. The value of the
acquisition consideration, including certain acquisition and closing costs, exceeded the fair value of the net assets acquired by approximately $3.8 million. The excess was allocated to the
relative fair values of the non-monetary assets acquired. Amounts allocated to identifiable intangible assets are being amortized over their estimated useful lives. Amounts allocated to
purchased in-process research and development were expensed immediately.

The
value of the acquisition consideration was as follows:

Issuance of WorldHeart common shares

$
14,694,000Bridge loan repayment


3,500,000Transaction costs


1,255,696Total purchase price

$
19,449,696


The
allocation of the purchase price, based on the estimated fair values of the assets acquired, at the acquisition date of July 29, 2005 is as follows:

An
aggregate amount of $14.6 million was originally allocated to purchased in-process research and development. We used an income approach and applied
risk-adjusted discount rates to the estimated future revenues and expenses attributable to IPR&D programs at MedQuest. The most significant in-process program relates primarily
to the development of the Levacor Rotary VAD, an advanced, next generation, rotary blood pump intended for the Destination Therapy market. The Levacor Rotary VAD had an estimated fair value at the
time of purchase of approximately $9.6 million. The other major development program called MagLev Plus had an estimated fair value of approximately $5.0 million.

The
estimated fair value of the IPR&D was increased by approximately $3.6 million related to the excess of the purchase price over the estimated fair value of the net assets
acquired. Therefore, the IPR&D was valued at approximately $18.1 million.

The
Corporation recorded a non-cash charge to operations in the third quarter of 2005 of approximately $18.1 million to immediately expense the purchased IPR&D as
required under SFAS No. 141 where such purchased IPR&D is determined to have no alternative future use.



In connection with the MedQuest Acquisition on July 29, 2005, WorldHeart entered into a private placement agreement with
Maverick Venture Management, LLC (Maverick) in which Maverick purchased approximately 0.9million common shares of WorldHeart at a purchase price of $13.50 per share for total gross proceeds of
approximately $12.0 million. Pursuant to the asset purchase agreement between MedQuest and WorldHeart, WorldHeart assumed certain liabilities of MedQuest, including approximately
$3.5 million owed to Maverick in connection with the ongoing operations of the MedQuest business and repaid that amount to Maverick upon closing of the MedQuest Acquisition.

F-32

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WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19. GOODWILL

On December 31, 2005, the Corporation completed its annual goodwill impairment test in accordance with SFAS 142. In evaluating whether there was an impairment of goodwill,
management compared the fair value of the reporting unit against its carrying amount, including the goodwill. Measurement of the fair value was based on the reporting unit's market capitalization,
discounted cash flows, and a multiple of revenues. As the carrying amount exceeded the estimated fair value, the fair value was allocated to the reporting unit's assets and liabilities and management
then determined that the carrying value of the goodwill exceeded the implied fair value of the goodwill. Accordingly, a goodwill impairment charge of $17,179,643 was recorded in fiscal 2005.
Management believes this impairment arose primarily as a result of slower than anticipated adoption of the Novacor LVAS product.

20. CONVERTIBLE DEBENTURES AND WARRANTS



On December 11, 2007, the Corporation and WHI entered into a note purchase agreement with Abiomed as part of a strategic
transaction with Abiomed. Pursuant to the purchase agreement, Corporation and WHI issued to Abiomed a secured convertible promissory note in the principal amount of up to $5 million, funded in
two tranches, $1.0 million of which was funded immediately and $4.0 million of which was funded on January 3, 2008. The note is secured by the Corporation and WHI's assets and
contains certain covenants and customary events of default, the occurrence of which could result in an acceleration of the note. The note is convertible into Corporation common shares at Abiomed's
option, in whole or in part, at approximately $1.75 per share and is subject to anti-dilution adjustments in the event that the Corporation issues securities at a lower effective price, at
any time. Unless and until shareholder approval for the purposes of compliance with the shareholder approval rules of the NASDAQ Stock Market and the Toronto Stock Exchange has been received, the
conversion of the note (including any accrued interest), together with any exercise of the warrant issued to Abiomed is limited such that Abiomed will not hold more than 19.9% of Corporation's common
shares outstanding at December 11, 2007. Abiomed subsequently agreed by an amendment entered into in March 2008 not to convert any part of the Note until April 30, 2008. The note will
accrue interest at 8% per annum, which is payable upon payment or conversion of the note, and the interest may also be converted into common shares at the then market value, at the option of Abiomed.
After December 11, 2009, the note is payable on demand, or subject to fulfillment of certain conditions, at Corporation's option.

The
closing price of our common shares on December 11, 2007 was $2.59 per share, thereby creating a beneficial conversion feature in the Convertible Promissory Note. Applying
EITF 98-5, "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios", and EITF 00-27, "Application
of Issue 98-5 to Certain Convertible Instruments", the beneficial conversion feature is calculated to be $480,890 on the first tranche of funding of $1.0 million. The Convertible
Promissory Note is recorded net of the
beneficial conversion feature and the discount is recorded as a one time interest expense. Upon receipt of the second tranche of funding of $4.0 million, additional interest of
$1.9 million will be recorded as beneficial conversion feature.

On
December 11, 2007, pursuant to the clinical and marketing support services agreement with Abiomed, Corporation issued to Abiomed a 5-year warrant to purchase up to
3,400,000 common shares of Corporation, exercisable at $0.01 per share. However, until the funding of the second tranche on January 3, 2008, the warrant was exercisable with respect to only
680,000 common shares of

F-33

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WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

20. CONVERTIBLE DEBENTURES AND WARRANTS (Continued)

Corporation.
Following the funding of the second tranche on January 3, 2008, the warrant was exercisable for an additional 2,720,000 common shares of Corporation. Until and unless shareholder
approval has been received, the exercise of the Warrant, together with any conversion of the Note, is limited to 19.9% of the Corporation's common shares outstanding on December 11, 2007.
Abiomed subsequently agreed by an amendment entered into in March 2008 not to exercise any part of the warrant until April 30, 2008.

We
used the Black-Scholes method to compute the value of the warrants issued as consideration for the clinical and marketing support services agreement. In December 2007, the warrant
issued to Abiomed was exercisable with respect to 680,000 common shares of Corporation and we recorded a clinical and marketing expense of $1,755,666. On January 3, 2008, remaining 2,720,000
common shares of Corporation were exercisable under the warrant issued to Abiomed, and we expect to record a clinical and marketing expense of approximately $6,478,721 during the first quarter in
2008.



During 2005, in conjunction with its acquisition of MedQuest's assets, WorldHeart issued tender offers to the holders of its unsecured
convertible debentures (Debentures) and the holders of its common share purchase warrants issued to investors on September 15, 2004 (Warrants). The holders of the Debentures unanimously agreed
to convert all of the outstanding Debentures at the stated conversion price of $12.50 per common share. On July 18, 2005, the shareholders approved a reduction in the Warrant exercise price
from $15.50 to $10.00 per share on the condition that the Warrant holders exercise the Warrants immediately. The holders of the Warrants unanimously agreed to exercise the 1,065,500 Warrants into
1,065,500 common shares. During the last two weeks of July 2005, all of the Warrants were exercised into common shares and the outstanding Debentures were converted to common shares. In addition, the
accrued interest on the Debentures was converted into an additional 23,610 common shares at a conversion price equal to the volume weighted average stock price at the date of conversion.

The
Debentures, which would have become due on September 15, 2009, were convertible at any time at the holder's option into common shares of the Corporation at a price of $12.50
per share, and accumulated non-compounding interest at an annual rate of 3%. The interest was convertible at any time into common shares of WorldHeart at a price equal to the volume
weighted average stock price at the date of conversion.

The
Corporation could have redeemed the Debentures when the trading price of the common shares was greater than $30.00 for 20 consecutive days, subject to a maximum of 20% of the
initially issued Debentures in any 90-day period. The Warrants allowed the holders to purchase 1,065,500 common shares of WorldHeart at an exercise price of $15.50 per share and were
exercisable for a period of five years. WorldHeart could have called the Warrants when the trading price of the common shares was greater than $45.00 for 20 consecutive trading days, subject to a
maximum of 20% of the initially issued Warrants in any 90-day period.

The
Corporation issued to its agents 47,083 common shares of the Corporation with a value of $659,166 and granted agent's warrants exercisable for 19,380 common shares of the Corporation
with a value of $179,759 having the same terms as the warrants.

As
a result of the change in fair value attributed to the decrease in the exercise price of the Warrants from $15.50 to $10.00, $5,860,250 was recorded in 2005 as an increase in net loss
applicable to common shareholders and an increase in the carrying value of the Warrants included in additional paid-in capital.

F-34

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